M/s Sri Chaitanya Educational Society, Visakhapatnam V. The Addl.CIT, Kakinada Range, Kakinada, Kakinada

ITA 161/VIZ/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3729 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 11-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAVI
• Assessee Lawyers: C SUBRAHMANYAMAR
• Keywords: Depreciation; Retrospective amendment; Non-deduction of tax; Non compliance
• Section: 43B; 12A; 201(1); 28

Judgement Text

ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.161/VIZAG/2012 ( / ASSESSMENT YEAR: 2008-09) SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA VS. ADDL. CIT, KAKINADA RAGE, KAKINADA [PAN: AABAS 4398D ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.236/VIZAG/2013 ( / ASSESSMENT YEAR: 2009-10) SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA VS. ADDL. CIT, KAKINADA RAGE, KAKINADA ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.654/VIZAG/2014 ( / ASSESSMENT YEAR: 2010-11) ACIT, CENTRAL CIRCLE, RAJAHMUNDRY VS. SRI CHAITANYA EDUCATIONAL SOCIETY , KAKINADA ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI C. SUBRAHMANYAM,AR / RESPONDENT BY : SHRI K. RAVI, DR / DATE OF HEARING : 24.05.2016 / DATE OF PRONOUNCEMENT : 17.06.2016 ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 2 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE ARE TWO APPEALS FILED BY THE ASSESSEE AND ONE APPEAL FILED BY THE REVENUE ARE DIRECTED AGAINST SEPARATE, BUT I DENTICAL ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS), VISAKHAPATNA M FOR THE ASST. YEARS 2008-09, 2009-10 AND 2010-11. SINCE, FACTS AR E IDENTICAL AND ISSUES ARE COMMON, THEY ARE HEARD TOGETHER AND DISP OSED OFF, BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A SOCIETY REGISTERED UNDER SOCIETIES REGISTRATION ACT, WITH T HE MAIN OBJECTS OF IMPARTING EDUCATION, RUNNING ENGINEERING COLLEGE, P OST GRADUATE COLLEGE AND POLYTECHNIC ETC. THE ASSESSEE NEITHER REGISTERE D U/S 12A NOR REGISTERED U/S 10(23C)(VI) OF THE INCOME TAX ACT, 1 961. THE ASSESSEE HAS FILED RETURN OF INCOME DECLARING INCOME FROM OT HER SOURCES. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY , NOTICE U/S 143(2) WAS ISSUED. IN RESPONSE TO NOTICE, THE AUTHORIZED R EPRESENTATIVE APPEARED AND SUBMITTED BOOKS OF ACCOUNTS AND OTHER INFORMATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A. O. NOTICED THAT THE ASSESSEE HAS FILED RETURN IN THE STATUS OF AOP AND CONSIDERED INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES, HOWEVER, IN THE PAST, IT HAS ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 3 DECLARED INCOME UNDER THE HEAD INCOME FROM BUSINESS . THEREFORE, ISSUED A SHOW-CAUSE NOTICE AND ASKED EXPLAIN WHY TH E INCOME SHALL NOT BE CONSIDERED UNDER THE HEAD INCOME FROM BUSINESS O R PROFESSION. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE STATED THAT THE SOCIETY IS CHARITABLE SOCIETY SOLELY EXISTING FOR IMPARTING ED UCATION AND NOT FOR THE PURPOSE OF PROFIT, THEREFORE THE INCOME SHOULD BE A SSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE FURTHE R SUBMITTED THAT THE MEMORANDUM OF ASSOCIATION OR BY LAWS OF ANY OR GANIZATION CONVEY THE OBJECTS AND NATURE OF ACTIVITIES THAT ARE TO BE CARRIED OUT BY THE ORGANIZATION. THE SOCIETY MAIN OBJECTS ARE IMPARTIN G EDUCATION AND IT IS PURSUING ITS OBJECTS BY RUNNING EDUCATIONAL INSTITU TIONS. THE SOCIETY HAS NO BUSINESS ACTIVITY AND HENCE, ANY SURPLUS AMOUNT SHALL BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES, BUT NOT U NDER THE HEAD INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFES SION. 3. THE A.O. AFTER CONSIDERING THE EXPLANATION OF TH E ASSESSEE OBSERVED THAT THE ACTIVITY CARRIED OUT BY THE ASSES SEE ARE AKIN TO NORMAL BUSINESS ACTIVITY IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE OR COMMERCE, WHETHER OR NOT CHARITABLE IN NATURE. THE ASSESSEE IS RUNNING EDUCATIONAL INSTITUTIONS BY COLLECTING FEES FROM TH E STUDENTS, THEREFORE THE ACTIVITY IS THE NATURE OF TRADE OR SERVICE WHIC H COMES UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. THE INCOME FROM OTHER SOURCES IS A ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 4 RESIDUARY HEAD OF INCOME, WHERE INCOME OF EVERY KIN D WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THIS ACT, SHAL L BE CHARGEABLE TO INCOME TAX UNDER THE HEAD INCOME FROM OTHER SOURCES , IF IT IS NOT CHARGEABLE TO INCOME TAX UNDER ANY OF THE HEADS SPE CIFIED IN SECTION 14, ITEMS A TO E OF THE INCOME TAX ACT, 1961. THE ACTIV ITIES OF THE ASSESSEE ARE IN THE NATURE OF BUSINESS OR TRADE, THEREFORE, THE SURPLUS SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR PRO FESSION, BUT NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. THE A.O. HAS MADE ELABORATE DISCUSSION AND ALSO RELIED UPON PLETHORA OF JUDICIAL PRECEDENTS TO COME TO THE CONCLUSION THAT THE NATURE OF ACTIVI TY CARRIED OUT BY THE ASSESSEE ARE COMMERCIAL IN NATURE. THE A.O. FURTHER HELD THAT SINCE, THE INCOME OF THE ASSESSEE IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS, THE PROVISIONS OF SEC. 28 TO 44 OF THE IN COME TAX ACT, 1961 SHALL APPLY IN ADDITION TO THE OTHER PROVISIONS OF THE ACT. WITH THESE OBSERVATIONS, THE A.O. ASSESSED THE INCOME UNDER TH E HEAD INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION AND MAD E FOLLOWING ADDITIONS. (I) DISALLOWANCE OF PERSONAL EXPENDITURE RS. 7,64,640/-. (II) DISALLOWANCE OF UNPAID LIABILITY U/S 43B RS. 2,01,199/-. (III) DISALLOWANCE OF EXPENDITURES U/S 40(A)(IA) R S. 25,12,651/-. (IV) EXCESS CLAIM OF DEPRECIATION RS. 2,41, 547/-. (V) DISALLOWANCE OF EXPENDITURES RS. 2,67,1 34/-. (VI) DISALLOWANCE OF INTEREST U/S 36(1)(III) RS . 21,87,487/-. ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 5 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE AS SESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O., WITH REGARD TO NA TURE OF ACTIVITIES AND THE HEAD OF INCOME UNDER WHICH THE INCOME OF TH E ASSESSEE TO BE ASSESSED, HOWEVER, COULD NOT OFFERED ANY EXPLANATIO N ON DISALLOWANCE AND ADDITIONS ON MERITS. THE ASSESSEE FURTHER SUBMI TTED THAT THE A.O. WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SEC . 28 TO 44 OF THE INCOME TAX ACT, 1961 AS NONE OF THE PROVISIONS ARE APPLICABLE TO THE INCOME OF A CHARITABLE ORGANIZATION COVERED UNDER S EC. 2(15) OF THE INCOME TAX ACT. IT WAS FURTHER CONTENDED THAT IT HA S SOLELY EXISTING FOR IMPARTING EDUCATION AND IT IS CONTINUED TO DO THE A CTIVITIES IN ACCORDANCE WITH THE OBJECTS, THEREFORE, THE A.O. WAS NOT CORRE CT IN CONCLUDING THAT THE ACTIVITIES ARE IN THE NATURE OF BUSINESS AND AS A RESULT THE A.O. WAS WRONGLY APPLIED THE PROVISIONS OF SEC. 40(A)(IA) AN D OTHER PROVISIONS OF THE ACT. THE CIT(A), AFTER CONSIDERING THE EXPLANA TIONS OF THE ASSESSEE HELD THAT THE A.O. HAS RIGHTLY ASSESSED THE INCOME UNDER THE HEAD INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFES SION. THE CIT(A) FURTHER HELD THAT THE ACTIVITY CARRIED OUT BY THE A SSESSEE IS AKIN TO NORMAL BUSINESS ACTIVITY IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE OR COMMERCE. THE ASSESSEE MAY BE HAVING CHARI TABLE OBJECTIVES, BUT THE OBJECTIVES IN THE TRUST DEED/MOA IS NOT MAT ERIAL AS FOR AS ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 6 INCOME TAX IS CONCERNED. THOUGH THERE IS CLAIM OF N ON-PROFIT MOTIVE, IT IS UNDISPUTED THAT THERE IS SURPLUS CREATED OUT OF THE SAME, YEAR AFTER YEAR ON CONTINUOUS BASIS. UNDER THE PROVISIONS OF I NCOME TAX ACT, INCOME OF A PERSON IS TO BE COMPUTED UNDER NORMAL C OMMERCIAL PRINCIPLES AND THE INCOME IS TO BE DETERMINED UNDER APPROPRIATE HEAD OF INCOME AS SPECIFIED UNDER SEC. 14, ITEMS A TO E BAS ED ON THE NATURE OF ACTIVITY. IF ANY INCOME IS NOT ASSESSABLE UNDER AN Y HEAD OF INCOME IN ITEMS NO A TO E, THEN THE SAME IS ASSESSABLE UNDER THE RESIDUAL HEAD OF INCOME FROM OTHER SOURCES. WITH THESE OBSERVATIONS, THE CIT(A) UPHELD THE ACTION OF A.O. AS REGARDS THE VARIOUS ADDITION/ DISALLOWANCES, SINCE, ASSESSEE COULD NOT ADVANCE ANY ARGUMENTS ON MERITS, THE ADDITIONS MADE BY THE A.O. ARE CONFIRMED. AGGRIEVED BY THE CI T(A) ORDER THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFOR E US. 5. THE ASSESSEE HAS RAISED COMMON GROUNDS FOR BOTH THE YEARS. FROM THESE GROUNDS OF APPEAL, THE ASSESSEE HAS AGIT ATED THREE ISSUES.I.E.(I) HEAD OF INCOME UNDER WHICH THE INCOM E OF THE ASSESSEE IS ASSESSABLE, WHETHER INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES. (2) DIS ALLOWANCE OF EXPENDITURES U/S 40(A)(IA) AND (3) DISALLOWANCE OF CERTAIN EXPENDITURES AND UNPAID LIABILITY U/S 43B. SIMILARLY, THE REVENU E IN ITS APPEAL FOR THE ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 7 A.Y. 2010-11, HAS AGITATED THE ISSUE OF DELETION OF ADDITION MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT TOWARDS INTEREST ON U NSECURED LOANS. 6. GROUND NO. 1 & 1.7 OF ITA.NO. 161/V/2012 AND GRO UND NO. 1 AND 1.6 OF ITA.NO. 236/V/2013 ARE GENERAL IN NATURE, HE NCE NEED NO ADJUDICATION. THE LD. A.R. FOR THE ASSESSEE, AT THE TIME OF HEARING SUBMITTED THAT GROUND NO. 1.1., 1.4 1.5 AND 1.6, OF APPEAL NO. 161/V/2012 FOR A.Y. 2008-09 AND GROUND NO. 1.1 AND 1.2 OF ITA.NO. 236/V/2013, ARE NOT PRESSED. THEREFORE, THE SAME AR E DISMISSED AS NOT PRESSED. THUS, THE EFFECTIVE GROUNDS REMAINS FOR OU R ADJUDICATION IS DISALLOWANCE OF ADVERTISEMENT EXPENDITURE AND OTHER CHARGES AND INTEREST ON UNSECURED LOANS U/S 40(A)(IA) OF THE AC T FOR NON COMPLIANCE WITH TDS PROVISIONS. 7. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF ADVERTISEMENT AND PROFESSIONAL CHARGES U/S 40(A) (IA) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A. O. NOTICED THAT THE ASSESSEE HAS INCURRED ADVERTISEMENT EXPENSES AND PR OFESSIONAL CHARGES WITHOUT DEDUCTION OF TAX AT SOURCE UNDER RESPECTIVE PROVISIONS OF CHAPTER XVII-B OF THE ACT, THEREFORE, DISALLOWED A SUM OF RS. 25,12,651/- AND RS. 12,90,386/- UNDER THE PROVISION S OF SEC. 40(A)(IA) OF THE ACT. THE A.O. WAS OF THE OPINION THAT THE ASSES SEE OUGHT TO HAVE DEDUCTED TDS, HOWEVER FAILED TO DEDUCT TDS AS REQUI RED UNDER THE ACT, ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 8 THEREFORE, THE EXPENDITURE IS NOT ALLOWABLE AS DEDU CTION. IT IS THE CONTENTION OF THE ASSESSEE THAT OUT OF THE TOTAL DI SALLOWANCE OF RS. 25,12,651/- AND RS. 12,90,386/- A SUM OF RS.22,56,9 80/- AND RS. 9,27,393/- HAS BEEN PAID DURING THE FINANCIAL YEAR BEFORE 31 ST MARCH, THEREFORE, IN VIEW OF ITAT, VISAKHAPATNAM SPECIAL B ENCH DECISION, IN THE CASE OF MERLYN SHIPPING & TRANSPORTERS VS. ACIT, (2 012)136 ITD 23, NO DISALLOWANCE CAN BE MADE FOR THE AMOUNTS WHICH ARE PAID DURING THE SAME FINANCIAL YEAR. THE ASSESSEE ALSO RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT, IN THE CASE OF VECTOR SHIPPING SERVICES PVT LTD. VS. CIT, 38 TAXMANN.COM 77 AND SUBMITTED T HAT THE HONBLE SUPREME COURT, DISMISSED THE SLP FILED BY THE DEPAR TMENT. THEREFORE, IN VIEW OF THE DISMISSAL OF SLP, THE MATTER HAS BEE N REACHED FINALITY AND HENCE, NO DISALLOWANCE CAN BE MADE. ON THE OTHER HA ND, THE LD. D.R. SUBMITTED THAT THE DEPARTMENT HAS NOT ACCEPTED THE SPECIAL BENCH DECISION OF ITAT, VISAKHAPATNAM AND HAD PREFERRED F URTHER APPEAL BEFORE HONBLE ANDHRA PRADESH HIGH COURT. THE A.P. HIGH COURT, HAS SUSPENDED THE OPERATION OF SPECIAL BENCH, THEREFORE , THE ADDITION MADE BY THE A.O. SHOULD BE UPHELD. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. THE A.O. DISALLOWED EXPENDITUR ES UNDER THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, FOR NON DE DUCTION OF TDS UNDER ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 9 CHAPTER XVII-B OF THE ACT. THE A.O. WAS OF THE OPIN ION THAT ANY EXPENDITURE ON WHICH TDS PROVISIONS ARE NOT COMPLIE D WITH RESPECTIVE TDS PROVISIONS, THEN DEDUCTION CANNOT BE ALLOWED TO WARDS SUCH EXPENDITURE IN VIEW OF CLEAR PROVISIONS OF SEC. 40( A)(IA) OF THE ACT. IT IS THE CONTENTION OF THE ASSESSEE THAT NO DISALLOWANCE CAN BE MADE TOWARDS ANY EXPENDITURE WHICH IS PAID WITHIN THE FI NANCIAL YEAR. THE ASSESSEE FURTHER CONTENDED THAT OUT OF THE TOTAL DI SALLOWANCE OF RS. 25,12,651/- AND RS. 12,90,386/- A SUM OF RS.22,56,9 80/- AND RS. 9,27,393/- HAS BEEN PAID DURING THE FINANCIAL YEAR BEFORE 31 ST MARCH, THEREFORE, IN VIEW OF ITAT, VISAKHAPATNAM SPECIAL B ENCH DECISION, IN THE CASE OF MERLYN SHIPPING & TRANSPORTERS VS. ACIT, (2 012)136 ITD 23, NO DISALLOWANCE CAN BE MADE FOR THE AMOUNTS WHICH ARE PAID DURING THE SAME FINANCIAL YEAR. WE FIND THAT THE COORDINATE BEN CH OF THIS TRIBUNAL, IN THE CASE OF MERLYN SHIPPING & TRANSPORTERS VS. A CIT(SUPRA) HELD THAT NO DISALLOWANCE CAN BE MADE ON ANY EXPENDITURE WHIC H IS PAID DURING THE SAME FINANCIAL YEAR. THE RELEVANT PORTION IS R EPRODUCED AS UNDER: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE CIT(A) PERTAINING TO THE ASSESSMENT YEAR 2005-06. A REFERENCE U/S 255(3) OF THE INCOME-TAX ACT HAS BEEN MADE TO THE HONBLE PRESIDENT TO CONSTITUTE A SPECIAL BENCH TO ADJUDICATE AN ISSUE W HETHER SECTION 40A(IA) OF THE INCOME TAX ACT CAN BE INVOKED ONLY TO DISALL OW EXPENDITURE OF THE NATURE REFERRED TO THEREIN WHICH IS SHOWN AS PAYABL E AS ON THE DATE OF BALANCE SHEET OR IT CAN BE INVOKED ALSO TO DISALLOW SUCH EXPENDITURE WHICH BECOMES PAYABLE AT ANY TIME DURING THE RELEVANT PRE VIOUS YEAR AND WAS ACTUALLY PAID WITHIN THE PREVIOUS YEAR? CONSEQUENTL Y, SPECIAL BENCH WAS CONSTITUTED AND THE AFORESAID QUESTION WAS ANSWERED IN FAVOUR OF THE ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 10 ASSESSEE. ACCORDING TO THE MAJORITY VIEW, IT WAS HE LD THAT SECTION 40A(IA) OF THE ACT IS APPLICABLE ONLY TO EXPENDITURE WHICH IS PAYABLE AS ON 31ST MARCH OF EVERY YEAR AND CANNOT BE INVOKED TO DISALL OW THE AMOUNTS WHICH HAVE ALREADY BEEN PAID DURING THE YEAR WITHOUT DEDU CTING TAX AT SOURCE. 2. ISSUE INVOLVED IN THIS APPEAL IS WITH REGARD TO THE DISALLOWANCE OF PAYMENTS OF RS.38,75,000/- TOWARDS BROKERAGE AND RS .2,43,253/- TOWARDS COMMISSION ON NON-DEDUCTION OF TDS BY INVOKING THE PROVISIONS OF SECTION 40A(IA) OF THE ACT. THE ASSESSEES CASE WAS THAT TH E ENTIRE BROKERAGE IN COMMISSION PAYMENTS WERE ACTUALLY PAID DURING THE F INANCIAL YEAR EXCEPTING AN AMOUNT OF RS.1,78,025/- WHICH REMAINED PAYABLE AS ON 31.3.2005. THE CLAIM OF THE ASSESSEE WAS REJECTED B Y THE REVENUE RESULTING IN AN APPEAL BEFORE US BY THE ASSESSEE. F OLLOWING THE MAJORITY VIEW OF THE SPECIAL BENCH, THE PROVISIONS OF SECTIO N 40A(IA) CANNOT BE INVOKED WITH RESPECT TO THE AFORESAID PAYMENTS WHIC H WERE ACTUALLY PAID DURING THE FINANCIAL YEAR BUT IT CAN BE INVOKED WIT H RESPECT TO RS.1,78,025/- WHICH REMAINED PAYABLE AS ON 31.3.200 5. THEREFORE, THE DISALLOWANCE IS REDUCED TO RS.1,78,025/- ONLY. ACCO RDINGLY, THE ORDER OF THE CIT(A) IS MODIFIED. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISIO N(SUPRA), WE ARE OF THE VIEW THAT NO DISALLOWANCE CAN BE MADE UNDER THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, FOR NON COMPLIANCE OF TD S PROVISIONS, IF EXPENDITURE INCURRED IS PAID WITHIN THE FINANCIAL Y EAR. IN THE PRESENT CASE ON HAND, THE ASSESSEE CLAIMS THAT OUT OF THE T OTAL DISALLOWANCE OF RS. 25,12,651/- AND RS. 12,90,386/- A SUM OF RS. 22,56,980/- AND RS. 9,27,393/- RESPECTIVELY FOR THE A.Y. 2008-09 AN D 2009-10 HAS BEEN PAID DURING THE FINANCIAL YEAR BEFORE 31 ST MARCH. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF THE A.O. FOR THE LIMITED PURPOSE OF VERIFICATION OF PAID AND PAYABLE. IN CASE THE EXPEN DITURE IS PAID DURING THE SAME FINANCIAL YEAR WITHIN 31 ST MARCH, THEN NO ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 11 DISALLOWANCE CAN BE MADE. IN OTHER WORDS DISALLOWAN CE U/S 40(A)(IA) SHOULD BE RESTRICTED TO AMOUNTS REMAIN PAYABLE AT T HE END OF THE FINANCIAL YEAR. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEE APPEAL IN ITA.NO.236/V/2013 AND REVENUE AP PEAL IN ITA.NO.654/V/2014 IS DISALLOWANCE OF INTEREST PAID ON UNSECURED LOAN UNDER SEC. 40(A)(IA) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS INCURRED INTEREST ON UNSECURED LOAN WITHOUT COMPLIED WITH THE TDS PRO VISIONS OF CHAPTER XVII-B OF THE ACT. SINCE, ASSESSEE HAS NOT COMPLIED WITH THE TDS PROVISIONS, INTEREST PAID ON UNSECURED LOAN HAS BEEN DISALLOWED UNDER THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. IT IS THE CONTENTION OF THE ASSESSEE THAT NO DISALLOWANCE CAN BE MADE UN DER THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, AS THE PAY EE SRI KOUNDINYA EDUCATION SOCIETY HAS OFFERED THE INTEREST INCOME F OR TAXATION AND FILED THE RETURN OF INCOME. THE ASSESSEE FURTHER SU BMITTED THAT THE FINANCE ACT 2012, W.E.F. 1-4-2013 HAS INSERTED A SE COND PROVISO, WHICH STATES THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS O F CHAPTER XVII-B ON ANY SUCH SUM, BUT IS NOT DEEMED TO BE AN ASSESSEE I N DEFAULT UNDER THE FIRST PROVISO TO SUB SEC. (1) OF SEC. 201, THEN , FOR THE PURPOSE OF ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 12 THIS SUB-CLAUSE, IT SHALL BE DEEMED THAT THE ASSESS EE HAS DEDUCTED AND PAID THE TAX ON SUCH SOME ON THE DATE OF FURNIS HING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAI D PROVISO. THE PROVISO INSERTED BY THE FINANCE BILL IS TO RATIONAL IZE THE PROVISIONS, AND HENCE, IT IS CLARIFICATORY IN NATURE, ITS OPERATION SHOULD BE RETROSPECTIVE IN NATURE. THIS VIEW WAS EXPRESSED BY THE ITAT, AGRA BENCH IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ACIT. THEREFORE, NO DISALLOWANCE CAN BE MADE UNDER SEC. 40(A)(IA), IF T HE RECIPIENT HAS INCLUDED THE SUCH SOME IN THE RETURN FILED FOR THE RELEVANT ASSESSMENT YEAR. 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE A.O. DISALLOWED INTEREST PAID ON UNSECUR ED LOAN UNDER THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, FOR THE RE ASON THAT THE ASSESSEE HAS FILED TO DEDUCT TDS ON INTEREST PAYMEN TS. THE A.O. WAS OF THE OPINION THAT ANY EXPENDITURE ON WHICH TDS PR OVISIONS ARE NOT COMPLIED WITH RESPECTIVE TDS PROVISIONS, THEN DEDUC TION CANNOT BE ALLOWED TOWARDS SUCH EXPENDITURE IN VIEW OF CLEAR P ROVISIONS OF SEC. 40(A)(IA) OF THE ACT. IT IS THE CONTENTION OF THE A SSESSEE THAT PAYEE SRI KOUNDINYA EDUCATION SOCIETY HAS INCLUDED THE IN TEREST INCOME IN THEIR INCOME AND FILED THE RETURN OF INCOME FOR THE RESPECTIVE YEARS, ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 13 THEREFORE, IN VIEW OF THE SECOND PROVISO TO SEC. 40 (A)(IA), WHICH WAS INSERTED W.E.F. 1-4-2013, NO DISALLOWANCE CAN BE MA DE, IF AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF T HE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDE R THE FIRST PROVISO TO SUB SEC. (1) OF SEC. 201, THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SOME ON THE DATE OF FURNISHING OF RETURN OF IN COME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. 12. IT IS THE CLAIM OF THE ASSESSEE THAT THE RECIPI ENT SRI. KOUNDINYA EDUCATION SOCIETY HAS INCLUDED THE INTEREST INCOME IN THEIR BOOKS OF ACCOUNTS AND FILED THE INCOME TAX RETURNS FOR THE R ELEVANT YEARS. THE ASSESSEE HAS FILED A PAPER BOOK WHICH CONTAINS DETA ILS OF INCOME TAX RETURNS ALONG WITH FINANCIAL STATEMENTS OF SRI. KOU NDINYA EDUCATION SOCIETY FOR THE A.Y. 2008-09 AND 2009-10. ON PERUSA L OF PAPER BOOK FILED BY THE ASSESSEE (PB PAGE NO. 54 TO 63), WE NO TICED THAT THE ASSESSEE HAD PAID INTEREST OF RS. 27,29,767/- FOR T HE A.Y. 2009-10 AND THE RECIPIENT SRI KOUNDINYA EDUCATION SOCIETY H AD ACCOUNTED INTEREST INCOME OF OF RS. 27,29,767/- IN THEIR BOOK S OF ACCOUNTS IN TWO FINANCIAL YEARS, I.E. F.Y. 2007-08 RS. 14,66,81 3/- AND F.Y. 2008- 09 RS. 12,62,954. SIMILARLY, THE ASSESSEE HAD PAID INTEREST OF RS. ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 14 50,13,728/- AND THE RECIPIENT HAD ACCOUNTED INTERES T INCOME IN THE FINANCIAL YEAR 2009-10 AND FURNISHED A CERTIFICATE FROM THE CHARTERED ACCOUNTANT UNDER THE PROVISIONS OF SEC. 201(1) OF T HE ACT, TO THE EFFECT THAT THE PAYEE HAD DISCHARGED THE TAX ON SUC H INTEREST INCOME. THEREFORE, TECHNICALLY IT COULD BE SAID THAT THE LI ABILITY CANNOT BE FASTENED ON THE ASSESSEE. IT IS ALSO AN ADMITTED FA CT THAT THE ASSESSEE WAS NOT HELD AS AN ASSESSEE IN DEFAULT UND ER THE PROVISIONS OF SEC. 201(1) OF THE ACT. THEREFORE, IN VIEW OF TH E SECOND PROVISO TO SEC. 40(A)(IA), WHICH WAS INSERTED W.E.F. 1-4-2013, IF AN ASSESSEE FAILS TO DEDUCT TDS, BUT IS NOT DEEMED TO BE AN ASS ESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB SEC. (1) OF SEC. 201 , THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SOME. 13. HAVING SAID THAT LET US EXAMINE, WHETHER SECOND PROVISO INSERTED BY THE FINANCE ACT, 2012, W.E.F. 1-4-2013 IS PROSPECTIVE OR RETROSPECTIVE IN NATURE. THE MEMORANDUM EXPLAINING THE FINANCE BILL 2012 STATES THAT IN ORDER TO RATIONALIZE THE PROVI SIONS OF DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE FROM T HE PAYMENTS MADE TO RESIDENT PAYEE, IT IS PROPOSED TO AMEND SEC . 40(A)(IA) BY INSERTING THE PROVISO. THUS, AS THE PROVISO IS INSE RTED TO RATIONALIZE THE EXISTING PROVISIONS, IT HAS TO BE TAKEN TO BE C LARIFICATORY IN NATURE. ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 15 THIS VIEW WAS EXPRESSED BY THE COORDINATE BENCH OF ITAT, AGRA IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ADDL.CIT IN IT A.NO. 337/AGRA/2013 DATED 29-05-2013, WHEREIN THE BENCH H ELD THAT SECOND PROVISO TO SEC. 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1 ST APRIL 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SEC. 40(A) WAS INSERT ED BY THE FINANCE (NO.2) ACT, 2004. THEREFORE, WE ARE OF THE VIEW THA T IN VIEW OF THE SECOND PROVISO TO SEC. 40(A)(IA) OF THE ACT, IF ASS ESSEE FAILS TO DEDUCT TDS, BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB SEC. (1) OF SEC. 201, THEN, FOR THE PURPOSE OF THIS SUB- CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DE DUCTED AND PAID THE TAX ON SUCH SOME AND NO DISALLOWANCE CAN BE MAD E UNDER SEC. 40(A)(IA) OF THE ACT. 14. IN THE PRESENT CASE ON HAND, THE ASSESSEE CLAIM S THAT THE RECIPIENT HAD INCLUDED THE INTEREST INCOME IN THEIR BOOKS OF ACCOUNTS AND DISCHARGED THE TAX LIABILITY ON SUCH INTEREST. THE ASSESSEE FURTHER CLAIMS THAT THE ASSESSEE WAS NOT HELD AS AN ASSESSE E IN DEFAULT UNDER THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. THOUGH, ASSESSEE FILED RELEVANT DETAILS BEFORE THE BENCH, WE HAVE OU R OWN RESERVATIONS, WHETHER SAID INFORMATION WAS MADE AVA ILABLE TO THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT. THEREF ORE, WE SET ASIDE ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 16 THE ISSUE TO THE FILE OF THE A.O. FOR THE LIMITED P URPOSE OF VERIFICATION, WHETHER THE RECIPIENT HAD ACCOUNTED INTEREST INCOME AND DISCHARGED HIS OBLIGATION BY FILING RETURNS OF INCOME. IN CASE , IT IS FOUND THAT THE RECIPIENT HAD CONSIDERED THE INTEREST INCOME IN ITS BOOKS OF ACCOUNTS AND DISCHARGED ITS OBLIGATION BY FILING RETURN OF I NCOME, THEN THE A.O. IS DIRECTED TO DELETE THE ADDITIONS MADE TOWARDS IN TEREST PAID ON UNSECURED LOANS U/S 40(A)(IA) OF THE ACT. 15. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E IN ITA.NO. 161/V/2012 FOR A.Y. 2008-09 AND ITA.NO. 236/V/2013 FOR A.Y. 2009- 10 AND APPEAL FILED BY THE REVENUE IN ITA.NO. 654/V /2013 FOR A.Y. 2010-1 ARE ALLOWED FOR STATISTICAL PURPOSE. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17 TH JUN16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 17.06.2016 VG/SPS ITA NOS.161/VIZAG/2012, 236&453/VIZAG/2013 & 654/VI ZAG/2014 SRI CHAITANYA EDUCATIONAL SOCIETY, KAKINADA 17 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SRI CHAITANYA EDUCATIONAL SOCIET Y, C/O SRI C. SUBRAHMANYAM, FLAT NO.102, LAKSHMI APTS, FACOR LAYO UT, WALTAIR UPLANDS, VISAKHAPATNAM. 2. / THE RESPONDENT THE ADDL. COMMISSIONER OF INCOME TAX, KAKINADA RANGE, KAKINADA 3. / THE RESPONDENT THE ACIT, CENTRAL CIRCLE, RAJAH MUNDRY 4. + / THE CIT, RAJAHMUNDRY 5. THE PRINCIPAL CIT-2, VISAKHAPATNAM 6. + ( ) / THE CIT (A), VISAKHAPATNAM 7. # . , . , # / DR, ITAT, VISAKHAPATNAM 8 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM