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Income Tax Appellate Tribunal, BANGALORE BENCH C, BANGALORE
Before: SHRI. N. V. VASUDEVAN & SHRI. ABRAHAM P. GEORGE
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. N. V. VASUDEVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER (Assessment Year : 2010-11) Shri. M. Thiyagarajan, No.66, 2nd Right Cross, Sriram Temple Street, New Thippasandra, Bangalore 560 075 ..Appellant PAN : AAUPT3071A v. Commissioner of Income-tax Officer, Bangalore – 4, Bangalore ..Respondent Assessee by : Shri. V. Sreedhar, CA Revenue by : Shri. Sunil Kumar Agarwala, JCIT Heard on : 06.08.2015 Pronounced on : .08.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by assessee, it assails an order dt.09.03.2015 of CIT Bengaluru-4, Bengaluru, passed u/s.263 of the Income-tax Act, 1961 (‘the Act’ in short).
Facts apropos are that assessee had filed his return for the impugned assessment year declaring income of Rs.16,17,200/-. Assessment was completed on 08.03.2013, after scrutiny u/s.143(3) of the Act. On 23.02.2015, ITA.651/Bang/2015 Page - 2 CIT issued a notice u/s.263 of the Act, inter alia stating that assessee had paid hire charges of Rs.60,18,269/- to one M/s. BLLPL, without deducting tax at source. As per the CIT, Section 40(a)(ia) stood attracted. In reply to the above, assessee submitted that the recepient M/s. BLLPL had accounted the hire receipts and paid tax thereon. As per the assessee, in the first place there was no amount outstanding payable to M/s. BLLPL at the end of the relevant previous year, and secondly, M/s. BLLPL having already accounted the hire charges in its books, second proviso to Section 40(a)(ia) added by Finance Act, 2012 came to its aid. Payee having accounted the receipt and paid tax thereon, as per the assessee, Section 40(a)(ia) of the Act, could not be applied on the assessee.
However, CIT was not impressed. According to him, amendment to Section 40(a)(ia) of the Act, introduced by Finance Act, 2012 came into effect from 01.04.2013 and would not help the assessee since the impugned assessment year was prior to it. He held that hire charges of Rs.60,18,269/- warranted disallowance u/s.40(a)(ia) of the Act for want of deduction of tax at source. He cancelled the assessment and directed the AO to redo the same after considering the disallowance mentioned above.
Now before us, Ld. AR submitted that in the first place there was no amount outstanding payable to M/s. BLLPL. Further according to the Ld. AR AO had on 05.02.2014 enquired from the assessee why vehicle charges should not be disallowed. As per the Ld. AR, assessee had in its reply dt.17.05.2014 stated that amendment to Section 40(a)(ia) made through Finance Act, 2012 ITA.651/Bang/2015 Page - 3 applied retrospectively. As per the Ld. AR, the said M/s. BLLPL had accounted the receipt of vehicle hire charges, filed their return and paid taxes thereon. Ld. AR submitted that copies of financial statements and return of income of M/s. BLLPL were produced before the CIT. He relied on the decision of coordinate bench in the case of G. Shankar v. ACIT [ITA No.1832/Bang/2013, dt.10.10.2014].
Per contra, Ld. DR strongly supporting the order of CIT submitted that amendment made to Section 40(a)(ia) of the Act, through Finance Act, 2012, w.e.f.01.04.2013 could not be considered as retrospective. Legislature had not no such intention. Further according to him, AO did not make any enquiries in this regard and correspondence now relied on by the assessee were subsequent to the completion of the assessment u/s.143(3) on 08.03.2013,
We have perused the orders and heard the rival submissions. Assessment order u/s.143(3) done on 08.03.2013 was cryptic. It is reproduced hereunder : The assessee filed e-return of incom on 12.-10-2010 vide Ack. No.0121010 declaring a Total Income of Rs.16,07,200/-. This case was selected for scrutiny under CASS during the financial year 2011-12. Consequently notices u/s.143(2) was issued on 26/8/2011 which was served on 28/11/2011. In response to the notices the assessee’s authorised representative Shri. R. Nedumaran CA appeared from time to time and produced the details called for which were verified and case was heard. The assessment is completed by accepting the returned income. Assessee has not been able to place any correspondence prior to the date of the assessment order with regard to the payments effected by it to M/s. BLLPL.
ITA.651/Bang/2015 Page - 4 Letter from the AO which sought clarification on the issue of vehicle hire charges placed at paper book page 16 was dated.05.02.2014 and reply given to it by the assessee was dt.17.09.2014. Assessment order was passed on 08.03.2013. It is therefore obvious that AO during the course of assessment proceedings had not applied his mind to the question whether hire charges paid by the assessee to M/s. BLLPL required deduction of tax at source and whether Section 40(a)(ia) of the Act was to be applied. No doubt, assessee had taken a stand before the CIT that the amount stood paid and there was nothing outstanding to M/s. BLLPL as on 31.03.2010. However we find from the final account statements filed by the assessee, vehicle hire charges was accounted as direct expenses and under the head , current liabilities there was a sundry creditors balance of Rs.329,74,942/-. Therefore, whether vehicle hire charges were actually paid or were a part of sundry creditors is not clear from the final account statements filed by the assessee. Further, the question whether the amounts stood paid or was payable as at the end of the relevant previous year was never verified by the AO at any point of time.
Coming to the retrospectivity of the second proviso to Section 40(a)(ia) of the Act, added through Finance Act, 2012, nodoubt, coordinate bench in the case of G. Shankar (supra) had held as under :
5.4.1 We have heard the rival submissions and perused and carefully considered the material on record, including the judicial decisions cited. Admittedly, the undisputed fact is that the assessee in the case on hand, has not deducted tax at source on the payments made to Shri Uday Kumar Shetty amounting to Rs.1,53,78,795/-. As submitted by the ld.AR, as far as the payments made by the assessee to Shri Uday ITA.651/Bang/2015 Page - 5
Kumar Shetty, the fact that the payee has accounted for these payments in his books of account, financial statements and the same have been offered for tax in his return of income for the period relevant to assessment year 2005-06, has not been controverted by the authorities below. In our considered opinion, since the payee/ recipient i.e. Shri Uday Kumar Shetty has accounted for these payments in his books of account, audited u/s 44AB of the Act and has offered the same for tax in his return of income for the relevant period, thus, by virtue of the amendment, by way of insertion of the second proviso to section 40(a)(ia) of the Act w.e.f. 1/4/2013, the provisions of section 40(a)(ia) of the Act would not be attracted to the payments made by the assessee to Shri Uday Kumar Shetty amounting to Rs.1,53,78,795/-. In coming to this view, we draw support from the two above cited decisions of the co-ordinate benches of this Tribunal in the case of DCIT vs. Anand Marakala (ITA No.1584/Bang/2012 and CO No.58/Bang/2013 dated 13/9/2013) and S.M.Anand vs. ACIT (ITA No.1831/Bang/2013 dated 21/2/2014) wherein it was held that insertion of the second proviso to section 40(a)(ia) of the Act should be read retrospectively from 1/4/2005 and not prospectively from 1/4/2013. In this view of the matter, the provisions of section 40(a)(ia) of the Act is not attracted to the payments made by the assessee to Shri Uday Kumar Shetty amounting to Rs.1,53,78,795/- since the object of introduction of section 40(a)(ia) is achieved for the reason that the payee/recipient has accounted for, declared and offered for taxation the payments received from the assessee in his hands. 5.4.2 Earlier, we have held that the second proviso to section 40(a)(ia) of the Act is retrospective in operation w.e.f. 1/4/2005. As per this newly inserted proviso, the assessee is required to file Form No.26A as per rule 31ACB of the IT Rules,1962 so as not to be held as an assessee in default as per the proviso to section 201 of the Act. As held in the decision of the co-ordinate bench in the case of S.M.Anand vs. ACIT (supra), since the assessee in the period under consideration i.e. assessment year 2005-06, could not have contemplated that such a compliance was to be made, we also in the case on hand, remit the matter to the file of the Assessing Officer. The Assessing Officer is directed to consider the allowance or otherwise of the expenditure claimed amounting to Rs.1,53,78,795/- on account of payments to Shri Uday Kumar Shetty after affording the assessee adequate opportunity to file Form No.26A and verification of whether the said payee has reflected the payment/receipt in his books of account and offered the same to tax in the period under consideration. In these circumstances, we set aside the order of the ld.CIT(A) to the file of the Assessing Officer only for the limited purpose as directed above.
ITA.651/Bang/2015 Page - 6
Coordinate bench had relied on the earlier decision of Agra bench of this Tribunal in the case of Rajeev Kumar Agarwal v. Addl. CIT [ITA No.337/Agra/2013, dt.29.05.2013] for coming to the conclusion that second proviso to Section 40(a)(ia) added through Finance Act, 2012 had to be construed retrospectively. However, even if we construe the second proviso to Section 40(a)(ia) added through Finance Act, 2012 as retrospective, the question whether M/s. BLLPL had accounted the vehicle hire charges and paid taxes thereof was never verified by the AO. He had no information in this regard. Assessee produced the details of such a claim for the first time only before the CIT. Even from such accounts produced it could not be categorically stated that income-tax due on vehicle hire charges received were indeed paid by M/s. BLLPL. Just because the tax return was filed by the payee, would not mean that taxes on every receipts were duly accounted and paid by it. In any case it is clear that the AO had not made any enquiry in this regard. There was total lack of enquiry. Lack of enquiry on points which require consideration, and which any prudent man would have done, would render the assessment order erroneous and prejudicial to the interests of Revenue. We are of the opinion that CIT was justified in taking this view though his observation that second proviso to section 40(a)(ia) added through Finance Act, 2012 had no restrospectivity does not appear in consonance with the Tribunal decisions cited above. We therefore uphold the order of the CIT, but direct the AO to redo the assessment, ITA.651/Bang/2015 Page - 7 but with a modification that the AO shall proceed to consider the issues mentioned by CIT, untramelled by his observations on the retrospectivity of second proviso to Section 40(a)(ia) of the Act. AO shall proceed in accordance with law.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on ____ day of August, 2015.