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TMI Blog2015 (10) TMI 2046X X X X Extracts X X X X X X X X Extracts X X X X ..... U/s. 40(a)(ia) of an amount of Rs. 1,59,16,750/- and 1,59,03,231/- in respective assessment years which was deleted by the Ld. CIT(A). The facts of the issue are that assessee, an individual is engaged in the business and also a partner in M/s. B.V. Reddy & Sons. He has withdrawn funds from his current account with the firm and shown to have paid interest of Rs. 1,59,16,750/- in AY. 2010-11 and Rs. 1,59,03,231/- in AY. 2011-12 to the firm. AO noticed that these amounts were paid to the firm without deducting TDS and since assessee is in the business where Books of Accounts are audited, assessee was liable to deduct tax on the interest paid. As assessee has failed in complying with the provisions of Section 40(a)(ia), he made disallowance of interest claim made by assessee in the return of income. It was submitted that there were no liability on the interest paid by firm to the partner and interest paid by assessee was offered as income by the firm and taxes paid, there should be no further liability by disallowing the amounts. It was also contended that there will be double taxation of the same amount as firm and partners are not separate entities legally, hence no TDS was made. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant took the plea that deduction of tax is only one mode of recovery of tax and once income is recovered in other mode, and suffered tax in the hands of payee, taxing the same amount, amounts to double taxation. In this context, the appellant referred to the newly inserted second proviso to Section 40(a)(ia) of the I.T. Act w.e.f. 01.04.2013 which mandates that if the recipient has accounted the said amounts in their books of account and has offered such income for tax and paid taxes thereon, there cannot be any disallowance u/s 40(a)(ia) of the I.T. Act. In further support of the argument that the said amendment is considered as declaratory and curative in nature and, therefore, should be given retrospective effect from the 1st of April, 2005 being the date from which sub-clause (ia) of Section 40(a) was inserted by the Finance Act, 2004, the appellant relied upon the decisions of ITAT, Bangalore in the cases of DCIT Vs. Ananda Marakala and S.M.Anand Vs. ACIT and decision of ITAT, Delhi in the case of ITO Vs. Dr.Jaideep Kumar Sharma as indicated in the submissions. The appellant has furnished Form No.26A as stipulated by the second proviso to Section 40(a)(ia), wherein, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment to the. provisions of section 40(a)(ia) of the Act w.e.f. 01.04.2013, the provisions of section 40(a)(ia) of the Act would not be attracted to the payments made by the assessee t.e. Sri G.Shankar of Rs. 2,69,28,500/- and to Shri Ramesh Kotian of Rs. 1,54,75,000/-. This view of our, is in accordance with the decision of the co-ordinate bench of this Tribunal in the case of Ananda Markala (supra) wherein it was held that the insertion of the second proviso to section 40(a)(ia) of the Act should be read retrospectively from 01.04.2005 and not prospectively from 01.04.2013. In this view of the matter, the provisions of Section 40(a)(ia) of the Act is not attracted to the payments made by the assessee to Shri G. Shankar of Rs. 2,69,21,500/- and to Shri Ramesh Kotian of Rs. 1,54,75,000/- since the object of introduction of Section 40(a)(ia) of the Act is achieved for the reason that the payees / recipients have declared and offered to tax the payments received from the assessee in their respective hands. " On similar issue the decision of the Hon'ble ITAT, Delhi in the case of ITO Vs. Dr. Jaideep Kumar Sharma runs as under: "When we look at the overall scheme of the section a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(ia). It it is not an intended consequence, i.e., if it is an unintended consequence, even going by Bharati Shipyard Ltd. Vs. Deputy CIT [2011J 11 ITR (Trib) 599 (Mum) [SBJ, 'removing unintended consequences to make the provisions workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively'. The Revenue, thus, does not derive any advantage from the Special Bench decision in the case Bharti Shipyard. (para 8 of the order) On a conceptual note, 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 deincentivise 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 provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that 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. (para 9 of the order)" 5.5 Coming to the facts of the case, the appellant failed to make TDS on the payments of Rs. 1,59,16,750/-, for which the provisions of Section 40(a)(ia) were applied by the Assessing Officer. On the lines of the decisions of the Hon'be ITAT, Bangalore and Delhi as cited above, the insertion of second proviso to section 40(a)(ia) was interpreted as effective from 01.04.2005 and in this case assessment year being 2010-11, the interpretation is equally applicable to the facts of the case. Thereby, it is reasonable to hold that provisions of section 40(a)(ia) are not applicable in this case and disallowance cannot be made where the payee admits the income and pays tax. However, since Form 26A was not available to the assessee to be furnished before the Assessing Officer, the Assessing Officer may examine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 88E of income tax was not given, which appears an apparent mistake. The appellant requested for giving credit for the same, raising a separate ground for it. Having found the claim to be in order and allowable, the Assessing Officer is directed to give credit for the Security Transaction Tax as per the provisions of Section 88E. Thus, this ground of appeal treated as Allowed". 8. After considering the rival contentions, we have to uphold the Revenue's ground. There is a mistake in the direction of CIT(A) to give credit for the Security Transaction Tax as per the provisions of Section 88E. The Ld. CIT(A) failed to notice that vide sub-section 3 of Section 88E, no deduction under this section shall be allowed in or after the assessment year beginning on the first day of April, 2009. Since, the impugned assessment years are after that date, the direction of CIT(A) is not as per the provisions of law. Accordingly, the order of CIT(A) on this issue is set aside. The order of AO is therefore restored. Revenue's ground is accordingly allowed. 9. In the result appeal in ITA No. 703/Hyd/2015 (AY. 2010-11) is dismissed and appeal in ITA No. 704/Hyd/2015 (AY. 2011-12) is partly allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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