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We have heard the rival submissions and gone through the records. We note that the main grievance of the revenue is that the second proviso to section 40(a)(ia) of the Act is applicable only from AY 2013-14 onwards and the effect of second proviso cannot be retrospective. We note that this issue is no longer res-integra. The Hon’ble Calcutta High Court has upheld the consistent view of the Tribunal that the second proviso to section 40(a)(ia) of the Act is declaratory and curative and so is retrospective w.e.f. 01.04.2005. We note that the recipients in this case i.e. M/s. Damani Shipping Pvt. Ltd. has included the payment made by the assessee in its receipts and disclosed the income therein in its return of income filed by it. The Ld. CIT(A) has made a finding that a certificate endorsing that the recipient M/s. Damani Shipping Pvt. Ltd. has included this payment in question in its receipt and disclosed the income contained therein. In such a scenario, the Ld. CIT(A) has directed the AO to satisfy himself after perusing the certificate issued by M/s. Damani Shipping Pvt. Ltd. We do not find any infirmity in the order passed by the Ld. CIT(A). We note that the Hon’ble jurisdictional High Court in the case of Pr. CIT, Kol-8 Vs. M/s. Tirupati Construction in GA No. 2146 of 2016 with ITAT No. 287 of 2016 dated 23.08.2016 for AY 2009-10 wherein the Hon’ble High Court upheld the action of the Tribunal. The Tribunal in this case was pleased to set aside similar issue to the file of the AO (i.e. disallowance made u/s. 40(a)(ia) of the Act) and directed AO to verify whether the recipient has shown it as its income in the light of the applicability of second proviso to section 40(a)(ia) of the Act and for doing that, the Tribunal relied on the decision of the Hon’ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd., wherein it has been held that the second proviso to section 40(a)(ia) of the Act is declaratory and curative. Since the jurisdictional High Court has upheld the order of the Tribunal wherein in the same tax bracket and paid the same rate of tax, there was no question of diversion of funds by paying higher rate to subsidiary companies and, therefore, no disallowance can be made u/s. 40A(2)(b) of the Act. Thus, the Ld. AR has submitted that there is no question to evade tax by paying interest @ 15% to the related party. The Ld. AR brought a chart showing the disallowance made for Binod Kumar Gupta for AYs 2010-11 to 2012-13 as under:
Asstt. Year Income Returned Disallowance of interest U/s. 40A(2)(b) 2010-11 Rs.2,86,82,010/- Rs. 1,93,332/- 2011-12 Rs.4,10,54,143/- Rs. 2,37,118/- 2012-13 Rs.2,45,48,180/- Rs. 1,78,437/-
The Ld. AR also brought a chart which gives the gross total income of the lender/related parties, which are as under:
Binod Kumar Gupta Gross Total Income of Asstt. Year : 2010-11 Asstt. Year : 2011-12 Asstt. Year : 2012-13 Smt. Madhu Gupta Rs. 36,11,139/- Rs. 41,87,489/- Rs. 35,27,569/- Shri Varun Gupta Rs. 20,30,384/- Rs. 19,00,777/- Rs. 13,45,872/- Shri Vikash Gupta Rs. 9,54,036/- Rs. 10,60,519/- Rs. 19,41,651/- Bnod Kumar Gupta,HUF ---- ---- Rs. 37,55,682/- Shibha Gupta ---- ---- Rs. 11,32,413/- From a perusal of the above chart we note that the lenders are family relatives who are related parties are taxed at the highest slab as that of the assessee. Following the decision of the Hon’ble Bombay High Court, we are of the view that once the assessee is able to establish that the recipients of interest are paying the tax at the highest rate on their income which includes interest received from the assessee, then no disallowance is called for u/s. 40A(2) of the Act for want of motive of evasion of tax. Accordingly, on principle, we accept the contention of the Ld. AR and set aside the order of Ld. CIT(A) and remand the matter back to the file of the AO and the AO is directed to verify the rate of tax at which the recipients of interest paid are taxed and if the rate of tax paid by the recipients is equivalent