Income Tax Appellate Tribunal - Jaipur
Columbs Overseas Ltd, Jaipur vs Dcit, Jaipur on 5 February, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 445/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2012-13
Columbus Overseas Ltd. cuke DCIT,
16, Govind Marg, Vs. Circle-6,
Adrash Nagar, Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACC7498P
vihykFkhZ@Appellant izR;FkhZ@Respondent
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s Assessee by : Shri Rohan Sagani (C.A.)
jktLo dh vksj ls@ Revenue by : Shri Prithavi Raj Meena (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 31/01/2018
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 05/02/2018
vkns'k@ ORDER
PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 17.03.2017 of CIT(A) for the assessment year 2012-13. The assessee has raised the following grounds as under:-
"1. In the facts and circumstances of the case and in law, the ld CIT(A) has erred in confirming the action of the ld. AO in disallowing a sum of Rs. 43,15,295/- u/s 40(a)(ia) of Income Tax Act, 1961. The action of Ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 43,15,295/-.
2. The assessee company craves its right to add, amend or alter any of the grounds on before the hearing."ITA No. 445/JP/2017
Columbus Overseas Ltd. Vs. DCIT
2. The assessee has debited the expenditure on account of advertisement and publicity expenditure of Rs. 37,08,645/-. Similarly an amount of Rs. 6,06,650/-was also incurred for advertisement paid to SGM communications. The AO noted that the assessee has not deducted TDS on these amounts and therefore, disallowed a total sum of Rs. 43,15,295/- u/s 40(a)(ia) of the Income Tax Act. The assessee challenged the action of the AO before the ld. CIT(A) and contended that since the recipient of the amounts have already considered it for computing their taxable income and therefore, in view of the second proviso to section 40(a)(ia) of the Act no disallowed is called for. In support of his contention that the assessee produce before the ld. CIT(A) form 26A as additional evidence. The assessee placed reliance on the decision of Hon'ble Delhi High Court in case of CIT vs. Ansal Land Mark Township (P.) Ltd. 377 ITR 635 as well as decisions of Agra Bench of the Tribunal in case of Rajeev Kumar Agarwal vs. ACIT 165 TTJ 228. However, the ld. CIT(A) did not agree with the contention of the assessee and accordingly declined to admit the additional evidence filed by the assessee.
3. Before us, ld. AR of the assessee has submitted that the assessee filed the additional evidence before the ld. CIT(A) which is nothing but 2 ITA No. 445/JP/2017 Columbus Overseas Ltd. Vs. DCIT form 26A issued by the recipient of the money to show that they have included the amount in computation of income offered to tax. Further, this evidence sought to be filed by the assessee can be verified from the record of the Revenue Department and hence, it does not require any investigation of facts. In support of his contention he has relied upon the decision of Hon'ble Supreme Court in case of CIT vs. NTPC 229 ITR 383 and submitted that when the assessee raised the additional ground which is purely legal in nature then, the assessee should not have been prevented from raising the said question as well the failing of the additional evidence to show that the recipient of the amount have already considered the same as part of their total income offered to tax. He has relied upon the decision of Hon'ble Delhi High Court in case of CIT vs. Ansal Landmark township (P) Ltd (supra) as well as following decision of this Tribunal as under:-
• Ved Prakash Samariya vs. ACIT in ITA No. 116/JP/2015 • M/s Morani Fourwheels Pvt. Ltd. vs. ACIT in ITA No. 175/JP/2016 • M/s G.B. Impex Vs. ITO in ITA No. 430/JP/2016 • Smt. Prem Lata Gupta vs. ACIT in ITA No. 56/JP2016 • Shri Rakesh Tak vs. ITO in ITA No. 888/JP2014 3 ITA No. 445/JP/2017 Columbus Overseas Ltd. Vs. DCIT
4. On the other hand, ld. DR has submitted that the ld. CIT(A) has relied upon the decision of Hon'ble Kerala High Court in case of Thomas George Muthoot vs. CIT 63 Taxmann.com 99. He has also relied upon the decision of Punjab and Haryana High Court PMS Diesels vs. CIT 374 ITR 562. Thus, the ld. DR has submitted that when the second proviso to section 40(a)(ia) of the Act is prospective and not retrospective then the additional evidence sought to be filed by the assessee would not help the case of the assessee.
5. We have considered the rival submissions as well as relevant material on record. There is no dispute that the assessee has not debited TDS in respect of the expenditure in question though the TDS was required to deduct as per provisions of section 149C of the Act.
However, the assessee claimed that the recipient of the amount have included the same while computing their income offered to tax. Therefore, in view of the second proviso to section 40(a)(ia) of the Act no disallowance is called for. In support of its contention the assessee relied upon the decision of the Hon'ble Delhi High Court in case of CIT vs. Ansal Landmark Township Pvt. Ltd. (supra). On the other hand, the ld. CIT(A) has relied upon the decision of Hon'ble Kerala High Court in case of Thoms George Muthoot Vs. CIT (supra). There are divergent 4 ITA No. 445/JP/2017 Columbus Overseas Ltd. Vs. DCIT views by the different High Courts on this issue of applicability of second proviso to section 40(a)(ia) of the Act with retrospective effect or prospective effect. The Hon'ble Delhi High Court in case of CIT vs. Ansal Landmark Township Pvt. Ltd. (supra) while considering this issue has held in para 9 to 14 as under:-
"9. It is seen that the second proviso to Section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-section (1) of Section 201 of the Act, then, in such event, "it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso".
10. It is pointed out by learned counsel for the Revenue that the first proviso to Section 201(1) of the Act was inserted with effect from 1st July 2012. The said proviso reads as under:
"Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident--
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such return of income; and 5 ITA No. 445/JP/2017 Columbus Overseas Ltd. Vs. DCIT
(iii) has paid the tax due on the income declared by him in such return of income;
And the person furnishes a certificate to this effect from an accountant in such form as may be prescribed."
11. 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 be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a)(ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies.
12. Relevant to the case in hand, what is common to both the provisos to Section 40(a)(ia) and Section 201(1) of the Act is that as long as the payee/resident (which in this case is ALIP) 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. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax.
13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal's case (supra ), the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40(a)(ia) of the Act and also sought to explain the rationale behind 6 ITA No. 445/JP/2017 Columbus Overseas Ltd. Vs. DCIT its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under:
'On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fair, just and equitable" interpretation of law-- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an "intended consequence" to disallow the expenditure, due to non- deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, 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, in our considered view, 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 penalty for tax withholding lapse per se is separately provided for in Section 271C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the 7 ITA No. 445/JP/2017 Columbus Overseas Ltd. Vs. DCIT obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non-deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004.'
14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance." We further note that a similar has been taken by the other High Courts including Hon'ble Allahabad High Court in case of Allahabad Wholesale Central Coop. Store vs. Pr. CIT 248 Taxmann 302. Further, the Coordinate Benches of this Tribunal in series of decisions have taken a 8 ITA No. 445/JP/2017 Columbus Overseas Ltd. Vs. DCIT consistent view that the second proviso to section 40(a)(ia) is declaratory in nature and therefore, it has to be given retrospective effect. Though a divergent view is taken by the Hon'ble Kerala High Court in case of Thomas George Muthoot Vs. CIT however, to maintain the rule of consistency of this Tribunal has been taking a view on this issue by following the decision of Hon'ble Delhi High Court in case of CIT vs. Ansal Landmark Township Pvt. Ltd. (supra). Accordingly following the decision of Hon'ble Delhi High Court as well as decisions of the Coordinate Bench of this Tribunal as relied upon by the assessee we hold that the second proviso to section 40(a)(ia) is applicable with retrospective effect. Consequently if recipient of the amount has considered the same for computation its income offered to tax then no disallowance is called for u/s 40(a)(ia) of the Act.
6. The assessee filed the additional evidence in support of its claim that the recipient have included this amount in the income offered to tax however, the ld. CIT(A) declined to admit the additional evidence. We find that the additional evidence filed by the assessee can be verified by the AO from the record of the Department or otherwise. Hence, in view of the facts and circumstances of the case we admit the additional evidence and direct the AO to verify the additional evidence 9 ITA No. 445/JP/2017 Columbus Overseas Ltd. Vs. DCIT filed by the assessee and in case the AO is satisfied with the evidence filed by the assessee that the recipient of the amounts have considered the same while computing their income offered to tax then, in view of the second proviso to section 40(a)(ia) of the Act no disallowance can be made u/s 40(a)(ia.
In the result, appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on 05/02/2018 Sd/- Sd/-
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(Vikram Singh Yadav) (Vijay Pal Rao)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 05/02/2018.
*Santosh.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Columbus Overseas Ltd., Jaipur.
2. izR;FkhZ@ The Respondent- DCIT. Circle-6, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 445/JP/2017} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 10