SHINING CONSULTING PVT. LTD.,KOLKATA vs. ITO, WD.12(1), KOLKATA, KOLKATA

We have heard rival submissions and gone through the order of Ld. CIT(A). The main grievance of the assessee is that the amount disallowed u/s. 40(a)(ia) of the Act in respect to payment of Rs.35,00,000/- and Rs.10,54,242/- to M/s. Shining Emotional Services Pvt. Ltd. has already been shown as income by the payee M/s. Shining Emotional Services Pvt. Ltd. in its P&L Accounts well as in its return of income and thereby second proviso to sec. 40(a)(ia) of the Act and 1st proviso to sec. 201 of the Act would not attract and, therefore, the disallowance made by the AO and confirmed by the Ld. CIT(A) needs to be deleted. As aforerstated, the brief facts of the case is that the AO disallowed Rs.10,54,242/- and Rs. 35,00,000/- which the assessee company has paid/credited to M/s. Shining Emotional Surplus Pvt. Ltd. (wrongly taken note by the AO in respect to Rs.35,00,000/- as M/s. Shining Emotional Services Pvt. Ltd.). Since the assessee company has not deducted tax at source, the AO was pleased to disallow both the amounts. Aggrieved, the assessee preferred an appeal before the Ld. LD. CIT(A) who was pleased to confirm the same. Aggrieved, assessee is before us.

We note that the assessee company has paid/credited Rs.10,54,242/- and Rs. 35,00,000/- to M/s. Shining Emotional Services Pvt. Ltd. From a perusal of page 26 of the paper book, we note from the P&L Account of M/s. Shining Emotional Services Pvt. Ltd. (i.e, the payee company) that it has shown an amount of Rs.37,58,334/- as income. Our attention was drawn to page no. 34 of the paper book which is the ledger of the miscellaneous income of M/s. Shining Emotional Services Pvt. Ltd. wherein an amount of Rs. 35,00,000/- has been credited from M/s. Shining Consultancy Pvt. Ltd. (assessee payer). In the ledger account of the payee M/s. Shining Emotional Services Pvt. Ltd. at page 37 of the paper book, the amount of Rs.10,54,242/- has been credited and, therefore, according to the assessee company, since the payee has disclosed income in their P&L Account and has disclosed it in its return and paid taxes thereon, no disallowance u/s. 40(a)(ia) of the Act should be inflicted in the hands of the assessee who is the payer in view of the second proviso to sec. 40(a)(ia) of the Act introduced though w.e.f. 01.04.2013 but held to be retrospective in operation by the Hon’ble jurisdictional High Court in the case of Pr. CIT Shining consulting P. Ltd., AY- 2012-13 Vs. Tirupati Construction in GA No. 2146 of 2016, ITAT No. 287 of 2016 dated 23.08.2016. We note that the assessee’s contention is that it satisfies the 1st proviso to sec. 201 of the Act wherein the assessee company who is the payer in this case, would not be deemed to be an assessee in default if the payee i.e. M/s. Shining Emotional Services Pvt. Ltd. has fulfilled the following conditions: (i) Has furnished its return of income u/s. 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 as per rule 31ACB which is Form No. 26A. The second proviso to sec. 40(a)(ia) of the Act provides that if an assessee fails to deduct tax in accordance with the provisions of Chapter XVIB on such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of Sec. 201, then, for the purpose of section 40(a)(ia), 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 payee i.e.in this case M/s. Shining Emotional Services Pvt. Ltd. Therefore, since the payee company in this case has shown in its P&L Account and its ledgers that the amount in question has been shown as its income, we are of the opinion that the assessee’s claim that the payee company i.e. M/s. Shining Emotional Services Pvt. Ltd. when satisfies the requirement of second proviso to sec. 201 of the Act, then assessee should not be inflicted with the disallowance u/s. 40(a)(ia) of the Act. We note that though the second proviso to sec. 40(a)(ia) of the Act has been introduced w.e.f. 01.04.2013, it has been held by the Hon’ble Calcutta High Court in Tirupati Construction (supra) that it is retrospective in operation. Therefore, we set aside the order of the Ld. CIT(A) and remand the matter to the file of the AO for the limited purpose i.e. only for verification as to whether the payee company has shown in its return of income the sums in question as its income and has complied with the provisions of 1st proviso to sec. 201 of the Act, then we direct that no disallowance is warranted in this case. As far as the reasoning of ld CIT(A) that the payee did not pay tax, since its net-taxable income after setting off of business lossess being nill is concerned, we note that it is irrelevant in the context of second Shining consulting P. Ltd., AY- 2012-13 proviso to sec 40(a)(ia) for the simple reason that the crediting of income and its offer to income tax need not have direct co-relation with the ultimate tax liability payable by the assessee. In the instant case if the stand of assessee is correct, then by crediting Rs 35 lakhs and Rs 10,54,242/ the payee had computed its net taxable income at Nil as per the Act. Had the income not been credited, the resultant loss to be carried forward to the subsequent years could have been higher. With the aforesaid observation and direction, the Appeal of assessee is allowed for statistical purposes.

In the result, appeal of assessee is allowed for statistical purposes. Order is pronounced in the open court on 13.04.2018 Sd/- Sd/- (M. Balaganesh) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 13th April, 2018 Jd.(Sr.P.S.) Copy of the order forwarded to: 1. Appellant – Shining Consulting Pvt. Ltd., C/o Soumitra Choudhury, Advocate, 28C, Satish Mukherjee Road, 2nd floor, Kalighat, Kolkata-700 026. Respondent – ITO, Wd-12(1), Kolkata. 2 3. The CIT(A) Kolkata.