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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आयकर अपीलीय अिधकरण, ‘ए’ �यायपीठ,चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI �ी महावीर �सह, उपा�य� एवं �ी मनोज कुमार अ�वाल, लेखा सद�य के सम� BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 524/CHNY/2024 िनधा�रण वष�/Assessment Year: 2011-12 Ahlers India Pvt. Ltd., The Deputy Commissioner No.39, 2nd Floor, Vs. of Income Tax,, The Trapezium, Corporate Circle 1(1), Nelson Manickam Road, Chennai. Aminjikarai, Chennai – 600 029. PAN: AAECA 5688H (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/Appellant by : Shri Vikram Vijayaraghavan, Advocate ��यथ� क� ओर से/Respondent by : Shri AR.V. Sreenivasan, Addl.CIT सुनवाई क� तारीख/Date of Hearing : 27.06.2024 घोषणा क� तारीख/Date of Pronouncement : 27.06.2024 आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in Order No.ITBA/NFAC/S/250/2023- 24/1059291012 (1) dated 02.01.2024. The assessment was framed by the Deputy Commissioner of Income Tax, Company Circle 1(1), Chennai for the assessment year 2010-11 u/s.143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated
- 2 - ITA No.524/Chny/2024 16.02.2016. The impugned giving effect to the order of the Tribunal was framed by the DCIT, Corporate Circle 1(1), Chennai vide order dated 22.08.2017.
The only issue in this appeal of assessee is against the order of CIT(A)-NFAC confirming the action of the AO in disallowing expenses paid to various non-resident parties for non-deduction of TDS by invoking the provisions of section 40(a)(i) of the Act amounting to Rs.2,26,73,426/-. This is the only limited issue on merits but assessee has raised various other issues of proper opportunity etc., which will be dealt with later.
Brief facts are that the assessee filed its return of income for the relevant assessment year 2011-12 on 30.09.2011 whereby the AO disallowed a sum of Rs.2,26,73,426/- (the dispute presently left with us for adjudication) by invoking the provisions of section 40(a)(i) of the Act being payments made to non-resident claimed by assessee as expenses without deduction of TDS. The assessee challenged the draft assessment order before DRP and DRP vide directions dated 29.12.2015 directed the AO and in consequent to the same, final assessment order was passed by the AO u/s.143(3) r.w.s. 144C of the Act dated.16.02.2016. This final assessment order was challenged before the Tribunal and Tribunal vide order
- 3 - ITA No.524/Chny/2024 dated 03.03.2017 in ITA No.1071/Mds/2016 remanded the matter back to the file of the AO to examine the applicability of provisions of section 40(a)(i) of the Act, in view of the decision of Hon’ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd., reported in 377 ITR 635 (Del). The Tribunal finally directed vide para 3.1 as under:- “3.1 We find force in the argument of the ld.A.R. As held by the Delhi High Court in the case of CITvs. Ansal Land Mark Township (P) Ltd., reported in 377 ITR 635 (Del) is that the insertion of the second proviso to section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 1st April 2013 wherein the assessee failed to deduct tax in accordance with the provisions of Chapter XVII B as long as the payee or resident 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. Hence, in our opinion, if the recipient of the payment has disclosed the impugned receipt as their income, then the assessee cannot be considered as the assessee in default in terms of sec.201(1) of the Act so as to invoke the provisions of the section 40(a)(i) of the Act. Accordingly, we remit this issue to the file of AO to examine the applicability of the said proviso to Sec.40(a)(i) of the Act and decide accordingly. Therefore, the issue is remitted to the file of AO for fresh consideration. This Ground is partly allowed.”
3.1 In consequent to the above order of Tribunal, the AO in giving effect order dated 22.08.2017 confirmed the disallowance by observing in para 4 as under:- “4. With respect to payments to various resident parties without TDS deduction and the subsequent disallowance made by AO u/s.40(a)(ia), the Hon’ble ITAT, Chennai, had opined that if the recipient of the payment has disclosed the receipts of their income, then the assessee company should not be treated as assessee in default as per provisions of Sec.201(1) of the Income-tax Act, 1961. Since this provision was inserted by the Finance Act 2012 with effect from 1.7.2012 and the applicability of the same can be only
- 4 - ITA No.524/Chny/2024 from Asst. Year 2013-14. Further, the decision cited by the Hon’ble ITAT, Chennai in the case of CIT vs. Ansal Land Mark Township (P) Ltd., 377 ITR 635 (Del.), has not been accepted by the Department and SLP has been granted by the Hon’ble Apex Court in [2016] 73 taxmann.com (SC) dated 5.8.2016. Hence, the disallowance u/s.40(a)(ia) to the tune of Rs.22673426/- made vide order u/s.143(1) r.w.s. 144C dated 16.2.2016 is sustained.”
