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Income Tax Appellate Tribunal, ‘D’ BENCH
Before: Shri M.Balaganesh & Shri S.S.Viswanethra Ravi
Shri S.S.Viswanethra Ravi, JM:
This appeal by the assessee is directed against the order dated 22-01-2016 passed by the Commissioner of Income Tax (Appeals), 21, Kolkata for the assessment year 2006-07.
The assessee has raised the following grounds:- 1. For that in the facts and circumstances of the case the appellate order passed was in violation of principals of natural justice hence is bad in law and be quashed.
For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals passed the appellate order without giving proper opportunity of hearing. 3. For that in the facts and circumstances of the case the disallowance of Rs.87,388 /- on account of Studio Hire Charges by invoking the provisions u/s 40 (a)(ia) of the IT Act 1961 was not called for and hence the same be reversed. 4. For that in the facts and circumstances of the case the disallowance of Rs.1,13,700/- on account of Instrument Hire Charges by invoking the provisions u/s 40(a)(ia) of the IT Act 1961 was not called for and hence the same be reversed. 5. For that in the facts and circumstances of the case the disallowance of Rs.1,06,780/- on account of Artist Expenses by invoking the provisions u/s 40 (a)(ia) of the IT Act 1961 was not called for and hence the same be reversed.
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For that in the facts and circumstances of the case the disallowance of Rs.29,700/- on account of Assistant Fees by invoking the provisions u/s 40 (a)(ia) of the IT Act 1961 was not called for and hence the same be reversed. 7. The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963. 8. For that the interest computed u/s 234A/B/C/D of the IT Act 1961 is over charged and wrongly calculated and or is not applicable to the assessee case it be directed to re-compute the interest as per law. 9. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.
The assessee is an Individual and is a musician by profession filed return of income on 27-09-2006 declaring a total income of Rs.2,09,770/- for the A.Y 2006-07. The case was reopened and notice u/s. 148 was issued ,in response to the said Notice, the assessee himself appeared and stated the original return as filed may be treated as return filed u/s. 148 of the Act vide letter dated 18-02-2008. Thereafter, notice u/s. 143(2) and a requisition u/s. 142(1) were also served on the assessee to produce relevant documents in support of his return. On examination of such information as brought on record, the AO made four additions on account of Studio Hire Charges of Rs. 87,388/-, an amount of Rs. 1,13,700/- on account of instrument Hire Charges, Payment to the tune of Rs. 1,06,780/-under the head Artist Expenses and Payment to an assistant Mr. Sovan Dey amounting to Rs. 29,700/- under the head Assistant Fees.
The Assessee assailed the order of AO before the CIT-A, but, however, could not prosecute his case. According to CIT-A that he has given many opportunities to Assessee and on some occasions the AR sought adjournments and as such the case was adjournments. Finally, on 04-01- 2016 as no one present for the Assessee dismissed the appeal of the Assessee on 22-01-2016 and the relevant portion of which is herewith is reproduced herein below:
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Decision : The instant appeal was filed on 30.01.2009 in the office of CIT(A)-XXXVI, Kolkata. Subsequently, in March, 2015 it was transferred to this office of CIT-A-(C)-II, Kolkata. At present its jurisdiction lies with the office of CIT(A)-21, Kolkata. Since that the instant appeal is pending for very long and therefore, Board’s direction vide File No. FTS274535/2015 dated 26.12.2015 is referred here. 3.1 The appellant has filed four grounds of appeal but the appellant has complied with the notice of hearing of appeal. It is pertinent to mention that the appellant was requested after repeated non-compliance vide letter dt. 11.02.2014 to comply. The appellant was duly informed that “if you do not wish to avail yourself of this last opportunity of being heard in person or through authorized representative your appeal is liable to be dismissed.”The relevant part of the letter dt. 11.02.2014 is reproduced below. The above mentioned appeal has been transferred from the Office of the Commissioner of Income Tax (Appeals)-XXXVI, Kolkata to the undersigned. The above mentioned appeal was fixed for hearing on 01.03.2012, 13.04.2012 and 11.01.2013 but non appeared. On all the occasions the A/R of the appellant, Shri Miraj D. Saha filed adjournment and it was considered accordingly. The case was fixed for hearing on 05.02.2014 at 10.30AM, but none appeared before the undersigned either personally or through an Authorised Representative to defend the appeal above. The case is fixed for hearing on 28.02.2014 at 10.30 AM and a fresh notice for hearing is also issued. This is your last opportunity, if you do not wish to avail yourself of this last opportunity of being heard in person or through authorized representative your appeal is liable to be dismissed.” 3.2 The appellant did not comply. However, even after the repeated non-compliance, notices of hearing were issued on 14.11.2014 and 04.01.2016. But the appellant has not complied.
Ground no-3 is raised challenging the addition made on account of studio hire charges u/sec 40(a)(ia) of the Act to an extent of Rs.87,388/-. The AO found violation the provisions of Section 194J as studio rendered technical services to the assessee by providing musical as well as technical instruments for which the assessee made payments by way of consideration. For non- production of any lease or sub-lease agreement or any other- agreement regarding the instrument hire charges, the AO apprehended that the assessee must have hired the instruments on contract or sub-contract within the meaning of Section 194(C) and disallowed of Rs. 87,388/- on account of Studio Hire Charges and as discussed above, the CIT-A dismissed the appeal of the Assessee for non-appearance.
Before us, the Ld.AR argued that the assessee submitted through reply on 05-12-2008 during the assessment proceedings stating that he did not pay more than Rs. 1,20,000/- to any single party as the studio provides their studios room with furniture and equipment on rent to the music
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directors and musical instruments are also hired on rent by the music directors from the different sources and violation u/sec 194C does not apply. The Ld.AR reiterated the submissions as canvassed before the AO and argued that the Assessee paid only Rs.87,388/- as found by the AO and the same is below the prescribed monetary limit as provided U/Sec 194I and the violation u/Sec 194C is not attracted and contended that the impugned addition is liable to be deleted. The Ld.DR submits that the submissions as made were not available before the lower authorities and urged to send the issue to the AO for verification.
Heard both and perused the material evidence on record. It is not disputed the payment of Rs. 87,388/- under the head Studio Hire Charges paid to three different studios Rs. 21,902/- to Prasad Recording Studio, Rs. 22,535/- to On Air Communication and Rs. 42,951/- to Solaris Studio Pvt. Ltd. It is observed from the submissions of the Assessee in explanation to the payment of Rs. 87,388/- on account of Studio Hire Charges that it is a practice of a Music Director to call musician at the hired studios for recording from different parties and sources as per his requirement and planning to play under his instruction. A music director having no set up to record music at his home and he has to arrange everything required by hire on rent and no contractual agreement is required for hiring the studios and musical instruments. Further the assesse submitted that the studios would charge the hire charges for using the studios setup on hourly basis and provides their studios room with furniture and equipment on rent to the music directors and pleaded the question of TDS deduction under section 194C does not arise. We find force in the submissions of the Ld.AR in this regard. The impugned addition as made by the AO is admittedly below the prescribed monetary limit as required u/section 194I of the Act, therefore,
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we hold that the addition made for violation of Section 194C is not maintainable and as such it is deleted, accordingly, ground no-3 is allowed.
Ground no-4 involving the payment to the tune of Rs. 2,31,736/- under the head Instrument Hire Charges which includes payments of Rs. 1,13,700/- paid to three parties of Rs. 22,400/- to Mr. Netai Lal Chakraborthy, Rs. 35,200/- to Mr. Debaditya Chowdhury and Rs. 31,400/- to Mr.Gaurav Chatterjee. In explanation to an amount of Rs. 1,13,700/- on account of instrument Hire Charges assessee submitted through reply on 05- 12-2008 that it did not pay more than Rs. 1,20,000/- to any single party as the studio provides their studios room with furniture and equipment on rent to the music directors and musical instruments are also hired on rent by the music directors from the different sources and violation u/sec 194C does not apply. The relevant portion of the same is herewith reproduced herein below:
"It is normal! practice of a Music Director to call musician at the hired studios for recording from different parties/sources as per his requirement/planning to play under his instruction. Needless to mention that a music director does not have their on set up to record music at his home and he has to arrange everything required by hire on rent. No contractual agreement has been made for hiring the studios and musical instruments. That the studios has charged the hire charges for using the studios setup on hourly basis. In other words a studio provides their studios room with furniture and equipments on rent to the music directors. So the question of TDS deduction under section 194C does not arise. Musical instruments are also hired on rent by the music directors from the different sources. The person who are providing the equipments and the person who are playing them are all different. So there are no contractual agreement made with any single party. Even the Income Tax was also not clear for TDS issue of equipment hire unless the amendment made in section 194(1) by the finance act 2007, w.e.f 01.06.2007. Even in this amendment the limit fixed for TDS deduction is Rs. 1,20,000/-. Your assessee has not paid more than Rs. 1,20,000/- to any single party during the year under scrutiny. Therefore non compliance of provision under sec 194(I) do not arise."
The AO was of the view that the Assessee wrongly applied the provision of Section 194(I) in the case of Studio Hire Charges. The AO by applying explanation (b) of 194J and explanation 2 to clause (vii) of subsection (1) of Section 9 wherein it clearly stated that "fees for technical services" means any considerations including any lump sump consideration for the rendering of any managerial, technical or consultancy services including the provisions
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of services of technical or other personnel. For non- production of any lease or sub-lease agreement or any other-agreement regarding the instrument hire charges, the AO apprehended that the assessee must have hired the instruments on contract or sub-contract within the meaning of Section 194(C) and disallowed of Rs. 1,13,700/- on account of Instrument Hire Charges. The CIT-A dismissed the appeal of the Assessee for non- appearance.
Before us, the Ld.AR contends that the assessee is an individual and the provisions of section 194C as it was relevant to the AY 2006-07 i.e. under consideration and it is not applicable to the facts and circumstances of the present case concerning the instrument hire charges and argued that the assessee is not liable to deduct tax against the payment made towards instrument hire charges to an extent of Rs.1,13,700. The Ld.AR argued that due to the amendment of section 194C by Finance Act 2007, wherein an individual was made liable to deduct tax came into force 1-4-2007 relevant to made applicable for the AY 2007-08 and relied on the order of Co- ordinate Bench of Kolkata Tribunal in the case of Sri Pradip Saha in ITA No.1765/Kol/2011 for the AY 2006-07 and referred to para no-4 of the said order.
In reply, the ld.DR submits that there was no representation on behalf of assessee before the CIT-A and referred to para no-3 of the order of the CIT-A. He also argued that the CIT-A has offered many opportunities to the assessee, but, no such opportunity was properly availed by the assessee in support of grounds raised before the CIT-A. He further argued that the said arguments as advanced by the ld.AR of the assessee were not before the CIT-A for his consideration and sought remand of issues to the file of the AO
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to find out the applicability of said section in the light of the submissions as made by the ld.AR before us.
