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Income Tax Appellate Tribunal, “E”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A), Mumbai, dated 21-5-2014, for the assessment year 2009-2010, wherein following grounds have been taken by the assessee :- Ground No.1 The ld. CIT(A) has erred in confirming the addition of Rs.3,79,600/- under section 40(a)(ia) of Income Tax Act.
2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is a partnership firm engaged in the business of manufacturing copper wires. The assessee firm filed its return of income declaring NIL income on 29-9-2009. During the course of scrutiny assessment the AO made a disallowance of Rs.3,79,600/- on the plea 2 that assessee has not deducted tax at source u/s.40(a)(ia) of the I.T.Act. By the impugned order the CIT(A) confirmed the disallowance against which is in further appeal before us.
3. We have considered rival contentions and found that the assessee has incurred genuine expenses exclusively for the purpose of business amount Rs.3,12,000/- on rent and Rs.67,600/- on transportation. It was contended by ld. AR that payee has already paid the tax, non-deduction of tax by the taxpayer will not alter the situation. The provisions of Section 201(1) the Act which provides that if any person does not deduct the tax or after deducting such tax does not pay the same to the credit of the Government, and if the taxpayer has also failed to pay such tax, then such person would be treated as an 'assessee in default'. The word 'and' is very important because it clearly indicates that if the payee makes payment of tax, then deductor cannot be treated as an 'assessee in default.
4. The Supreme Court decision in the case of Hindustan Coca Cola Beverage (P) Ltd [2007] 293 ITR 226(SC) where it was held that once the tax is paid by the deductee, the deductor cannot be treated as an 'assessee in default' for the purpose of Section 201 of the Act. The purpose of introduction of Section 40(a)(ia) of the Act was to make sure of the compliance of TDS provisions. It was not a separate tax and if the payee pays such tax, the purpose stands fulfilled and the deductor cannot be subjected to any further penal action.
The following second proviso has been inserted by the Finance Act, 2012 w.e.f.01.04.2013 : “Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on 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 in such sum on 'he date of furnishing of return of income by the resident payee referred to in the said proviso. It has been held by the ITAT Bench of Agra in the case of Rajeev Kumar Agarwal vs. Addl. CIT [2014 45 taxmann.com 555] that insertion of second proviso to section 40(a) (ia) with effect from 1-4-2013 is declaratory and curative in nature and it has retrospective effect from 1-4- 2005, being date from which sub-clause (ia) of section 40(a) was inserted by Finance (No. 2) Act, 2004.
In view of the above, the assessee cannot be deemed to be assessee in default in view of the first proviso to section 201(1) since the payee has filed his return of income and declared such amount as income and has also paid the necessary taxes. Moreover, the assessee can also not be deemed to be an assessee in default under section 40(a) (ia) in view of the second proviso to Section 40 (a) (ia) which is retrospective in nature. 7. In the result, appeal of the Assessee is allowed.