Income Tax Appellate Tribunal - Ahmedabad
M/S. Stitchwell Garments ,, Ahmedabad vs The Income Tax Officer, Ward-6(4),, ... on 31 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "A" BENCH
(BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
& SHRI MAHAVIR PRASAD, JUDICIAL MEMBER)
ITA. Nos: 2559 & 2560/AHD/2013
(Assessment Year: 2006-07 & 2007-08)
M/s. Stitchwell Garments V/S Income Tax Officer, Ward-
2011/B, GIDC, Phase-Iv, 6 (4), Ahmedabad
Vatva, Ahmedabad
(Appellant) (Respondent)
PAN: AAJFS0523P
Appellant by : Shri M. K. Patel, AR
Respondent by : Shri K. Madhusudan, Sr. D.R.
(आदे श)/ORDER
Date of hearing : 25 -01-2017
Date of Pronouncement : 31 -01-2017
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
1. ITA Nos. 2559 & 2560/Ahd/2013 are two appeals by the Assessee preferred against two separate orders of the Ld. CIT(A)-XI, Ahmedabad dated 13.09.2013 pertaining to A.Ys. 2006-07 & 2007-08. As common issues are 2 ITA Nos. 2559 & 2560/Ahd/2013 . A.Ys. 2006-07 & 2007-08 involved in both these appeals, they were heard together and are disposed of by this common order for the sake of convenience.
2. The common grievance in both these appeals relate to the disallowance of freight charges of Rs. 64,06,319/- and 60,53,860/- respectively made u/s. 40(a)(ia) of the Act.
3. The common plea of the assessee in both these appeals is that the amendment to section 40(a)(ia) by Finance Act of 2012 with effect from 01.04.2013 by inserting second proviso is curative in nature and have retrospective application.
4. The other common grievance relate to the disallowance of commission payment of Rs. 1,82,527/- and 1,77,527/-. At the very outset, the ld. counsel for the assessee stated that he is not pressing the common grievance relating to the disallowance of commission. Therefore, the same is dismissed as not pressed for the both the years under consideration.
5. The only grievance that survives now relates to the disallowance of freight charges.
6. During the course of the scrutiny assessment proceedings, the A.O. noticed that the assessee has paid freight charges to various parties. The details of TDS returns in Form No. 26Q were cross verified by the A.O. and found that 3 ITA Nos. 2559 & 2560/Ahd/2013 . A.Ys. 2006-07 & 2007-08 the assessee has taken shelter behind CBDT Circular No. 723 claiming that no TDS was to be made in respect of the impugned payments.
7. The A.O. further verified from the details of the payees and found that payments made to ACE Shipping Pvt. Ltd can only be considered as the right claim of the assessee for non-application of the TDS provisions. In respect of the other payees, the A.O. was of the firm belief that the provisions of TDS squarely apply on the facts of the case and accordingly made disallowance of Rs. 64,06,319/- in A.Y. 2006-07 and Rs. 60,53,860/- in A.Y. 2007-08. Before us, the ld. counsel for the assessee reiterated its claim that the amendment to section 40(a)(ia) by the Finance Act of 2012 has a retrospective application. For this proposition, strong reliance was placed on the decision of the Hon'ble Delhi High Court in the case of Ansal Land Mark Township P. Ltd. in 377 ITR 635.
8. Per contra, the ld. D.R. strongly placed reliance on the orders of the revenue authorities.
9. We have given a thoughtful consideration to the orders of the authorities below. We find force in the contention of the ld. counsel. We find that with the insertion of the second proviso to Section 40(a)(ia), if the payees have filed Income Tax return and has offered the sum receipt for taxation, no disallowance of the sum is justified. The Hon'ble High Court of Delhi in the case of Ansal Land Mark Township P. Ltd (supra) had the occasion to consider this issue and the same reads as under:-
4 ITA Nos. 2559 & 2560/Ahd/2013. A.Ys. 2006-07 & 2007-08 "Section 40(a)(ia) of the Income-tax Act, 1961, is aimed at ensuring 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. It is not a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The insertion of the second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from April 1, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. 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 the sum credited to the account of a resident, such person shall not be deemed to lie an assessee in default in respect of such tax if such resident has furnished his return of income under section 139. What is common to both provisos to sections 40(a)(ia) and 201(1) of the Act is that as long as the payee or resident has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the assessee would not be treated as a person in default. Held, dismissing the appeal, that the payees had filed returns and offered the sums received to tax. No disallowance could be made under section 40(a)(ia)."
10.As no distinguishing decision has been brought on record, respectfully following the findings of the Hon'ble High Court (supra), we direct the A.O. to verify whether the payees have offered the impugned sum in their respective returns of income and if found so, no disallowance need to be made u/s. 40(a)(ia) of the Act.
11. The matter is restored to the files of the A.O. for this limited purpose of verification.
5 ITA Nos. 2559 & 2560/Ahd/2013. A.Ys. 2006-07 & 2007-08
12.In the result, the appeals are treated as allowed subject to above directions.
Order pronounced in Open Court on 31 - 01- 2017
Sd/- Sd/-
(MAHAVIR PRASAD) (N. K. BILLAIYA)
JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER
Ahmedabad: Dated 31/01/2017
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad