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Income Tax Appellate Tribunal, C/“SMC” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI
आदेश / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal is filed by the assessee, aggrieved by the order of the Learned Commissioner of Income Tax(A)-13, Chennai dated 11.07.2017 pertaining to assessment year 2013-14. 2. The assessee has raised the following grounds for adjudication.
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The Learned Commissioner of Income tax (Appeals) ought to have appreciated the fact that the assessee had filed form 15G from the creditors and hence there was no necessity to deduct tax on payment of Interest.
The Learned commissioner of Income tax (Appeals) ought to have appreciated the fact that all the recipients of interest were income tax assesses and they had admitted the interest in their individual income tax returns.
The Learned commissioner of Income tax (Appeals) ought to have appreciated the fact that as per the second proviso to section 40 (a) (ia) introduced by the finance Act, 2012 effective from 2013-14 that where the recipients have paid the tax on the interest received, and where the assessee has been treated as an assessee in default u/s 201(1) section 40 (a) (ia) is not further attracted.
The Learned commissioner of income tax (Appeals) ought to have appreciated the fact that the Authorised Representative during the appeal proceedings produced the proof (vide later dated 07.04.2013) addressed to TDS Range Chennai on submission of form No. I5G from M/s. G.G.Plastics, Proprietor of Girish Bhattad and on that basis only no tax was deducted.
The Learned Commissioner of Income tax (Appeals) erred in holding that the said letter had acknowledgement stamp of dated 10.04.2013 only and that since acknowledgement receipt number was not there forms I5G lacked credibility and on that ground confirmed the order of the Assessing Officer.
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The Learned Commissioner of Income tax (Appeals) ought to have appreciated the fact that the assessee had discharged his initial onus with respect to submission of form 15G in the manner under law and hence there was no obligation on the part of the assessee to deduct any tax under section 40(a)(ia).
The Learned commissioner of Income tax (Appeals) ought to have verified the records of the department with regard to submission of Form 15G and dismissal of appeal without making such verification is not in accordance with law.
The assessee under these circumstances submits that there is no violation u/s 40 (a) Ia and the addition of Rs. 3,60,009/-deserves to be deleted by the Honourable ITAT.
The brief facts of the case are that the assessee filed return of
income for assessment year 2013-14 declaring total income at
`5,70,820/-. The case was selected for scrutiny through CASS. The
AO noticed that assessee has debited in the P&L A/c a sum of
`4,58,889/- towards interest payment when details are called for,
assessee claimed, it is interest payment from unsecured loans. As
TDS were not deducted on this payment, disallowance u/s 40(a)(ia)
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of the Act was made by the AO for `3,60,009/-. Aggrieved by this,
the assessee carried the appeal before the Ld.CIT(A).
3.1 Before the Ld.CIT(A), the assessee made written submissions
and produced evidences for claim: The interest has been paid to the
following persons who are all income tax assesses. Name PAN Amount 1. JasodadeviBhattad Rs. 14,303 AHIPB6381J 2. Madhu Devi Bhattad Rs. 1,96,750 AACPB1O68P 3. Cheta,nBhattad Rs. 22,956 CMFPB19J5E 4. Mahesh Sornani Rs. 1,26,000 ATKPS2O66F Total Rs. 3,60,009
Further, the assessee submitted that all the above creditors had filed
form 15G with the assessee and hence there was no deduction of tax
under section 194(A). All the recipients of interest are income tax
assesses and they had admitted the interest in their individual income
tax returns. Therefore, the assessee pleaded the Ld.CIT(A) that the
addition of `3,60,009 under section 40(a)(ia) may be deleted. On
appeal, the Ld.CIT(A) confirmed the addition made by the ld.
Assessing Officer for the reason that the declaration given by the
assessee in form 15G did not bear any serial number of the
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acknowledgement stamp of dated 10.04.2013. Against the order of
Ld.CIT(A), now the assessee is in appeal before us.
I have heard both the parties and perused the material on
record. The main contention of the ld.A.R is that the recipient of the
payments had offered the income for taxation, as such there is no
necessity to deduct tax on payment of interest. It is noticed that this
issue is squarely covered by the judgement of Delhi High Court in the
case of Ansal Landmark Township in 377 ITR 635(Del.) wherein held
that:-
“The first proviso 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 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. 12. Relevant to the case in hand, what is common to both the provisos to section 40(a)(ia) and section 201(1) of the Act is that the as long as the
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payee/resident (which in this case is APIL) 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. 13. Turning to the decision of the Agra Bench of the Income-tax Appellate Tribunal in Rajeev Kumar Agarwal v. Asst. CIT (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 paragraph 9 of the said order which reads as under (page 485 of 34 ITR (Trib)) : "On a conceptual note, the primary justification for such a disal lowance 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 recipi ents 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 deincentivise not deducting tax at source, when such tax deduc tions are due but so far as the legal framework is concerned, this pro vision is not for the purpose of penalising for the tax deduction at source lapses. There are separate penal provisions to that effect. Dein centivising a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, conno tations. 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 the 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
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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 with holding lapse. The penalty for tax withholding lapse per se is sepa rately provided for in section 271C, 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 cur ative 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 intro duced. 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 pro viso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from April 1, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004." 14. The court is of the view that the above reasoning of the Agra Bench of the Income-tax Appellate Tribunal as regards the rationale behind the insertion of the second proviso to section 40(a)(ia) of the Act and its
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conclusion that the said proviso is declaratory and curative and has retrospective effect from April 1, 2005, merits acceptance.”
In view of the above judgement, I am inclined to remit this issue
to the file of the Assessing Officer for fresh consideration in the light
of above judgment. The ground raised by the assessee u/s.40(a)(ia)
of the Act is partly allowed for statistical purposes. At this stage, I
refrain from going into other grounds of appeal raised by assessee as
the applicability of Second Proviso to Section 40(a(ia) of the Act is not
at all examined by ld. Assessing Officer.
In the result, the appeal of assessee is partly allowed for
statistical purposes. Order pronounced on 07th December, 2017.
Sd/- (चं� पूजार�) (CHANDRA POOJARI) लेखा सद�य /ACCOUNTANT MEMBER
Chennai, Dated the 07th December, 2017. K s sundaram. आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF