TMI Blog2019 (5) TMI 616X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 - HELD THAT:- The provision contained in second proviso to Section 40(a)(ia) is not applicable to the case of the assessee because assessee had fully deducted the TDS, but, did not deposit the same into the Government account. However, assessee explained reasonable cause for failure to comply with such provision, on which, CIT(A) admitted the additional evidences. In case the deductees have also paid the taxes on such receipts and offered the amount for taxation, it would certainly amount to double taxation in the hands of the assessee as well as the deductee of the same amount. Further, the assessee has raised this issue for the first time, therefore, it requires reconsideration at the level of assessing officer. Set aside the orders of the authorities below and restore this issue to the file of assessing officer with a direction to verify if the deductees have offered the amount of ₹ 4.92 crores for taxation and paid the taxes thereon. It is clear that assessee has ultimately deposited the TDS amount in question to the account of the Government. According to explanation of assessee, deductees have also paid the taxes on the same income, therefore, as per provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT vs Naresh Kumar 362 ITR 256 (Del). c. That the disallowance u/s 40(a)(ia), as held by the courts, is not penal in nature and is harsh, therefore, any amendment brought in section 40(a)(ia), which is intended to reduce the harshness of the provision, has to be liberally interpreted in favor of defaulters, more particularly when legislature itself, for the reason to curtail the harshness of the provision, has brought the amendment in this section and that amendment should be interpreted to have retrospective effect. d. That to the extent of ₹ 4,92,46,824/-, (for which the appellant has been able to furnish evidence in the shape of copies of acknowledgements of income tax returns filed by the seven deductees and which was also confronted to AO), the appellant was eligible for grant of benefit of 100% relief as per second proviso to section 40(a)(ia) which is applicable for the year under consideration. e. That for rest of the disallowance of a sum of ₹ 54,07,248/- (in respect of remaining seven deductees), the appellant is eligible for relief of 70 % of disallowance in accordance with amendments brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also confronted to AO and is also subject to remand report), the Appellant is entitled to get benefit of reduced disallowance of 30% on the entire disallowance of ₹ 5,72,34,330/- on ground of retrospective applicability of amendments brought in section 40(a)(ia) by Finance (No 2) Act, w.e.f 01-04-2015 whereby the disallowance is reduced to 30% from 100%. Thus, the appellant is entitled to get relief of 70% of entire disallowance and thus the disallowance is required to be reduced to ₹ 1,71,70,299/- from ₹ 5,72,34,330/-. 5. Without prejudice to the above, disallowance to the extent of ₹ 24,00,000/- being remuneration paid to the directors which was not subject to deduction of tax, should be deleted on account of non-applicability of section 40(a)(ia) in the year under consideration. 2. We have heard the Learned Representatives of both the parties and perused the material available on record. 3. The facts of the case are that the assessee company is engaged in the business of providing online services [BPO]. During the year assessee has shown TDS payable to the tune of ₹ 1,78,70,190/-. The assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was of ₹ 17,16,461/-, but, the addition is made of ₹ 5.72 crores. The assessee relied upon Judgments of Hon ble Delhi High Court in the case of CIT vs. Naresh Kumar (2014) 362 ITR 256 (Del.) on the proposition that the provisions of Section 40(a)(ia) can be and should be interpreted in a liberal and equitable manner so that the assessee should not suffer any unintended and deleterious consequences beyond what the object and purpose of the provision mandates. The assessee filed certificate of illness of the Director. It was also submitted that since the amount is paid by the deductee, therefore, assessee should not be held to be in default of TDS. The assessee filed copies of the acknowledgment of income tax return filed by the deductees to whom these payments have been paid and they have declared such amount as income in their return and paid the taxes thereon. Several decisions in support of the contention were also relied upon. The Ld. CIT(A) considering the circumstances explained above found that assessee was prevented by sufficient cause from producing the evidences before A.O. Therefore, additional evidences were admitted. The Ld. CIT(A) reproduced the written sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of payments to residents is restricted to 30% instead of 100%, and since the amendment is curative in nature and have been made to remove the undue hardships to the assessee and accordingly should be applied retrospectively. In the present case, Ld. AO has erred in disallowing that 100% of the expenditure incurred of ₹ 5,72,34,330/- u/s 40(a)(ia) of the Act despite the fact that it could be disallowed only @ 30%. Further, the Ld. CIT(A) has also erred in confirming the disallowance, without appreciating the fact that in view of the amendment and disallowance cannot exceed 30%. The contention of the assessee gains strength by the judgment of Hon ble Jaipur ITAT in the case of Shri Rajendra Yadav Vs The Income Tax Officer, Ward 1(3), Ajmer (ITA No.895/JP/2012) wherein, while deciding the issue of AY 2007-08, Hon ble ITAT has held that the maximum disallowance for default in depositing TDS if any should be restricted to 30%. The relevant extract of the judgment is as below : in our view the benefit of the amendment should be given to the assessee either by directing the AO to confirm from the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have held that the tax cannot be realized twice on the same income. The relevant extract of the judgment is as below: 23. A point has been made by the assessee that as a result of this deduction the department is realizing the tax twice on the same income. It does not appear that this point was agitated before the Tribunal. We, however, make it clear that if the amount of tax has already been realized from the employees concerned directly, there cannot be any question of further realization of tax as the same income cannot be taxed twice. If the tax has been realised once, it cannot be realised once again, but that does not mean that the assessee will not be liable for payment of interest or any other legal consequence for their failure to deduct or to pay tax in accordance with law to the revenue. IV. On applicability of second proviso to section 40(a)(ia) : The Ld. AO/CIT(A) has held that the second proviso to section 40(a)(ia) is not applicable to the assessee as in the present case assessee has correctly deducted TDS and the proviso will be applicable in the case of non-deduction of TDS. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso to section 40(a)(ia) : May it please your honours that if the benefit of first proviso to section 40(a)(ia) is granted to the assessee, which enables him to claim the benefit of disallowance in the year in which TDS is paid, the assessee will not be able to get the benefit of the adjustment to the extent the assessee has suffered tax liability due to disallowance made u/s 40(a)(ia). It may be seen from the facts of the case that the total amount of TDS was only of ₹ 17,06,370/- and the amount added to the income of the assessee was ₹ 5,72,34,330/- on which the tax including interest has been raised has been raised at ₹ 2.66 crores. The returned income of the assessee has been in the range of ₹ 13 lakhs to 32 lakhs (PB pg. 159-160] Therefore, it can be seen that even if the rebate, as per first proviso is allowed in the year of payment, then, also it would not match with the burden of tax levied upon the assessee in the year under consideration. Reliance is placed on the jurisprudence laid down by the Hon ble Delhi High Court in the case of CIT vs Naresh Kumar (2014) 362 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llow the claim of expenses in the year of payment and assessee may be allowed to carry forward the losses arising out of the above claim in subsequent year. 6. On the other hand, Ld. D.R. relied upon the Orders of the authorities below. 7. We have considered the rival submissions. Section 40(a)(ia) of the Income Tax Act, 1961, as is applicable to A.Y. under appeal reads as under : 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession ,- (a) in the case of any assessee- (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or in the subsequent year before the expiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) professional services shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) work shall have the same meaning as in Explanation III to section 194C; (v) rent shall have the same meaning as in clause (i) to the Explanation to section 194-I; (vi) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;] 7.1. The A.O. in the assessment order noted that as regards Section 192B of the I.T. Act, the amount on which TDS is to be deducted comes to ₹ 29,01,190/- on which, TDS of ₹ 2,90,119/- have been deducted but was not paid by assessee. Learned Counsel for the Assessee rightly contended that the amount in question relates to payment of salary and according to Section 40(a)(ia) of the I.T. Act, the word Salary have not been incorporated in the Act. Therefore, assessee would not be in default of TDS under section 40(a)(ia) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning as in Explanation III to section 194C; (v) rent shall have the same meaning as in clause (i) to the Explanation to section 194-I; (vi) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;] 9. The assessing officer disallowed 100% of the expenditure incurred of ₹ 5,72,34,330/-. The amended provision have been considered by ITAT, Jaipur Bench in the case of Rajendera Yadav vs. ITO for the A.Y. 2007-2008 Order Dated 29.01.2016 in which the Tribunal held as under : Having said so, we will be failing in our duty if we do not discuss the amendment brought in by the Finance (No. 2) Act 2014 with effect from 1.4.2015 by virtue of which proviso to section 40(a)(ia) has been inserted, which provides that if any such sum taxed has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of previous year, and further, section 40(a)(ia) has been substituted wherein the 30% of any sum payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee as well as the deductee of the same amount. Further, the assessee has raised this issue for the first time, therefore, it requires reconsideration at the level of assessing officer. We, accordingly, set aside the orders of the authorities below and restore this issue to the file of assessing officer with a direction to verify if the deductees have offered the amount of ₹ 4.92 crores for taxation and paid the taxes thereon. The assessing officer after verifying the same shall pass a reasoned order, after giving opportunity of being heard to the assessee as per Law. This ground of appeal of assessee is allowed for statistical purposes. 11. Learned Counsel for the Assessee further submitted that ultimately assessee has paid the TDS in subsequent year, but, no relief have been granted to assessee of such deduction in subsequent assessment year. Therefore, direction may be issued to the assessing officer in this regard. In view of the above, it is clear that assessee has ultimately deposited the TDS amount in question to the account of the Government. According to explanation of assessee, deductees have also paid the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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