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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI LALIET KUMAR
Shri P.M. Narayana, Prop. Shringar Wine Parlour & Nishmitha Motors, The Income Tax Officer, 162B(8), Nishmitha Towers, vs. Ward 2 (2), Main Road, Near Bus Stand, Mangaluru. Moodbidri. PAN: ACMPM8273D APPELLANT RESPONDENT Appellant by : Shri Edmond D’ Souza, CA Respondent by : Shri Vikas K. Suryawanshi, Addl. CIT (DR) Date of hearing : 13.12.2018 Date of Pronouncement : 31.12.2018 O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of ld. CIT(A)-10, Bangalore dated 12.02.2018 for Assessment Year 2012-13.
The ground raised
by the assesseeis as under. “1. The Orders of the Authorities below in so far as they are against the Appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned Income-tax Officer, grossly erred in disallowing the Appellants claim of Rs. 15,92,916.00 being the interest paid on loans to M/s Sundaram Finance Limited, Chennai invoking the provisions of Section 40a(ia) of the Income-Tax Act, 1961, when there were binding decisions of the honourable Income-Tax Appellate Tribunal, Bengaluru Benches allowing such deduction.
3. The Appellants claim before the learned Commissioner of Income- Tax (Appeals) for allowing the interest paid to M/s Sundaram Finance Limited without deducting Tax at Source, invoking the provisions of the second proviso to Section 40a(ia) of the Act which deems that the Assessee has deducted and paid the Tax on such sum on the date of furnishing of the Return of Income by the resident payee referred to in the said proviso as the Appellant although not deducted Tax at Source but complied with the conditions prescribed by the first proviso to sub Section (1) of Section 201.
4. The learned Commissioner of Income-Tax (Appeals), Bengaluru failed to appreciate that the Appellant has although not deducted Tax Page 2 of 6 at Source and paid to Central Government on the interest paid by it to the lender M/s Sundaram Finance Limited, but in view of the provisions of second proviso to Section 40a(ia) read with the first proviso to sub Section (1) of Section 201, the Appellant is entitled to be treated that the Assessee has deemed to have deducted and paid the tax on such sum on the date of furnishing of Return of Income by the resident payee referred to in the said proviso.
The Appellant having filed with the Commissioner of Income-Tax (Appeals), copy of Form No. 26A along with Annexure A issued by M/s Brahmayya& Co. Chartered Accountants, and the same having been received by the Commissioner of Income-Tax (Appeals) on 02- 02-2018 much before the order passed by the Commissioner, the rejection of the claim of interest is not in accordance with law.
6. The first Appellate Authority ought to have allowed deduction of amount of interest paid to the lender as the Appellant has complied with the provisions of second proviso to Section 40a(ia) and the proviso to sub Section (1) of Section 201 read with rule 31 ACB and also filed the Form No. 26A and the Annexure A thereto to the competent authority and a copy thereof furnished to the Commissioner of Income-Tax (Appeals).
The Commissioner of Income-Tax (Appeals) having received the Form No. 26A and the Annexure A thereto ought to have allowed the Appellants claim for allowance of interest paid without deduction of Tax at Source.
The Commissioner of Income-Tax erred in rejecting the claim of allowance of interest paid to M/s Sundaram Finance Limited without deduction of Tax at Source on the ground that the provision which the Appellant wants to take benefit of came into force with effect from 01- 04-2013 and as this amendment was not retrospective, the Appellant cannot take benefit of the same and hence, the Appellants plea in this regard was rejected.
The Commissioner of Income-Tax (Appeals) erred in quoting the first proviso to Section 40a(ia) in the Appellate Order stating the claim of the Appellate is under the first proviso, whereas the Appellants claim was under the second proviso to Section 40a(ia).
The learned Commissioner of Income-Tax (Appeals) failed to note that, the second proviso to Section 40a(ia) introduced by the Finance Act 2012 with effect from 01-04-2013, is only a clarificatory/declaratory and curative provision and has retrospective effect from 01-04-2005 from the date of which sub clause (ia) of Section 40a was inserted by the Finance (No. 2) Act, 2004. For the above and other grounds that may be urged at the time of hearing of the Appeal, your Appellant humbly prays that the Appeal may be allowed and Justice rendered and the Appellant may be awarded costs in prosecuting the Appeal and also order for the refund of the institution fee as part of the costs.”
It was submitted by ld. AR of assessee that this submission was made before CIT(A) as noted by him in Para 5.2 of his order that the deductee M/s. Sundaram Finance has already filed its return of income and paid taxes Page 3 of 6 on the amount of Rs. 15,92,960/- on which the assessee failed to deduct tax. But in spite of this, the issue was decided by CIT (A) against the assessee but now this issue is squarely covered in favour of the assessee by the judgement of Hon’ble Delhi High Court rendered in the case of CIT vs. Ansal Land Mark Township (P.) Ltd. as reported in [2015] 61 taxmann.com 45 (Delhi). He submitted a copy of this judgement which is available on pages 20 to 24 of paper book. The ld. DR of revenue supported the order of CIT(A).
We have considered the rival submissions. We find that this issue was decided by CIT(A) as per paras 5.1 to 5.2 of his order and therefore, these paras are reproduced hereinbelow for ready reference. “5.1 I have gone through the submission of the appellant, statement of facts and grounds of appeal
. I have also perused the assessment order. On the basis of the materials available on record I proceed to dispose of the appeal as below. 5.2 Disallowance u/s 40(a)(ia) In the appeal proceedings the A/R stated that the deductee, M/s Sundaram Finance has already filed its return of income and paid taxes on the amount of Rs.15,92,960/- on which the appellant failed to deduct tax. The A/R submitted as under: In respect of disallowance u/s 40(a)(ia) it is submitted that the deductee M/s Sundaram Finance Ltd. has declared the income received from the appellant, i.e. interest on the loan borrowed amounting to Rs.15,92,960)- and also paid the appropriate tax thereon and filed its Return of Income for the Assessment Year 2012-13. The deductee M/s Sundaram Finance Ltd. has issued / promised to issue a certificate as required by section 201(1) which is produced herewith will be produced shortly. Hence the addition make may kindly be deleted. In this regard, it can be noted that during the financial year 2011-12 relevant to the A.Y. 2012-13 there was no such provision to the effect that if the deductee has paid tax on the amount on which tax was not deducted will be allowable as a deduction. Section 40(a)(ia) in the financial year 2011-12 read as under: Amounts not deductible.
40. Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (ia) any interest, commission or brokerage, [rent, royalty,] fees for Page 4 of 6 professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-8 and such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub-section (1) of section 139 :] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139,,such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.] The provision which the appellant wants to take benefit of came into force w.e.f. 01.04.2013. As this amendment was not retrospective the appellant cannot take benefit of the same. Therefore, the appellant's plea in this regard, is rejected. In ground no. 4, 5 and 6 the appellant has raised the ground that the amount of interest was paid during the year whereas section 40(a)(ia) is applicable to the amount which remains 'payable' at the end of the financial year. In the case of PALAM GAS SERVICE Vs. CIT, Civil Appeal No. 5512 of 2017 the Hon'ble Supreme Court has settled the 'paid' vs 'payable' debate. The Hon'ble Supreme Court has held that provisions of section 40(a)(ia) of the Income-tax Act, 1961 are applicable not only to the amount which was outstanding at the end of the relevant previous year, but to the entire expenditure which became liable for payment at any point during the year under consideration including the amount which was paid before the end of the relevant previous year. In view of the above mentioned judgement there is no merit in the ground taken by the appellant. In the result, the grounds of appeal relating to the disallowance u/s 40(a)(ia) fail. The addition of Rs.15,92,960/- stands confirmed.”
5. From the above paras reproduced from the order of CIT(A), it is seen that this was submitted by assessee before CIT(A) that the deductee M/s. Sundaram Finance Ltd. has issued / promised to issue a certificate as required by section 201(1) which is produced hereinbelow / will be produced shortly. There is no finding of CIT(A) as to whether this claim of the assessee is correct that return of income was filed by M/s. Sundaram Finance Ltd. and tax has been paid by that party. The order of CIT(A) is on this basis that the amendment in section 40a(ia) is w.e.f. 01.04.2013 and therefore, in the present year being 2012-13, the assessee does not get the benefit of this amendment which has been held to be not retrospective but Page 5 of 6 as per this judgement of Hon’ble Delhi High Court rendered in the case of CIT Vs. Ansal Land Mark Township (P.) Ltd. (supra), this was held that the second proviso to section 40a(ia) of IT Act is declaratory and curative in nature and should be given retrospective effect from 1stApril 2005. Hence on this aspect, the assessee deserves the relief but before that, the factual aspect has to be examined as to whether return of income was filed by deductee M/s. Sundaram Finance Ltd. or not and whether the impugned amount paid by assessee to that party has been included by that party in its income. To examine this factual aspect, we restore back the matter to the file of CIT(A) with the direction that if it is found factually correct that M/s. Sundaram Finance Ltd. has filed return of income for relevant year after including this amount of Rs. 15,92,960/- received by that party from present assessee and tax has ben paid by that party i.e. M/s. Sundaram Finance Ltd. then no disallowance is called for in the present case. The CIT(A) should pass necessary order as per law in the light of above discussion after providing reasonable opportunity of being heard to both sides.
In the result, the appeal filed by the assessee stands allowed for statistical purposes. Order pronounced in the open court on the date mentioned on the caption page.