SHRI DEEPAK SURESH GADGE, Nagpur V. JOINT. CIT, CIR.- I, Nagpur

ITA 104/NAG/2015

• Counselvise Citation: [2014] 117 COUNSELVISE.COM (IT) 8876 (ITAT-NAGPUR)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 23-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Retrospective amendment; TDS; Set aside
• Section: 40(a)(ia); 201(1); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE S HRI SHAMIM YAHYA (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 104 / NAG/2015 ASSESSMENT Y EAR: 201 0 - 11 SHRI DEEPAK SURESH GADGE, PRANAV APARTMENTS, IIND LANE, BEHIND THE HITVADA, DHANTOLI, NAGPUR PAN : ABZPG6643H VS. THE JOINT COMMISSIONER OF INCOME TAX - CIRCLE - I, DR. BABASAHEB AMBEDKAR BHAVAN, FIFTH FLOOR, MECL BUILDING, SEMINARY HILLS, NAGPUR - 440006 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.P . DEWANI (A DVOCATE ) REVENUE BY : SHRI GITESH KUMAR ( D R ) DATE OF HEARING: 10 /05 /201 8 DATE OF PRONOUNCEMENT: 30 / 0 7 /201 8 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 03.12.2014 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - I , NAGPUR, WHEREBY THE LD. CIT (A ) HAS DISMISSED THE APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS ACTIVITIES AS TRADERS AND DEVELOPERS, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 2,33,87,017/ - . SINCE, THE CASE WAS SELECTED FOR S CRUTINY , NOTICE U/S 143 (2) AND 141 (1) WERE ISSUED. IN RESPONSE TO THE SAID NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED BEFORE THE AO AND SUBMITTED THE DETAILS CALLED FOR. IT WAS NOTICED THAT ASSESSEE HAD PAID INTEREST OF RS. 2 ITA NO. 104 / NAG /2015 ASSESSMENT YEAR: 2010 - 11 16,22,585 / - TO CITI FINANCIAL CONSUMER FINANCE INDIA LTD. AND RS. 27,00,298/ - TO INDIA BULLS FINANCIAL SERVICES LTD. AND HAD NOT DEDUCTED THE TAX AT SOURCE ON THE SAID PAYMENTS. ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID AMOUNTS SHOULD NOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE OPERATIONS OF THESE COMPANIES ARE AKIN TO THE BUSINESS OF BANKING IN SO FAR AS LOANS GRANTED BY THESE COMPANIES TO THE ASSESSEE ARE CONCERNED HENCE, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENT OF INTEREST TO THESE ENTITIES. THEREFORE, IT CANNOT BE TREATED AS VIOLATION OF SECTION 40(A)(IA). THE AO HOWEVER REJE C T E D THE CONTENTION OF THE ASSESSEE AND MADE AD D I TI ON OF THE SAID AMOUNTS TO THE INCOME OF THE ASSESSEE. THE LD. COUNSEL FURTHER SUBMITTED THAT SINCE THE IMPUGNED ORDER IS CONTRARY TO THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT, THE SAME IS LIABLE TO BE SET ASIDE. 3. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE DISMISSED THE APPEAL OF THE ASSESSEE AND CONFIRMED THE ADDITION S AFORESAID MADE BY THE AO. 4. THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD.CIT (A) ON THE FOLLOWING EFFECTIVE GROUN DS : - 1. THE HONBLE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES PAID TO NBFC U/S 40(A)(IA) OF THE I.T. ACT, 1961 AT RS. 43,22,883/ - . 2. THE DISALLOWANCE OF INTEREST EXPENSES U/S 40(A)(IA) AT RS. 43,22,883/ - MADE BY A.O. AND CONFIRMED BY CIT (A) IN UNJUSTIFIED, UNWARRANTED AND EXCESSIVE. 3. THE LEARNED CIT (A) OUGHT TO HAVE HELD THAT IN TERMS OF PROVISO TO SECTION 40(A)(IA) INTRODUCED BY FINANCE ACT 2012 AS RETURN WAS FILED BY PAYEE NO DISALLOWANCE U/S 40(A)(IA) IS JUSTIFIED. 3 ITA NO. 104 / NAG /2015 ASSESSMENT YEAR: 2010 - 11 5. BEFORE U S, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE LENDERS HAVE ADVANCED THE LOAN TO THE APPELLANT IN THEIR ORDINARY COURSE OF BUSINESS AND THE APPELLANT PAID INTEREST THEREON . THE LENDERS HAVE RECOVERED THEIR MONEY FROM THE APPELLANT IN ORDINARY COURS E OF BUSINESS BY WAY OF INSTALLMENTS PAYABLE MONTHLY WHICH ARE CONTRACTED AT THE TIME OF GRANTING OF LOANS . THE INSTALLMENT PAYABLE COMP RISED OF TWO COMPONENTS I.E. INTEREST AS WELL AS PRINCIPAL REPAYMENT WHICH WERE DETERMINED BY THE LENDERS . THE INTEREST PAID TO INDIABULLS AND CITI FINANCIAL SHOULD NOT BE DISALLOWED U/S 40(A)(IA) IN VIEW OF THE FACT THAT, THESE COMPANIES ARE NON BANKING FINANCIAL COMPANIES ENGAGED IN THE BUSINESS OF FINANCING AFTER BEING DULY AUTHORISED BY THE RESERVE BANK OF INDIA. THE OP ERATIONS OF THESE COMPANIES ARE AKIN TO THE BUSINESS OF BANKING IN SO FAR AS LOANS GRANTED BY THESE COMPANIES TO THE ASSESSEE ARE CONCERNED. 6. FURTHER. R ELYING ON THE DECISION OF ITAT, AGRA BENCH, IN THE CASE OF RAJEEV KUMAR AGARWAL VS ADDL CIT FOR AY 20 06 - 07 ( 2014 149 ITD 363 AGRA AND THE JUDGMENT OF THE HONBLE DELHI HIGH COURT RENDERED IN THE COMMISSIONER OF INCOME TAX VS. ANSEL LANDMARK TOWNSHIP PVT. LTD. 377 ITR 635 (DEL) THE LD. COUNSEL SUBMITTED THAT T HE SECOND PROVISO TO SECTION 40(A)(IA), INTRO DUCED BY THE FINANCE ACT 2013 W.E.F. 01.04.2013, READ WITH S. 201, PROVIDES THAT DESPITE FAILURE TO DEDUCT TDS, DISALLOWANCE OF THE EXPENDITURE SHALL NOT BE MADE IF THE RESIDENT PAYEE HAS (I) FURNISHED HIS RETURN OF INCOME U/S 139, (II) TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH ROI, (III) PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME AND (IV) FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN THE PRESCRIBED FORM. THE SCHEME OF S. 40(A)(IA) IS AIMED AT ENSUR ING 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. 4 ITA NO. 104 / NAG /2015 ASSESSMENT YEAR: 2010 - 11 7. WITHOUT PREJUDICE TO THE ABOVE ARGUME NTS, THE LD. COUNSEL SUBMITTED THAT AS PER THE AMENDMENT TO SECTION 40(A)(IA) OF THE ACT , DISALLOWANCE IS TO BE RESTRICTED TO 30 PERCENT OF EXPENDITURE CLAIMED ON WHICH TAX HAS NOT BEEN DEDUCTED AT SOURCE. SINCE THE AMENDMENT HAS RETROSPECTIVE EFFECT, THE ADDITION SHOULD BE RESTRICTED TO 30 PERCENT OF THE EXPENDITURE CLAIMED. 8 . ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE FINDINGS OF THE LD. CIT(A). 9 . WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND ALSO PER USED THE MATERIAL ON RECORD. AS POINTED OUT BY THE LD COUNSEL, THE HONBLE DELHI HIGH COURT HAS DEALT WITH THE IDENTICAL ISSUE IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANSEL LANDMARK TOWNSHIP PVT. LTD.(SUPRA) HOLDING AS UNDER : 11. THE FIRST PROVISO TO SECTION 201(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 THIS CREDITED TO THE ACCOUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAU LT IN RESPECT OF SUCH TAX IF SUCH A 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 LEGISLATURE IS NOT TO TRADE 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 PROVISIO INTENDED TO BENEFIT THE ASSESSEE. THE FACT OF THE LEGAL FICTION CREATED THEREBY IS TO TREAT THE ASSESSEE IS A PERSON NOT IN DEFAULT OF DEDUCTING TAX AT SOURCE UNDER CERTAIN CONTINGENCIES. 12. RELEVANT TO THE CASE IN HAND, WHAT IS COMMON TO BOTH THE PROVISO TO SECTION 40(A)(IA) AND SECTION 201(1)OF THE ACT IS THAT 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 EMBEDD ED AND HAS ALSO PAID 5 ITA NO. 104 / NAG /2015 ASSESSMENT YEAR: 2010 - 11 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 RETURN AND OFFERED THE SUM RECEIVED TO TAX. 10 . IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN COMMISSIONER OF INCOME TAX VS. ANSEL LANDMARK TOWNSHIP PVT. LTD. 377 ITR 635 (DEL) , WE DEEM IT PROPER TO REMIT THE ISSUE BACK TO THE FILE OF AO FOR PASSING THE ASSESSMENT ORDER AFRESH AFTER VERIFIC ATION AS TO WHETHER THE RECIPENTS HAVE FURNISHED THEIR RETURN OF INCOME UNDER SECTION 139 OF THE ACT . WE ACCORDINGLY, SET ASIDE THE IMPUGNED ORDER AND SEND THE FILE BACK TO THE AO FOR DECIDING THE ISSUE IN ACCORDANCE WITH THE LAW LAID DOWN BY THE HONBLE D ELHI HIGH COURT IN COMMISSIONER OF INCOME TAX VS. ANSEL LANDMARK TOWNSHIP PVT. LTD. (SUPRA) AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 11. AS REGARDS THE GROUND RAISED BY THE ASSESSEE, WITHOUT PREJUDICE TO THE MAIN GROUND , WE DIRECT THE AO TO DECIDE THIS GROUND, IF NEEDED, IN THE LIGHT OF THE SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASSESSEE. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR A SSESSMENT YEAR 2010 - 2011 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE TERMS OF RULE 34 OF THE ITAT RULES,1963 . SD/ - SD/ - ( SHAMIM YAHYA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER NAGPUR, DATED: 30 / 0 7 /201 8 ALINDRA, PS 6 ITA NO. 104 / NAG /2015 ASSESSMENT YEAR: 2010 - 11 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) 4. CIT 5. DR, ITAT, NAGPUR 6. GUARD FILE . BY ORDER, //TRUE COPY// ( SR. PS/PS ) ITAT, NAGPUR