M/S D.C CONSTRUCTION,BILASPUR(CG) vs. DY.. C.I.T. CIRCLE-1(1), BILASPUR(CG)

Brief facts of the case are that the assessee firm engaged in Civil Construction work filed its return of income for the assessment year under consideration declaring the total income of Rs. 26,69,260/-. Since, the case was selected for scrutiny notice u/s 143 (2) and 142 (1) were issued and in response to the said notices, the authorized representative of the assessee appeared before the AO and filed written submissions

The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee partly allowed the appeal of the assessee, however sustained the disallowance of Rs. 18,30,691/- made by the AO u/s 40(a)(ia) of the Act. Against the said findings, the assessee is in appeal before the Tribunal.

The assessee has challenged the impugned order passed by the Ld. CIT (A) on the following grounds:- 1. “That under the facts and the law, the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs. 18,30,691/- made by the learned Assessing Officer u/s 40(a)(ia) for non-deduction of tax at source on financial charges paid, as below, rejecting all the explanations made and evidences filed:-

That the Ld. CIT (A) further erred in confirming the disallowance of Rs. 1,17,408/- made by the Learned AO on adhoc basis under following heads, rejecting the explanation:

At the outset, the Ld. counsel for the assessee submitted that the Ld. CIT (A) has erred in confirming the disallowance made by the AO u/s 40(a)(ia) of the Act for non deduction of tax at source on financial charges paid to Magma Fin. Corp., Mahindra Finance and Tata Motors Finance Ltd., rejecting the additional evidence filed under rule 46 being certificates from two Chartered Accountants as required under the second proviso to section 40(a) (ia) and first proviso to section 201 of the Act. The Ld. counsel for the assessee relying on the decision of the Hon’ble Delhi High Court in the case of Commissioner of Income Tax-1 vs. Ansel Landmark Township (PP) Ltd. 377 ITR 635 (Del) submitted that second proviso to section 40(a)(ia) is declaratory and curative and it has retrospective effect from 01.04.2005. Since the payees have furnished their return of income and has taken into account the sum for computing income in the return of income and has paid the tax due to the income declared by them in such return of income, the disallowances is liable to be deleted.

On the other hand, the Ld. Departmental Representative (DR) relied on the findings of the Ld. CIT (A).

We have heard the rival submissions and also perused the material on record in the light of the contentions of the parties. The Hon’ble Delhi (supra) has decided the identical issue involved in this case in favour of the assessee holding as under:- “11. The first provisio to section 201(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 this credited to the account of a resident such person shall not be deemed to be an assessee in default in 5 Assessment Year: 2010-11

Relevant to the case in hand, what is common to both the proviso to section 40(a)(ia) and section 201(1)of the Act is that 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 return and offered the sum received to tax.”

In the light of the aforesaid judgment, the additional evidence filed by the assessee is relevant to adjudicate the issue involved in this case. Hence, the Ld. CIT (A) has wrongly rejected the application filed by the assessee under rule 46A of the Income Tax Rules, 1962. 9. Under Rule 46A the additional evidence can be produced during the course of appellate proceedings, under the following circumstances:- (a) Where the [ Assessing Officer] has refused to admit evidence which ought to have been admitting, or (b) Where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [ Assessing Officer] or 6 Assessment Year: 2010-11

As contended by the Ld. counsel for the assessee, the assessee could not collect the documents in question during the course of assessment proceedings the same could not be produced before the AO. In our considered view, these documents are essential for deciding the only issue involved in this case. Hence, we admit the same as additional evidence. Since, the issue is required to be decided afresh in the light of the judgment of the Hon’ble Delhi High Court aforesaid, we set aside the findings of the Ld. CIT (A) and send the appeal back to the AO to decide the issue afresh in the light of the judgment of the Hon’ble Delhi High Court after examining/verifying the additional documents produced by the assessee and giving opportunity of being heard to the assessee.