Income Tax Appellate Tribunal - Kolkata
Shri Sanjay Kumar Agarwal, Kolkata vs Assessee on 2 September, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH : KOLKATA
[Before Hon'ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
S.A.No. 37/Kol/2016
(A/o I.T.A No.1261/Kol/2016)
Assessment Year : 2010-11
Sanjay Kumar Agarwal -vs.- I.T.O., Ward-49(3),
Kolkata Kolkata
[PAN : ACXPA6067 A]
(Appellant) (Respondent)
For the Appellant : Shri Rohit Agarwal, ACA
For the Respondent : Shri Rajat Kumar Kureel, JCIT.Sr.DR
Date of Hearing : 12.08.2016.
Date of Pronouncement : 02.09.2016.
ORDER
Per N.V.Vasudevan, JM
The Assessee has filed above stay application praying for an order of stay of recovery of outstanding demand of Rs.1,31,457/- pending disposal of the aforesaid appeal of the Assessee by the Tribunal.
2. At the time of hearing of the stay petition, the main appeal was taken up for hearing with the consent of the parties.
3. The appeal by the Assessee is against the order dated 18.2.2016 of CIT(A)-15, Kolkata, relating to AY 2010-11. The relief claimed by the Assessee in Form No.36 Col.12 projects the grievance of the Assessee and it reads thus:
"In the assessment order the Assessing Officer has disallowed the interest expenditure of Rs.4,87,418/- u/s.40(a)(ia) on the ground that TDS has not deducted & deposited on the same amount as per the provision of income tax. We want to inform you that we have taken form 15G from party and the same has been deposited with the department, but the fact is that on form 15G the date was mention is "07/04/2010". Due to this reason the assessing office & CIT(A) is not considering my appeal. We have also shown the ITR of the said arties whom we have given interest and the said parties showing the interest as their income. I request you to kindly accept my appeal and allowed the said expenditure from my business income."
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4. The Assessee is an individual. He derives income from business of trading in plastic in the name of M/S. Ocean International & Krishna Realtors. In the course of assessment proceedings, the AO noticed that the Assessee had paid a sum of Rs.4,87,418/- as interest on unsecured loan. According to the AO, the Assessee did not deduct tax at source as required by the provisions of Sec.194A of the income Tax Act, 1961 (Act) and therefore the said sum which was claimed as a deduction while computing income from business of the Assessee had to be disallowed as required by the provisions of Sec.40(a)(ia) of the Act. The plea of the Assessee for non deduction of tax at source was that the persons to whom interest was paid had furnished Form No.15G of Income Tax Rules, 1961 (Rules). Form No.15G is a declaration by the person receiving interest that his total income for the previous year relevant to an Assessment year is below the maximum total income which is not chargeable to tax under the Act. If such a declaration is given then the person who makes payment need not deduct tax at source.
5. The AO on perusal of the Form No.15G furnished by the Assessee found that the persons furnishing Form No.15G have given the same to the Assessee on 7.4.2010 after the close of the financial year ending as on 31.3.2010. According to the AO in the action point with reference to column No.4 of Form No.15G, it has been mentioned that the declaration must be made by the payee at the time of or before receiving the amount either directly r by credit to his account and not after the amount is received or credited. Since Form No.15G was obtained by the Assessee on or after 31.3.2010, the AO held that the Assessee cannot rely on form No.15G for non deduction of tax at source. The AO accordingly invoked Sec.40(a)(ia) of the Act and disallowed a sum of Rs.4,87,418/- and added the same to the total income of the Assessee.
6. On appeal by the Assessee, the CIT(A) confirmed the order of the AO observing as follows:
"I have gone through the assessment order and the submission of the assessee. It is seen from the copy of 15G submitted during the course of appellate proceedings that the date of receipt in the hands of the assessee is nowhere mentioned. The certificate only contains a signature of the assessee which is dated 07.04.2010 i.e. after the end of the S.A.No.37/Kol/2016 A/o ITA No.1261/K/16-Sanjay Kr.Agarwal A.Y.2010-11 2 financial year. The assessee has also not been able to prove that the Form 15G from various parties were filed with the department on 12.04.2010 because there was no evidence of such receipt submitted by the.Assessee. Thus, the contention of the assessee is factually incorrect, Hence, it.is held that the AO had rightly invoked the provisions of section 40(a)(ia) and accordingly the addition of Rs. 4,87,418/- is confirmed."
7. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. We have heard the rival submissions. The CIT(A) is not right in his findings that Form No.15G was not filed by the Assessee before the AO. In fact the AO has clearly accepted that Form No.15G was produced before him. He rejected the claim of the Assessee only for the reason that the persons furnishing Form No.15G have given the same to the Assessee on 7.4.2010 after the close of the financial year ending as on 31.3.2010. According to the AO in the action point with reference to column No.4 of Form No.15G, it has been mentioned that the declaration must be made by the payee at the time of or before receiving the amount either directly or by credit to his account and not after the amount is received or credited. Since Form No.15G was obtained by the Assessee on or after 31.3.2010, the AO held that the Assessee cannot rely on form No.15G for non deduction of tax at source. Therefore the question before the CIT(A) was only limited as to whether Form No.15G can be given after the close of the relevant financial year.
8. The relevant provisions of Sec.197A reads thus "(1A) Notwithstanding anything contained in section 193 or section 194A or section 194K, no deduction of tax shall be made under any of the said sections in the case of a person (not being a company or a firm), if such person furnishes to the person responsible for paying any income of the nature referred to in section 193 or section 194A or section 194K, as the case may be, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil."
9. A bare perusal of the relevant statutory provisions shows that the requirement of the law is that a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that tax on his estimated total income of the S.A.No.37/Kol/2016 A/o ITA No.1261/K/16-Sanjay Kr.Agarwal A.Y.2010-11 3 previous year in which such income is to be included in computing his total income will be nil. This is the requirement of the section. The section does not specify as to the point of time at which such declaration is to be given. The requirement of section- 197-A of the Act has been admittedly satisfied in this case. The rule making authority cannot impose a requirement which is not contemplated by the Act. The rule making authority derives its power to frame rules pursuant to the powers conferred under the Act. The Rule making authority cannot impose a condition that is not contemplated by the main provisions or contrary to intention of the Act. We are therefore of the view that the rejection of Form No.15G filed by the Assessee in the present case for the reason that the persons furnishing Form No.15G have given the same to the Assessee after the close of the financial year, cannot be sustained. Consequently, there was no default on the part of the Assessee u/s.194A and consequently there could not be any disallowance u/s.40(a)(ia) of the Act.
10. Apart from the above, the Assessee has also given the details of the persons to whom the Assessee paid interest and evidence to show that those persons have included the interest income in the returns of income filed by them. The ITAT, Kolkata in the case of Ramakrishna Vedanta Math v. Income-tax Officer, Ward 59 (1), Kolkata, [2012] 24 taxmann.com 29 (Kol.) has taken a view that once assessee furnishes lawfully maintained information about recipients, Assessing Officer should first ascertain related facts about payment of taxes directly from recipients before invoking section 201 (1). The ITAT in its order held:
"5. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable position.
6. Learned counsel's vehement reliance is on Hon'ble Allahabad High Court's judgment in the case of Jagran Prakashan Ltd. v. Dy.CIT (TDS) [2012] 21 taxmann.com 489 wherein Their Lordships have, inter alia, observed as follows:
.......... it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus, to declare a S.A.No.37/Kol/2016 A/o ITA No.1261/K/16-Sanjay Kr.Agarwal A.Y.2010-11 4 deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax .....
7. It is thus argued that the onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Learned counsel contends that once all the details of the persons to whom payments have been made, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. It is learned counsel's submission that as a result of Hon 'ble Allahabad High Court's judgment in the case of Jagran Prakashan Ltd's case (supra), this paradigm shift in the interpretation of Section 201 (1) has been brought about.
8. The plea is indeed well taken. Learned counsel is quite right in his submission that, as a result of the judgment of Hon 'ble Allahabad High Court in Jagran Prakashan Ltd.'s case (supra) and in the absence of anything contrary thereto from Hon'ble jurisdictional High Court, there is a paradigm shift in the manner in which recovery provisions under section 201 (1) can be invoked. As observed by Their Lordships, the provisions of Section 201(1) cannot be invoked and the "tax deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly". Once this finding about the non payment of taxes by the recipient is held to a condition precedent to invoking Section 201(1), the onus is on the Assessing Officer to demonstrate that the condition is satisfied. No doubt the assessee has to submit all such information about the recipient as he is obliged to maintain under the law, once this information is submitted it is for the Assessing Officer to ascertain whether or not the taxes have been paid by the recipient of income.
This approach, in our humble understanding, is in consonance with the law laid down by Hon 'ble Allahabad High Court.
9. It is important to bear in mind that the lapse on account of non deduction of tax at source is to be visited with three different consequences - penal provisions, interest provisions and recovery provisions. The penal provisions in respect of such a lapse are set out in Section 271 C. So far as penal provisions are concerned, the penalty is for lapse on the part of the assessee and it has nothing to do with whether or not the taxes were ultimately recovered through other means. The provisions regarding interest in delay in depositing the taxes are set out in Section 201 (1A). These provisions provide that for any delay in recovery of such taxes is to be compensated by the levy of S.A.No.37/Kol/2016 A/o ITA No.1261/K/16-Sanjay Kr.Agarwal A.Y.2010-11 5 interest. As far as recovery provisions are concerned, . these provisions are set out in Section 201 (1) which seeks to make good any loss to revenue on account of lapse by the assessee tax deductor. However, the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient of income has not paid tax. Therefore, recovery provisions under section 201(1) can be invoked only when loss to revenue is established, and that can only be established when it is demonstrated that the recipient of income has not paid due taxes thereon. In the absence of the statutory powers to requisition any information from the recipient of income, the assessee is indeed not always able to obtain the same. The provisions to make good the shortfall in collection of taxes may thus end up being invoked even when there is no shortfall in fact. On the other hand, once assessee furnishes the requisite basic information, the Assessing Officer can very well ascertain the related facts about payment of taxes on income of the recipient directly from the recipients of income. It is not the revenue's case before us that, on the facts of this case, such an exercise by the Assessing Officer is not possible. It does put an additional burden on the Assessing Officer before he can invoke Section 201(1) but that's how Hon 'ble High Court has visualized the scheme of Act and that's how, therefore, it meets the end of justice.
10. The matter thus stands restored to the file of the Assessing Officer fro fresh adjudication in accordance with the law and in the light of our observations above. While doing so, the Assessing officer will give a due and fair opportunity of hearing to the assessee and dispose of the matter by way of a speaking order. We direct so."
11. The above decision ITAT Kolkata in the above mentioned case will also apply for the purposes of Section 40(a)(ia) of the Act. Further the ITAT Kolkata in the case of Vas Electronics Vs. ACIT, ITAT Kolkata in I.T.A No. 662/Kol/2013 dated 24-11- 2015 has held as follows:
"3. Briefly stated facts are that assessee has claimed labour charges at Rs. 55, 440/-, carriage inward charges amounting to Rs. 62,07,498/- and hire charges amounting to Rs.29, 12, 123/- in the P&L Account, but no TDS was deducted u/s. 194C of the Act. Ld. Counsel for the assessee before us now clearly admitted that the assessee has not deducted TDS u/s. 194C but he is obliged to deduct TDS u/s. 194C of the act. The AO applied the provisions of section 40(a)(ia) of the Act on the above three payments and made disallowance. Aggrieved, assessee preferred appeal before CIT(A) , who also confirmed the action of AO. Aggrieved, now assessee is in second appeal before us.
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4. At the outset, Ld. Counsel for the assessee fairly conceded the grounds but requested only on the issue of applicability of second proviso to section 40(a)(ia) of the Act, which is held to be retrospective by Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township P. Ltd. (2015) 377 ITR 635 (Del), wherein the AO is directed to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. When this plea of the Ld. Counsel for the assessee was confronted to Ld. Sr. OR, he fairly conceded the position and urged the bench to set aside the matter to the file of the AO
5. We have heard rival submissions and gone through facts and circumstances of the case. We are inclined to set aside the issue to the file of the AO and accordingly, we direct the AO to verify whether the recipients have included the income in their respective returns and also paid taxes on the same. The assessee will provide the details of recipients i.e. their assessment particulars etc. to the AO so that the AO can verify. In case the recipient parties are not cooperating in providing details, the AO can call for the information u/s. 133(6) of the Act for verification of the same. Accordingly, this issue is remitted back to the file of AO to decide in terms of the above directions. This issue of assessee's appeal is allowed for statistical purposes."
12. Therefore the disallowance u/s.40(a)(ia) of the Act to the extent sustained by the CIT(A) should be set aside and remanded to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not cooperating in providing details, the AO should be directed to call for the information u/s. 133(6) or 131 of the Act, for verification of the same.
13. The learned DR relied on the order of the CIT(A) and submitted that the benefit of the second proviso should not be allowed to the Assessee as the tax deducted at source has not been paid on or before the due date for filing the return of income u/s.139(1) of the Act.
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14. We have given a very careful consideration to the rival submissions. The CIT(A) has held that the second proviso to Sec.40(a)(ia) of the Act will apply in the present case and that applicability of the second proviso to Sec.40(a)(ia) of the Act which was introduced by the Finance Act, 2012 w.e.f. 1.4.2013 was retrospective in operation and was to apply w.e.f. 1-4-2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. The Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (I) Pvt.Ltd., in ITA No.160/2015 judgment dated 26.8.2015 has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005. Once it is held that the Assessee is entitled to the benefit of 2nd proviso to Sec.40(a)(ia) of the Act, the CIT(A) ought to have directed the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act ought to have been sustained by the CIT(A). The CIT(A) ought to have also directed the AO that in case the recipient parties are not cooperating in providing details, the AO should call for the information u/s. 133(6) or 131 of the Act, for verification of the same. In this regard we also find that the Assessee has furnished all the details of assessment particulars of the recipients of payment from the Assessee. The AO therefore should not have any difficulty in making the required verification. We therefore set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the disallowance u/s.40(a)(ia) of the Act and remand the issue to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not cooperating in providing details, the AO should be directed to call for the information u/s. 133(6) or 131 of the Act, for verification of the same.
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15. In the result, appeal by the Assessee is treated as allowed for statistical purpose. In view of the fact that the appeal has been decided and the impugned order of the CIT(A) set aside, the stay application has become infructuous and is therefore dismissed as infructuous.
Order pronounced in the Court on 02.09.2016.
Sd/- Sd/-
[Waseem Ahmed] [ N.V.Vasudevan ]
Accountant Member Judicial Member
Dated : 02.09.2016.
[RG PS]
Copy of the order forwarded to:
1. Sanjay Kumar Agarwal, 22A, Bangur Avenue, Kolkata-700055.
2. I.T.O., Ward-49(3), Kolkata.
3. CIT(A)- 15, Kolkata. 4. CIT-17, Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
True copy By order Asstt.Registrar, ITAT, Kolkata Benches S.A.No.37/Kol/2016 A/o ITA No.1261/K/16-Sanjay Kr.Agarwal A.Y.2010-11 9