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Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 443/JP/2022
ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by assessee and is arising out of the order of the National Faceless Appeal Centre, Delhi dated 25/10/2022 [here in after (NFAC)] for assessment year 2013-14 which in turn arise from the order dated 19.03.2016 passed under section 143(3) of the Income Tax Act, by the DCIT, Circle-03, Jaipur.
2. The assessee has marched this appeal on the following grounds: - “1. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in directing Id.AO to allow interest expenses of Rs. 55,16,628/- [paid to Religare Finvest Ltd. and disallowed u/s 40(a)(a)] in A.Y. 2014-15, i.e. in subsequent Assessment Year, by misinterpreting the second proviso to section 40(a)(ia) of the Act, arbitrarily. 1.1 That the Ld. CIT(A) has further erred in confirming the disallowance made by Id.AO /s 40(a)(ia) in AY. 2013-14, by brushing the decision of Hon'ble ITAT, Jaipur bench delivered in the case of assessee itself for A.Y. 2012-13, where under identical circumstances the same was allowed as expenses in A.Y. 2012-13 only. Appellant prays that decision of ITAT is binding precedent and ought to have been followed by ld.CIT(A). 1.2 That Id CIT(A) has further erred in confirming the disallowance made by Id.AO by ignoring the fact since the assessee is not in default within the meaning of section 201(1) for the year under consideration, therefore no disallowance u/s 40(a)(ia) could be made. It is submitted that both the provisos to section 40(a)(ia) were inserted to avoid undue hardship to the assessee and are beneficial provisions, thus have to be interpreted liberally and disallowance made deserves to be deleted.
That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.”
The fact as culled out from the records is that the return was e-filed on 30.09.2013 declaring total income at Rs. Nil. The case was selected for scrutiny through CASS and notice u/s 143(2) was issued on 05.09.2014 and served upon the assessee. Due to change of incumbent, notice u/s 142(1) along with questionnaire were issued on 03.11.2015 and duly served upon the assessee on 03.11.2015. The assessee is engaged in the hospitality business running restaurants, bar and room rent services. On perusal of audit report and books of accounts produced by the assessee’s A/R on filed with the return of income in Form No. 3CD, it has been noticed that the assessee has not deducted TDS on 55,29,863/- and thereby the same was added in the income of the assessee.
The above disallowance u/s. 40(a)(ia) was made by the ld. AO in respect of payment of interest of Rs. 55,29,863/- which was made two NBFC namely Religare Finvest Ltd. for an amount of Rs. 55,16,628/- and Magma Fincorp Ltd. 13,325/- without making TDS.
Aggrieved from the order of the Assessing Officer, assessee preferred an appeal before the ld. CIT(A)/NFAC. A propose to the grounds so raised the relevant finding of the ld. CIT(A)/NFAC is reiterated here in below:
“8.13 Coming to the facts of the instant case, I have perused the certificate issued by the CA of M/s. Religare Finvest Ltd. and found that M/s. Religare Finvest Ltd. had actually filed return of income for the assessment year 2013-14 in the financial year 2013-14 relevant to the assessment year 2014-15. To be precise the return of income was filed on 29.11.2013, which squarely falls under FY 2013-14 and the corresponding assessment year is AY 2014-15. 8.14 Accordingly, in view of the afore-mentioned discussion, even after considering the 2nd proviso to section 201(1) of the Act, the assessee is not entitled to claim deduction towards interest paid to M/s. Religare Finvest Ltd. in the impugned FY 2013-14.
