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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
These cross appeals are arising out of the order of CIT(A)-2, Mumbai in appeal No. CIT(A)-2/IT/151/2012-13 dated 01-03-2016. The Assessment was framed by Deputy Commissioner of Income Tax, Range- 1(2), Mumbai (In short DCIT) for the A.Y. 2010-11 vide order dated 19-02- 2013 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance made by AO for non-deduction of TDS under section 194C of the Act thereby invoking the provisions of section 40a(ia) of the Act. For this Revenue has raised the following two grounds: - “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s.40(a)(ia) relying on ITAT’s decision for A.Y.2008-09 and not on the fact of the case of the assessee"
Whether on the facts and in the circumstances of the case and in law, the decision of the ITAT in the case of the assessee for A.Y.2008-09, relying on the decision of the coordinate bench of the ITAT in the case of ACIT vs JB Boda Surveyors Pvt. Ltd. is distinguishable on facts, in as much as in the case of ACIT vs JB Boda Surveyors Pvt. Ltd there was a sharing of expenses between the leading company and the group companies operating from the same premises without a contractual agreement. whereas in the case of the assessee, there was a contractual agreement between the assessee company and the other group companies for reimbursement of expenses as a result of which the assessee was bound to deduct TDS u/s.194C of the Income Tax Act, 1961, therefore, the decision of the Ld. CIT(A) to rely on the order of the ITAT for A.Y.2008-09 is bad in law."
Briefly stated facts are that during the year under consideration, the assessee reimbursed the following expenses to the group entities: - “a) Monsanto Holdings Private Limited (MHPL), ₹ 2,29,64,938/- b) Maharashtra Hybrid Seeds Co. Ltd. (‘MHSCL’) – ₹ 1,03,275/-. c) Monsanto India Limited (‘MIL’) – ₹ 8,94,67,536/-.”
The AO require the assessee to explain as to why no TDS is deducted from reimbursement of expenses made to group companies and why the expenses should not be disallowed by invoking the provisions of section 40(a)(ia) of the Act? The assessee filed explanation but the AO disallowed the expenses aggregating to ₹ 11,25,35,749/-. Aggrieved, now assessee preferred the appeal before CIT(A).
The CIT(A) relying on the decision for AY 2008-09 deleted the addition vide Para 3.4 as under:-
3.4 considering the detailed submissions made by AR before me and respectfully following the Hon’ble ITAT decision vide order (AY 2008-09) dtd. 30.11.2012, I hold that the provisions of section 40(a)(ia) of the Act are not applicable to the reimbursement of expenses made to the appellant’s sister concerns. Accordingly, the AO is directed to the delete the said addition made by him.
Aggrieved, now Revenue is in appeal before us.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has filed partwise breakup detail of reimbursement made to group of companies. It was claimed by the assessee that these expenses were reimbursed to the group companies at a cost without any markup and hence the same do not warrant deduction of tax at source. The assessee filed certificates issued by group of companies certifying that the payments is in the nature of reimbursement of expenses and certificate states as under: - “-Reimbursement of expenses received by from the Appellant was on cost-to-cost basis, without any mark-up; -Tax was already withheld at appropriate rates on payments made to third parties, on behalf of the appellant; and -No deduction for the reimbursed expenses was claimed as a deduction in the return of income for AY 2010-11.”
Now, the learned Counsel for the assessee before us stated that the issue is squarely covered by Tribunals decision in assessee’s own case for AY 2008-09 in dated 30-11-2012, wherein, on identical facts tribunal deleted the addition by observing in Para 6 as under: - “6. We have carefully considered the rival submissions in the light of material placed before us. We have carefully gone through the assessment order. The AO did not dispute the fact that the impugned amount was in the nature of reimbursement expenses on cost to cost basis. If it is so, according to the ratio of the decision rendered by Co-ordinate Bench in the case of ACIT Vs. J.B.Boda Surveyors Pvt. Ltd.(supra) , it has to be held that the disallowance cannot be made as it has not been shown or established that aforementioned payments were made by the assessee to the aforementioned group concerns against any contract work carried out by them for the assessee. In the case of reimbursement of expenses, the expenditure incurred is related to the person who has not made the original payment. The payment of expenditure is made by “X” party on behalf of “Y” party and later on the same is reimbursed to “X” party by “Y” party, the expenditure is pertaining to “Y” party and not pertaining to “X” party. Therefore, applying the ratio laid down in the case of ACIT vs. Crowe Boda & Co. Pvt. Ltd. in ITA No.4251/M/2009 vide order dated 30/3/2010, relied upon in the case of ACIT Vs. J.B. Boda Surveyors Pvt. Ltd., the issue is decided in favour of assessee. The relevant observations have already been reproduced above. In view of the above discussion, Ground No.1 of the assessee is allowed.”
We find that this issue has already been considered by the Tribunal in assessee’s own case for AY 2008-09 and also in AY 2009-10. Respectfully following the same, we confirm the order of CIT(A) deleting the addition. This issue of Revenue’s appeal is dismissed.
Coming to appeal of the assessee, only issue in this appeal is as regards to the order of CIT(A) confirming the action of the AO in disallowing the advertising and promotion expenses relating to Team Lease Service Pvt. Ltd. for non-deduction of TDS by invoking the provisions of section 40a(ia) of the Act. For this assessee has raised the following grounds: - “Disallowance under section 40(a)(ia) read with section 194 of the Act of Rs 1,89,16,055/ 1.1 On the facts and in the circumstance of the case and in law, the Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in disallowing advertising and promotion expenses relating to ML Team lease Services Pvt Ltd of Ps 18916055/- under section 40(a)(ia) of the Act Without prejudice to the above ground of appeal:
1.2 On the facts and in the circumstance of the case and in law, in case disallowance made by the Assessing Officer is confirmed. Assessing Officer be directed to restrict disallowance under section 40(a)(ia) of the Act to the extent of expenditure payable outstanding as at the end of the previous year 1.3. On the facts and in the circumstance of the case and in law, the Appellant submits that the benefit of second proviso to section 40(a)(ia) of the Act inserted by the Finance Act 2012, ought to be given retrospective effect and applied for year under appeal.”
At the outset, the learned Counsel for the assessee stated that the party Team Lease Service Pvt. Ltd has already filed a certificate, under Rule 31ACB of the Income Tax Rules, 1962 prescribing form No. 26A, whereby an account certificate need to be furnished under section 201 of the Act, before CIT(A) as additional evidence. According to the learned Counsel, the amendment in section 201(1) of the Act and corresponding amendment to section 40a(ia) of the Act by inserting proviso by Finance Act 2012, which is retrospective in view of the decision of Hon’ble Delhi High Court in the case of CIT v. Ansal Landmark Townships Pvt. Ltd [2015] 377 ITR 635 (Del).. Hon’ble Delhi High Court Held as under:-
“11. The first proviso to Section 210 (1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies.
Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax.
Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under:
"On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fair, just and equitable" interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an "intended consequence" to disallow the expenditure, due to non deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004."
The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance.”
In view of the above position, we find that the assessee has provided the details of the recipient of the payments, on which no tax is deducted, that:-
(i) has furnished his return of income (‘ROI’) under section 139 of the Act; (ii) has taken into account such sum for computing income in such ROI, and (iii) has paid the tax due on the income declared by him in such ROI.
We find that Central Board of Direct Taxes (CBDT) has notified Rules 31ACB with effect from 19.02.2013 prescribing Forms 26A as per which an account’s certificate needs to be furnished under section 201 of the Act. Further, as per the provisions of the above notification, Form 26A comprises of main form and Annexure A. The main form is required to be filled in by the payer whereas Annexure is required to be certified by an Accountant (Accountant for this purpose will include a Chartered Accountant). It was explained before us that the assessee has not submitted the following documents before the AO:
(a) From 26A, certifying that interest under section 201(1A) of the Act amounting to ₹ 46,028/- has been paid by the Appellant (for the period from when tax was deductible to the date on which Teamlease furnished its ROI); and (b) Annexure A, certified by a chartered accountant, evidencing that the amount paid by the Appellant to Teamlease has been appropriately offered to tax by Teamlease.
In view of the above facts, given that Rule 31ACB is applicable with effect from 19.02.2013, and that the ammendment made in section 40a(ia) of the Act came into effect from 1 April 2013, the assessee could not produced the said evidences during the course of the assessment proceedings, which were concluded prior to 19.02. 2013. In view of the above, the learned Counsel for the assessee only requested for remitting the matter back to the file of the AO for verification of the certificate and accordingly deciding the issue. Hence, we remit this issue back to file of the AO for limited verification only to give effect to the direction mentioned above.
In the Result, the appeals revenue is dismissed and that of the assessee is allowed for statistical purpose.
Order pronounced in the open court on 16-03-2018.