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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: Shri S.S.Viswanethra Ravi
IN THE INCOME TAX APPELLATE TRIBUNAL, “A” BENCH, KOLKATA Shri Waseem Ahmed, Accountant Member, and Before : Shri S.S.Viswanethra Ravi, Judicial Member I.T.A No. 361/Kol/2014 A.Y. 2006-07 M/s. Hooghly Mills Projects Ltd Vs. D.C.I.T, CC-VII, Kolkata PAN: AAACH 7668G (Appellant) (Respondent)
For the Appellant/assessee : Shri S. Jhajharia, FCA, ld.AR For the Respondent/department: Shri Dinabandhu Naskar, JCIT, ld.DR Date of Hearing: 26-04-2016 Date of Pronouncement: 31 -05-2015 ORDER SHRI S.S.VISWANETHRA RAVI, JM
This appeal of the asessee arises out of the order of the CIT(A)-Central-1, Kolkata in Appeal No. 91/CC-VII/CIT(A) C-I/11-12 dated 8th December, 2013 for the assessment year 2006-07 passed u/s. 263/251/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
The appellant assessee has raised the following grounds:- 1. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in not adjudicating the Ground Nos. 1 & 2 of the appellant's Grounds of Appeal objecting to the arbitrary order passed in haste by the Assessing Officer (in short A.O) u/s 263/2511143(3) of the Act dt. 01.08.2011 during the pendency of the appellant's appeal filed before the Hon'ble I.T.A.T,
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Kolkata, on 07.04.2011 ( ITA No.549/Kol/2011) against the revisionary order U/S 263 of the Act dt. 08.03.2011.
For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary addition of Rs.4,1 0,00,000/- made in assessment as deemed dividend u/s 2(22)(e) of the Act without considering and appreciating the facts and the explanations furnished both at the assessment and appellate stage.
For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary disallowance of interest of Rs. 6,30,000/- paid to a party owing to the alleged failure to deduct tax at source u/s 40(a)(ia) of the Act without considering and appreciating the facts that the 2nd proviso to section 40(a)(ia) added by the F.A 2012 has retrospective effect and hence it is curative in nature applicable for this year under appeal.
Brief facts of the case are that the assessee filed its return of income declaring total income at Rs.2,36,75,243/- u/s. 115JB of the Act on 20-11-2006. The assessment was completed u/s. 143(3) of the Act determining the total income of at Rs.1,42,45,720/- on 31-12-2008. The assessment was thereafter subjected to revision. The CIT, Central-1, Kolkata has set aside the said assessment by an order dt: 08-03-2011 u/s. 263 of the Act, against which the assessee has preferred an appeal before the Tribunal, inspite of having knowledge of appeal before the Tribunal pending, the A.O conducted the assessment and made additions thereon.
First ground raised by the assessee is relating to the issue despite the fact that the appeal filed before the tribunal (ITA No.549/Kol/2011), which is still pending, the AO passed the impugned assessment order on 17-08-2011.
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As regards, ground no.1, we may refer to the relevant provision which prescribes time limit for assessments and reassessments which is reproduced as below: Time limit for completion of assessments and reassessments. 153. (1) …: Provided …: Provided further.. (i) ; or (ii) , [Provided also .] (1A). (1B). (2): Provided : Provided further : Provided also (i) (ii), [Provided also.] (2A) Notwithstanding anything contained in sub-sections (1), (1A), (1B) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment in pursuance of an order under section 250 or section 254 or section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of one year from the end of the financial year in which the order under section 250 or section 254 is received by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner: Provided :
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[Provided further that where the order under section 254 is received by the 98[Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the [Principal Commissioner or] Commissioner on or after the 1st day of April, 2005 but before the 1st day of April, 2011, the provisions of this sub-section shall have effect as if for the words "one year", the words "nine months" had been substituted:
A plain reading of the above provision suggests that the AO shall have to give effect to the order passed by CIT u/s. 263 of the Act as per the procedure contemplated in the proviso attached therein to sub-section 2A of Section 153 of Act irrespective of fact that the appeal is pending before the Tribunal. In this case, the AO discharged his duties in compliance with the procedure as prescribed in the Act. In our opinion, the assessment made by the AO in pursuance of the order passed by the CIT u/s. 263 of the Act is valid, accordingly, ground no.1 raised by the assessee is dismissed.
Brief facts relating to the 2nd ground as recorded by the AO are that the assessee accepted loan of Rs. 4,10,00,000/-, which is more than 10% of paid up equity shares from M/s. Mega Resources Ltd during the assessment year under consideration. The assessee was holding 13,90,100 shares out of 1,20,00,000/- equity shares of M/s. Mega Resources Ltd. Before the AO the assessee submitted that it has only 1099300 of shares in M/s. Mega Resources Ltd as per register. The AO found that the assessee was holding 13,90,100 shares, which is more than 10% out of 1,20,00,000 equity shares of M/s. Mega Resources Ltd. The AO accordingly added back the amount of Rs.4,10,00,000/- u/s. 2(22)(e) of the Act towards deemed dividend to the total income of the assessee.
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The CIT considered the issue in detail and following the earlier decision in assessee’s own case for the a.y 2005-06 confirmed the addition made by the AO on account of deemed dividend u/s. 2(22)(e) of the Act.
Before us the ld. Counsel for the assessee submitted that the said issue is covered by the earlier order of the Tribunal in assessee’s own case in ITA No. 1729/Kol/2011 for the A.Y 2005-06.
On the contrary, the ld.DR has relied on the orders of the lower authorities.
Heard the rival submissions and perused the relevant material available on record. We find that the ld. Counsel for the assessee has rightly submitted that the issue on hand is covered by the order of this Tribunal vide order dated 1-8- 2014 in assessee’s own case, wherein it had decided the issue by following the ratio laid down by the Hon’ble Special Bench, ITAT Mumbai Bench in the case of ACIT Vs. Bhaumik Colors Pvt. Ltd reported in (2009) 118 ITD 1(SP) ITAT Mumbai. The relevant portion of the said order at para 4 is reproduced hereunder:-
“4. We have heard rival submissions and gone through facts and circumstances of the case. Before us also assessee produced the shareholders register for the relevant year and filed copy of the relevant shareholders register of Hooghly Mills Project Ltd. i.e. the assessee and also produced copy of shareholders register of Mega Resources Ltd., wherein the registered shareholders are to the extent of 10,99,300 shares only as registered shareholders and not the shareholders to the extent of l3,99,100 as alleged by the lower authorities. For this proposition, we have to see only the registered shareholders as held by the Special Bench of this ITA T, Mumbai Bench
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in the case of Bhaumik Colour P. Ltd., supra wherein it is held as under:
“41. In the light of the above discussion, the questions referred to the Special Bench are answered as follows:
On the first question: Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder.
On the second question: The expression ‘shareholder’ referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder than the provisions of section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e) will not apply. “
From the above facts and circumstances the issue is very clear that the assessee is holding registered shares to the tune of 10,99,300 in Mega Resources Ltd. and not 13,99,100 as alleged by the revenue. No doubt the total shareholding of the assessee in Mega Resources Ltd. is to the tune of 13,99,100 but registered shareholders are to the extent of 10,99,300. We have to see only the registered shareholding and not the beneficial shareholder. For this, the assessee has filed evidence before the lower authorities and even before us now. In such circumstances, this issue being covered by the Special Bench of this Tribunal, Mumbai Bench in the case of Bhaumik Colour P. Ltd. supra, Respectfully following the same, we delete the addition and reverse the orders of the lower authorities. “
A perusal of the order of the Tribunal in the aforementioned case, it clearly establishes that the assessee is holding registered shares of 10,99,300 in M/s. Mega resources Ltd, but not 13,99,100 as contended by the revenue and it was evident from the register of shareholders as produced by the assessee and, to which fact the Tribunal examined and noticed that the assessee has registered
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shares are to the extent of 10,99,300 only. The question formulated by the Special Bench, ITAT Mumbai supra relating to the expression ‘shareholder’ referred in section 2(22)(e) of the Act and answered the same that if a person is a registered shareholder but not the beneficial shareholder then the provisions of section 2(220(e) will not apply. Further it also expressed that if a person is a beneficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e) of the Act will not apply. In the present case, the assessee is holding 10,99,300 shares in M/s. Mega Resources Ltd as per register produced by the assessee before the lower authorities. This fact was examined by the Tribunal in the above case. When the assessee is holding the shares as indicated above, which comes to less than 10% of total equity shares of M/s. Mega Resources Ltd., the reasoning of the AO as it is noticed from the assessment order that both the assessee and M/s. Mega Resources Ltd are closely holding shares belonging to same to avoid the tax. But, no contrary evidence brought on record against to the assessee’s claim. In the light of the observations made by the Tribunal in assessee’s own case in ITA No. 1729/Kol/2011 for A.Y 2005-06 vide its order dated 01-08-2014 and also following the principle laid down by the Special Bench, ITAT, Mumbai in the case of Bhaumik Color P.Ltd (supra), we are of the view that the CIT was not justified in confirming the order of the AO in making additions. We delete the addition made by the AO and confirmed by the CIT on this issue. Accordingly, ground-2 raised by the assessee is allowed.