Aggrieved, assessee preferred appeal before CIT(A) and the CIT(A)- NFAC vide order dated 02.06.2021 dismissed the appeal of assessee as infructuous by observing in para 2 & 3 as under:- “2. The appellant has opted for Vivad Se Viswas Scheme vide application/declaration dated 22.12.2020. Further it has been intimated that pursuant thereto, the PCIT, Chennai-1 has certified full and final payment of Rs.NIL as taxes in terms of Form No.5, and has issued VSV order u/s 5(2) dated 20.04.2021.
In view of the above, the appeal is treated as infructuous in terms of Vivad Se Viswas Act, 2020.
3.2 Aggrieved, assessee preferred appeal before the Tribunal again and the Tribunal in ITA No.441/CHNY/2022 vide order dated 21.07.2022 remanded the matter back to the file of the CIT(A) with direction to adjudicate the issue on merits by observing in para 3 as under:- “3. Upon perusal of impugned order, it could be seen that the assessee’s appeal has been dismissed as infructuous on the ground that the assessee has opted for Vivad Se Vishwas Scheme. However, as per statement made by Ld.AR, the assessee has not opted for VSVS in respect of disallowance u/s 40(a)(ia). Considering the same, the impugned order is set aside and LD.CIT(A) is directed to adjudicate the issue on merits.”
- 5 - ITA No.524/Chny/2024 3.3 In consequence to the Tribunal’s direction, the CIT(A)-NFAC vide order dated 02.01.2024 again confirmed the disallowance by observing in para 5.3 to 5.5 as under:- “5.3 The appellant relied upon the decisions of the hon’ble high court of Delhi in the case of Ansal Landmark Township (P) Ltd., 377 ITR 635 as well as the case of Rajeev Kumar Agarwal v. Addl. CIT, ITA No.337 (Agra) of 2013 to state that the operation of second proviso to section 40(a)(ia) of the IT Act is retrospective and so it is applicable to the appellant. The AO in his order stated that the decision relied upon by the appellant was appealed against by the Department and the hon'ble supreme court had granted the SLP meaning that the issue had not reached a finality as yet.
5.4 It is pertinent to mention here that there are divergent views on the issue of retrospective operation of the said proviso. The hon'ble high court of Kerala in the cases of Prudential Logistics And Transports Income-tax Officer 51 taxmann.com 426 (Kerala) and also in the case of Thomas George Muthoot v. Comissioner of Income-tax, Kottayam, 63 taxmann.com 99 (Kerala) held that the fact that recipient has subsequently paid tax, will not absolve payee from consequence of disallowance under section 40(a)(ia) of the IT Act.
5.5 In view of the facts and circumstances of the case and keeping in view the judicial views on the subject, it is held that the disallowance made by the AO is in order.”
Aggrieved, now assessee is in appeal before the Tribunal.
We have heard rival contentions and gone through facts and circumstances of the case. Admitted facts are that the assessee is engaged in the business of shipping contract services. For that purpose, the assessee has made payments to non-residents and as per original assessment order, the total payment disallowed u/s.40(a)(i) of the Act is Rs.2,26,73,426/-. Admittedly, assessee
- 6 - ITA No.524/Chny/2024 has not deducted the taxes i.e., TDS u/s.195 of the Act. The ld.counsel for the assessee before us now stated that the Tribunal again and again has restored the matter back to the file of the CIT(A) or AO but none of the authorities have looked into the details given regarding the fact that these parties have declared the income in their respective returns of income and once the assessee has provided the details in respect of recipient parties that they have declared the respective income in their return of income, no disallowance u/s.40(a)(i) of the Act is to be made in view of second proviso for the reason that this issue has been settled by Hon’ble Delhi High Court in the assessee of Ansal Land Mark Township (P) Ltd., supra. As against the same, the CIT(A)-NFAC for rejection relied on the decision of Hon’ble Kerala High Court in the cases of Prudential Logistics and Transports vs. ITO reported in 51 taxmann.com 426 (Kerala) and Thomas George Muthoot vs. CIT reported in 63 taxmann.com 99 (Kerala). We noted that when there was contrary decision of two High Courts that is of non-jurisdictional High Court, beneficial to the assessee is to be applied and adopted. For this proposition of ours, we are relying on the decision of Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd., [1973] 88 ITR 192 (SC). In view of the above, we are of the view that the assessee is entitled for claim of deduction being amount paid to non-resident for expenses for the reason that the recipient
- 7 - ITA No.524/Chny/2024 parities have already declared the above receipts in their respective return of income and assessee has filed complete details before us and hence, the same cannot be disallowed by invoking the provisions of section 40(a)(i) of the Act. We reverse the order of CIT(A)-NFAC and allow the claim of assessee.
As regards to other jurisdictional issues raised by assessee as regards to proper opportunity, since we have adjudicated the issue on merits, we need not go into other issues, which have become academic.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court at the time of hearing on 27th June, 2024 at Chennai.
Sd/- Sd/- (महावीर �सह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated, the 27th June, 2024 RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� /CIT, Chennai 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF.