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2016 (3) TMI 906 - ITAT CHENNAI

2016 (3) TMI 906 - ITAT CHENNAI - TMI - Disallowance made under section 40(a)(ia) - non-deduction of tax on the rent and advertisement charges paid by the assessee - Held that:- This Bench is consistently holding that in case of disallowance under section 40(a)(ia) for non-deduction of tax at source the amounts outstanding as on 31st March of the accounting year only have to be disallowed and not the amounts which were already paid during the year, in view of the decision of Special Bench of the .....

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n 10B of the Act - delay in filing return - Held that:- As in this case assessee filed return of income on 15.10.2010 which is beyond the due date for filing return of income i.e. 30.09.2009 under section 139(1) of the Act for the assessment year 2009-10. Thus, respectfully following the Special Bench decision in the case of M/s. Saffire Garments [Saffire Garments] wherein held wherein it is held that proviso to section 10A(1A) and section 10B is mandatory and not merely directory, we reject the .....

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Chennai dated 25.02.2013 for the assessment year 2009-10. 2. Though the assessee has raised several grounds of appeal, the issues raised in the grounds are only two namely i) challenging the order of the Commissioner of Income Tax (Appeals) in sustaining the disallowance made under section 40(a)(ia) of the Act for non-deduction of tax on the rent and advertisement charges paid by the assessee and ii) sustaining the disallowance under section 10B of the Act. 3. At the time of hearing, counsel for .....

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uthorities and submits that no details have been furnished as to whether the payments have been made during the year or payments are outstanding by the end of the accounting year and for this purpose the matter should go back to the Assessing Officer for verification. 5. Heard both the parties. Perused the orders of lower authorities. This Bench is consistently holding that in case of disallowance under section 40(a)(ia) for non-deduction of tax at source the amounts outstanding as on 31st March .....

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pping and Transports vs. ACIT (2012) 136 ITD 23 (Visakhapatnam) and judgment of Gujarat High Court in the case of CIT vs. M/s. Vector Shipping Services (P) Ltd in ITA No. 122 of 2013 dated 09.7.2013 heldthatsec 40(a)(ia) is not applicable when there is no outstanding balance at the end of the close of the year relevant to the assessment yea in respect of these payment. However, the assessee has not brought on record, the details of outstanding expenses or schedule of sundry creditors showing whe .....

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e of the assessment year in respect of the expenses either as outstanding expenses or as sundry creditors, this amount cannot be disallowed. This ground is remitted back to the Assessing Officer for fresh consideration." 6. Respectfully following the said decision, we restore this issue for limited purpose of verification to the Assessing Officer as to whether the amounts were paid during the year or outstanding as on 31st March of the accounting year. The Assessing Officer is directed to v .....

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income and therefore requested that the matter may be restored to the file of the Assessing Officer. This argument of the assessee is rejected. At this stage, we are not inclined to restore the issue to the file of the Assessing Officer. Furthermore, nothing is placed on record to suggest that assessee is approaching the Board seeking permission for condonation of delay. 9. Departmental Representative places reliance on the Rajkot Special Bench decision in the case of M/s. Saffire Garments Vs. .....

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the case of M/s. Saffire Garments (supra), wherein it is held that proviso to section 10A(1A) is mandatory and not merely directory. The decision rendered by the Special Bench cited above though in the context of proviso to section 10A(1A) is identical to the proviso to section 10B of the Act and consequently applies to the facts of the assessee s case. The Special Bench while holding so held as under:- "2. The assessee is a partnership firm. The assessee filed return of income declaring t .....

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vertible foreign exchange and, therefore, deduction u/s 10A of the Income tax Act, 1961 is allowable to it. Thereafter, it is noted by the A.O. in the assessment order that the assessee had filed its return of income on 31.01.2007 and the extended due date for filing return of income for the assessee's, being a firm, as per the provisions of Section 139(1) of the Act was 31.12.2006. The A.O. also observed that the assessee failed to file its return of income on or before the due date specifi .....

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roviso is applicable to the case of the assessee and hence, the assessee's claim for deduction u/s 10A of the Income tax Act, 1961 is to be disallowed. In this manner, the A.O. disallowed the claim of the assessee for deduction u/s 10A of the Income tax Act, 1961. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) but without success and hence, the assessee is in further appeal before the Tribunal. 3. The questions referred to the special bench are already reproduce .....

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thin the due date allowed u/s 139(1) of the Income tax Act, 1961. He placed reliance on the following judicial pronouncements, copies of which are given in paper book III: (a) CIT v. HardeodasAgarwalla Trust [1992] 198 ITR 511(Cal.) (b) Church's Auxiliary for Social Action v. DGIT (Exemption) [1993] 2 325 ITR 362(Delhi) (c) CIT v. Gujarat Oil & Allied Industries [1993] 201 ITR 325(Guj.) (d) CIT v. Shivanand Electronics [1994] 209 ITR 63/ 75 Taxman 93(Bom.). (e) ITO v. VXL India Ltd. [200 .....

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lso placed on the Tribunal decision rendered in the case of Bal Kishan Dhawan HUF v. ITO [2012] 50 SOT 49(URO)/ 18 taxmann.com 234 (ASR). He also submitted that remedy lies with the Board and not before the Appellate Authorities. He also submitted that there is difference between the provisions of Section 139(1) and Section 139(4) and, therefore, the proviso to section 139(1) should prevail. 5.1 Written submissions were filed by the Ld. D.R. and the same were also duly considered. 6. In the rejo .....

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Finance Act 2005 Circular No.3/2006 dated 27.02.2006 is available on page 47A of the paper book III filed by the assessee and as per the same, this provision was inserted with a view to widen the tax base and hence, it is a procedural provision and not substantive provision. 7. Regarding the reliance placed by the Ld. D.R. on the judgement of Hon'ble Apex Court rendered in the case of Prakash Nath Khanna (supra), it was submitted that this judgement is not applicable in the present case beca .....

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rding proviso to section 10A (1A) and hence, it should be reproduced. The proviso to Section 10A(1A) is reproduced below: "[(1A) Notwithstanding anything contained in sub-section (1), the deduction, in computing the total income of an undertaking, which begins to manufacture or produce articles or things or computer software during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2003, in any special economic zone, shall be, (i) hundred per cent .....

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ears, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the "Special Economic Zone Re-investment Allowance Reserve Account") to be created and utilised for the purposes of the business of the assessee in the manner laid down in sub-section (1B) : Provided that no deduction under this section shall be allowed .....

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is Act during the previous year exceeded the maximum amount which is not chargeable to income tax, shall, on or before the due date, furnish a return of his income o the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed." 4th Proviso; Provided also that every person, being an individual or a Hindu undivided family or an association of persons or a body of individual .....

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in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed." 10. When, we go through the provisions of Section 10A(1A) and its proviso along with the provisions of Section 139(1) and its 4th proviso, we find that the case of the revenue is this that as a consequence of assessee's failure to file the return of income within the time prescribed u/s 139(1), deduction is not allowable to the assessee u/s 10A of the Act. 11. The .....

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income or not for the current year i.e. from 01.04.2006. In respect of other persons such as individual, HUF, AOP or BOI and Artificial Judicial (sic) Person, the requirement is this that if such a person is having taxable income before giving effect to the provisions of Section 10A, then also, he is required to file return of income before the due date even if this person is not having taxable income after giving effect to the provisions of Section 10A. We find that the provisions of the provi .....

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e tax payable by him after reducing advance tax and TDS/TCS if any paid by him apart from some other reductions. Such interest is payable from the date immediately following the due date for filing return of income and is payable up to the date on which such return of income was furnished by the assessee and if the assessee has not furnished any return of income then the interest is payable till the date of completion of the assessment u/s 144. In our considered opinion, this is also one of the .....

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t is chargeable u/s 234B of the Income tax Act, 1961 if such advance tax paid by the assessee is less than 90% of the assessed tax. Such interest u/s 234B is payable from the first day of April of the relevant assessment year till the date of determination of the total income either u/s 143(1) or u/s 143(3) of the Act. The interest u/s 234A is payable from a date after the due date for filing the return of income and is payable up to the date on which the return of income is furnished by the ass .....

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g u/s 234A of the Income tax Act, 1961, is mandatory. When one of the consequences for not filing return of income within the due date prescribed u/s 139(1) of the Income tax Act, 1961 is mandatory then, other consequence of the same failure of the assessee cannot be directory and the same is also mandatory. In our considered opinion and in view of our above discussion, the provisions of the proviso to Section 10A(1A) is mandatory and not directory and, therefore, question (a) referred to us is .....

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Act then he shall be punishable for rigorous imprisonment along with fine and the quantum of such imprisonment and fine is dependent on the amount of tax which would have been evaded if the failure had not been detected. This issue was examined by Hon'ble Apex Court in the case of Prakash Nath Khanna (supra) as cited by the learned DR and it was held by the Hon'ble Apex Court in that case that even if the return of income is filed in terms of subsection (4) of Section 139 and it does no .....

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then it cannot be accepted that such furnishing of return of income within time allowed u/s 139(4) will dilute the provisions contained in the proviso to Section 10A(1A) of the Income tax Act, 1961. 13. Regarding various submissions of the Ld. A.R. and various judgements on which reliance has been placed by the Ld. A.R., we would like to observe that these submissions do not have merit in view of our above discussion. The first submission is this that the provision of Section 139(4) are conside .....

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he infraction in not furnishing return in due time as prescribed u/s 139(1) of the Income tax Act, 1961. In view of this judgement of Hon'ble Apex Court in this regard, the judgments cited by the Ld. A.R. i.e. CIT v. Ms. Jagriti Aggarwal [2011] 203 Taxman 203/ 15 taxmann.com 146 (Punj. &Har.) and Trustees of Tulsidas Gopalji Charitable &Chaleshwar Temple Trust v. CIT [1994] 73 Taxman 612(Bom.) are of no relevance because these judgements are of two different High Courts but this aspe .....

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ubmissions of the assessee also because when consequences of not filing the return of income within the due date prescribed u/s 139(1) of the Income tax Act, 1961 are so grave i.e. charging of interest u/s 234A, possibility of prosecution u/s 276CC and denial of various deductions u/s 10A, 10B, 10BA and various sections under Chapter VIA, it cannot be said that this requirement of filing return of income is a procedural aspect. 15. Regarding various judgments cited by the Ld. A.R. in this regard .....

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per book II is the judgement of Hon'ble Apex Court rendered in the case of Director of Inspection of Income Tax v. Pooran Mall & Sons [1974] 96 ITR 390. In that case, the issue involved was regarding the validity of the order passed by the A.O. u/s 132(5) for retaining the seized assets and hence, this judgement is not relevant in the present case. - The 2nd judgement cited is the judgement of Hon'ble Madhya Pradesh High court rendered in the case of CIT v. Panama Chemical Works [200 .....

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garding filing of some report along with return of income but the dispute is regarding filing of return of income itself within due date and hence, this judgment is also not relevant in the present case. - The 3rd judgement cited is the judgement of Hon'ble Delhi High court rendered in the case of CIT v. Axis Computers (India) (P.) Ltd. [2009] 178 Taxman 143. In that case also, the dispute was regarding the requirement of filing of audit report along with return of income and not regarding f .....

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t judgement cited before us is the judgement of Hon'ble Delhi High court rendered in the case of CIT v. Web Commerce (India) (P) Ltd. [2009] 178 Taxman 310. The dispute in that case is also similar to the dispute in the earlier decision of Hon'ble Delhi High Court rendered in the case of Axis Computers (India) (P) Ltd. (supra) and for the same reasons, this judgement is also not applicable in the present case. - The next judgement cited before us is the judgment of Hon'ble Apex Court .....

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f Hon'ble Apex Court is also not relevant in the present case. - The next judgement cited before us is the judgement of Hon'ble Calcutta High court rendered in the case of HardeodasAgarwalla Trust's case (supra). In that case, the issue in dispute was regarding furnishing of audit report along with return of income for the purpose of claiming exemption u/s 11 of the Income tax Act, 1961 and not the dispute was not regarding filing of return of income u/s 139(1) of the Act and hence, .....

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bed period and it was held that such a requirement is directory and not mandatory. In the present case, the dispute is regarding filing of return of income itself within the due date and hence, this judgement of Hon'ble Delhi High Court is also not relevant in the present case. - The next judgement cited before us is the judgment of Hon'ble Gujarat High Court rendered in the case Gujarat Oil and Allied Industries' case (supra). In that case also, the dispute was regarding the require .....

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r such a project for the purpose of Section 80 O while in fact Section 80HHB was found applicable and it was held that assessee has to be given an opportunity for complying with the provisions of subsection (3) of Section 80HHB. Since the facts are different, this judgement is also not relevant in the present case. - The next judgement cited before us is the judgement of Hon'ble Bombay High court rendered in the case of Shivanand Electronics' case (supra). Very strong reliance was placed .....

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s 139(1) of the Income tax Act, 1961 and hence, this judgement is also not relevant in the present case. - The next judgment is the judgement of Hon'ble Gujarat High Court rendered in the case of VXL India Ltd.'s case (supra). In that case also, dispute was regarding filing of audit report and hence, this judgement is also not relevant. - The next judgement cited before us is the judgement of Hon'ble Calcutta High court rendered in the case of Presidency Medical Centre (P) Ltd. v. CI .....

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se, the dispute is regarding filing of return of income within time allowed u/s 139(1) of the Income tax Act, 1961 and not u/s 139(4) of the Income tax Act, 1961 and hence, this judgement is also not applicable in the present case. 16. We have discussed all the judgments which were cited by the Ld. A.R. in the synopsis as well as copies of which are submitted in the paper book II and III and we have seen that none of these judgments is relevant in the present case. 17. In view of our above discu .....

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