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Income Tax Appellate Tribunal, ‘D’BENCH,
Before: Shri S.S.Viswanethra Ravi & Shri Dr.Arjun Lal Saini
This appeal by the assessee is against the order dated 19- 02-2016 of the Commissioner of Income Tax (Appeals), 13, Kolkata for the assessment year 2010-11.
At the time of hearing the Ld.AR submits that the only effective issue is ground no-1 and therefore, in this appeal is to be decided as to whether the assessee is entitled to seek and to remand the issue to the file of the AO in view of the amendment made in section 201 of the I.T Act, 1961 by inserting first proviso in the facts and circumstances of the case.
IT A No. 1377/Kol/16 Syed Anwar Hussain 1
The brief facts of the case are that the Assessee is a HUF and is a cloth merchant and filed return of income for the assessment year under consideration on 30-10-2010 disclosing total income at Rs.3,12,075/-. Under scrutiny, notices 143(2) and 142(1) of the Act were issued. In response to which, the ld.AR of assessee appeared and produced tax audit report [TAR] with form 3CD, audited trading a/c, profit & loss a/c and balance sheet with scheduled annexure, details of ledger copy of purchase and sale, sundry debtor and sundry creditor. On perusal of such details and replies of party’s u/s. 133(6) of the Act, the AO found that the assessee has paid commission to selling agents without deducting TDS. According to AO, the assessee could not produce any supporting document of TDS payment challan and not offered any satisfactory explanation regarding the issue, thereby the total commission expenses to an extent of Rs.25,89,946/- was disallowed by invoking the provisions of section 40(a)(ia) of the Act.
The assessee challenged the same before the CIT-A and contended that disallowance u/s. 40(a)(ia) of the Act is not applicable as there was outstanding commission payment. However, relying on the judgments of the Hon’ble High Court in the case of CIT vs. Crescent Export Syndicate & Ors and the Hon’ble Gujrat High Court in the case of CIT vs. Sikandar Khan N Tunvar, the CIT-A confirmed the impugned assessment order passed by the AO in disallowing the said amount in question. It is pertinent to note that the AO wrongly noted the commission expenses of Rs.25,89,946/- basing on the online return and whereas the Assessee claimed Rs.13,78,223/- in audited account & balance sheet. The Assessee brought the error to the IT A No. 1377/Kol/16 Syed Anwar Hussain 2 notice of the CIT-A and on an examination of the record and the CIT-A found satisfied that the AO wrongly noted the commission amount at Rs.25,89,946/- and corrected the same as at Rs.13,78,223/- assessee failed to produce any evidence that income of commission has been shown by the payees in their returns that the deductee had paid taxes on the aforesaid receipt.
Before us the ld.AR of the assessee submits that the assessee did not deduct tax on payment of commission due to inadvertence and as such he sought for an opportunity before us to file all the details of the payees in respect of receipt of commission disclosing the same in their returns and urged to remand the issue to the file of the AO to verify the same in view of the amendment made in section 201 of the I.T Act, 1961. In support of his contention he relied on the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Ansal land Mark Township (P) Ltd reported in 377 ITR 635 (Del).
Heard rival submissions and perused the material available on record. We find that the assessee having in the cloth business and engaged some selling agents to sell the goods to others and the commission paid without deducting TDS. But the CIT-A confirmed the impugned addition made by the AO only on the ground that the assessee could not produce the all the details as required to be filed before him to confirm whether such payees offered such receipts to tax or not. As discussed above, the Ld. AR undertakes to file all the details of payees before the AO for his verification.
IT A No. 1377/Kol/16 Syed Anwar Hussain 3
In this regard we may refer to the decision as relied by the Ld.AR in the case of CIT Vs. Ansal land Mark Township (P) Ltd reported in 377 ITR 635 (Del) of Hon’ble High Court of Delhi, while dealing with the case on hand and had an occasion to read down the decision of Agra Bench of Tribunal in ITA 337/Agra/2013 as it was relied on, and held and agreed with the reasoning and conclusion to the insertion of second proviso to section 40(a)(ia) of the Act by the legislature. The relevant portion from paras 11 to 14 are reproduced here in below:
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 fulfillment 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 ITA T in Rajiv Kumar Agarwal v. A 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 para 9 of the said order which reads as under:
"On a conceptual note, 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 deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. 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 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 IT A No. 1377/Kol/16 Syed Anwar Hussain 4 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 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40 a)(ia1 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 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 1st April, 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 IT AT 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 1st April 2005, merits acceptance.
The Hon’ble High Court supra found that there is a mandatory requirement u/s. 201 to deduct at source, but, however, opined, the assessee cannot be viewed as a person in default in view of the first proviso to section 201(1) of the Act and further that the insertion of second proviso to section 40(a)(ia) of the Act was intended to benefit the assessee and it shall be viewed as in the same manner as that of first proviso to section 201(1) of the Act.
Taking into consideration the submissions of the Ld.AR and in the interest of justice , we are of the view that the issue shall go back to the AO for verification of the same and keeping in view of the principle enunciated by the Hon’ble High Court of Delhi supra, we are of the view that the if the concerned payee(s) has taken into account the relevant sum as received from Assessee towards payment of commission for IT A No. 1377/Kol/16 Syed Anwar Hussain 5 computing income in their returns of income furnished u/s. 139 of the Act and has paid tax due on the income declared in such return, We, therefore, set aside the impugned order of CIT(A) to the extent confirming the disallowance made by the AO u/s. 40(a)(ia) and restore the matter to the file of the AO for deciding the same afresh in the light of the submissions of the assessee. The assessee shall be at liberty to file requisite evidences, if any, to substantiate its claim. This ground no-1 of assessee’s appeal is allowed for statistical purpose and as discussed above, the Ld AR did not render any submissions on ground no-2 and therefore, it is treated as not pressed and it is dismissed.