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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI G.S.PANNU
ORDER The captioned appeal filed by the assessee pertaining to assessment year 2012-13 is directed against an order passed by CIT(A)-41, Mumbai dated 26/04/2016, which in turn, arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 30/12/2014.
In this appeal, the solitary issue relates to the action of the income tax authorities in disallowing interest expenditure to the tune of Rs.12,75,064/- paid to certain Non-banking Finance Companies by invoking section 40(a)(ia) of the Act on the ground of non-deduction of tax at source as prescribed under Chapter XVIIB of the Act.
(Assessment Year 2012-13) 2.1 In brief, the relevant facts are that the assessee is engaged in the business of running vehicles on hire through her proprietary concern M/s. Hriday Travels. As per details noted by the Assessing Officer in para 4.1 of the assessment order, assessee was found to have paid interest of Rs.12,75,064/- to seven Non-banking Financial Companies, on which the requisite tax was not deducted at source in terms of Chapter-XVII-B of the Act. For the said reason, the Assessing Officer invoked section 40(a)(ia) of the Act and disallowed the expenditure of Rs.12,75,064/-, which has since been sustained by the CIT(A) also.
Before me, the Ld. Representative for the assessee has raised varied submissions, but a pertinent point which has been raised is to the effect that the second proviso to section 40(a)(ia) of the Act, which has been inserted by the Finance Act of 2012, is equally applicable in the instant year and the said proviso mitigates the hardship of section 40(a)(ia) of the Act. In this context, Ld. Representative for the assessee pointed out that the said proviso prescribes 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, but has not been deemed to be an assessee in default under the first proviso to section 201(1) of the Act, then for the purposes of section 40(a)(ia) of the Act, it shall be deemed that assessee had deducted and paid the tax on such sum on the date of furnishing of the return of income by the resident payee referred in the said proviso. In support, Ld. Representative for the assessee also made an application seeking admission of additional evidence in terms of Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. In terms of the said application, the assessee has sought admission of certificates in Form No.26A in respect of four concerns, namely, Reliance Capital Limited; Reigare Finvest Ltd.; BMW financial Services Ltd. & Magma
(Assessment Year 2012-13) Fincorp Ltd. to demonstrate that the payees have filed their return of income disclosing the payment received from assessee and also paid tax on such income and accordingly assessee could not be treated a person in default in terms of the first proviso to section 201(1) of the Act. On the strength of the aforesaid, Ld. Representative for the assessee pointed out that the second proviso to section 40(a)(ia) of the Act comes to the rescue of the assessee. The Ld. Representative for the assessee pointed out that the aforesaid additional evidence is a vital evidence, which goes to determine the correct tax liability in the hands of the assessee and it has also been pointed out that such evidence, though not produced earlier, is purely in support of the assertions which were already made by the assessee before the lower authorities. It was pointed out that since the evidence related to the payees, it took time for the assessee to obtain the same, but the bonafides of the evidence cannot be challenged, inasmuch as, the same have been certified in the prescribed Form No.26A of the Act. The Ld. Representative for the assessee pointed out that both the lower authorities have taken the view that the second proviso to section 40(a)(ia) of the Act has been inserted by the Finance Act, 2012 w.e.f. 01/04/2013 and, therefore, the same is not applicable for the instant assessment year. On this aspect, the Ld. Representative for the assessee has referred to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Ansal Landmark Township(P) Ltd., 377 ITR 635(Del), wherein the said proviso has been understood to be even applicable to assessment years prior to 01.04.2013. It was therefore, contended that the additional evidence be admitted which is based on the second proviso to section 40(a)(ia) of the Act, and considered for adjudication.
On the other hand, the Ld. Departmental Representative pointed out that the CIT(A) has referred to the judgment of the Hon’ble Kerala High Court in the case of Shri Thomas George Muthoot vs. CIT (2015) 63 taxmann.com 99(Kerala) to hold that the second proviso to section 40(a)(ia) is applicable from 01/04/2013 and not to the instant assessment year.
I have carefully considered the rival submissions. It is quite clear that in the present case, section 40(a)(ia) of the Act has been invoked by the Assessing Officer on the ground that the prescribed tax has not been deducted at source on interest payments made to seven concerns as detailed in para 4.1 of the assessment order. The factum of non-deduction of tax at source is not disputed by the assessee. The preliminary line of defence set up by the assessee is on the strength of the second proviso to section 40(a)(ia) of the Act. The said proviso reads as under:-
"Provided further that where an assessee fails to deduct the whale or any part of the tax in accordance with the provisions of Chapter XVIII-B an any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, 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 payee referred to in the said proviso." 5.1 The aforesaid proviso came up for consideration before the Hon'ble Delhi High Court in the case of Ansal Landmark Township(P) Ltd.(supra), wherein it has been explained to be introducing a legal fiction in a situation when an assessee fails to deduct tax at source in accordance with the provisions of Chapter-XVIIB of the Act . The proviso lays down that in such a situation, when an assessee is not deemed to be an assessee in default in terms of the first proviso to section 201(1) of the Act, then it shall be deemed that assessee had deducted and paid the tax on such income on the date of furnishing of income by the resident payee referred to in the said
(Assessment Year 2012-13) proviso. As per the Hon'ble High Court , the first proviso to section 201(1) of the Act was inserted to benefit the tax payer and, therefore, insertion of the second proviso to section 40(a)(ia) of the Act is also required to be viewed in the same manner. In this background, the Hon'ble High Court approved the reasoning of the Agra Bench of the Tribunal that the second proviso to section 40(a)(ia) of the Act is declarative and curative and had retrospective effect from 01/04/2005 onwards. In view of the aforesaid decision, I am inclined to uphold the plea of the assessee that the second proviso to section 40(a)(ia) of the Act is applicable even in the instant assessment year. So however, the judgment of the Kerala High Court in the case of Shri Thomas George Muthoot (supra) has been referred by the CIT(A) to conclude to the contrary. In my considered view, where two contrary views of different High Courts are available, then in the absence of any decision of the Jurisdictional High Court, the view in favour of the tax payer is liable to be preferred in view of the principle laid down by the Hon’ble Supreme Court in the case of CIT vs. M/s. Vegetable Products Ltd., 88 ITR 192(SC).
5.2 In this background, I may now notice that the claim of the assessee, based on the second proviso to section 40(a)(ia) of the Act, can be put to test in an appropriate manner only once the aforesaid additional evidence is admitted. Quite clearly, it has to be objectively established that the conditions prescribed in the second proviso to section 40(a)(ia) of the Act has been satisfied or not? In support, assessee has produced the requisite certificates in relation to four concerns, which in my view, are required to dealt with on merits. At the time of hearing, Ld. Representative for the assessee pointed out that even with regard to the other three parties, the necessary evidence shall be produced to satisfy the Assessing Officer with regard to the conditions prescribed in second proviso to section 40(a)(ia) of the Act. Considering the entirety of facts and circumstances of the case, in my considered opinion, it would be in the fitness of things that the issue relating to the applicability or otherwise of the proviso to section 40(a)(ia) of the Act restored back to the file of Assessing Officer for a denovo adjudication on merits as per law. Needless to mention, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard in support of her plea and thereafter, the Assessing Officer shall pass an appropriate order in accordance with law.
In the result, appeal of the assessee is allowed, as above.