Heard rival submissions and perused the material evidence on record. We find from the assessment order that the assessee is an individual and the AO effected disallowance towards instrument hire charges for violation of the provisions contemplated under section 194C and made addition by invoking the section 40(a)(ia) of the Act. The contention of the Ld.AR is that the provisions under section 194C is not applicable to the disallowance as made by the AO as the Assessee was assessed in the capacity of an individual and as the individual made liable to deduct tax by Finance Act 2007 and such provision came into force from 01-06-2007 and placed reliance on the order of Coordinate Bench of this Tribunal supra and we shall examine the same by reproducing as below: “4. We find that it is an admitted fact that the assessee is an individual and made payment in respect of labour charges and advertisement charges. We find that this issue is squarely covered in favour of the assessee and against the revenue by the decision of Coordinate Bench of this Tribunal in the case ACIT Vs Smt. Keya Seth in ITA No.842 & 843/K/2010 for assessment years 2006-07 & 2007-08 vide order dated 11.03.2011, wherein exactly the same issue has been decided as under: “5. We have heard rival contentions and gone through facts and circumstances of the case. It is an admitted position that the assessee an individual carrying on the business of Ayurvedic (Cosmetic Division) and the consultancy on beautician and also related therapies . As claimed by the assessee, whether the provisions of Section 194(1) as existed in assessment years 2006-07 & 2007-08 will apply to the assessee or not? Admittedly, assessee has not deducted any TDS on advertisement payment and according to her, provisions of Section 194C(1) as existed in the relevant assessment years will not obliterate any duty on assessee to deduct TDS. Now, we have to examine this. The relevant provisions of Section 194C(1) & (2) as exist in assessment year 2006-07 & 2007-08 reads as under :-
“(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and-- (a) the Central Government or any State Government ; or (b) any local authority ; or (c) any corporation established by or under a Central, State or Provincial Act ; or (d) any company, or (e) any co-operative society ; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both ; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India ; or (h) any trust ; or 7 ITA No. 1411/Kol/2016 Debjyoti Mishra
(i) any University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956), or (j) any firm,
shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to-- (i) one per cent. in case of advertising, (ii) in any other case two per cent. of such sum as income-tax on income comprised therein.
(2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein.” XXXX XXXX XXXX
From the above provisions of Section 194C(1), it is clear that the payments made by individual or Hindu Undivided Family does not come within the ambit of TDS i.e. the expenditure incurred for advertisement as individual and HUF are specifically excluded in the above provisions. The provision of Sub-Section (2) applies only to payments made to Sub-Contractors and not to Contractors. Accordingly, Assessing Officer can not made disallowance by invoking provisions of Section 40a(ia), as present assessee being an individual is not liable to deduct tax in view of provisions of Section 194C(1) as existed in the relevant assessment years. No doubt, assessee’s turnover exceeds the monetary limit as specified under clause (a) or clause (b) of Section 44AB and the assessee’s accounts are subject to audit and the assessee has audited her accounts and filed Tax Audit Report along with return of income. We find that the Assessing Officer has made disallowance in view of the amended provisions of Section 194C(1) by the Finance Act, 2007 with effect from 01.06.2007 wherein it is proposed to amend Sub-Section (1) in Section 194C so as to include payments made by any individual or Hindu Undivided Family whose total sales / gross receipts or turnover from the business or profession carried on by him exceed monetary limit specified under clause (a) or clause (b) or Section 44AB during the financial year or immediately preceding financial year in which such sum is credited or paid to the account of the Contractor. This amendment takes effect from 1st day of June, 2007 and is applicable for and from assessment year 2008-09. In Section 194C(1) with effect from 01.06.2007, by the Finance Act, 2007, clause as inserted, reads as under :- “(k) any individual or a Hindu Undivided Family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of Section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to -
(i) one per cent in case of advertising, (ii) in any other case two per cent, of such sum as income-tax on income comprised therein : Provided that no individual or a Hindu Undivided Family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu Undivided Family.”
We find from the arguments of Ld.SR. DR that revenue want to invoke provisions of Sub-Section (2) of Section 194C for furtherance of this case but we are of the considered view that Section 194C(2) will apply to the payments made to Sub-Contractors by the Contractor and not by the assessee. In the present case, it is an admitted position that the assessee has made payments on advertisement to the Contractors and not to Sub-Contractors. Further as referred by Ld. Counsel for 8 ITA No. 1411/Kol/2016 Debjyoti Mishra
the assessee, this provision was explained by CBDT Circular No.3 of 2008 dated 12.03.2008 which is reported in (2008)299 ITR 8 (Statute) and the relevant Circular as reported at page 71, reads as under :-
“54. Expansion of scope of the provisions of section 194C.
54.1 The existing provisions of sub-section (1) of section 194C provided for deduction of income-tax at source from any sum credited or paid to the resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government, local authorities, statutory corporations, companies, co-operative societies, statutory authorities engaged in providing housing accommodation, etc., registered societies, trusts, universities and firms. The rate of TDS is 1% in respect of advertising contracts and 2% in other cases.
54.2 The existing provisions of sub-section (1) of section 194C did not provide for deduction of tax at source on payments made by an individual or a Hindu undivided family to a contractor.
54.3 Considering the rising number of contracts being awarded by individuals and HUFs carrying on business or profession and the increasing volume of such payments to contractors, it was felt that there is need to require such persons to deduct tax at source from payments made by them to contractors.
54.4 There would be genuine difficulties if individuals or HUFs with small business turnovers or gross receipts of profession are required to deduct tax at source. An exception in such cases would be justified. Similarly the contracts awarded by an individual or a member of HUF of HUF exclusively for personal purposes merit exclusion.
54.5 Accordingly, the Finance Act, 2007, has substituted the said sub-section (1) to include in its ambit such individual or a Hindu undivided whose total sales, gross receipts or turnover from the business or profession carried on exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding financial year in which sum is credited or paid to the account of the contractor. This amendment shall not apply in respect of payments made to a contractor by any individual or a member of a Hindu undivided family exclusively for their personal purposes.
54.6 Applicability - This amendment will take effect from the 1st day of June, 2007.”
In view of the above clear provisions of Section 194(1) as existing in assessment years 2006-07 & 2007-08, i.e. relevant assessment years in the present appeals, it is clear that the assessee is under no obligation to deduct TDS on the expenditure of advertisement, as the assessee being an individual, and the claim of the assessee is as per provisions of law. Once the assessee is not liable to deduct TDS under the provision of Section 194C(1), the provisions of Section 40a(ia) for making disallowance of expenditure for non-deduction of TDS will not apply. We further find that, it is not the case of the revenue that the expenses are bogus or unreasonable or excessive but the disallowance is made merely for non-deduction of TDS. Accordingly, we are of the considered view that CIT(A) has rightly deleted the disallowance and we confirm the same.”
4.As the issue raised by the revenue is exactly on similar facts in the present case, taking a consistent view, we are of the view that the amended provisions of section 194C(1) of the Act will not apply to the present assessment year on the assessee. Accordingly, this issue of the revenue’s appeal is dismissed. “
The facts in the above discussed order are that the assessee therein was an individual and the AO made disallowance for not deducting tax in respect of payments made towards labour and advertisement charges and the Coordinate Bench held the said disallowance is not maintainable in view
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of the order dt:11-03-2011 of Tribunal in the case of Smt.Keya Seth. We find that the said Coordinate Bench discussed the relevant provisions of Section 194C(1) and 2 as existed in A.Y’s.2006-07 and 2007-08 together with the Circular No-3/2008 dated 12-03-2008 in detail and held that the Assessee being an Individual is under no obligation to deduct tax and provisions under section 194C(1) is not applicable to A.Y’s.2006-07 and 2007-08 for an individual. In the present case, the year under consideration is 2006-07, therefore, we find that the facts and the law laid down by the Coordinate Bench supra is applicable to the issue on hand. Thus, we hold that the disallowance as made for violation of section 194C and the addition therein by invoking Section 40(a)(ia) of the Act is not maintainable and, therefore, the impugned amount to an extent of Rs.1,13,700/- on account of Instrument Hire Charges is deleted and ground no-4 is allowed.
Ground no-5 relates to the payments to Artists and addition made thereon for violation U/Section 194C of the Act by invoking Section 40(a)(ia) of the Act. During the assessment proceedings, the AO found the payments to the tune of Rs. 3,55,472/- under the head Artist Expenses which includes payments of Rs. 1,06,780/- (Rs. 35,1801/- to Mr. Lalan Das, Rs. 40,300/- to Mrs. Mahua Das and Rs. 31,3001/- to Mrs. Lina Bhattacharya ) made without deducting any tax at source. In explanation the assessee stated vide his reply that he could not concentrate in his profession during the period due to some personal problems and not satisfied with the reply of the assessee the payment of Rs. 1,06,780/- under the head Artist Expenses was disallowed under the provisions of u/s. 40(a)(ia) of the Act and added to the total income. As discussed above, the CIT-A dismissed the appeal of the Assessee for non-appearance.
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Before us, the Ld.AR submits that the direction may be ordered to AO to examine, whether the said payments made to Artists as found by the AO declared as their income in their returns or not and placed reliance on the decision of Hon’ble High Court of Delhi in the case of Ansal Landmark Township (P) Ltd reported in 362 ITR 241(Del) and the Ld.DR reported no objection to the plea of the Ld.AR. The relevant findings of the Hon’ble High Court in the case of Ansal Land Township (P) Ltd supra has held as under:-
It is seen that the second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-Section (1) of Section 201 of the Act, then, in such event, "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".
It is pointed out by learned counsel for the Revenue that the first proviso to Section 201 (1) of the Act was inserted with effect from 1st July 2012. The said proviso reads as under:
"Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income; And the person furnishes a certificate to this effect from an accountant in such form as may be prescribed.
The first proviso to Section 210 (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 fulfilment 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 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) 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 ITAT in Rajiv Kumar Agarwal v. ACIT (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: 11 ITA No. 1411/Kol/2016 Debjyoti Mishra
"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 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)(ia), 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 as retrospective 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."
keeping in view of the principle enunciated by the Hon’ble High Court of Delhi supra and respectably following the same, we are of the view that the if the concerned payee(s) has taken into account the relevant sum as received from Assessee for 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 of assessee’s appeal is allowed for statistical purpose. 12 ITA No. 1411/Kol/2016 Debjyoti Mishra
Ground no-6 relating to the payment to an assistant Mr. Sovan Dey amounting to Rs. 29,700/- under the head Assistant Fees. Not satisfied with the reply that in view of personnel problems, the AO payment to an extent of Rs. 29,700/- under the head Assistant Fees was disallowed under the provisions of 40(a)(ia) of the Act and added to the total income. As discussed above, the CIT-A dismissed the appeal of the Assessee for non- appearance.
Before us, Ld.AR argued that regarding the charges of payment to assistant, the AO without mentioning the charging of section, the AO disallowed and added Rs.29,700/- under Chapter VIIB of the Finance Act. Ld.AR argued that in facts and circumstances of the case, the provisions of sections 192, 194C and 194J are not applicable and the addition involving the impugned amount liable to be deleted. The Ld.DR submits that the submissions as made were not available before the lower authorities and urged to send the issue to the AO for verification.
Heard both and perused the material evidence on record. It is observed from the assessment order that the AO did not specify the charging section as required to be made any disallowance under the Act, but, however, mentioned the only the chapter VIIB of the Finance Act where the deduction at source commences to start from section 192. As rightly pointed by the Ld.AR in the absence of any charging section the disallowance thereon is not permissible. Ld.AR argued that the disallowance cannot be under sections 192, 194C and 194J of the Act as no such evidence brought on record to show that the said Assistant is an employee or carrying out any work under contract or rendered any professional or technical services to the Assessee as required under said charging sections. Therefore, we find force in the arguments of the Ld.AR and we hold that the addition made account
13 ITA No. 1411/Kol/2016 Debjyoti Mishra
of payment to Assistant to an extent of Rs.29,700/- in the absence of any evidence is not maintainable, accordingly, ground no-6 raised is allowed.
Grounds 1 and 2 becomes infructuous in view of the discussion and decisions rendered by us in ground no’s 3,4,5 and 6 above mentioned paras and ground no-7 being general need no adjudication, hence, all the grounds dismissed.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court as dictated on 31-01-2017
Sd/- Sd/- M. Balaganesh S.S.Viswanethra Ravi Accountant Member Judicial Member
Dated 31-01-2017
Copy of the order forwarded to: 1. Appellant/Assessee: Shri Debjyoti Mishra C/o D.J Shah & Co. Kalyan Bhavan 2 Elgin Road, Kolkata-700 020. 2 Respondent/Department : Income Tax Officer W 22(4) 54/1 Rafi Ahmed Kidwai Road, Kolkata-700 016. 3. CIT, 4. CIT(A), 5. DR, Kolkata Benches, Kolkata **PP/SPS [ True Copy]
By order, Asstt Registrar
14 ITA No. 1411/Kol/2016 Debjyoti Mishra