8.15 In this regard, reliance is placed on the following latest judicial. (1) Surya Prabha Sunkavalli vs. ITO (ITA No.1327/Hyd/2018, ITAT- Hyderabad Bench "B", dated 21.06.2022): In this case, involving similar set of facts and legal issue regarding the year of allowability of deduction on the basis of certificate issued in Form 26A wherein the assessee paid interest to M/s. Religare Finvest Ltd. without deducting tax at source u/s.194A of the Act, the Hon'ble ITAT, Hyderabad, Division Bench "B" has recently i.e., on 21.06.2022, has held that the assessee is entitled to claim deduction of interest in the AY relevant to FY in which the deductee i.e., M/s. Religare Finvest Ltd., has filed return of income, rather than the AY in which the assessee paid the interest without deducting tax at source. The relevant portion of the decision is reproduced below for ready reference. "19. Coming to the Second addition of Rs. 77,809/- and the failure of the assessee to effect TDS on the interest paid to M/s. Religare Finvest Ltd., is concerned, facts are admitted. Assessee failed to effect TDS on the amount. It further stands admitted that the payee, namely, M/s. Religare Finvest Ltd. filed their return of income on 29/11/2014 which falls in the financial year 2014-15 relevant for the assessment year 2015-16. Ld. CIT(A) referred to the Second proviso to 40(a)(ia) of the Act wherein it is stated 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 sum, but is not deemed to be an assessee in defaulter under the First proviso to subsection (1) of section 201, then, for the purpose of this subclause, it shall be deemed that the assessee has a deducted and paid the tax on such sum on the date of fumishing of return of income by the resident payee referred to in the said proviso. Ld. CIT(A), therefore, held that inasmuch as the date on which the payee filed the return of income on 29/11/2014, which falls in the financial year 2014-15 relevant to the assessment year 2015-16, the assessee would be entitled to treat such deduction only in respect of the assessment year 2015-16 but not in respect of the assessment year 2014-15. Assessee challenges this finding.
Since facts are admitted, and the question is only in respect of the application of law, we have gone through the relevant provisions. The mandate of Second proviso to section 40(a)(ia) of the Act is that the assessee shall be deemed to have deducted the tax in accordance with the provisions of chapter XVII-B only on the date on which the payee referred to in the First proviso. Though the counsel referred to the First proviso and submitted that under First proviso the assessee shall be deemed to have affected the TDS during the previous year in which the assessee deducted the tax. According to him inasmuch as the Second proviso says that there was declaration of the sums received by the payee in their return of income, such fact will relate back to the assessment year in respect of which such deemed deduction applies.
We find it difficult to agree with the submission made by the Ld. AR. First proviso deals with the cases where the assessee deducted the tax in any subsequent year or deducted during the previous year but paid subsequent to the due date specified in section 139 (1) of the Act. Insofar as the case on hand is concerned, the assessee never made any deduction in respect of the interest amount paid to M/s. Religare Finvest Ltd. It is only the Religare Finvest Ltd. that declare this income in the return of income. To this specific case the Second proviso alone is applicable and no reference need be made to the First proviso in the context. It, therefore, goes without saying that the assessee shall be deemed to have made the deduction not in the relevant previous year but in the previous year in which the payee filed the return of income. It is not otherwise. When the law is clear in its import, it is not open for the adjudicatory authority to take a different view and that too impermissible under First proviso. With this view of the matter, we find it difficult to agree with the Ld. AR. Accordingly we dismiss the other grounds of appeal
also.
22. In the result, appeal of the assessee is dismissed." (Emphasis supplied) (2) Sanapala Satyanarayana vs. ACIT (ITA No.63/Viz/2019, ITAT- Visakhapatnam Bench, dated 04.11.2019): Similarly, in this case, involving the similar set of facts and legal issue as well as the same impugned AY 2013-14, the Hon'ble ITAT, Visakhapatnam, Division Bench, has held that the assessee is entitled to claim deduction of interest in the AY relevant to FY in which the deductee has filed return of income, rather than the AY in which the assessee paid the interest without deducting tax at source. The relevant portion of the decision is reproduced below for ready reference: "
