M/S. B. BUDH SINGH GULAB SINGH,NEW DELHI vs. JCIT, NEW DELHI

The first issue raised in this appeal is against the confirmation of disallowance of Rs.6,36,920/- made by the Assessing Officer under section 40(a)(ia) of the Act. The factual panorama of this issue is that the assessee is running a petrol pump. It paid a sum of Rs.6,36,920/- to BPCL and claimed deduction for the same by way of debit to its Profit and loss account under the head of ‘LFR Rent’. The Assessing Officer noticed that the assessee did not deduct any tax at source from such rental payment. It was opined that the assessee was liable to deduct tax at source under section 194-I of the Act. In the absence of the assessee having made any deduction of tax at source, the Assessing Officer made disallowance of Rs.6,36,920/- u/s 40(a)(ia) of the Act, which came to be sustained in the first appeal.

I have heard both the sides and perused the relevant material on record. The case of the Revenue is that the assessee made a payment of Rent to BPCL and did not deduct tax at source which attracted disallowance under 2 section 40(a)(ia). Second proviso to section 40(a)(ia) provides that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to Section 201(1), then for the purposes of section 40(a)(ia) it shall be deemed that the assessee has deducted and paid tax on said sum on the date of furnishing of return of income by the resident payee. The essence of this provision is that if the payer has not made deduction of tax at source, but the payee has furnished his return of income u/s 139 of the Act by including the amount received from the assessee-payer, then the assessee shall be deemed to have deducted and paid tax on the date of furnishing of return of income by the payee and as such no disallowance under section 40(a)(ia) will be made. Though this proviso has been inserted by the Finance Act 2012 w.e.f. 1.4.2013 but several courts have held it to be retrospective. The Hon'ble’ jurisdictional High Court in CIT vs. Ansal Landmark Township Private Limited (2015) 279 CTR 384 (Del) has held that second proviso to section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1.4.2005. On a conjoint reading of second proviso to section 40(a)(ia) and first proviso to section 3 201(1), it becomes graphically clear that if the payee has furnished his return of income under section 139 and has taken into account such sum paid by the payer for computing income in such return of income and has paid income tax thereon, then the payer cannot be treated as assessee in default. A fortiori, no disallowance under section 40(a)(ia) can be made in such circumstances.

Adverting to the facts of the instant case, it is seen that the assessee paid a sum of Rs.6,36,920/- to Bharat Petroleum Corporation Limited. There can be question of suspecting that the BPCL did not include such rental income from the assessee in its return of income. It is, therefore, held that the case of the assessee is covered by second proviso to section 40(a)(ia) and hence the disallowance made cannot be sustained. I, therefore, order to delete the disallowance. This ground is allowed.

The only other ground which survives in this appeal is against confirmation of disallowance of Rs.3,11,500/-. The factual matrix of this ground is that the assessee paid cash handling expenses of Rs.3,11,500/- to certain persons. The Assessing Officer disallowed the same by holding that no evidence of incurring such expenses was furnished. The learned CIT(A) echoed the disallowance.

After considering the rival submissions and perusing the relevant material on record, it can be seen that the assessee paid cash handling charges to certain persons on monthly basis. Vouchers for such payments have been placed on record. Since such expenses were incurred during the course of business and were necessary for carrying on the business, in my considered opinion, the same should not have been disallowed. I, therefore, order to delete the addition.

Both the sides are in agreement that the facts and circumstances of the grounds raised in the instant appeal are mutatis mutandis similar to those of assessment year 2011-12. Following the view taken hereinabove, I delete the disallowance under section 40(a)(ia) and order to grant deduction in respect of cash handling charges.

In the result, both the appeals are allowed.