TMI Blog2015 (6) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Assessing Officer is hereby reversed. The insertion of Second Proviso appears to be on the ground of equity and natural justice because the income-tax cannot be levied two times on the same income. Further, according to us, there should be one more reasons that the provisions of section 40(a)(ia) are otherwise harsh in nature because an expenditure which is otherwise allowable under section 37 or under General provisions of I.T. Act are forced to be disallowed by invoking this section simply because of the reason that the requirement of TDS was not followed. The consequence of the provisions of section 40(a)(ia) is that a genuine expenditure which is incurred wholly and exclusively for the purpose of business although allowable under the normal provisions of IT. Act should be curtailed simply because of the reason that the payee or the assessee who has incurred the expenditure has not deducted the tax. Therefore, to overcome this hardship, specially when the deductee has paid the tax on the said amount, the respected legislature, in our humble view, seems to be justified in inserting this new Proviso, Therefore, we are also of the opinion, as expressed by the respected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhattad ₹ 6,70,279/- and (ii) ₹ 16,500/- totalling to ₹ 6,86,779/- less interest in saving account of bank ₹ 40/- = ₹ 6,86,739/- The Assessing Officer has raised two fold objections. The first objection of the Assessing Officer was as under : The submission of the assessee has been perused carefully and is not acceptable. The assessee has not proved how the interest paid is incidental to the business along with the evidence. The capital borrowed on interest and its utilization in business have to be proved then only interest claim can be allowed u/s 36(1)(iii) of the IT. Act 1961. Mere, saying that the personal books as well as the Oil Mill books are interlinked financially does not serve the purpose for claiming deduction u/s 36(1)(m)of the IT. Act. Hence the interest debited at ₹ 6,86,739/- is not allowed u/s 36(1)(iii) of the IT. Act, 1961 and added back to the returned income. 2.1 The second objection of the Assessing Officer was about non-deduction of TDS as under: Further vide letter 30-07-2010, the assessee was asked to submit the evidence of T.D.S. made on interest paid to the above parties. It is pertinent to menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s 40a(ia). It has been clearly held that the provision of section 40a(ia) are attracted when the assessee fails to deduct tax at source or pay such tax to the exchequer within the stipulated period. Considering the facts and the legal proposition discussed above the disallowance is sustained. This ground is dismissed. 5. From the side of the appellant, learned A.R. Mr. C.J. Thakar appeared. In respect of the applicability of the provisions of section 36(1)(iii) learned A.R. has vehemently contested that the personal books of account as well as the books of account of the proprietary concern are both for the purpose of business activity of the assessee, hence the financial transaction between the said two accounts were inter linked and connected with the business activity of the assessee He has also pleaded that the learned CIT(Appeals) has called for a remand report but there was no adverse comment on this issue by the Assessing Officer. The learned A.R. further mentioned that although the interest was paid from the personal set of books of account but that too was connected with the business activity of the assessee. 5.1 Moreover, he has also informed that the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up the oil mill in the assessment year 2001-02. It has also not been disputed by the Revenue authorities that the amount of interest paid to R.N. Bhattad was not disclosed by him in his personal return. 7.1 Moreover section 37(1) which is a residuary general provision, may have application to any expenditure, including interest expenditure, which is not of the nature described in sections 30 to 36 of I.T. Act. To an extent, section 36(1)(iii) and section 37(1) so far as the allowance of interest is concerned, run parallel to each other. But these two sections do differ and it can be discerned that under section 36(1)(iii) the borrowed amount may be utilized even for procuring a capital asset related to the business. However, on the other hand, under section 37(1) the debt incurred must not be utilized for procuring a capital asset. Hence considering the totality of the facts and circumstances of the case, even the alternative plea is acceptable that the interest in question is otherwise allowable under section 37(1) of the I.T. Act being wholly and exclusively for the purpose of business. Thus considering the totality of the facts and circumstances of the case, we are of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the resident payee referred to in the said proviso. 7.4 In our humble opinion, this proviso is inserted by keeping in mind the law laid down by the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P.) Ltd. (supra). So according to this proviso, in a situation where an assessee had failed to deduct the tax in accordance with the provisions of Chapter XVII-B, however, is not deemed to be in default on account of applicability of the provisions of section 201(1), then for the purpose of the provisions of section 40(a)(ia), as well, shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of the return of income by the payee referred to in the said proviso. 8. To understand the intention of this legislature, we have also perused the provisions of section 201(1) of Chapter XVII of I.T. Act. As per this section, where any person who is required to deduct any sum in accordance with the provisions of this Act does not deduct tax, then shall be deemed to be an assessee in default in respect of such tax. However, by First Proviso, an exception has been provided that if any person who fails to deduct the tax under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome this hardship, specially when the deductee has paid the tax on the said amount, the respected legislature, in our humble view, seems to be justified in inserting this new Proviso, Therefore, we are also of the opinion, as expressed by the respected coordinate Bench Agra, that the amendment has brought into the statute was mainly to mitigate the rigour of harsh provisions of disallowance of expenditure under section 40(a)(ia), therefore, intended to be applied retrospectively, specially when there is no indication in the language of the said Proviso about the prospective applicability. 10. We, therefore, conclude that after laying down the applicability of Second Proviso to section 40(ia) with retrospective effect, we here by remit the issue back to the file of the Assessing Officer to decide according to law after having verified the payment of tax by the recipient of the interest income in his respective hands by filing the return as prescribed in the statute. The assessee is side by side directed to furnish the requisite details to the Assessing Officer and fully cooperate with the proceedings. 11. Resultantly, the ground raised by the assessee being restored back for r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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