We have heard both the parties and perused the material placed on record. In the instant case, the assessee has made the payment without deduction of tax at source and the recipient has filed the return of income on 28.11.2013 relevant to the F.Y. 2013-14 which is relevant to the A.Y. 2014-15. As per second proviso to sub section 40(a)(ia) of the Act, if the assessee is not deemed to be assessee in default in accordance with the provisions of Chapter XVII-B of the Act, on the said sum it shall be deemed that the assessee has deducted the TDS and paid the tax on such sum on the date of furnishing the return of income by the recipient referred to in said proviso, if the recipient has admitted the income and paid the tax thereon. In the instant case, the payee has filed the return of income on 28.11.2013 which is relevant to the A.Y.2014-15. Therefore as rightly held by the Ld.CIT(A), the assessee is entitled to claim the benefit of second proviso in the subsequent A.Y. i.e. 2014-15, but not for the A.Y. 2013-14. The Ld.CIT(A) has clearly brought out the facts and discussed the issue in detail in his order". (Emphasis supplied) 8.16 At this juncture, it is important to note that the decision of Hon'ble ITAT, Jaipur Bench (supra) on which the assessee placed reliance upon is not applicable for the impugned AY 2013-14 inasmuch as, the issue decided in the said case is relating to retrospective effect of 2nd proviso to section 201(1) of the Act, rather than year of allowability of deduction on the basis of Form 26A regarding the return of income filed by the deductee/recipient of the interest amount. Thus, the said reliance is of no use to the assessee. 8.17 Accordingly, respectfully following the decision of the two of the Co- ordinate Benches of the Hon'ble ITAT, the AO is directed to allow deduction towards interest paid to M/s. Religare Finvest Ltd. to the extent of Rs. 55,16,628/- in the subsequent assessment year i.e., AY 2014-15, provided the assessee furnishing the first part of Form 26A, that is, the assessee's declaration, along with annexure to Form 26A, that is, certificate of the CA of M/s. Religare Finvest Ltd. Thus, the ground no.2 raised by the assessee is treated as partly allowed.”
As the assessee did not receive the favour in complete from the appeal so filed before the ld. CIT(A), the assessee has preferred this appeal before the tribunal. The ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below; “Kindly refer to captioned appeal fixed for hearing before hon’ble bench. In this regard, under instructions of the assessee, following humble submission is made for your kind and sympathetic consideration: Brief facts of the case are that the assesse is a private limited company and filed its return of income at NIL on 30.09.2012. The case was picked up for scrutiny and assessment was completed after making certain additions/disallowance, which inter alia included addition made by ld.AO u/s 40(a)(ia) to the tune of Rs.55,29,863/- on account of interest expenses paid by assessee without deduction of tax at source. Assessee preferred appeal before ld.CIT(A), who confirmed the addition so made by ld.AO, therefore assessee has presented this appeal before your honours. With this factual background, ground-wise submission is made as under: Grounds of Appeal No. 1 to 1.2: In these grounds of appeal, assessee has challenged the action of ld.CIT(A) in not allowing interest expenses of Rs. 55,16,628/- [being interest paid to M/s Religare Finvest Ltd. in F.Y. 2012-13] A.Y. 2013-14 and rather allowing the same in subsequent Assessment year, i.e. A.Y. 2014-15, even though assessee was not in default within the meaning of section 201(1) of the Income Tax Act. Facts pertaining to the grounds of appeal are that the above disallowance u/s 40(a)(ia) was made by ld. AO in respect of payment of interest of Rs. 55,16,628/- made by assessee to NBFC (non-banking finance company) namely M/s Religare Finvest Ltd. without making TDS on such payments under the bona fide belief that payment to a NBFC was not eligible for any TDS. While invoking the provisions of section 40(a)(ia) ld. AO did not treat the assessee in default within the meaning of section 201(1). At the outset it is submitted that the disallowance of similar nature under identical circumstances was also made in the immediately preceding assessment year i.e. in AY 2012-13 where the same was deleted by the ld. CIT(A) and such orders was confirmed by hon’ble ITAT, copy of order is at APB 9-19. It is further submitted that during the year under consideration, assessee has paid a total interest of Rs. 55,16,628/- to the above NBFC under the bonafide belief that payments made to NBFC was not eligible for any TDS and accordingly no tax was deducted in terms of section 194A. In support of claim, assessee had furnished certificate in form 26A from CA of M/s Religare Finvest Ltd., in accordance with proviso to section 201(1) r.w.s. rule 31ACB, certifying that the taxes in respect of interest income of Rs. 55,16,628/-were duly paid by the said NBFC. Accordingly assessee should not be held in default for the said amount. But the ld. AO did not appreciate the same, and made the impugned disallowance without controverting the certificate so filed by the assessee.
