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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: ARUN KHODPIA & ARUN KHODPIA & ARUN KHODPIA
IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/ S/SHRI CHANDRA MOHAN GARG, JUDICIAL JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.265/CTK/2020 Assessment Year : 2013-14 DCIT, Circle-1(1), 1(1), Vs. Sri Dipendra Bahadur Singh, Sri Dipendra Bahadur Singh, Cuttack Hudisahi, Joda, Keonjhar Hudisahi, Joda, Keonjhar PAN/GIR No. No.ADJPS 5869 D (Appellant (Appellant) .. ( Respondent Respondent) Assessee by : Shri S.K.Agarwal S.K.Agarwalla, AR Revenue by : Shri M.K.Goutam, M.K.Goutam, CIT (DR) Date of Hearing : 30/3/ 20 / 2022 Date of Pronouncement : 6 /4 4/2022 O R D E R Per C.M.Garg g, JM
This is an appeal filed by the revenue against the or against the order of the CIT(A), Cuttack dated 16.12.2019 CIT(A), Cuttack dated 16.12.2019 for the assessment year for the assessment year 2011-2012, in the matter of the matter of assessment 143(3)/263 of the Act.
The appeal is delayed by 259 days. The department has filed The appeal is delayed by 259 days. The department has filed The appeal is delayed by 259 days. The department has filed condonation petition dated 3rd July, 2020, wherein, it is stated that the condonation petition dated 3 July, 2020, wherein, it is stated that the appellate order was received in the Office of Pr. CIT, Cuttack on 30.1.2020, appellate order was received in the Office of Pr. CIT, Cuttack on 30.1.2020, appellate order was received in the Office of Pr. CIT, Cuttack on 30.1.2020, whereas, the limitation expires on 30.3.2020. It is stated that as per the whereas, the limitation expires on 30.3.2020. It is stated that as per the whereas, the limitation expires on 30.3.2020. It is stated that as per the Ordinance i.e. Taxation and Other Laws (relaxation of certai Ordinance i.e. Taxation and Other Laws (relaxation of certai Ordinance i.e. Taxation and Other Laws (relaxation of certain provisions) Ordinance 2020 dated 24.6.2020, the lime limit for filing of further appeal Ordinance 2020 dated 24.6.2020, the lime limit for filing of further appeal Ordinance 2020 dated 24.6.2020, the lime limit for filing of further appeal
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was extended to 31.3.2021. The appeal has been filed in the Tribunal on 4.1.2021 and the first appellate order was 16.12.2019, therefore, there was delay of 259 days.
On consideration of rival submissions, we are satisfied that the delay in filing of appeal by the revenue was prevented by sufficient cause. Therefore, we condone the delay and admit the appeal for hearing.
In the ground of appeal, the revenue has objected to the findings of the ld CIT(A) in holding that the relevant amendment on the issue of section 40(a)(ia) was retrospective and accepted the additional evidence without calling for remand report from the AO.
Facts of the case are that during the course of assessment proceedings in pursuance to the direction of the ld Pr.CIT u/s.263 of the Act, the Assessing Officer noticed that the assessee has debited a sum of Rs.67,62,544/- in profit and loss account as interest to private financers without deducting tax thereon. The AO was of the view that as per the provisions of section 194A of the act, the assessee is obliged to deduct tax at sources from the payment but the assessee has failed to deduct the TDS while making payments of interest to NBFCs. Failure to deduct tax on the interest payment by the assessee has violated the provisions of section 40(a)(ia) of the Act, therefore, entire claim of interest of Rs.67,62,544/- was disallowed by the AO.
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On appeal, the CIT(A) partly allowed the appeal of the assessee by observing as under:
“During the course of the appellate proceedings, the counsel for the assesee submitted that in AY.-2011-12, a total amount of Rs. 79,10,138/- had been incurred under the head 'Interest payments', out of which an amount of Rs. 20,01,742/- was paid to Banks and an amount of Rs. 59,08,397/- had been paid to different Non-Banking Financial Companies [NBFCs]. The counsel explained that interest paid to banks does not attract deduction of tax at source by virtue of section 194A(3)(iii) and the Pr. CIT, Cuttack in his order u/s. 263 dt. 08/03/2016 had accepted this. However, in spite of this the AO in the order u/s. 263/143(3] dt. 31/10/2016 added an amount of Rs. 8,54,149/- u/s. 40(a)(ia) on account of non-deduction of TDS u/s. 194A on interest paid to banks. Further, as regards the payment of interest to NBFCs the counsel submitted that this was paid to five NBFCs, namely; GE Capital, L & T Finance, Magma Fin. Crop. Ltd, Sree Equipment & Finance Ltd and Tata capital. With the exception of GE Capital, the counsel submitted certificates of an accountant [Form 26A) under the First proviso to sub-section 1 of section 201 of the I.T Act, 1961 for certifying the return of income and payment of tax thereon by the resident payee to whom the interest payments had been made by the assessee. The counsel then invoked the Second proviso to section 40(a)(ia) to argue that once the resident payee has filed his return of income showing the amount received from the assessee and paying tax thereon, no disallowance u/s. 40(a) (ia) can be made in the hands of the assessee. The counsel submitted case laws to establish that the Second proviso to section 40(a) (ia) will have retrospective operation even though it was introduced into the statute with effect from 01.04.2013. Lastly, the counsel submitted that as regards the interest payment of Rs. 1,22,127/- to GE Capital for which an accountants certificate could not be obtained, only 30% of the said amount was liable to be disallowed u/s. 40(a)(ia) by virtue of the amended provision which even though effective from 01.04.2015, will have retrospective effect as the amendment was curative in nature.
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I have perused the facts of the case and have examined the orders u/s. 263 and 143(3)/263 and also the detailed submission tendered by the assessee's counsel. It is quite clear that the interest paid to banks by the assessee is exempt from the provisions of tax deduction at source by virtue of section 194A(3)(iii) of the l.T Act, 1961 and therefore the addition of Rs. 8,54,149/- made by the AO on this account is incorrect and is hereby deleted. Coming next to the issue of deduction of tax under 194A on interest payments NBFC's, I have examined the certificates of the accountants in Form 26A as prescribed in the First Proviso to sub-section (1) of section 201 of the IT Act, 1961. The assessee has discharged his onus of establishing that the NBFC's to whom' interest payments had been made have shown the same in their return of income for that assessment year and have also paid the taxes thereon. Hence, as per the Second proviso to section 40(a)(ia), no disallowance can be made in the assessee's hands. Now, in C1T v/s Ansal Land Mark Township Pvt. Ltd (377 1TR 635), the Hon'ble Delhi High Court held that the Second proviso to section 40(a) (ia) is a proviso intended to benefit the assessee as 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. The Hon'ble Delhi High Court concluded that the Second Proviso to section 40(a)(ia) is declaratory and curative and has retrospective effect from 1st April' 2005. In the case of the assessee's before the undersigned for AY.- 2011-12, he will not be held to be an assessee in default in light of the Second proviso to section 40(a)(ia) which has retrospective effect from 01.04.2015 Hence, out of a disallowance of Rs. 59,08,386/- made by the AO of 40(a)(ia) in respect interest payments to NBFC's, relief is provided for Rs. 57,86,269/-. In respect of the interest payment of Rs. 1,22,127/- paid by the assessee to M/s. GE Capital, the disallowance will be restricted to 30% in light of the amended provisions of section 40(a}(ia). This amendment though introduced on the statute w.e.f 01.04.2015 will have retrospective operation. The Hon'ble ITAT, Cuttack in the case of On Sri Nilamadhab Builders Pvt. Ltd v/s_.ITO, Ward-1(3}, Bhubaneswar, vide order in ITA No 296/CTK/2018 dt. 26/11/2019 stated that this amendment is curative of the previous law and will have retrospective P a g e 4 | 9
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operation. While delivering this judgement, the jurisdictional tribunal placed reliance on the decision of the Hon'ble Supreme Court in the case of Allied Motors (p) Ltd, 224 ITR 677 (5C) wherein the apex court observed that if the amendment was remedial in nature and was designed to alleviate undue hardship caused to the assessee, then the purpose of the amendment will only be served if it is construed as retrospective. Hence, following the Hon'ble ITAT, Cuttack's decision in Om Sri Nilamadhab Builders Pvt. Ltd., it is held that the disallowance u/s. 40[a)(ia) on interest of Rs. 1,22,127/-aid by the assessee to u/s. GE capital would be limited to 30% of Rs. 1,22,127/- only.”
Ld CIT DR, first of all, objected to the admission of fresh additional evidence in the form of receipt of interest by the ld CIT(A), without recording the reasons for the same. Therefore, the impugned order of the ld CIT(A) is clear violation of principles of natural justice as the AO was not provided any opportunity to verify such evidences. Therefore, he requested to remit the matter back to the file of the AO for fresh verification. For this proposition, he relied on the following decisions:
i) CIT vs Shree Kangra Steel pvt Ltd., 320 ITR 691 (hp) II) CIT vs Subbu Shashank, 327 ITR 577 (Mad) iii) CIT vs United Towers Pvt Ltd., 296 ITR 106(Del) iv) Manish Build Well Pvt Ltd., 16 taxmann.com 27
With regard to the issue of disallowance u/s.40(a)(ia) and second proviso being retrospective, ld CIT DR submitted that the second proviso to
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section 40(a)(ia) was linked with first proviso to section 201(1) which was effective from 1.7.2012, wherein, the payer was not to be treated as an assessee in default if the deductee had furnished the return of income u/s.139 taking into account the sum received from the payer for computing income in such return and paid the taxes due on such income declared in the return. He submitted that unless the first proviso to section 201(1) was held as retrospective in effect to be effective from the same date, or earlier than that, the second proviso to section 40(a)(ia) could not be held as retrospective. For this proposition, he relied on the following judgments: i) Saurastra Agencies Pvt Ltd vs Union of India, 186 ITR 634 (Kol) ii) Thomas George Muthooot vs CIT, 66 taxmann.com 99 (Ker) 9. Ld A.R. also submitted that Form 26A was also before the AO but he did not consider the same and ld CIT(A) was right in granting relief to the assessee by considering the evidence which was also with the AO. Thus, no additional evidence was provided before the CIT(A).
Replying to above, ld A.R. of the assessee supported the order of the ld CIT(A). 11. We have heard the rival submissions and perused the record of the case as well as the order of the ld (A). 12. First of all, we may point out that the ld CIT(A) in second para at page 3 has considered the Form 26A of the recipient companies which is an evidence in the possession of all the revenue authorities including the AO
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but he did not consider the same and made disallowance. We are in agreement of the contention of ld A.R. that the AO did not consider the same despite it was before him. Thus, it is not the case of the revenue that any new additional evidence was before the CIT(A). Therefore, this contention of ld CIT DR in this regard are dismissed. 13. The other grievance of the revenue is that as to whether the amendment to section 40(a)(ia) is retrospective or not?. In this connection, the Hon'ble Delhi High Court in the case of Ansal Land Mark Township Pvt Ltd (supra) has held 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. In the above decision, the Hon'ble High Court has categorically held that no doubt there is a mandatory requirement u/s 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 first proviso to section 201(1) of the Act was inserted w.e.f. 1.7.2012. The Hon'ble Delhi High Court has categorically held that insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. According to Hon'ble High Court this is a proviso intended to benefit the Assessee. The Hon'ble High Court ruled that the second proviso
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to Section 40 (a) (ia) of the Act is declaratory and curative in nature and should be given retrospective effect from Ist April 2005. There is no dispute to the fact that interest payment to NBFC namely; L&T Finance, Magma Fin. Crop Ltd., Sree Equipment & Finance Ltd., and Tata Capital has been proved by the certificates of an Accountant in Form 26A under the first proviso to sub-section 1 of Section 201 of the i.T.Act that the payment has pad the tax. However, in case of interest payment to GE Capital, certificate from an accountant certifying the payment could not be furnished, therefore, interest payment of Rs.1,22,127/- was limited to 30% of Rs.1,22,127/-. This finding of fact could not be controverted by ld CIT DR. The written submission of the ld CIT DR do not have any substance in favour of the department. Respectfully following the judgement of the Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd (supra), we do not find any merits in the appeal of the Revenue and hence the same is dismissed. 14. We also observe that the CBDT vide circular No.17/2019 dated 8.8.2019 has revised the monetary limit for filing the appeals before the Tribunal to Rs.50 lacs. Further, CBDT vide letter dated 20.8.2019 has also clarified that Circular No.17/2019 would be applicable to all pending appeals. In such circumstances, the present appeal filed by the revenue being low tax effect in view of CBDT Circular, deserves to be dismissed as not maintainable.
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In the result, appeal of the revenue is dismissed. Order pronounced on 6/4/2022.
Sd/- sd/- (Arun Khodpia) (Chandra Mohan Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 6/04/2022 B.K.Parida, SPS (OS)
Copy of the Order forwarded to : 1. The Appellant : DCIT, Circle-1(1), Cuttack 2. The Respondent. Sri Dipendra Bahadur Singh, Hudisahi, Joda, Keonjhar 3. The CIT(A)-, Cuttack 4. Pr.CIT-, Cuttack 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order
Sr.Pvt.secretary ITAT, Cuttack
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