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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri P.M. Jagtap & Shri A. T. Varkey, JM]
Per Shri A.T.Varkey, JM This is an appeal preferred by the Assessee against the order of CIT(A) - 15 Kolkata dated 10.11.2016 for A.Y. 2006-07.
At the outset itself, we note that this is the 2nd round appeal before this Tribunal and 2. in the first round, the Tribunal vide order dated 13.04.2012 remanded the issues back to the file of the AO for fresh adjudication in respect of certain disallowance made u/s 40(a)(ia) of the Income Tax Act, 1961 (‘the Act’).
First ground of the appeal of the assessee is of Ld. CIT(A) in disallowing an amount of Rs. 5,26,890/- paid to the clearing agent (Exel India Pvt. Ltd.).
Brief facts of the case is that the assessee is a manufacturer and an exporter, which derives income mainly from the business of export on cotton bags, P.P. bags etc. in the name and style of M/s. Global Venture Corporation. The return of income was filed disclosed in total income of Rs. 5,12,200/-. Later it was taken up for scrutiny and the AO vide order dated 02.12.2008 framed the assessment order making certain disallowances u/s 40(a)(ia) of the Act. On appeal, the Ld. CIT(A) vide order dated 22.12.2009 had set aside the matter with certain directions to the AO. Aggrieved both revenue and assessee filed an
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appeal before the Tribunal and the Tribunal was pleased to remand the issues back to the AO for fresh adjudication in respect to the disallowance made u/s 40(a)(ia) of the Act by order dated 13.04.2012
In the 2nd round, the AO after discussing the case with the AR of the assessee, issued 5. show cause notice conveying his intention as to why the amount of Rs. 5,26,890/- which the assessee claim to have been paid to Exel India Pvt. Ltd. as reimbursement of expenses be disallowed. The assessee replied that Exel India Pvt. Ltd. being shipping & air cargo agent incurred various statutory charges like the payment of terminal handling & wharfage charges, container hire charges, documents drafting charges etc. on behalf of the assessee and subsequently these amounts were reimbursed by the assessee when bills are raised and furnished the breakup of the expenses of Rs.5,26,890/- and claimed that the payment cannot attract disallowance u/s 40(a)(ia). However the AO did not accept the assessee’s explanation and was pleased to disallow the claim of amount of Rs. 5,26,890/-. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved the assessee is before us.
We have heard both the parties and perused the records. We note that the assessee has made payment of Rs. 5,26,890/- to Exel India Pvt. Ltd. which is a shipping and air cargo agent. Since tax was not deducted at source on these payments, the AO disallowed the same u/s 40(a)(ia) of the Act which action has been confirmed by the Ld. CIT(A). We note that the breakup of the expenses claimed by the assessee is as under:
“The list of such reimbursements so disallowed are as follows: BAF & BL Charges 2,56,643.37 Handling & Wharfage Charge 2,52,567.18 Charges to Shipping Agency 1,650.00 Drafting Charges of Shipping/Airway Bill 5,350/- Other Petty Expenses 10,680.00 5,26,890.55”
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We note that the AO in his assessment order has observed that freight payments are reimbursed on which TDS has not been deducted so disallowance was made. We note that these are expenses which have been borne by the clearing agent Exel India Pvt. Ltd. on behalf of the assessee. The reimbursement of expenses borne by Exel India Ltd. on behalf of the assessee cannot be regarded as income in the hands of the payee. We note that in the reimbursement of expenses by the payer, there is no element of income in the hands of the payee, therefore, question of any disallowance u/s 40(a)(ia) does not arise and, therefore, we allow the claim of the assessee and direct deletion of the addition made on this issue.
Coming to the 2nd ground of appeal, the assessee is concerned against the action of 8. the Ld. CIT(A) in confirming the disallowance of Rs. 15,18,550/- and Rs. 24,01,071/- u/s 40(a)(ia) on account of non deduction of tax u/s 194C which was paid by the assessee to M/s. Paul Enterprise & M/s. P.K. Enterprise respectively.
Brief facts of the case is that the AO noted that the assessee has made payments of Rs. 15,18,550/- to M/s. Paul Enterprise for ‘cutting and stitching charges’ as well as to M/s. P.K. Enterprise an amount of Rs. 24,01,071/- under the same head ‘cutting and stitching charges’ without deduction of tax. On being asked the assessee’s reply was that the total payment to the parties amounted to Rs. 15,18,550/- and Rs. 24,01,071/-. However when the money was disbursed on a daily basis or each time payment was made, it never exceeded Rs. 20,000/-. So according to the assessee the disallowance under the Chapter XVII was not attracted and so no deduction of tax at source when payment was made was required. The AO did not accept the submissions of the assessee and was pleased to disallow the same. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved the assessee is before us.
