Udayakumar Rudrakumar, CHENNAI V. ACIT, CHENNAI

ITA 2756/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6066 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 23-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASISH TRIPATHI JCIT
• Assessee Lawyers: R VENKATARAMAN IRS RETD ITP
• Keywords: Business income; Business expenditure
• Section: 201(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 2756/MDS/2016 / ASSESSMENT YEAR : 2012-13 SHRI UDAYAKUMAR RUDRAKUMAR, NO. 98, ANNAI THERESA NAGAR, PHASE -2, 13 TH STREET, PULUTHIVAKKAM, CHENNAI 600 091. [PAN: AGSPR 5212R] VS. ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE 14(I/C), AAYAKAR BHAVAN, NO. 121, MG ROAD, NUNGAMBAKKAM, CHENNAI 600 034. ( / APPELLANT) ( / RESPONDENT) %& / APPELLANT BY : SHRI. R. VENKATARAMAN, IRS (RETD.) ITP )*%& / RESPONDENT BY : SHRI. ASISH TRIPATHI, JCIT & /DATE OF HEARING : 09.08.2017 & /DATE OF PRONOUNCEMENT : 10.10.2017 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-14, CHENNAI IN ITA NO. 63/15-1 6 DATED 27.06.2016 ON THE ASSESSMENT ORDER PASSED FOR ASSESSMENT YEAR 201 2-13. :-2-: ITA NO. 2756/MDS/2016 2. SHRI UDAYAKUMAR RUDRAKUMAR, THE ASSESSEE, IS THE PROPRIETOR OF M/S. OM CONSULTANTS WHICH PROVIDES ASSISTANCE TO ST UDENTS IN GETTING ADMISSION IN EUROPEAN MEDICAL UNIVERSITIES, VISA PR OCESSING ETC AND ALSO DERIVES INCOME FROM OTHER SOURCES. WHILE MAKING AS SESSMENT FOR ASSESSMENT YEAR 2012-2013, THE ASSESSING OFFICER FOUND, INTER ALIA, THAT THE ASSESSEE HAS CLAIMED THE FOLLOWING EXPENSES 1. RENT - RS. 2,59,540/- 2. COMMISSION - RS. 5,16,865/- 3. ADVERTISEMENTS - RS. 2,04,553/- 4. SALARY - RS. 10,80,000/- SINCE, THE ASSESSEE HAS NOT DEDUCTED TDS ON THEM, T HE AO DISALLOWED RS. 20,60,658/- U/S. 40(A)(IA) AND ADDED THEM UNDER THE HEAD INCOME FROM BUSINESS. AGGRIEVED AGAINST THAT ORDER, THE ASSES SEE FILED AN APPEAL BEFORE THE CIT(A). 3. THE CIT(A) RELYING ON THE DECISION OF THE HONBL E KERALA HIGH COURT IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPORTS [36 4 ITR 689 (KER)] HELD THAT THE SECOND PROVISO TO SECTION 40(A)(IA) IS NOT RETR OSPECTIVE AND HENCE DISMISSED THE APPEAL. 4. AGGRIEVED AGAINST THE ORDER OF THE CIT(A) ,THE A SSESSEE FILED THIS APPEAL PLEADING , INTER ALIA, THAT THE LEARNED CIT(A) ERRED IN SUSTAINING THE :-3-: ITA NO. 2756/MDS/2016 DISALLOWANCE OF THE EXPENDITURE TO THE EXTENT OF RS . 20,69,958/- FOLLOWING THE DECISION OF HONBLE HIGH COURT OF KERALA REPORTED I N 364 ITR 689. HE OUGHT NOT HAVE RELIED THAT THE DECISION OF KERALA HIGH C OURT DID NOT CONSTITUTE A RATIO DECIDENDI. THE LEARNED CIT(A) BEING VESTED WI TH PLENARY POWERS WHICH ARE COTERMINOUS WITH THAT OF THE ASSESSING OF FICER OUGHT TO HAVE SET ASIDE THE ENTIRE ADDITIONS MADE IN THE ASSESSMENT O RDER HOLDING IT AS WITHOUT JURISDICTION AS THE ASSESSING OFFICER FAILED TO COM PLY WITH THE LETTER AND SPIRIT OF THE CENTRAL BOARD OF DIRECT TAXES, INSTRUCTION N O. 7 OF 2014 DATED 26.09.2014 ISSUED U/S. 119 WHICH WERE IN FORCE DURI NG THE PERIOD OF ASSESSMENT PROCEEDINGS. APART FROM THE FAILURE TO C ONSIDER THE JURISDICTIONAL ASPECT WHICH GOES TO THE ROOT OF THE MATTER, LEARN ED CIT(A) ALSO ERRED IN NOT APPRECIATING THAT THE AMENDMENT TO SECTION 40(A)(IA ) INTRODUCED BY FINANCE ACT, 2012 WITH EFFECT FROM 01.04.2013 IS CURATIVE I N NATURE, INTENDED TO SUPPLY AN OBVIOUS OMISSION, TAKE CARE OF UNINTENDED CONSEQ UENCE AND MAKE THE SECTION WORKABLE AND IS THEREFORE RETROSPECTIVE. TH E ASSESSEES RELIANCE ON THE AMENDED PROVISIONS OF SECTION 40(A)(IA) IN CONT ESTING THE DISALLOWANCE OF RS. 20,60,958/- FOR THE ASSESSMENT YEAR 2012-13 WA S IN ACCORDANCE WITH LAW AND DESERVED TO BE ALLOWED BY THE LEARNED CIT(A) AF TER DUE VERIFICATION OF THE CLAIM MADE IN ASSESEEES LETTER DATED 26.03.2015 FI LED BEFORE THE AO WHICH WAS NOT AT ALL CONSIDERED BEFORE FINALIZING THE ASS ESSMENT ETC . :-4-: ITA NO. 2756/MDS/2016 4.1 THE AR INVITED OUR ATTENTION TO THE COPY OF THE ASSESSEES LETTER TO THE CIT(A), WHICH ARE IN THE PAPER BOOK IN PAGE NOS.38 &39 WHICH WAS ALSO EXTRACTED BY THE CIT(A) IN HIS ORDER . THE RELEVAN T PORTION IS EXTRACTED AS UNDER: BEFORE ME, THE APPELLANT SUBMITTED AS UNDER: THE MAIN ISSUE IN THIS CASE IS WHETHER THE LEARNED ASSESSING OFFICER IS JUSTIFIED IN ADDING A SUM OF RS.20,60,958/- AS T AXABLE INCOME OF THE YEAR AS NO TDS HAS BEEN DEDUCTED ON THESE EXPENSES CLAIM ED IN PROFIT & LOSS ACCOUNT OF THE ASSESSEE DESPITE THE FACT THAT ALL T HE PAYEES ARE ASSESSED TO INCOME TAX AND HAVE BEEN FILING THEIR RETURN OF INC OME REGULARLY. THE ASSESSING OFFICER HAS STATED THAT AS THE ASSESSEE H AS VIOLATED THE PROVISIONS OF INCOME TAX ACT 1961 GOVERNING TDS, THE ABOVE SUM OF RS. 20,60,958/- IS DISALLOWED D/S 40(A)(IA) OF THE INCOME TAX ACT 1961 AND ADDED UNDER THE HEAD INCOME FROM BUSINESS. RENT 2,59,540 COMMISSION 5,16,865 ADVERTISEMENTS 2,04,553 SALARY 10,80,000 TOTAL 20,60,958 THE ASSESSEE HAD SUBMITTED LETTER TO THE ASSESSING OFFICER ON 26.03.2015 AND MENTIONED THE FOLLOWING DETAILS AND REQUESTED' TO ALLOW THE ABOVE EXPENSES TOTALLING THE SUM OF RS. 20,60,958/- SINCE ALL THE PAYEES ARE ASSESSED TO INCOME TAX AND HAVE BEEN FILING THEIR R ETURN OF INCOME REGULARLY. THE LETTER SUBMITTED TO THE ASSESSING OFFICER READS AS FOLLOWS: THERE WAS NO DEDUCTION OF TDS ON COMMISSION, SALARY, ADVE RTISEMENT EXPENSES AND RENT BY US DURING THE YEAR 2011-2012 SINCE ALL THE DEDUCTEES HAVE BEEN ASSESSED TO INCOME TAX AND HAVING PAN NUMBERS. THE DETAILS OF DEDUCTEES AND THEIR PAN NUMBERS HAVE BEEN ENCLOSED VIDE ANNEXURE STATEMENT. WE ALSO HAVE ENCLOSED THE COPIES OF IT A CKNOWLEDGMENTS OF :-5-: ITA NO. 2756/MDS/2016 DEDUCTEES FOR YOUR RECORDS AND REFERENCE PURPOSES P LEASE REFER FINANCE BILL 2012, AND AMENDMENT IN SECTION 40(A)(IA) FINANCE AC T, 2012, SECTION 201(1) DEFINES THE TERM - 'ASSESSEE IN DEFAULT' AS A PERSON WHO IS REQUIRED TO DEDUCT TAX BUT DOES NOT DEDUCT TAX OR AFTER DEDU CTING FAILS TO PAY THE WHOLE OR ANY PART OF THE TAX, AS 'REQUIRED BY OR UN DER THE ACT. A PROVISO HAS NOW BEEN INSERTED TO THIS SECTION TO MAKE EXCEPTION TO THE ABOVE DEFINITION OF ASSESSEE IN DEFAULT'. T HE PROVISO PROVIDES THAT WHERE ANY SUCH DEFAULT OCCURS AND IF PAYEE (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 13 9; (II) (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND (III) (III)HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME, AND FURNISHES A CERTIFICATE TO TH IS EFFECT FROM AN ACCOUNTANT IN SUCH FOR AS MAY BE PRESCRIBED THEN AS SESSEE WILL NOT BE REGARDS AS ASSESSEE-IN-DEFAULT. , THE ASSESSEE 'HAVING RELIED ON THE ABOVE PROVISIONS HAD NOT BEEN DEDUCTED TDS ON RENT, COMMISSION, ADVERTISEMENTS AND SALARY PAYMENTS. TO SUMMARIZE THE ABOVE, 1. PRAYER BY THE ASSESSEE TO GIVE A DIRECTION TO TH E ASSESSING OFFICER TO VERIFY IF THE PAYEES HAVE DECLARED THE RECEIPT FROM THE ASSESSEE IN THEIR RETURN OF INCOME AND IF THEY HAVE SO DECLARED THEN THE ADDITION U/S. 40(I)(IA) OF THE ACT SHOULD BE DELETED BY THE ASSES SING OFFICER. THE ABOVE SUBMISSION WAS MADE IN THE CONTEXT OF THE FOLLOWING AMENDMENTS TO THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT. WITH A VIEW TO LIBERALIZE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FINANCE ACT 2012 BROUG HT AMENDMENT W.E.F 01.04.2013 AS UNDER. THE FOLLOWING SECOND PROVISO W AS INSERTED IN SUB- CLAUSE (IA) OF CLAUSE(A) OF SECTION 40 BY THE FINAN CE ACT, 2012, W.E.F 1-4- 2013: 'PROVIDED FURTHER THAT WHERE AN ASSESSEE FAIL S TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIO NS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB- SECTION (1) OF SECTION 201, THEN, F OR THE PURPOSE OF THIS SUB- CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DE DUCTED AND PAID THE TAX :-6-: ITA NO. 2756/MDS/2016 ON SUCH SUM ON THE DATE OF FURNISHING OR RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO.' AND SUBMITTED THAT THE HONBLE HIGH COURT OF KARNAT AKA IN THE CASE OF CIT(A), MANGALORE VS. SANTOSH KUMAR SHETTY IN IT A NO. 590 OF 2013 DATED 15.07.2014, REPORTED IN [2014] 49 TAXMAN N.COM 47 (KARNATAKA) 227 TAXMAN 170 (KARNATAKA), HAS HELD T HAT THE AMENDMENT TO SECTION 40(A)(IA) BY FINANCE ACT, 2010 WHICH COMES INTO EFFECT FROM 01.04.2010 IS CURATIVE IN NATURE A ND THUS IT HAS RETROSPECTIVE OPERATION. THE AR RELIED ON THE DECIS ION OF THE ITAT RAIPUR BENCH IN THE CASE OF RKP COMPANY VS ITO IN I TA NO. 106/RPR/2016 FOR ASSESSMENT YEAR 2010-11 DATED 24.0 6.2016 REPORTED IN (2016) 180 TTJ (RAIPUR) 237 OF WHICH TH E HEAD NOTE IS EXTRACTED AS UNDER: INCOME TAX ACT, 1961, S. 40(A)(IA): BUSINESS EXPENDITURE DISALLOWANCE U/S. 40(A)(IA)-RETROSPECTI VE APPLICABILITY OF SECOND PROVISO TO SEC. 40(A)(IA)- THERE ARE CONFLICTING DE CISIONS OF DELHI AND KERALA HIGH COURTS ON THE ISSUE OF RETROSPECTIVITY OF SECO ND PROVISO TO SEC 40(A)(IA) IT WOULD BE WHOLLY INAPPROPRIATE FOR THE TRIBUNAL TO CHOOSE VIEWS OF ONE OF THE HIGH COURTS BASED ON ITS OWN PERCEPTIONS ABOUT REASONABLENESS OF THE RESPECTIVE VIEW POINTS AS SUCH AN EXERCISE WOULD DE FACTO AMOUNT TO SITTING IN JUDGEMENT OVER THE VIEWS OF THE HIGH COURTS-THUS , APPLYING THE PRINCIPLE THAT IF TWO REASONABLE CONSTRUCTIONS OF A TAXING P ROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED, THE SECOND PROVISO TO SEC. 40(A)(IA) IS TO BE CONSTRUED AS RET ROSPECTIVE IN OPERATION- MATTER IS REMITTED TO THE AO FOR VERIFYING AS TO WH ETHER THE RECIPIENT OF PAYMENT HAS INCLUDED THE SAME IN ITS COMPUTATION OF BUSINESS INCOME OFFERED TO TAX, AND DELETE THE IMPUGNED DISALLOWANC E IF FOUND TO BE SO. 4.4.2 FURTHER, THE A R RELIED ON THE JURISDICTIONA L ITAT DECISION IN THE CASE OF T. SUSAI RAJU VS ITO, CORPORATE WARD -5(2), CHENNAI IN ITA NO. 2423 (MDS) :-7-: ITA NO. 2756/MDS/2016 OF 2016 DATED 30.01.2017 WRT AY 2012-13,REPORTED IN [2017] 163 ITD 533/78 TAXMANN.COM 81 (CHENNAI TRIB ) WHEREIN, IT IS HEL D THAT WHERE ASSESSEE INCURRED EXPENSES TOWARDS COMMISSI ON AND AUDIT FEES, TO EXTENT ASSESSEE WAS ABLE TO ADDUCE EVIDENC E THAT PAYMENTS FORMED PART OF INCOME OF PAYEES WHICH WAS DULY RETURNED AN D TAX WAS PAID THEREON, ASSESSEE COULD NOT BE TREATED AS ASSESSEE IN DEFAULT. 4.3 FURTHER, THE AR RELIED ON THE DECISION OF THE ITAT LUCKNOW IN THE CASE OF ACIT-3, KANPUR VS RAJA CHKRAVARTY IN ITA NO. 49 OF 2013 DATED 06.02.2015 WRT AY 2009-10, REPORTED IN (2016) 68 SOT 504, 57 TAXMAN.COM 88 (LUCKNOW-TRIB), THE RELEVANT PORTION IS EXTRACTED A S UNDER: SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 B USINESS DISALLOWANCE-INTEREST, ETC., PAID TO A RESIDENT WIT HOUT DEDUCTION OF TAX AT SOURCE (GENERAL PRINCIPLE) ASSESSMENT YEAR 2009-1 0 WHETHER PROVISION OF SECTION 40(A)(IA) WOULD COVER NOT ONLY AMOUNTS W HICH ARE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYA BLE AT ANY TIME DURING RELEVANT YEAR HELD, YES WHETHER NO DISALLOWANCE UNDER SECTION 40(A)(IA) CAN BE MADE IF IT IS ESTABLISHED THAT DEDUCTEE HAS PAID TAX ON AMOUNT RECEIVED HELD, YES [PARA 7] [IN FAVOUR OF ASSESSEE /MATTER REMANDED]. PER CONTRA, THE DR RELIED ON THE ORDER OF THE AO AN D CIT(A). 5. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. IN VIEW OF THE DECISIONS RELIED ON BY THE ASSESSEE, WE CONSIDER IT APPROPRIATE THAT THE MATTER TO BE RE-EXAMINED BY THE AO TO THE EXTENT THE ASSESSEE IS ABLE TO ADDUCE EVIDENCE, WHICH MAY AT HIS OPTION BE VERIFIED BY THE AO, OF THE IMPUGNED PAYMENTS AS FORMING PART OF THE INCOME OF THE PAYEES, DULY :-8-: ITA NO. 2756/MDS/2016 RETURNED AND TAX PAID THEREON, THE ASSESSEE CANNOT BE TREATED AS IN DEFAULT AND ACCORDINGLY, SECTION 40(A)(IA) WOULD STAND EXCL UDED TO THAT EXTENT. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DEEM IT FIT TO DIRECT THE AO TO VERIFY AND CONCLUDE THE RE-EXAMINATION WITHIN A PER IOD OF 90 DAYS FROM THE RECEIPT OF THIS ORDER BY HIM UNLESS OTHERW ISE THE DELAY, IF ANY, IN PASSING THE CONSEQUENTIAL ORDER IS ATTRIBU TABLE TO THE ASSESSEE. 6. IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON TUESDAY, THE 10 TH DAY OF OCTOBER, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) ! /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ! /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 10 TH OCTOBER, 2017 JPV &)1232 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ) (/CIT(A) 4. 4 /CIT 5. 2) /DR 6. 7 /GF