Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: Shri Pankaj Kanodia
This appeal by the assessee is arising out of the order of Commissioner of Income Tax-33, Mumbai [in short CIT(A)], in appeal No. CIT(A)-33/Rg.21/71/2013-14 dated 07.10.2016. The Assessment was framed by the Income Tax Officer, Ward-18(2)(1), Mumbai (in short ‘ITO’) for the A.Y. 2007-08 vide order dated 21-03-2013 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. The two interconnected common issues in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses incurred by assessee on account of rental payment amounting to ₹ 2,71,724/- to Saraf Services Pvt. Ltd. and further disallowance of maintenance charges reimbursed to ₹ 2,47,620/- to SM Property Services for non-deduction of TDS and thereby invoking the provisions of section 40(a)(ia) of the Act. For these common issues the assessee has raised the following two grounds: -.
“1. The Learned Commissioner of Income-tax (Appeals)-33. Mumbai has erred in disaIIwing Rs 2,71,724/- paid to Saraf Services Pvt. Ltd u/s 40(a)(ia) of the Income Tax Act though the facts do not warrant deduction of tax at source.
The Learned Commissioner of Income-tax (Appeals)-33. Mumbai has erred in disallowing Rs 2,47,620/- being maintenance charges reimbursed to M/s S.M. Property Services u/s 40(a)(ia) of the Income Tax Act though the facts do not warrant deduction of tax at source.”
At the outset, the learned Counsel for the assessee fairly conceded that the assessee has not deducted TDS but he only requested that the assessee is ready to produce the certificate before the AO from chartered Accountant that the other party i.e. recipients have declared the payments made to them by the assessee in their respective return of income. For this learned counsel for the assessee stated that the issue can be remitted back to the file of the AO. On the other hand the Ld Sr DR has not objected to the plea of the assessee for remitting the matter back to the file of the AO.
Accordingly, we direct the assessee to file a certificate under Rule 31ACB of the Income Tax Rules, 1962 prescribing form No. 26A, whereby an account certificate needs to be furnished under section 201 of the Act before AO. We find the plea of learned Counsel quite reasonable that in view of 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 are of the view that the assessee has to provide the details to the AO, regarding 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
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). 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 on 21.03. 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 appeal of the assessee is partly allowed.
Order pronounced in the open court on 16-03-2018.