2017 (2) TMI 803 - AT - Income Tax

Tribunal upholds CIT(A)'s deletion of disallowances under Sections 40(a)(ia) and 69C

DCIT-23 (3), Mumbai Versus Sharad V. Shah (Prop. Paras Engg. Co.)

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletion of disallowances under Sections 40(a)(ia) and 69C. The Tribunal found the ... Disallowance u/s 40(a) (ia) - non deposit of TDS within the statutory period in the government treasury - Retrospectivity of the second proviso to Section 40(a) (ia) - Held that:- As decided in Commissioner of Income Tax-1 Versus Ansal Land Mark Township (P) Ltd.[2015 (9) TMI 79 - DELHI HIGH COURT] the second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-Section (1) of Section 201 of the Act, then, in such event, “it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso Second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and has retrospective effect from 1st April 2005, merits acceptance. - Decided in favour of the Assessee. Issues Involved:1. Applicability of amendment to Section 40(a)(ia) of the Income Tax Act.2. Deletion of disallowance under Section 40(a)(ia) amounting to Rs. 16,63,444.3. Deletion of disallowance under Section 69C amounting to Rs. 2,04,85,861.4. Genuineness of purchases from parties listed as suspicious/hawala dealers.Issue-wise Detailed Analysis:Issue 1: Applicability of Amendment to Section 40(a)(ia)The Revenue argued that the amendment to Section 40(a)(ia) inserted by the Finance Act 2010 applies only from AY 2010-11 and not retrospectively. The Tribunal, however, referenced the Hon'ble Delhi High Court's decision in CIT vs. Ansal Land Mark Township P. Ltd., which held that the second proviso to Section 40(a)(ia) introduced by the Finance Act 2012 is intended to benefit the assessee and should be treated as having retrospective effect. This proviso ensures that if the payee has filed their return and paid taxes, the assessee should not be treated as in default.Issue 2: Deletion of Disallowance under Section 40(a)(ia)The Tribunal confirmed that the assessee had deposited the TDS before the due date of filing the return under Section 139(1). Following the decision of the Hon'ble Delhi High Court in Ansal Land Mark Township P. Ltd., the Tribunal concluded that no disallowance was warranted under Section 40(a)(ia). The Tribunal found no illegality or infirmity in the CIT(A)'s decision to delete the disallowance of Rs. 16,63,444.Issue 3: Deletion of Disallowance under Section 69CThe Revenue contended that the purchases amounting to Rs. 2,04,85,861 were from parties listed as suspicious/hawala dealers by the Sales Tax Department of Maharashtra. The AO disallowed these purchases as the assessee failed to produce the parties for verification. However, the CIT(A) deleted this disallowance based on the remand report from the AO, which confirmed that the assessee had provided sufficient evidence of the material's receipt and consumption in manufacturing. The CIT(A) noted that the gross profit ratio had increased, indicating no attempt to reduce income through bogus purchases.Issue 4: Genuineness of Purchases from Suspicious DealersThe Tribunal examined the evidence provided by the assessee, including bank statements, transport bills, delivery challans, and laboratory test reports. The CIT(A) found that the payments were made through account payee cheques or RTGS, and there was no evidence to doubt the genuineness of these transactions. The Tribunal agreed with the CIT(A)'s finding that the AO's disallowance was based merely on suspicion from the MVAT list without concrete evidence. The Tribunal upheld the CIT(A)'s deletion of the disallowance under Section 69C.Conclusion:The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s deletion of disallowances under Sections 40(a)(ia) and 69C. The Tribunal found that the assessee had complied with the statutory requirements and provided sufficient evidence to substantiate the genuineness of the transactions. The order was pronounced in the open court on 15th February 2017.