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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:
1. This appeal is filed by the assessee, aggrieved by the order of the Learned Commissioner of Income Tax(A)-3, Chennai dated 30.09.2016 pertaining to assessment year 2012-13.
The assessee has raised the following grounds for consideration.
The order of learned Appellant Commissioner of Income tax is contrary to law, evidence and facts of the case and is arbitrary.
2. The learned Appellant Commissioner of Income tax erred in not taking into account the submissions made and documentary evidences produced by the Appellant as to why the additions to income / disallowance of expenses should not have been made to the declared income and the same is against the principles of natural justice. 3. The order of the Commissioner of Income tax (Appeals) -3, Chennai is to be set aside and pass orders for cancellation of the additions to income / disallowances of expenses made in the order of Assessment.
2.1 There is a delay of 165 days in filing this appeal by the assessee. The ld.A.R drew my attention to the revised condonation petition filed on 08-11-2017 stating that the delay was on account of sudden illness of assessee company, Managing Director Mr.P K Bala Murugesh. During the end of February, 2017, he went to UK and there he developed serious illness and got admitted in the IpswischHospital, Ipswisch, U.K between 1st March and 10thMarch, 2017.A brain scan was done on 08.03.2017. As per U.K. Doctors’ advice, he rushed back to Chennai on 16.03.2017 and was under treatment for uncontrolled blood pressure. He was advised to take complete bed rest and I could not attend to the activities of the company during the period. At this juncuture that on 1st June,2017, a notice U/s.271(1)(c) of the Act was received. His erstwhile Auditor Mr.N.Subramaniam was not co-operative and thereafter, Mr.Rajasekaran,C.A. was advised him to file an appeal before the Tribunal as well as an appeal before the Ld.CIT(A). Accordingly, He submitted this appeal before this Tribunal on 20.06.2017. Therefore, there was a delay of 165 days in filing the appeal and and stated that the short delay of 165 days to be condoned in the interest of justice.
According to the ld. AR, refusal to condone the delay would result in a meritorious being thrown at the very threshold, cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a case would be decided on merit after hearing the parties. On this point, it is pertinent to draw the ratio laid down by the Supreme Court in the case of Collector Land Acquisition v. Mst.
Katigi (167 ITR 471). According to ld.A.R, there is good and sufficient reason to condone the delay and admit the appeal for adjudication. I have gone through the reasons advanced by the assessee in the revised condonation petition. In my opinion, there exists reasonable cause for filing the appeal belatedly. Accordingly, I condone the delay of 165 days in filing this appeal and admit the appeal for adjudication.
The brief facts of the case are that Assessee company is engaged in the business of buying Engines, Alternators, Electrical circuits of various capacities and other components and assembling them as Diesel Generating sets and sells them to the various clients who use them for generation of power as an alternate source of energy. In business parlance, the Assessee is known as Original Assembler of DG Sets. It sell the DG sets in all parts of India and also export them to Sri Lanka. These DG sets are assembled at their manufacturing facility situated at Pondicherry and sold to different places. The Unit was set up in the Union Territory of Pondicherry, a place declared as industrially backward area enjoying the benefits provided under Section 80 IA of the Act as announced in the Finance Act, 1993. For the Assessment year 2012-13, the Assessee filed its income tax return on 27.08.2013 admitting a total income of Rs.1,55,670/-. The return was selected for scrutiny assessment through CASS and notice u/s. 143(2) was issued on 04.09.2014. In response to the notices issued u/s. 143(2) as well as 142(1) of the Act, information relating to the return of income filed was provided.
The Assessing Officer completed the assessment by adding certain items to income.
3.1 The following items of expenditure were disallowed in computing the taxable income for the year for the reason that no tax was deducted at source as required under sec. 40a(ia) read with Chapter XVII of the Act as no particulars with regard to deduction of tax at source was provided by the assessee company at the time of assessment as the assessee failed to file the details of the same a) Audit fee 33,708 b. Legal & consultancy 35,360 C: Interest to other 7,55,420 8,24,488 3.2 Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A). Before Ld.CIT(A), ld AR has stated that assessee company has made the payment of audit fee amounting to `30,000 and `3,708 being service tax. He has further stated that the said amount is not exceeded `30,000/- which is below the amount liable for T.D.S. With regard to Legal & Consultancy Charges, it was submitted that an amount of `20,000/- was paid to BMQR Certification Put. Ltd. and `15,360/- was paid to n Advocate. Ld. AR argued that the amount is less than `30,000/- for which TDS provisions are not applicable. On appeal, Ld.CIT(A) observed that assessee has failed to submit these details before the AO, hence, declined to consider the submissions made by ld.A.R and dismissed the appeal. Against the order of Ld.CIT(A), now the assessee is in appeal before us.
Before us, ld.A.R submitted that second proviso to the section 40(a)(ia) of the Act is applicable for the assessment year under consideration and the application of that provision is not at all examined by the lower authorities and prayed that this issue to be remitted to the file of ld. Assessing Officer for fresh consideration.
On the other hand, ld.D.R fairly conceded the above argument of the ld.A.R.
I have heard both the parties and perused the material on record. In this case, the payments, which are below the amount liable for T.D.S, cannot be considered for disallowance u/s.40(a)(ia) of the Act. Further, the Second proviso to Sec.40(a)(ia) of the Act, which was inserted by the Finance Act,2012 with effect from 01.04.2013, introduces a legal friction where an assessee fails to deduct tax in accordance with the provisions of Chapter XVII-B.
Where such assessee is deemed not to be an assessee in default in terms of the first proviso to sub-section (1) of sec.201 of the Act, then in such even, “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 resident be referred to in the said proviso”. The First proviso to Sec.201(1) was inserted with effect from 01.07.2012 which reads as under:-
“Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident-
(i) has furnished his return of income under section 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 :”
In my opinion, the said proviso is applicable even for this assessment year and proviso is a curative nature as held by the Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd.(377 ITR 635) 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.
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 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 proviso 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."
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.”
6.1 Hence, in my opinion, it is appropriate to remit the issue to the file of ld. Assessing Officer to examine the issue afresh in the light of above discussion.
The next ground is with regard to disallowance of intrest paid to other parties at `7,55,420/-.
The brief facts of the case are that AO had called for details for unsecured loans shown by the assessee amounting to Rs 4,00,000/-.
However, assessee did not file require details. Further, Managing Director of the company was also informed to file the said details and also informed in the absence of said details, unsecured loans would have to be considered as unexplained cash credit. However, the assessee failed to use this opportunity. In the circumstances AO had considered said unsecured loans as unexplained Cash credits and made an addition. Aggrieved by the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A).
8.1 Before Ld.CIT(A) ,Ld. AR has filed details of interest paid to certain persons during the FY 2011-12 relevant to AY 2012-13 and also filed schedule to balance sheet under the head loan from other finance compary/relatives. The Ld.CIT(A) was of the opinion that the ld.A.R reiterated the details in the Balance Sheet ending 31.03.2012.
According to Ld.CIT(A), Ld. AR had failed to file loan confirmation letters, income tax details like PAN, bank Statements etc., to prove credit worthiness / geniuses and identity of the persons who had given loans to the assessee. Further, Ld.CIT(A) observed that the assessee has not filed these details either before the A.O or before Ld.CIT(A). Therefore,, Ld.CIT(A) endorsed the view of ld. Assessing Officer. Against the order of Ld.CIT(A), now the assessee is in appeal before us.
Before us, the contention of ld.A.R is that the impugned amount is not borrowed in the assessment year under consideration and it was borrowed in the earlier assessment years. To that effect, the assessee has filed its written submissions before the lower authorities, which are not at all considered by the Department.
Hence, ld.A.R prayed that it may be examined afresh.
On the other hand, ld.D.R relied on the order of the CIT(Appeals).
I have heard both the parties and perused the material on record. In my opinion, if the assessee is able to demonstrate before the AO that the credits was not emanated in the assessee year under consideration and it was appeared in books of accounts of earlier assessment years, then there may not be any addition in the assessment year under consideration. With this observation, I remit the issue to the file of ld. Assessing Officer for fresh consideration. 12 In the result, the appeal of assessee is partly allowed for statistical purposes. Order pronounced on 09th November, 2017. Sd/-
(चं� पूजार�) (CHANDRA POOJARI) लेखा सद�य /ACCOUNTANT MEMBER Chennai, Dated the 09th November, 2017. K s sundaram.