Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (8) TMI 42 - ITAT DELHI

2015 (8) TMI 42 - ITAT DELHI - TMI - Addition u/s 2(22)(e) as deemed dividend - CIT(A) deleted the addition - Held that:- As per provisions of section 2(22)(e) of the Act, the liability of tax can be fastened only on the shareholder of the payer company. In the present case, the AO could not bring out any fact to support that the loan taken by the assessee company from M/s R.D. Finlease Pvt. Ltd. satisfies the requirement of section 2(22)(e) of the Act as the assessee company is not a shareholde .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r section 40(a)(ia) - on perusal of Form 3CD it was seen that the auditors had reported that there was tax deductible at source which was not deducted at all - Held that:- As decided Shri Rajeev Kumar Agrawal vs JCIT dated [2014 (10) TMI 492 - ITAT AGRA] the insertion of second proviso to section 40(1)(ia) is declaratory and curative in nature and hence it has retrospective effect from 1.4.2005 being the date from which sub-clause (ia) of section 40A was inserted by Finance No.(2) Act 2004. We u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Accordingly, sole cross objection of the assessee is allowed in principle and deemed to be allowed for verification by the AO in the manner as indicated above. - Decided in favour of assessee for statistical purposes. - I.T.A.No.2098/Del/2013,C.O. No. 177/Del/2013 - Dated:- 29-7-2015 - Shri N.K. Saini and Shri Chandra Mohan Garg, JJ. For the Petitioner : Shri K.K. Jaiswal, DR For the Respondent : Dr. Rakesh Gupta, Somil Agarwal, Advocates ORDER PER CHANDRAMOHAN GARG, J.M. The appeal of the reve .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lending and finance. 3. We have heard arguments of both the sides and carefully perused the relevant material placed on record. Ld. Counsel for the assessee, at the very outset, pointed out that the issue is squarely covered in favour of the assessee by the order of the Hon ble Jurisdictional High Court of Delhi in the case of CIT vs Ankitech Pvt. Ltd. (2012) 340 ITR 14 (Del) and also submitted that for the purpose of section 2(22)(e) of the Income Tax Act, 1961, the amount received by the asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Act. 4. Ld. DR supporting the action of the AO submitted that the AO was right in making addition and in holding that the deemed dividend of ₹ 42,97,686 (to the extent of accumulated profit) is to be treated as deemed income u/s 2(22)(e) of the Act in the hands of the assessee from the loan taken from M/s R.D. Finlease Pvt. Ltd. Ld. DR vehemently contended that the CIT(A) was not justified and correct in deleting the said addition, therefore, impugned order may be set aside by restoring th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed as the amount can be brought to tax only in the hands of the shareholder of the lender company i.e. Shri Ashish Anand and not in the hands of appellant company which is not a registered shareholder of the lender company. 5. On careful consideration of above submissions, from operative part of the impugned order, we note that the CIT(A) granted relief for the assessee with following observations and conclusion:- 7.4 Further, I find that in arriving at the above decision, the Hon'ble ITAT h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing the provisions of section 2(6A)(e) of the I. T. Act, 1922, which was synonymous to section 2(22)(e) of the current Act, held that shareholder in the context of deemed dividend referred to only registered shareholder. The above view was also confirmed by the apex court in the case of Rameshwarlal Sanwarmal v. CIT 1980) 122 ITR 1. 7.5. Respectfully following the ratio of the above judgments on the issue, the addition of ₹ 42,97,686/- in the hands of the appellant company cannot be sustai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ated above. 6. In view of above conclusion of the first appellate authority and on careful consideration of the facts and circumstances of the present case in hand, we note that in the case of CIT vs Ankitech Pvt. Ltd. (supra), after considering the ratio of the relevant decisions and judgments, it was held that if the amounts advanced are for business transaction between the parties, such payments would not fall within the deeming provisions of section 2(22)(e) of the Act. Ld. Counsel further s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

)(e) of the Act, the liability of tax can be fastened only on the shareholder of the payer company. In the present case, the AO could not bring out any fact to support that the loan taken by the assessee company from M/s R.D. Finlease Pvt. Ltd. satisfies the requirement of section 2(22)(e) of the Act as the assessee company is not a shareholder of M/s R.D. Finlease Pvt. Ltd. In the light of above legal proposition and dicta laid down by the Jurisdictional High Court of Delhi in the case of CIT v .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

smissed. C.O. No. 177/Del/2013 of the assessee 8. Firstly, ld. Counsel of the assessee submitted that the assessee does not want to press ground no. 2 and the same is dismissed as not pressed. CO No. 3 and 4 are general in nature which need no adjudication on merits and we dismiss the same. The sole ground of C.O. No. 1 of the assessee reads as under:- That having regard to the facts and circumstances of the case, ld. CIT(A) has erred in law and on facts in not deleting the disallowance of ͅ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat the insertion of second proviso to section 40(1)(ia) is declaratory and curative in nature and hence it has retrospective effect from 1.4.2005 being the date from which sub-clause (ia) of section 40A was inserted by Finance No.(2) Act 2004. Ld. Counsel further pointed out that the issue may be sent to the AO with a direction that the AO shall give due and fair opportunity of hearing to the asssessee and decide the matter afresh in accordance with law by way of speaking order considering this .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssions and perusal of the material placed on record, we observe that the AO made disallowance u/s 40(a)(ia) of the Act by observing that on perusal of Form 3CD it was seen that the auditors had reported that there was tax deductible at source which was not deducted at all of ₹ 3,70,021/-. The AO also observed that in Form 3CD tax of ₹ 1,75,119 has been deducted but not credited in the Government account. Hence, assuming that the rate of TDS is 10% on both the amounts, the AO made dis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

/-. However, the tax deductible was @ 22.66% on the interest payment of ₹ 16,32,925/- amounting to ₹ 3,70,021/-. It was submitted that the said interest income of ₹ 16,32,925/- had been accounted by JCB (India) Ltd. in its return of income for the AY 2009-10. The appellant produced a copy of certificate to this effect issued by JCB (India) Ltd. It was submitted that the AO did not appreciate the true position by assuming that the interest amount on this account would have been .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

since the said interest income of ₹ 16,32,925/- had been accounted for by the JCB (India) Ltd. in the income tax return for the AY 2009-10 and therefore no addition was required to be made. Section 40(a)(ia) of the Act provides that where interest was deductible and the same has not been deducted, the amount is to be disallowed u/s 40(a)(ia). It is not material whether the person to whom TDS has been paid accounted it in its books of accounts or not. The case laws relied upon by the ld. AR .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in the case of Dey's Medical (U.P.) (P) Ltd. vs, UOI in Civil Misc. W.P. No. 186 (Tax) of 2008 dated 15.02.2008 and held that in a situation in which tax has been paid on income by payee but no TDS was made by the payer, disallowance u/s 40(a)(ia) will be still attracted and this may be a case of casus omisus but the Court cannot fill this gap. The Hon'ble Special Bench also relied on the decision of Hon'ble Madras High Court in the case of Tube Investments of India Ltd. vs. ACIT (2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

we have upheld the grievance of the assessee and observed as follows:- 2. The issue in appeal lies in a rather narrow compass of undisputed material facts. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has made interest payments, aggregating to ₹ 5,01,872, without discharging his tax withholding obligations under section 194A. It was in this backdrop that the Assessing Officer, having noted the undisputed position regarding applic .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n view of the fact that the recipients of the interest have already included the income embedded in these payments in their tax returns filed under section 139, disallowance under section 40(a)(ia) could not be invoked in this case. It was also contended that even though this proviso is stated to be effective 1st April 2013, since the amendment in "declaratory and curative in nature, and, therefore, it should be given retrospective effect from 1st April, 2005, being the date from which sub .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 4. Let us first take a look at the legislative amendment of section 40(a)(ia), vide Finance Act 2012, and try to appreciate the scheme of things as eviden t in the amended section. Second proviso to Section 40(a)(ia), introduced with effect from 1 st April 2013, provides, that "where an assessee fails to deduct the whole or any part of the t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sallowance under section 40(a)(ia) cannot come into play either. To understand the effect of this proviso, it is useful to refer to first proviso to section 201(1), which is also introduced by the Finance Act 2012 and effective 1st July 2012, and which provides 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 accoun .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in the situations in which the assessee's tax withholding lapse have not resulted in any loss to the exchequer, and this fact can be reasonably demonstrated, the assessee cannot be treated as an assessee in default. The net effect of these amendments is that the disallowance under section 40(a)(ia) shall not be attracted in the situations in which even if the assessee has not deducted tax at source from the related payments for expenditure but the recipient of the monies has taken into acco .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n 40(a)(ia) is concerned, substantially mitigates the rigour of, what otherwise seemed to be, a rather harsh disallowance provision. 5. As for the question as to whether this amendment can be treated as retrospective in nature, even in the case of Bharti Shipyard (supra) - a special bench decision vehemently relied upon in support of revenue's case, the special bench, on principles, summed up the settled legal position to the effect that "any amendment of the substantive provision which .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion between intended consequences and unintended consequences, and finally the retrospectivity of first proviso was decided against the assessee on the ground that this special bench was of the considered view that "the objective sought to be achieved by bringing out section 40(a)(ia) is the augmentation of TDS provisions" and went on to add that "If, in attaining this main objective of augmentation of such provisions, the assessee suffers disallowance of any amount in the year o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rst proviso thereto, which is what the special bench was dealing with, was an "intended consequence" of the provision of Section 40(a)(ia). 6. However, the stand so taken by the special bench was disapproved by Hon'ble Delhi High Court in the case of CIT Vs Rajinder Kumar (362 ITR 241). While doing so, Their Lordships observed that, "The object of introduction of Section 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(a)(ia), and the need of its fair, just and equitable interpretation. This approach is qualitatively different from perceiving the object of Section 40(a)(ia) as awarding of costs on the "assessees who fail to comply with the relevant provisions by considering overall objective of boosting TDS compliance". Not only the conclusions arrived at by the special bench were disapproved but the very fundamental assumption underlying its approach, i.e. on the issue of the object of Section 40(a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

section 40(a)(ia) was to disallow deduction in respect of expenditure in a situation in which the income embedded in related payments remains untaxed due to non deduction of tax at source by the assessee. In other words, deductibility of expenditure is made contingent upon the income, if any, embedded in such expenditure being brought to tax, if applicable. In effect, thus, a deduction for expenditure is not allowed to the assessees, in cases where assessees had tax withholding obligations from .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ut is only a mean of recovering due taxes on income embedded in the payments made by the assessee. That's how, as we have seen a short while ago, Hon'ble Delhi High Court has visualized the scheme of things - as evident from Their Lordships' reference to augmentation of recoveries in the context of "loss of revenue" and "depriving the Government of the tax due and payable". 8. With the benefit of this guidance from Hon'ble Delhi High Court, in view of legislat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

filed income tax returns in accordance with the law. As a corollary to this proposition, in our considered view, declining deduction in respect of expenditure relating to the payments of this nature cannot be treated as an "intended consequence" of Section 40(a)(ia). If it is not an intended consequence i.e. if it is an unintended consequence, even going by Bharti Shipyard decision (supra), "removing unintended consequences to make the provisions workable has to be treated as retr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y 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 a s 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 A.Y. 2007-08 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ny 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 rela .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ond 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. 10. In view of the above discussions, we deem it fit and proper to remit the matter to the file of the Assessing Officer for fresh adjudication in the light of our above observations and after carrying out necessary verifications regarding related payments having been .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in the case of Rajeev Kumar Agarwal (supra). Respectfully following the same, we uphold the grievance of the assessee in principle, and upon necessary verifications, consider deletion of impugned disallowance of ₹ 7,26,585. The assessee gets the relief accordingly, if admissible. 13. If we analyse the facts and circumstances of the present case, in the light of ratio laid down by ITAT Agra in order dated 29.5.2014 (supra), we observe that the CIT(A) agreed that the correct rate of TDS appl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Ld. CIT(A) proceeded to confirm the addition with this legal proposition that section 40(a)(ia) of the Act provides that where TDS was deductible and the same has not been deducted by the payer, the amount of interest expense is to be disallowed under this provision. The CIT(A) further noted that it is not material whether the person to whom TDS has been paid accounted for it in its books of accounts or not. 14. While we consider the ratio laid down by ITAT Agra in its order dated 29.5.2014 (sup .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version