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Income Tax Appellate Tribunal, A/“SMC” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI
आदेश / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal is filed by the Revenue, aggrieved by the order of the Learned Commissioner of Income Tax(A)-13, Chennai dated 01-06-2017 pertaining to assessment year 2009-10.
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The Revenue has raised following grounds for consideration.
1.The order of the learned CIT(A) is contrary to facts and circumstances of the case. 2.The learned CIT(A) erred in deleting the disallowance of `23,29,364/- made under Sec.40(a)(ia) of the I.T. Act, 1961. 3.The Ld CIT(A) failed to appreciate that the above issue arises vide RAP Objection. As per Circular No.21/2015 which states as under:“The above issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limit specified in para 3 circular No.21/2015 or there is no tax effect. “Para 8( c) where RAP in the case has been accepted by the department.” 3. The brief facts of the case are that the A.O has reason to
believe that payment of job work charges for `24,47,614/- had been
made without making TDS. Therefore, the AO had recorded reasons
in writing and issued notice u/s.148 to the assessee. During the
reassessment proceedings, the assessee was given due opportunity
to clarify on the aspect of deduction of TDS in respect of payment of
job work charges for `24,47,614/-. However, the assessee has not
availed such opportunity and could not produce any evidence in this
aspect. Therefore, the AO had treated the payment of `24,47,614/-
made for job work charges without TDS as disallowance u/s.40(a)(ia)
of the Act. Aggrieved by this, the assessee carried the appeal before
the Ld.CIT(A). On appeal, the Ld.CIT(A) placing reliance in the
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judgement of Delhi High Court in the case of CIT Vs. Ansal Land
Mark Township (P) Ltd in 377 ITR 635(Del.), wherein observed that
when the recipient filed its return of income disclosing the payment
received from the assessee and in which the income earned by it was
embedded and had also paid on such income, the assessee would
not be treated as a person in default. Since in the present case the
payee had filed its return and offered the sum received to tax,
Ld.CIT(A) allowed the claim of assessee. Against the order of
Ld.CIT(A), now the Revenue is in appeal before us.
I have heard both the parties and perused the material on
record. The Ld.CIT(A) relied on the judgement of Delhi High Court in
the case of CIT Vs. Ansal Land Mark Township (P) Ltd.(supra) and allowed
the claim of assessee. However, he has not got it verified from the ld.
Assessing Officer whether the recipient has received the income from
the assessee and paid tax thereon. Hence, in my opinion, it is
appropriate to remit the issue to the file of ld. Assessing Officer to
examine afresh in the light judgment of Delhi High Court in the case
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of CIT Vs. Ansal Land Mark Township (P) Ltd.(supra) 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.
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 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.
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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 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 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
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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 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 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 pro viso to section 40(a)(ia) is
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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 conclusion that the said proviso is declaratory and curative and has retrospective effect from April 1, 2005, merits acceptance.”
In the result, the appeal of Revenue is partly allowed for
statistical purposes. Order pronounced on 13th November, 2017.
Sd/- (चं� पूजार�) (CHANDRA POOJARI) लेखा सद�य /ACCOUNTANT MEMBER
Chennai, Dated the 13th November, 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