It is submitted that the Finance Act 2012 has inserted the proviso to section 201(1) to the effect. The same is quoted below: - Consequences of failure to deduct or pay. 201. [(1) Where any person, including the principal officer of a company,— (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: [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, Since, M/s Religare Finvest Ltd furnished his return of income under section 139; and a certificate as prescribed u/s 201(1) was also furnished by assesse, certifying that M/s Religare Finvest Ltd. has taken into account such sum for computing income in such return of income; and has paid the tax due on the income declared by him in such return of income, thus conditions mentioned above stand fulfilled and the assessee is not at default. Still, the provisions of section 40(a)(ia) were wrongly applied in the case of the assessee. It is also pertinent to mention here that while deciding appeal, ld.CIT(A), though has admitted that assessee has furnished Form 26A certificate from CA of the deductee, i.e. M/s Religare Finvest Ltd., however he as directed to 9 Shiv Kripa Hotels Pvt. Ltd., vs. DCIT ld.AO to allow the deduction claimed in A.Y. 2014-15 by misinterpreting 2nd proviso to section 40. At this juncture, first and second proviso to section 40(a)(ia) are reproduced for the sake of convenience: “40. Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",— (a) in the case of any assessee— (ia) any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub-section (1) of section 139 :] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub- section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :] [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 on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.]” From perusal of above, it is apparent that as per : First proviso: if tax has been deducted in subsequent year or has been deducted during the previous year but paid after the due date u/s 139(1)- expenses shall be allowed in the previous year in which such tax has been paid; Second Proviso: if assessee fails to deduct tax but is not deemed to be an assessee is default under first proviso to section 201(1), then assessee shall be deemed to have deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee.
Your honours would also appreciate that second proviso to section 40(a)(ia) creates deeming fiction and thus needs to be construed strictly. From the bare reading of proviso, it is clear that it nowhere mentions as to in which the year, deduction shall be allowable, rather it mentions that date of furnishing Return of Income by payee shall be treated as the date of payment of tax by assessee. This is further fortified from the legislative intention as provided in memorandum explaining the reasons for insertion of second proviso to section 40(a)(ia). Relevant extracts of the same are reproduced here under for the sake of convenience: “Clause 11 Clause 11 of the Bill seeks to amend section 40 of the Income-tax Act relating to amounts not deductible. It is proposed to insert a new proviso to sub-clause (ia) of clause (a) to the aforesaid section 40 so as to provide 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 purposes of this sub-clause, 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. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-2014 and subsequent assessment years.” It is further explained in memorandum explaining finance bill 2012 that : “In order to rationalise the provisions of disallowance on account of non-deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing deduction of such sum, 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. These beneficial provisions are proposed to be applicable only in the case of resident payee. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and Subsequent assessment years.”
From perusal of above, it is evident that amendment to section 40(a)(ia) by inserting second proviso was brought in to “Rationalise the existing provisions”, i.e. to make section achieve its true purpose viz. to reduce undue hardship being faced by businessman due to strict TDS provisions. Moreover, provisions being beneficial in nature, the same need to be interpreted liberally With this background, it is submitted that Ld.CIT(A) has observed that : “However, the fulfillment of requirements shall be reckoned in the AY or FY relevant to the date on which the deductee / recipient of income has filed his return of income u/s. 139 of the Act. As such, the assessee cannot claim the deduction towards the payment made without affecting the TDS in the same FY or AY of incurring the expenditure towards such payments inasmuch as the date of filing the return of income by the deductee / recipient of such amount or income would fall in the subsequent FY or AY. Accordingly, under any circumstances, the year of claim of deduction by the assessee and the year of filing the return of income by the deductee / recipient of the income should not fall in the same FY or AY.” In this regard, it is submitted that Ld.CIT(A) has misinterpreted the very simple and unambiguous provisions, i.e. of second proviso, to section 40(a)(ia) which provide that date of filing return of income by payee shall be deemed as date of payment by the assessee and nowhere mentions that the expenses would be allowed to assessee in the year of filing of Return of Income by the payee. It is submitted that second proviso inserted by Finance Act 2012 w.e.f.A.Y.2013-14 cannot be read on standalone basis as has been done by ld.CIT(A) rather it has to be read conjointly