We have heard both the parties and perused the records. Before us, the learned AR submitted that both the payees are income tax assessees and are having separate PAN numbers and have filed their return of income reflecting the amounts which the assessee has paid and the certificate by the chartered accountant as prescribed by the law has been filed and submitted the following facts before us to support his contentions:
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Name PAN Total sum of Gross IT Paid IT Return Date of credit in the turnover as Ack. No. submission year to the disclosed by of return account of the deductee the payee in their P& L A/c Paul AKZPP1078J 15,18,550.00 16,38,465.00 145/- 4914009048 29.03.2007 Enterprise P.K. AKQPM9840E 24,20,331.25 32,06,469.25 24211/- 5311014207 31.032007 Enterprise (Prop. Pradyut Mukherjee
The aforesaid particulars along with copy of ITR acknowledgements and financial statements for the relevant of such parties were submitted before the authorities below [pg. 44, 62-66 & 67-70 of the paper book].
These facts were also observed in the erstwhile assessment [pg. 38 of the paper book].
Certificates from Chartered Accountants in this regard that impugned payees are separate assessee included the relevant income on which tax was alleged to have been not deducted and paid legitimate tax due on their own at the time of filing their income tax returns were also submitted before the authorities below [pg. 71-75 & 76-81 of the paper book].
We note that the Finance Act, 2012 has inserted in section 40 of the Act in clause (a), in sub-clause (ia) after the proviso and before the Explanation the following as under:
“Provided further 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 sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has 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.”
We note that the Second Proviso to section 40(a)(ia) reference of section 201(1) is as under: “201.[(1) Where any person, including the principal officer of a company,- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act,
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the, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: [Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:]"
We note that the Hon’ble Delhi High Court in the case of CIT vs Ansal Landmark Township (P) Ltd. ITA No. 160/2015 and 161/2015 dated 26.08.2015 held that the 2nd proviso to section 40(a)(ia) of the Act is declaratory in nature and so curative and has retrospective effect from 01.04.2005. Therefore, we are of the opinion that if the payees have included the subject mentioned receipts in their return of income, then by applying second proviso to section 40(a)(ia) read with section 201 of the Act is warranted. Therefore, we set aside the order of the Ld. CIT(A) and remand the matter back to the file of the AO for verifying as to whether the payees in this case has duly considered the subject mentioned payment made by the assessee in their respect return of income filed u/s 139 of the Act and had take into consideration such sum for computing income and had paid the tax due in the income declared by the payees in the return of income and if these facts are evident from Chartered Accountant certificate issued in terms of the first proviso to section 201(1) of the Act then no disallowance u/s 40(a)(ia) of the Act is warranted.
Before we part our attention was drawn to the fact that the Ld. CIT(A) has not given relief to the assessee on the plea that Mr. S. Paul (Prop. Paul Enterprise) and Mr. P.K. Mukherjee (Prop. P.K. Enterprise) had filed their return of income for assessment year 2006-07 on 29.03.2007 and 31.03.2007 respectively. So according to the Ld. CIT(A) since the return of income u/s 139(1) lays down the time limit for filing return of income has expired, he was of the opinion that the payees have not complied with the provision of section 201(1) and did not give relief to the assessee. The precise issue of belated filing of return by the payees which precipitated the action of the authorities below denying the relief in such circumstances has been adjudicated by coordinate bench of this Tribunal in the case
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of Jashojit Mukherjee vs ACIT ITA No. 403/Kol/2017 for Assessment Year 2012-13 vide order dated 04.05.2018 has held as under: “7. The last issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the disallowance made u/s 40(a)(ia) of the Act in the sum of Rs 1,15,716/- relating to Adhir Kumar Mondal upon payment of labour and fabrication charges in the facts and circumstances of the case.
7.1. The brief facts of this issue is that the assessee had claimed an expenditure of Rs 63,59,500/- under the head ‘Labour & Fabrication Charges’ during the year under consideration. The assessee submitted party wise details of labour and fabrication expenses and party wise details of TDS in all the four quarters. While comparing the party wise details with the TDS details, the ld AO noticed that the assessee had short deducted tax at source in respect of amount paid to Adhir Kumar Mondal to the tune of Rs 1,15,716/-. The ld AO disallowed the same u/s 40(a)(ia) of the Act for short deduction of tax at source. In appeal, the ld CITA observed that the assessee had submitted a certificate from the chartered accountant that Adhir Kumar Mondal had considered the subject mentioned payment in his return filed on 23.3.2013 and accordingly in view of the second proviso to section 40(a)(ia) read with section 201, which has been held to be retrospective in operation, the assessee should not be treated as assessee in default and consequentially no disallowance u/s 40(a)(ia) of the Act could be inflicted on him. The ld CITA observed that since Adhir Kumar Mondal had filed the return of income on 23.3.2013 (i.e beyond the due date u/s 139(1) of the Act), the conditions laid down in proviso to section 201(1) of the Act are not satisfied and accordingly upheld the disallowance of Rs 1,15,716/- made by the ld AO. Aggrieved, the assessee is in appeal before us on the following ground:-
That under the facts and circumstances of the case, Ld. CIT(A) was wrong in confirming the disallowances of Rs. 1,15,716/- relating to Adhir Kumar Mondal upon payment of labour & fabrication charges u/s 40(a)(ia), therefore, the addition so made is liable to be cancelled.
7.2. We have heard the rival submissions. At the outset, we find that the disallowance u/s 40(a)(ia) of the Act has been made due to short deduction of tax at source on labour and fabrication charges paid to Adhir Kumar Mondal. We find that the ld CITA had considered the assessee (payer) as assessee in default despite the chartered accountant’s certificate proving the fact that Adhir Kumar Mondal had duly considered the payments made by the assessee in his return of income filed on 23.3.2013. The ld CITA had held that since the return was filed belatedly u/s 139(4) of the Act by the payee (i.e Adhir Kumar Mondal), the conditions prescribed in proviso to section 201(1) of the Act were not satisfied and accordingly the assessee is to be treated as assessee in default. In this regard, the conditions prescribed in proviso to section 201(1) of the Act are reproduced below for the sake of convenience:-
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Section 201 – Consequences of failure to deduct or pay (1) ……………… 18[Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident— (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed19:]
From the bare reading of the conditions prescribed in proviso to section 201(1) of the Act above, we find that the legislature had no where provided that the payee should furnish his return of income u/s 139(1) of the Act. The condition only says section 139. It does not mention about section 139(1) of the Act. The return filed within the time limit prescribed u/s 139(4) of the Act is also a valid return as that leeway has been provided in the statute itself. It is not in dispute that the payee (i.e Adhir Kumar Mondal) had duly considered the subject mentioned payment made by the assessee in the return of income filed u/s 139 of the Act and had taken into account such sum for computing the income and had paid the taxes due on the income declared by him in the return of income. All the three conditions are duly satisfied. These facts are evident from the chartered accountant certificate issued in terms of first proviso to section 201(1) of the Act , which is part of records before us, and which fact remain uncontroverted by the revenue before us. We find that the ld CITA had taken cognizance of this CA certificate but had not given weightage of the same due to his interpretation that section 139 referred to in the proviso to section 201(1) of the Act need to be construed only as section 139(1) of the Act and not otherwise. In these facts and circumstances, we hold that the assessee had furnished requisite evidences to prove that the payee had duly considered the subject mentioned receipt in his return of income and hence no disallowance u/s 40(a)(ia) of the Act could be inflicted on the same in the hands of the assessee payer. Accordingly, the Ground No. 4 raised by the assessee is allowed.
7.3. Yet another point that arises for our consideration in the instant case is as to whether the provisions of section 40(a)(ia) of the Act could be invoked for short deduction of tax at source. We find that this issue has been held in favour of the assessee by the co-ordinate bench decision of this tribunal in the case of DCIT vs S K Tekriwal in ITA No. 1135/Kol/2010 dated 21.10.2011(2014) 361 ITR 432 wherein it was held that in the case of short deduction of tax at source, no disallowance u/s 40(a)(ia) of the Act could be made in the hands of the assessee and the assessee could be proceeded against only under section 201 of the Act in such cases. This decision was
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admittedly approved by the Hon’ble Jurisdictional High Court in the same case in ITAT NO. 183 of 2012 G.A.No. 2069 of 2012 dated 3.12.2012. Respectfully following the same, we hold that no disallowance u/s 40(a)(ia) of the Act could be made in the hands of the assessee payer herein. Accordingly, the Ground No. 4 raised by the assessee deserves to be allowed on this aspect also.
Therefore, respectfully following the order of the Tribunal, the reason given by the Ld. CIT(A) for not giving relief to the assessee on the reason that the payees filed belated return of income cannot be countenanced. So, we set aside the order of the Ld. CIT(A) and remand the matter back to the file of the AO for verifying as to whether the payees in this case has duly considered the subject mentioned payment made by the assessee in their respective return of income filed u/s 139 of the Act and had take into consideration such sum for computing income and had paid the tax due in the income declared by the payees in the return of income and if these facts are evident from Chartered Accountant certificate issued in terms of the first proviso to section 201(1) of the Act then no disallowance u/s 40(a)(ia) of the Act is warranted. This ground of the appeal of the assessee is allowed for statistical purpose with the aforesaid direction for verification.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order is pronounced in the open court on 03 .04.2019
Sd/- Sd/-
(P.M. Jagtap) (Aby. T. Varkey) Vice-President Judicial Member
Dated : 3rd April, 2019
Biswajit (Sr. P.S.)
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Copy of the order forwarded to:
Appellant – Global Venture Corporation, 28A, J.K. Ghosal Road, Ariadaha, Kolkata – 700 057. 2 Respondent – ACIT, Circle – 49, Uttrapan Complex, DS-2, Manicktala Civic Centre, 2nd Floor, Kolkata – 700 054.
The CIT(A) - Kolkata. (through e-mail)
CIT Kolkata 5. DR, ITAT, Kolkata. (through e-mail) /True Copy, By order,
Assistant Registrar/H.O.O. ITAT, Kolkata Benches