IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.1386/M/2017 ASSESSMENT YEAR: 2010-11 NEENA KAUL, TECHNIPLEX-2, UNIT NO.2, 10 TH FLOOR, OPP. HOTEL GRAND SAROVAR PARK PREMIERE, GOREGOAN (W), MUMBAI PAN: ANAPK4255A VS. ACIT 24(3), MUMBAI - 400020 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI M.N. NANDGAONKAR, A.R. REVENUE BY : MRS. JOTHILAKSHMI NAYAK, D.R. DATE OF HEARING : 14.05.2019 DATE OF PRONOUNCEMENT : 21.05.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 12.08.2016 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2010-11. 2. AT THE OUTSET, WE FIND THAT THE APPEAL FILED B Y THE ASSESSEE IS DELAYED BY 71 DAYS. IN THIS CONTEXT, THE LD. A. R. OF THE ASSESSEE WHILE REFERRING TO THE AFFIDAVIT FILED IN SUPPORT OF CONDONATION OF DELAY SUBMITTED THAT THE DELAY WAS O CCURRED DUE TO THE FACT THAT HER EARLIER ACCOUNTANT MRS. VINITA FERNANDES LEFT THE JOB WHO WAS LOOKING AFTER THE TAXATION ISSUES AND ONLY THE NEW ACCOUNTED BROUGHT TO MY NOTICE THAT APPEAL HAS NOT BEEN ITA NO.1386/M/2017 NEENA KAUL 2 FILED AND WAS FILED IMMEDIATELY. THE LEARNED COUNS EL CONTENDED BEFORE US THAT THE DELAY IN FILING THE APPEAL WAS A TTRIBUTABLE TO THE REASONS WHICH WERE BEYOND THE CONTROL OF THE AS SESSEE AND THEREFORE THE SAME SHOULD NOT BE RESULT IN DEPRIVIN G THE ASSESSEE FROM SEEKING JUSTICE. THE LD AR REQUESTED THE BENCH TO CONDONE THE DELAY WHICH WAS STRONGLY OPPOSED BY THE LD DR BY SUBMITTING THAT THE REASONS CITED BY THE LD AR ARE NOT SUFFICIENT AND THEREFORE THE APPEAL OF THE ASSESSEE BE DISMISS ED AS TIME BARRED. AFTER TAKING INTO CONSIDERATION THE RIVAL C ONTENTIONS AND MATERIALS ON RECORDS, WE OBSERVE THAT THE APPEAL IS DELAYED FOR THE REASONS BEYOND THE CONTROL OF THE ASSESSEE AND THEREFORE WE ARE OF THE VIEW THAT DELAY DESERVES TO BE CONDONED. ACCORDINGLY THE DELAY IN FILING THE APPEAL IS CONDONED. 3. THE ASSESSEE HAS FILED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW THE LEARNED ASSESSING OFFICER HAS ERRED IN APPLYING AND THE C1T(A) HAS ER RED IN CONFIRMING THE APPLICATION OF PROVISIONS OF SECTION 40(A)(IA) TO RS. 1251858/- ON ACCOUNT OF EXPENDITURE UNDER VARIOUS HEADS AND TO THE PAYMENT OF SHARE OF COMMIS SION AMOUNTING TO RS. 480538/- (PAID TO VAV AIR CONDITIONING) AND DISALLO WING THE SAID EXPENDITURE CLAIMED BY THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E & IN LAW THE LEARNED ASSESSING OFFICER HAS ERRED IN DISALLOWING AND THE LEARNED CI T(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE TRADE DISCOUNT OF RS.542350/- A ND SHARE OF COMMISSION OF RS.480538/-ALLOWED / PAID TO VAV AIR CONDITIONING. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E & IN LAW THE LEARNED ASSESSING OFFICER HAS ERRED IN APPLYING AND THE LEARNED C1T(A ) HAS ERRED IN CONFIRMING THE APPLICATION OF THE PROVISIONS OF SECTION 40(A)(IA) TO TRADE DISCOUNT OF RS. 542350/- AND DISALLOWING THE SAME. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E & IN LAW THE LEARNED ASSESSING OFFICER HAS ERRED IN IGNORING AND THE LEARNED CIT(A ) HAS ERRED IN CONFIRMING THE NON CONSIDERATION OF FORM 26A U/R 31 ACB AND THE CERTIF ICATE OF ACCOUNT IN ANNEXURE A AS PROVIDED U/S. 201(1) OF THE ACT FILED ON RECORD AND IN NOT HOLDING THAT PROVISIONS OF SECTION 40 (A)(IA) AS AMENDED ARE APPLICABLE TO THE APPELLANT ON ACCOUNT OF THE TRADE DISCOUNT AND SHARE OF COMMISSION AMOUNTING TO RS. 1022888/- ALLOWED/ PAID TO VAV AIR CONDITIONING BY THE APPELLANT. ITA NO.1386/M/2017 NEENA KAUL 3 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, DELETE OR SUBSTITUTE ANY OF THE ABOVE GROUNDS OF APPEAL. THE GROUND NO.1 HAS BEEN AMENDED BY THE ASSESSEE VI DE LETTER DATED 06.05.2019 AND HAS BEEN SPLIT INTO TWO SEPARATE GROUNDS I.E. 1A & 1B WHICH ARE REPRODUCED AS UNDER: AMMENDED GROUND OF APPEAL NO.1 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW A) THE LEARNED AO HAS ERRED IN DISALLOWING RS. 1251 858/- AS DETAILED IN PARA 4(I) PAGE 2, OF THE ASS. ORDER AND THE CIT(A) HAS E RRED IN CONFIRMING THE DISALLOWANCE BY INVOKING PROVISIONS OF SECTION 4O(A )(IA) FOR AV 2O1O-11. HOWEVER THE DISALLOWANCE BE RESTRICTED TO 3O% OF TH E SAID EXPENDITURE IN VIEW OF THE AMENDED SECTION 4O(A)(IA) AMENDED BY FI NANCE ACT,2O14, WHICH AMENDMENT BE READ AS A RETROSPECTIVE AMENDMENT. B) THE LEARNED AO HAS ERRED IN DISALLOWING RS. 45S5 38/- BEING TRADE DISCOUNT ALLOWED TO SISTER CONCERN VAV AIR-CONDITIO NING AND THE CIT(A) HAS ERRED IN CONFIRMING THE SAID DISALLOWANCE BY INVOKI NG OF SECTION 4O(A)(IA) OF THE ACT FOR AV 2O1O-11. HOWEVER THE DISALLOWANCE BE RESTRICTED TO 3O% OF THE SAID EXPENDITURE IN VIEW OF THE AMENDED SECTION 4O(A)(IA) AMENDED BY FINANCE ACT,2O14, WHICH AMENDMENT BE READ AS A RETR OSPECTIVE AMENDMENT' 4. THE ISSUE RAISED IN GROUND NO.1A IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.12,51,858/- BY L D. CIT(A) AS MADE BY THE AO BY INVOKING PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT . 5. THE FACTS IN BRIEF ARE THAT THE AO DURING THE AS SESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS DEBITED TO T HE PROFIT & LOSS ACCOUNT VARIOUS EXPENSES COMPRISING CLEARING A ND FORWARDING, LABOUR CHARGES, PROFESSIONAL FEE AND CO MMISSION AGGREGATING TO RS.12,51,858/-. ACCORDING TO THE AO, THE ASSESSEE HAS NOT DEDUCTED AND DEPOSITED TDS WITHIN STIPULATED TIME. THE ASSESSEE SUBMITTED BEFORE THE AO THAT ASS ESSEE HAS DEDUCTED TDS AND DEPOSITED IN A.Y. 2013-14 AND NOT IN THE CURRENT ASSESSMENT YEAR. THEREAFTER THE AO REJECTE D THE CLAIM ITA NO.1386/M/2017 NEENA KAUL 4 OF THE ASSESSEE BY DISALLOWING THE SAME UNDER SECT ION 40(A)(IA) OF THE ACT. 6. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALS O DISMISSED THE APPEAL OF THE ASSESSEE BY UPHOLDING THE DISALLO WANCE BY HOLDING THAT THE AO HAS RIGHTLY INVOKED THE PROVISI ONS OF SECTION 40(A)(IA) OF THE ACT AS THE ASSESSEE HAS FAILED TO DEDUCT AND DEPOSIT THE TDS EITHER DURING THE FINANCIAL YEAR NO R UP TO THE DATE OF FILING THE RETURN OF INCOME. 7. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE D REW OUR ATTENTION TO THE EXPLANATORY NOTES TO THE PROVISION S OF FINANCE (2) ACT, 2014, PARA 14.3 AND 14.4 WHEREIN THE LD. A .R. SUBMITTED THAT FOR THE PROVISION OF SECTION 40(A)(I A), ACT HAS BEEN AMENDED TO PROVIDE THAT IN CASE OF NON DEDUCTION OF TAX ON PAYMENTS MADE TO RESIDENTS AS SPECIFIED IN SECTION 40(A)(IA) OF THE ACT, THE DISALLOWANCE SHALL BE RESTRICTED TO 30 % OF THE EXPENDITURE CLAIMED. THE LD. A.R. SUBMITTED THAT T HE SAID PROVISIONS HAVE BEEN AMENDED IN ORDER TO EASE THE H ARDSHIPS CAUSED TO THE ASSESSEE DUE TO 100% DISALLOWANCE OF THE EXPENDITURE CLAIMED BY THE ASSESSEE IN CASE OF NON DEDUCTION AND NON PAYMENT OF TDS. THE LD. COUNSEL ALSO SUBM ITTED THAT IT HAS BEEN MENTIONED IN THE PARA 14.3 THAT WITHHOL DING OF TAXES IS A MODE OF COLLECTION OF TAX AND DOES NOT RESULT INTO FINAL DISCHARGE OF TAX LIABILITY. THE LD. A.R. SUBMITTED THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ASPHALT INDIA CORPORATION VS. DCIT IN ITA NO.1869/M/2014 ORDER DA TED 24.05.2017 AND THE DECISION OF THE HONBLE BOMBAY H IGH COURT IN THE CASE OF PR.CIT VS. PERFECT CIRCLE INDIA PVT. LTD. IN ITA ITA NO.1386/M/2017 NEENA KAUL 5 NO.707 OF 2016 DATED 07.01.2019. THE LD. A.R. THER EFORE PRAYED BEFORE THE BENCH THAT IN VIEW OF THE AFORESAID DECI SIONS, THE DISALLOWANCE MAY KINDLY BE DIRECTED TO BE RESTRICTE D EQUAL TO 30% OF THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE A S HAS BEEN HELD IN THE AFORESAID DECISIONS. THE LD. A.R. SUBM ITTED THAT IN THE CASE OF M/S. ASPHALT INDIA CORPORATION VS. DCIT (SUPRA) IT HAS BEEN HELD THAT AMENDMENT TO SECTION 40(A)(IA) O F THE ACT VIDE FINANCE (2) ACT, 2014 WAS RETROSPECTIVE IN NATURE A ND THEREFORE COVERS THE INSTANT YEAR ALSO . SIMILARLY, IN THE C ASE OF PR.CIT VS. PERFECT CIRCLE INDIA PVT. LTD. (SUPRA) HAS HELD THA T WITH REFERENCE TO INSERTION OF 2 ND PROVISO TO SECTION 40(A)(IA) OF THE ACT, THE HONBLE BOMBAY HIGH COURT HAS HELD THAT SECTION 40( A)(IA) IS NOT A PENALTY AND INSERTION OF 2 ND PROVISO IS DECLARATORY AND CURATIVE IN NATURE AND WOULD HAVE RETROSPECTIVE EFFECT FROM THE DATE WHEN THE MAIN PROVISO TO SECTION 40(A)(IA) WAS INSE RTED I.E. 01.04.2005. 8. THE LD. D.R. RELIED ON THE ORDER OF AUTHORITIES BELOW. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE ISSUE IN THIS CASE IS W HETHER THE DISALLOWANCE ON ACCOUNT OF VARIOUS EXPENSES AGGREGA TING TO RS.12,51,858/-, THE DETAILS WHEREOF IS GIVEN IN PAG E NO.2 OF THE ASSESSMENT ORDER IS TO BE RESTRICTED TO 30% OF THE TOTAL EXPENDITURE IN TERMS OF THE AMENDMENT TO SECTION 40 (A)(IA) OF THE ACT VIDE FINANCE (2) ACT, 2014 WHICH IS APPLICABLE W.E.F. 01.04.2015. IN THIS CASE THE ASSESSEE HAS NOT DEDU CTED AND DEPOSITED THE TAX EITHER DURING THE CURRENT FINANCI AL YEAR OR UP TO THE DATE OF FILING OF THE RETURN BUT TAX WAS DED UCTED AND DEPOSITED IN THE ASSESSMENT YEAR I.E. 2013-14. WE FIND MERIT IN ITA NO.1386/M/2017 NEENA KAUL 6 THE CONTENTIONS OF THE ASSESSEE THAT AS PER THE AME NDED PROVISION OF SECTION 40(A)(IA) WHICH IS A RETROSPEC TIVE IN NATURE, THE DISALLOWANCE HAS TO BE MADE EQUAL TO 30% OF THE TOTAL DISALLOWANCE AS HAS BEEN HELD IN THE CASE OF M/S. A SPHALT INDIA CORPORATION VS. DCIT (SUPRA). THE HONBLE BOMBAY H IGH COURT ALSO HAS, IN THE CONTEXT OF THE INSERTION OF 2 ND PROVISO TO SECTION 40(A)(IA), HELD THAT THOUGH IT HAS BEEN STATED IN T HE 2 ND PROVISO TO SECTION 40(A)(IA) OF THE ACT THAT THE SAME IS IN SERTED FROM 01.04.2013 BUT THE SAME HAS RETROSPECTIVE APPLICATI ON AS THE INSERTION OF 2 ND PROVISO IS DECLARATIVE AND CURATIVE IN NATURE AND WOULD BE EFFECTIVE FROM THE DATE OF MAIN PROVISO TO SECTION 40(A)(IA) OF THE ACT. WE, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE ABOVE DECISIONS, DIRECT THE AO TO RESTRICT THE DISALLOWANCE EQUAL TO 30% OF THE TOTAL EXPENSES. TH E GROUND RAISED BY THE ASSESSEE IS ALLOWED. 10. THE ISSUES RAISED IN GROUND NO.1B, 2 & 3 ARE INTERCONNECTED AND ARE AGAINST THE ORDER OF LD. CIT (A) CONFIRMING THE ADDITION OF RS.10,22,888/- AS MADE B Y THE AO TOWARDS THE DISALLOWANCE OF TRADE DISCOUNT OF RS.5, 42,350/- AND COMMISSION PAID OF RS.4,80,538/-TO VAV AIR CONDITI ONING A PROPRIETARY CONCERN OF THE ASSESSEES HUSBAND. 11. THE FACTS IN BRIEF ARE THAT THE AO AFTER PERUSA L OF SCHEDULE 18 OF TAX AUDIT REPORT OBSERVED THAT ASSESSEE HAS S HARED COMMISSION INCOME TO THE TUNE OF RS.10,22,888/- WIT H HER HUSBAND SHRI ADARSH PAL IN THE PROPRIETARY CONCERN VAV AIR CONDITIONING. ACCORDINGLY, THE AO ISSUED A SHOW CA USE NOTICE TO THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE TREAT ED AS INCOME IN THE HANDS OF THE ASSESSEE AND HER HUSBAND ARE TWO ITA NO.1386/M/2017 NEENA KAUL 7 SEPARATE ENTITIES AND NO PROVISION OF LAW OF INCOME TAX ALLOWS THE TRANSFER OR DIVERSION OF INCOME BEFORE PAYMEN T OF TAXES TO OTHER PERSON. THE AO ALSO NOTICED THAT ASSESSEE HA S NOT DEDUCTED ANY TDS ON SUCH AMOUNT EVEN THOUGH THE SAI D AMOUNT WAS CLAIMED AS EXPENSES IN THE HANDS OF THE ASSESSEE. THE AO DISALLOWED THE SAID EXPENSES ON THE GROUND T HAT PAYMENT WAS MADE TO THE ASSESSEE WITHOUT SERVICES B EING RENDERED. ALTERNATIVELY THE AO TREATED THE EXPENSES AS DISALLOWABLE UNDER SECTION 40(A)(IA) OF THE ACT FOR NON DEDUCTION AND PAYMENT OF TDS. 12. SIMILARLY, THE LD. CIT(A) AFFIRMED THE ORDER OF AO ON THE GROUND THAT ASSESSEE HAS NOT PAID ANY GENUINE COMMISSION/DISCOUNT AND IT IS JUST A DIVERSION OF I NCOME. THE LD. CIT(A) ALSO HELD THAT THE COMMISSION PAYMENT WA S HIT BY THE PROVISION OF SECTION 40(A)(IA) OF THE ACT AND THUS JUSTIFIED THE ADDITION MADE BY THE AO. 13. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE ASSESSEE H AS MADE THE PAYMENT OF RS.10,22,888/- TO HER HUSBAND OUT OF COM MISSION INCOME ON THE GROUND THAT THE PROPRIETARY CONCERN O F THE HUSBAND VAV AIR CONDITIONING WAS LEADING CONTRACTOR IN AC AND CENTRAL AIR CONDITIONING AND IT HAD PROVIDED IN FORMATION TO THE ASSESSEE ABOUT REQUIREMENTS OF TROSS PRODUCTS BY VARIOUS BUYERS. OUT OF THE SAID RS.10,22,888/-, RS.5,42,35 0/- WAS PAID ON ACCOUNT OF TRADE DISCOUNT TO THE SISTER CONCERN VAV AIR CONDITIONING WHEREAS THE REMAINING AMOUNT OF RS.4,8 0,538/- WAS PAID AS SHARE OF COMMISSION. NO TDS WAS DEDUCT ED FROM BOTH THE PAYMENTS. ITA NO.1386/M/2017 NEENA KAUL 8 14. AFTER TAKING INTO ACCOUNT THE FACTS OF THE CASE AND ARGUMENTS OF BOTH THE PARTIES, WE ARE OF THE VIEW T HAT THE ENTIRE AMOUNT IS PAID TO THE SISTER CONCERN WITHOUT ANY DE DUCTION OF TDS DURING THE YEAR AND THEREFORE AS HAS BEEN HELD BY US IN THE GROUND NO.1A (SUPRA) THE DISALLOWANCE HAS TO BE RES TRICTED TO 30% OF THE SAID EXPENDITURE. WE ARE NOT CONVINCED W ITH THE ARGUMENTS OF THE LD DR THAT THE GENUINENESS OF PAYM ENTS ARE IN DOUBT AS THE PAYMENTS WERE MADE TO THE RELATED PART IES WITHOUT PROVING THE NATURE OF SERVICES RENDERED. THE LD DR ALSO STRESSED THE POINT THAT REASONABILITY OF THE PAYMENTS IS NOT THE ISSUE IN THIS CASE BUT THE ALLOWABILITY OF THE EXPENSES U/S 37 IS DOUBTED BY THE AO ON THE GROUND OF NON RENDERING OF SERVIC ES. HOWEVER, WE OBSERVE THAT THE AO HAS NOT BROUGHT ANY MATERIAL S ON RECORD TO REBUT THE SUBMISSIONS OF THE ASSESSEE THAT THE PROPRIETARY CONCERN WAS A LEADING CONTRACTOR AND HAS BEEN PROVI DING THE INFORMATION AS TO THE REQUIREMENTS OF THE CUSTOMERS IN THAT FIELD ON HVAC AND AIR CONDITIONING. SO WE ARE NOT IN AGRE EMENT WITH THE CONCLUSION OF THE LD CIT(A) ON THIS ISSUE. AC CORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO MAKE THE DISALLOWANCE @ 30% AS THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THE SAME LINES AS DECIDED BY US IN GROUND NO. 1A SUPRA.. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 21.05.2019. SD/- SD/- (SANDEEP GOSAIN) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 21.05.2019. * KISHORE, SR. P.S. ITA NO.1386/M/2017 NEENA KAUL 9 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.