ACIT, TIRUNELVELI vs. M/S. KAJAH ENTERPRISES, TIRUNELVELI

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ITA 2966/CHNY/2016Status: DisposedITAT Chennai15 February 2017AY 2012-134 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that while the second proviso to Section 40(a)(ia) could be considered retrospective if the payee offered the income to tax, the Assessing Officer was not given an opportunity to verify this claim. Therefore, the issue required a fresh examination.

What were the facts?

The Assessing Officer disallowed interest paid by the assessee to a non-banking finance company for non-deduction of TDS. The assessee contended that the payee had offered the interest income to tax, and the second proviso to Section 40(a)(ia) should be applied retrospectively.

What were the issues?

Whether the disallowance under Section 40(a)(ia) is warranted when the payee has offered the interest income to tax, and whether the second proviso to Section 40(a)(ia) is retrospective. Whether the Assessing Officer was afforded an opportunity to verify the payee's tax compliance.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI (CAMP : MADURAI

Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE]

For Respondent: Shri. G. Baskar, Advocate

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

In this appeal filed by the Revenue, it is aggrieved that ld.

1.

Commissioner of Income Tax (Appeals) deleted the disallowance made by the ld. Assessing Officer u/s.40a(ia) of the Income Tax Act, 1961 (in short ‘’the Act’’) for want of deduction of tax at source.

ITA No. 2966/Mds/2016 :- 2 -:

2.

In the course of assessment proceedings, it was noted by the ld. Assessing Officer that assessee had paid interest of Rs.78,66,589/- to M/s. Kodak Mahindra Finance which was a non banking financing institution. As per ld. Assessing Officer assessee had not deducted tax at source as required u/s.194A of the Act. He applied Sec. 40a(ia) of the Act and made disallowance of Rs.78,66,589/-.

Aggrieved assessee moved in appeal before ld. 3.

Commissioner of Income Tax (Appeals). Contention of the assessee was that M/s.Kotak Mahindra Finance Ltd being the payee had offered the interest earned on the amounts lent to the assessee as a part of its income for the assessment year 2012-13.

Relying on the judgment of Hon’ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd 337 ITR 63, assessee submitted that second proviso to Sec. 40a(ia) of the Act inserted by Finance Act, 2012 had to be construed retrospectively. Ld. Commissioner of Income Tax (Appeals) was appreciative of his contention. He held that M/s.Kotak Mahindra Finance Ltd had offered interest earned on loans and advances by the assessee as part of its income, and assessee could not be deemed one in default. Thus, according to ld. Commissioner of Income Tax (Appeals) disallowance

ITA No. 2966/Mds/2016 :- 3 -: u/s.40a(ia) of the Act was not warranted. He deleted the disallowance.

Now before us, the ld. Departmental Representative strongly 4. assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that second proviso to Sec. 40a(ia) of the Act was prospective and effective only from 01.04.2013. Thus, according to him, assessee was in default in not deducting tax at source. In any case as per the ld. Departmental Representative, ld. Assessing Officer was not given any chance to verify whether deductee had offered the interest income to tax.

Per contra, ld. Authorised Representative strongly supported 5.

the orders of the authorities below.

We heard rival submissions and perused the orders of the 6. lower authorities. In so far as retrospective operation of second proviso to Sec. 40a(ia) of the Act is concerned, by virtue of judgment of Delhi High Court in the case of Ansal Land Mark Township Private Ltd (supra), ld. Commissioner of Income Tax (Appeals) was justified in taking a view that it could be deemed as retrospective, and assessee could not be treated as one in default, if the payee had offered interest

ITA No. 2966/Mds/2016 :- 4 -: income to tax. However, substance of the contention of the ld. Departmental Representative is that ld. Assessing Officer was not given an opportunity to verity the veracity of the claim of the assessee. We are of the opinion that the issue requires a fresh look by the ld. Assessing Officer. We set aside the orders of the lower authorities in so far as disallowance u/s.40a(ia) of the Act and remit it back to the file of the ld. Assessing Officer for consideration afresh in accordance with law.

7.

In the result, appeal of the Revenue is allowed for statistical purpose.

Order pronounced in the open court at the time of hearing on Wednesday, the 15th February, 2017 at Madurai.

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