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Income Tax Appellate Tribunal, C BENCH, AHMEDABAD
, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORESHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA No.2275/Ahd/2015 /Assessment Year: 2011-12 Sanghvi Forging & Engg. Ltd. Vs. ACIT, A-8, Parvati Chambers, Circle-4, Opp. Apsara Cinema, Baroda Pratapnagar, Baroda-04 PAN : AADCS 2903 E [ (Appellant) (Respondent) Assessee by : Shri Parin Shah, AR Revenue by : Shri PrasoonKabra, Sr DR /Date of Hearing : 26/09/2017 /Date of Pronouncement: 09/10/2017 /O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER:
This appeal of the assessee for Assessment Year 2011-12 is directed against the order of the CIT(A)-2, Vadodara vide appeal No.CAB/(A)- 2/114/2014-15, dated 08.05.2015, arising out of order under Section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ), framed on 27.03.2014 by the ACIT, Circle-4, Baroda. 2. Assessee has raised following effective grounds of appeal:- 1. The Learned Commissioner of Income Tax (Appeals) has erred in law and on facts of the appellant s case in confirming the action of the Learned AO of disallowance of Rs.94,480/- u/s 40(a)(ia) of the Act on the erroneous plea that the appellant has not deducted/paid TDS as per law.
ITA No. 2275/Ahd/2015 ��� Sanghvi Forging &Engg Ltd vs. ACIT AY :2011-12 2. The learned Commissioner of Income-tax (Appeals) has erred in law and on the facts of the appellant s case in confirming the action of Learned AO of disallowing 15% of Misc. Expenses on lump sum basis. 3. Briefly stated facts, as culled out from the record, are that assessee is a company engaged in manufacture and marketing of stainless steel forged and machined subtends and its allied components. During the year under consideration, the assessee has filed its return of income on 28.09.2011 declaring total income at Rs.5,87,31,240/-. Subsequently, assessment order under Section 143(3) of the Act was framed by the Assessing Officer on 27.03.2014, assessing total income of the assessee at Rs.5,95,95,026/- by making various additions/disallowances, including the disallowance u/s 40(a)(ia) of Rs.1,28,817/- and miscellaneous expenses of Rs.3,00,198/-, which are impugned in the present appeal before us.
Firstly, we take up the disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act. A total addition of Rs.1,28,817/- under Section 40(a)(ia) of the Act was made by the Assessing Officer due to the reason that the assessee has failed to deduct the TDS under Section 194C of the Act while making the payment to two parties viz. Robinson Cargo & Logistic Pvt Ltd (Rs.34,337) and TNT Indian Pvt Ltd (Rs.94,480).
On appeal before the learned First Appellate Authority, the assessee contended that the assessee had deducted tax properly with regard to the payment made to the party M/s. Robinson Cargo & Logistic and had paid the same before the due date of filing of return. Accordingly, the ld. CIT(A) directed the Assessing Officer to allow the claim of the assessee in this regard subject to verifying the claim of the assessee as to whether the TDS has been properly deducted and paid before the due date of filing of return in respect of payment made to Robinson Cargo Pvt Ltd.
ITA No. 2275/Ahd/2015 ��� Sanghvi Forging &Engg Ltd vs. ACIT AY :2011-12
The only dispute before us is with regard to the deduction of TDS on the payment made to other party, i.e., TNT India Pvt Ltd. In this regard, the assessee submitted before the ld. CIT(A) that no part of the payment is disallowable in view of the amendment made to Section 40(a)(ia) of the Act by the Finance Act 2012, which is applicable retrospectively.
At the time of hearing before us, the ld. Counsel for the assessee relied upon judgment of the Co-ordinate Bench of this Tribunal in the case of Rajeev Kumar Agarwal vs. JCIT, reported in 45 taxmann.com 555 (Agra). It was contended that second proviso has been inserted in sub-clause (ia) of clause (a) of Section 40 of the Act, by the Finance Act, 2012 with effect from 01.04.2013. Learned Counsel for the assessee made reference to the decision of the Hon ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd, reported in [2015] 377 ITR 635 (Delhi), wherein the Hon ble High Court has taken into consideration the order of ITAT in the case of Rajeev Kumar Agarwal Vs. ACIT, reported in [2014] 34 ITR (Trib) 479 (Agra), and held that this proviso is to be construed as applicable with retrospective effect. According to this proviso, if the recipient has accounted the income in its taxable income, then no disallowance is to be made.
On the other hand, learned Departmental Representative relied upon the orders of the Revenue Authorities below.
Having heard the rival contentions, perused the material available on record and gone through orders of the authorities below, and considering the judgments cited by the ld. Counsel for the assessee, we find that the Hon ble Delhi High Court has taken into consideration the second proviso inserted by the Finance Act, 2012 and held this proviso is applicable with
ITA No. 2275/Ahd/2015 ��� Sanghvi Forging &Engg Ltd vs. ACIT AY :2011-12 retrospective effect. Hon ble Delhi High Court has made reference to the decision of the ITAT in the case of Rajeev Kumar Agarwal Vs. ACIT, reported in [2014] 34 ITR (Trib) 479 (Agra). Hon ble Delhi High Court has observed that the reasoning given by the Agra Bench of the Tribunal as regards the rationale behind the insertion of the second proviso to Section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. We, therefore, deem it appropriate to take note of the observations made by the Hon ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd (supra) which has reproduced a discussion made by the ITAT, Agra Bench in paragraph No.9 of its order. The observations made by the Hon ble Delhi High Court read as under:-
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. 13. 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: 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
ITA No. 2275/Ahd/2015 ��� Sanghvi Forging &Engg Ltd vs. ACIT AY :2011-12 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.
ITA No. 2275/Ahd/2015 ��� Sanghvi Forging &Engg Ltd vs. ACIT AY :2011-12 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. 15. In that view of the matter, the Court is unable to find any legal infirmity in the impugned order of the ITAT in adopting the ratio of the decision of the Agra Bench, ITAT in (Rajiv Kumar Agarwal v. ACIT).
Respectfully following the above, we deem it appropriate that this issue be set aside to the file of the Assessing Officer. Ld. Assessing Officer shall find out whether the payments made by the assessee has been accounted by the payee in its books of accounts and considered for working out the taxable income in its hands. If it is found that the recipient has already accounted this receipt in its books and considered it for working out the taxable income, then no disallowance be made in the case of the assessee in this assessment year. Ld. Assessing Officer shall carry out this exercise after providing due opportunity of hearing to the assessee. In case the payee has not accounted for this receipt and not considered it for computing its taxable income, then the Assessing Officer will be at liberty to re-adjudicate the issue in accordance with law. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes.
Second issue is with regard to the addition of Rs.3,00,198/- made by the Assessing Officer being 15% of the total miscellaneous expenses amounting to Rs.20,01,320/-. The Assessing Officer made this addition considering the possibility of element of personal nature as the assessee failed to submit the required details/bills/vouchers for verification. However, in our considered opinion, ends of justice would meet if we restrict this addition to 10% of the miscellaneous expenses of
ITA No. 2275/Ahd/2015 ��� Sanghvi Forging &Engg Ltd vs. ACIT AY :2011-12 Rs.20,10,320/-. In other words, addition to the extent of 10%, i.e., 2,01,032/- is confirmed. Thus, this ground of assessee is partly allowed.
In the result, assessee s appeal is partly allowed for statistical purposes. Order pronounced in the Court on 9th October 2017 at Ahmedabad. Sd/- Sd/-
(RAJPAL YADAV) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated, 09/10/2017 **bt /Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. / Concerned CIT 3. ( ) 4. / The CIT(A)- , 5. /DR,ITAT, Ahmedabad, /Guard file. 6. / BY ORDER, TRUE COPY (Asstt.Registrar) ITAT, Ahmedabad