with entire section. At this juncture, it would also not be out of place to mention that Section 40(a)(ia) was introduced in the statute with a view to augment the compliance of TDS provisions and a provision therefore was made therein to disallow the expenses for which, tax was not deducted at source and/or the tax having been deducted at source was not paid to the credit of the Central Government within the time prescribed in section 200(1). However, provisions of this section were causing undue hardship to the assesse, that too when assesse is discharging such liability of collecting and depositing tax on behalf of the government. Therefore on recommendations of various professional organisations and Industry, suitable amendments have been brought in from time to time. In pre-budget Memorandum for the year 2010, in one such recommendations, the Confederation of Indian Industry highlighted the general hardships caused to the assessees as under:
"Section 40(a)(ia) provides for disallowance of the expenses incurred in the nature of interest, commission, brokerage, fees for professional services as well as payment to contractors if the tax has either not been deducted or if deducted not paid within the due date. This harsh provision brought on the statute book by the finance Act, 2004 with effect from assessment year 2005-06. For a small default of not paying 1% of the TDS to the Government the intention of the legislature to disallow the whole of the expenditure which in turn will lead to levy of tax @ 33.99% plus interest and penalty is unheard of in the world.
The provision is a confiscatory in as much as that at times when the amount of TDS involved is only 1% of the expense the additional tax liability comes to 33.99% of the sum which is further increased by levy of interest under section 234B and 234C. In most of the cases the total tax and interest liability comes to somewhere between 44% to 46% of the amount in question. It will be appreciated that such disproportionate burden on the assesses for not collecting the tax from a third party (which is essentially a job of the Government) is undoubtedly unreasonable. It is more so in almost all such cases payments are through banking channels and are fully amenable to verification and there are hardly any reason to doubt that those receipts are not disclosed by the recipients. The argument is also no consolation to the businessman whose business in subsequent year is not good enough to absorb the deduction of expenses disallowed in earlier year under section 40a(ia). True the deduction can be allowed but if the computation of income results in loss in subsequent year, he does not benefit from such deduction. To sum up this aspect, it is clear that allowances of the deduction in subsequent year may not in all cases give full relief in subsequent year and secondly, there will be no relief whatsoever in respect of interest charged under section 234B and 234C in the year of its disallowance. The ratio of the additional tax burden on the assesses to the alleged loss of tax, or its delay is preposterous. There are remedial provisions contained under chapter XVII of the Income Tax Act for recovering of TDS amount interest and penalty thereon and therefore having provisions U/s 40a(ia) is not only extremely harsh but tantamount to double taxation. Firstly he is penalized by amount equivalent to TDS along with a penal interest under section 201(A) and under section 220(2) secondly, he is again penalized by the provisions of section 40a(ia). Recommendation. Section 40a(ia) should drawn/deleted and/or bring suitable amendments in the said act, to help assessee in losing genuine deduction on this account. Hon'ble Finance Minister found merit in the above suggestions made by the Industry in the form of representations in their pre-budget Memorandum. Accordingly, the provisions of section 40(a)(ia) were amended by the Finance Act, 2010 and while proposing the aforesaid amendments to section 40(a)(ia), Hon'ble Finance Minister stated in para 137 of his Budget Speech delivered in the Parliament on 26th February, 2010 as reported in [321 ITR (St) 1 at 24, page 34] as under: "Relaxing the current provisions on disallowance of expenditure, I propose to allow deduction of such expenditure, if tax has been deducted at any time during the financial year and paid before the due date of filing the return. This will allow most deductors additional time up to September of the next financial year. At the same time, I propose to increase the interest charged on tax deducted but not deposited by the specified date from 12 per cent to 18 per cent per annum" The Memorandum explaining the provisions in the Finance Bill 2010 as reported in 321 ITR (St.) 119 also gave the following justification for the amendments proposed in section 40(a)(ia). "It is proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139." It is thus submitted that amendment regarding allowability of expenses, where TDS paid at any time before the due date of filing of Return of Income was to grant relief to assessees from undue hardship. It is submitted that insertion of second proviso to section 40(a)(ia) is also in the series of amendments, which merely clarifies a situation that if assesse fails to comply with the TDS provisions, however is not deemed to be assessee in default by virtue of first proviso to section 201(1), then too (as in first proviso) for the purpose of this sub clause, it shall be deemed that assesse has deducted and paid the tax on such sum on the date of furnishing of return by resident payee.
Moreover, as stated above, it is reiterated that in the memorandum explaining finance bill itself, it was clarified that proviso is inserted to rationalize the provisions and is beneficial provision and thus, is to be interpreted in such a manner to fulfill the objects for which it was inserted. Hon’ble Supreme Court in the case of K. P. Verghese v. Income-Tax Officer, Ernakulam and Another 131 I.T.R. 597, has emphasised that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the legislature, the Court might – modify the language used by the legislature so as to achieve the intention of the legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by judge Learned Hand that one should not make fortress out of dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning. After following the above decision, Hon’ble Supreme Court in the case of CIT vs J.H.Gotla (1985) 156 ITR 323 has decided the appeal in favour of assessee. Relevant observations of the decision at para 46 to 48 are reproduced: “46. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by judge, the learned hand that one should not make a fortress out of dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning.
We have noted the object of section 16(3) which has to be read in conjunction with section 24(2) in this case for the present purpose. If the purpose of a particular provision is easily discernible from the whole scheme of the Act which in this case is, to counteract, the effect of the transfer of assets so far as computation of income of the assessee is concerned then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., result not intended to be subserved by the object of the legislation found in the manner indicated before, and if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. Furthermore, in the instant case we are dealing with an artificial liability created for counteracting the effect only of attempts by the assessee to reduce tax liability by transfer. It has also been noted how far various purposes the business from which profit is included or loss is set off is treated in various situations as the assessee's income. The scheme of the Act as worked out has been noted before.
In view of the aforesaid and in view of the attitude of the law-makers in dealing with this problem as evidenced by the amendment and in the circular originally issued prior thereto and bearing in mind that under the scheme of the Act where the wife or minor child carries on a running business, the right to carry forward the loss in the running business would be available to the wife or minor child if they themselves were assessed but the right would be completely lost if the individual in whose total income the loss is to be included is not permitted to carry forward the loss under section 24(2) since that would be the result of the strict literal construction it is apparent that that could not have been the intent of the Parliament. Therefore, where section 16(3) operates, the profits or loss from a business of the wife or minor child included in the total income of the assessee should be treated as the profit or loss from a 'business carried on by him' for the purpose of carrying forward and set off of such loss under section 24(2).” Since, in the present case also, on conjoint reading of both first and second proviso, it is clear that no disallowance is called for where assessee deducts tax and pays the same on or before due date of furnishing Return of Income u/s 139(1). Similarly, as per second proviso, since date of filing of Return by payee is treated as date of payment of tax by assessee, no disallowance shall be made so far as Return is filed before the due date as per section 139(1) of the Income Tax Act.
In the instant case, payee, i.e. M/s Religare Finvest Ltd. has filed Return of Income on 29.11.2013 (i.e. before the date specified u/s 139(1), therefore assessee shall be deemed to have paid tax before the date specified u/s 139(1) and is eligible for deduction of interest in A.Y. 2013-14 itself. Ld. CIT(A) at para 8.13 has mentioned that since M/s Religare Finvest Ltd. has filed Return of Income in F.Y. 2013-14, therefore assessee shall be deemed to have paid tax in A.Y. 2014-15. Your honours would appreciate that so far as payee has filed Return of Income prior to due date specified u/s 139(1), it shall be deemed that assessee has paid tax before the due date of filing Return of Income. It is further submitted the intention behind the insertion of provision of section 40(a)(ia) was to bring those persons in the tax net, in whose case no TDS was deducted and who were not filing returns, though they are enjoying the taxable income, thus where the payee has already paid the due taxes on the payments on which no TDS is deducted by payer, there remained no reason to make disallowance in the hands of the payer. It is also submitted that judgment given by Hon’ble ITAT, Hyderabad Bench is “Per Incuriam” and has not referred any judgments delivered on this issue by the Institution i.e. various benches of Hon’ble ITAT. It is submitted that ld.CIT(A) has supported his findings with two decisions, one of Hyderabad bench and second of Vishakhapattnam bench, and has brushed aside the decision of jurisdictional bench in the case of assessee itself, viz. in favour of assessee. It is a trite law that if there are more than one verdicts available on a issue, it is the view of jurisdictional court that should be followed. Accordingly, it is submitted that case of assessee being fully covered by decision of Hon’ble Jaipur ITAT in its own case, the deserves to be allowed and consequent addition be deleted.”