The 3rd ground raised by the assessee is relating to the addition of 13. Rs.6,30,000/- made u/s. 40(a)(ia) of the Act on account of interest paid to a party without deducting TDS. This was confirmed by the CIT(A) in the impugned order.
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Brief facts of this issue are that the AO found that the assessee paid interest of Rs. 5,72,93,597/- on unsecured loan and debited the same to the P & L account and the assessee did not deduct any tax at source on payment of interest of Rs. 6,30,000/- to M/s. Methoni Tea Ltd. Thus, the AO added the sum of Rs.6,30,000/- u/s. 40(a)(ia) of the Act.
In appeal, the CIT(A) confirmed the said addition inspite of having submissions made by the assessee that the provisions of section 40(a)(ia) of the Act was not applicable for the assessment year under consideration in view of the second proviso as inserted by the Finance Act 2012, which was retrospective in nature.
Having aggrieved by order of CIT(A), ld. Counsel for the assessee before us prayed to restore the issue on hand to the file of AO and the issue under consideration is covered by the 2nd proviso of section 40(a)(ia) of the Act was inserted by the Finance Act 2012. On the contrary, the ld. DR has relied on the orders of the lower authorities.
Heard rival submissions and perused the relevant material on record. The Hon’ble High Court of Delhi in the case of CIT-1 Vs. Ansal Land Mark Township(P) Ltd while dealing with the case on hand, had an occasion to read down the decision of Agra Bench of Tribunal in ITA 337/Agra/2013 as it was relied on, and held and agreed with the view of Agra Bench of Tribunal reasoning and conclusion to the insertion of second proviso to section 40(a)(ia) of the Act by the legislature. The relevant portion from paras 11 to 14 are reproduced here in below:
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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 fulfillment 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 ITA T in Rajiv Kumar Agarwal v. A CIT (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
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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)(ia1 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 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
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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."
The Court is of the view that the above reasoning of the Agra Bench of IT AT 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.
The Hon’ble High Court supra found that there is a mandatory requirement u/s. 201 to deduct at source, but, however, opined, the assessee cannot be viewed as a person in default in view of the first proviso to section 201(1) of the Act and further that the insertion of second proviso to section 40(a)(ia) of the Act was intended to benefit the assessee and it shall be viewed as in the same manner as that of first proviso to section 201(1) of the Act.
In the present case, the case of the assessee was that the interest paid to M/s Methoni Tea Ltd on unsecured loan and debited to the P/L account and did not deduct the tax U/Sec 194A of the Act. These facts are not disputed by the either of the lower authorities as it can be seen from the record. Therefore, the question before us whether the assessee could be treated as defaulter in view of the principle enunciated by the Hon’ble High Court of Delhi supra, we hold that the assessee cannot be a defaulter in view of the first proviso to section 201(1) r/w second proviso to section 40(a)(ia) of the Act. As opined by the Hon’ble High Court of Delhi supra that the second proviso to Section 40(a)(ia) is declaratory and curative in nature having retrospective effect from 01-04-2005 and the case on hand being for A.Y 2005-06, in our view, the matter shall go back to AO. Therefore, we remand ground no. 3 to AO for examination and for
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verification of the required details of the resident i.e M/s Methoni Tea Ltd and direct the assessee to cooperate in completing the assessment. Ground no. 3 raised by the assessee is allowed for statistical purposes.
In the result, the appeal of assessee is partly allowed.
THIS ORDER IS PRONOUNCED IN OPEN COURT ON 31 /05 /2016
Sd/- Sd/- Waseem Ahmed, S.S. Viswanethra Ravi, Accountant Member Judicial Member
Date 31/ 5 /2016
Copy of the order forwarded to: 1.. The Appellant/Assessee :M/s. Hooghly Mills Projects Ltd 10 Clive Row, 3rd Floor, Kolkata 700 001.
2 The Respondent/Department- The DCIT, Central Circle-VII, Aaykar Bhawan Poorva, 110 Shanti Pally Kolkata-107. 3 /The CIT,
/The CIT(A) 4.. 5. DR, Kolkata Bench 6. Guard file. True Copy, By order, Asstt Registrar ** PRADIP SPS
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