6. In addition to the written submissions so filed, the ld. AR of the assessee submitted that the ld. CIT(A) vide para 8.17 held as under:-
8.17 Accordingly, respectfully following the decision of the two of the Co- ordinate Benches of the Hon’ble ITAT, the AO is directed to allow deduction towards, interest paid to M/s Religare Finvest Ltd. to the extent of Rs. 55,16,628/- in the subsequent assessment year i.e AY 2014-15, provided the assessee furnishing the first part of Form 26A, that is, the assessee’s declaration, along with annexure to Form 26A, that is, certificate of the CA of M/s Religare Finvest Ltd. the ground no. 2 raised by the assessee is treated as partly allowed.
The finding of ld. CIT(A) is disputed and submitted by the ld. AR of the assessee that the assessee based on the decision of the ITAT in assessee’s own case ACIT vs. M/s Shiv Kripa Hotels Pvt. Ltd. in deduction in A.Y 2013-14 and not A.Y 2014-15. Therefore, the only dispute is that the assessee is eligible to claim the deduction in the year under consideration and not in A.Y 2014-15. To support this contention reliance was placed on the following decisions:
S. No. Particulars Pg No. 1 Copy of relevant extract of Finance Bill, 2012 1 2 Copy of relevant extract of Memorandum to Finance Bill, 2012 2 3 Notes to clauses – Finance Bill, 2012 3-4 4 Copy of Judgment of Hon’ble Supreme Court in the case of CIT vs. J. 5-13 H. Gotla reported in 156 ITR 323 5 Copy of Judgment of Hon’ble Supreme Court in the case of K. P. 14-25 Verghese Vs. ITO reported in 131 ITR 597.
S. No. Particulars Pg No. 1 Copy of written submission filed before ld. CIT(Appeals) during the 1-6 course of appellate proceedings. 2 Copy of certificate issued by CA in accordance with first proviso to 7-8 sub-section (1) of section 201 of the Income Tax Act, 1961. 3 Copy of ITAT order passed for A.Y 2012-13 in the case of assessee 9-19
The ld DR is heard who has relied on the findings of the lower authorities and also submitted that the ld. CIT(A) has considered all the aspect of the case has already given a considered view that the assessee is eligible to claim the deduction in the A.Y 2014-15 based on the detailed finding of the ld. CIT(A) and prayed that the finding be sustained.
We have heard the rival contentions and perused the material placed on record. We note from the order of Co-ordinate Bench in the case of assessee’s own case in wherein the issue has already decided in favour of the assessee about non- deduction of TDS for payment made to M/s Religare Finvest Ltd. The ld. AR of the assessee further submitted that the assessee has submitted a copy of CA certificate in his paper book Page No. 7 &
8. The ld. DR objected the form 26A is not complete and only part of annexure submitted by the assessee. On this issue the ld. AR of form 26A and let the ld. AO verified the same and consider the claim of the assessee in the year under consideration and that is considering the fact that the Co-ordinate Bench in the assessee’s own case has considered this issue favorably. Therefore, considering the fact of that case with these years, we direct the ld.AO to consider form 26A and decide the issue of disallowance of interest expenses of Rs. 55,16,628/- in accordance with law and if the assessee filed requisite form 26A then in that circumstance ld. AO after making necessary verification consider the claim of the assessee in the year under consideration. In terms of these observations the appeal of the assessee is allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.