TaxTMI 
TaxTMI 
2014 (12) TMI 381
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....eduction of TDS were not applicable and no disallowance in respect thereof was called for; hence the order of the AO u/s 143(3) was not erroneous. 4. In the facts of circumstances of the case, the learned CIT has passed the order u/s 263 without application of mind, under an impression that the amounts in dispute are paid by the SCSSN society, instead of being paid to the SCSSN society. 5. The learned CIT has erred in enhancing the assessment by Rs. 15,22,5l9/-. 6. The learned CIT has failed to appreciate that the view taken by the AO in the order u/s 143(3) is a legally sustainable and plausible view and hence the order u/s 263 is bad in law." 3. In this case the assessment u/s.143(3) of the Income tax Act, 1961 was passed by the JCIT- Range-2,, Belgaum on 21.11.2011. However, on verification of record, the Commissioner of Income Tax, Belgaum noticed that the assessee had taken loan from Shraddha Credit Souharda Sahakari Niyamit paid interest of Rs. 15,22,519/-without deducting tax at source at the time of payment of interest which attracts disallowance u/s 40(a)(ia) of the Act. As per the provisions of section 194A(2)(iii), income credited or paid to any banking compa....
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.... It is alleged in the notice that we have taken loan from Shardha Credit Souhard Sahakari Nyt, Nipani (hereinafter to as the "society") & we have paid interest of Rs. 15,22,519/- in previous year relating to the assessment year 2009-10. It is further alleged that while making the payment of this interest, we have not deducted any tax as per the provisions of Income Tax, Act 1961. Therefore, it is proposed to disallow the expenditure of interest u/s 40(a)(ia) of the Act. The actual facts regarding acceptance of loan & regarding payment of interest on such ban is as under. The following persons are the partners of our firm. 1. Chandarakant S. Kothizvale 2. Suryakant S. Kothizoale 3. Shashikant S. Kothiwate 4. Rudrakumar C. Kothiwale The above four partners have obtained, the loan in their own name from the society by providing their agricultural lands as mortgage to the said society. Further the firm has also provided collateral security to the said society. The above partners have provided this loan to our firm as loan which has been credited under the heading as under, 1. Shard ha Credit Souhard Sahakari Nyt., Nipani - CSK Hypothecations loan account. 2. Sh....
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....o the partners & therefore the interest paid without making any TDS does not attract provision of section 40(a)(ia), Therefore, there cannot be any disallowance for the expenditure of the payment of the interest. The assessment order passed by the Assessing Officer did not suffer from any mistake or error & therefore it cannot be inferred that the assessment was prejudicial to the interest of the revenue. The provisions of section 263 are very clear & those provision can be attracted by the CIT only & only if two conditions are satisfied. a. The assessment order sought to be revised should be erroneous, b. The assessment order sought to be revised should be prejudicial to the interest of the revenue. None of these conditions are satisfied in the instant case so as to confer the jurisdiction to the CIT Belgaum in exercising revisionary powers. Reliance is placed on the following judgments. 1. CIT v/s International Travel House Ltd. 344 ITR 554. 2. G.M.Mittal Stainless (Pvt Ltd.) (Supreme Court) 263 ITR 255. 3. CIT vs. Max lndia Ltd. 295 JTR 282 (SC). 4. CIT v/s Gokul Das Exports 333 JTR 224("KAR). 5. Malbar Industrial Co. Ltd. vs CIT, 243 ITR 83 (S.C). ....
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....essee was liable to deduct tax at source and therefore, he enhanced the income by Rs. 15,22,519/- and AO was directed to pass fresh order giving effect to this order. 5. During the course of hearing, ld A.R. has not argued much on the order of ld CIT but has submitted additional evidence in the form of Form 26 before us. 6. We have heard both the sides and perused the record of the case. We find that the assessee claimed that it had made payment of interest of Rs. 15,33,519/- to Shraddha Credit Souharda Sahakari Niyamit on behalf of the partners who have obtained loan for the purposes of business of the partnership firm. The loan was obtained by the partners on the security of their agricultural lands. The assessee"s contention that assessee is not responsible for deducting tax at source as required by provisions of section 194A since it has not paid interest to its partners but it has paid interest directly to Shraddha Credit Souharda Sahakari Niyamit on behalf of the partners. The asessee contended that Shraddha Credit Souharda Sahakari Niyamit is a cooperative bank and exempt from provisions of TDS in view of provisions of section 194A(3)(iii). Ld CIT ha verified the loan ....
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.... of an accountant in annexure- A, appended thereto to the effect that the payee has filed the return of income and included the relevant amount therein. This amendment is curative, explanatory and retrospective. The return of income of the payee society was filed before the due date of the assessee"s return; hence the TDS requirements, even if applicable, got duly and effectively fulfilled by the due date of assessee"s return and no disallowance u/s.40(a)(ia) is called for. Ld A.R. also submitted Form -26 before us and he has also submitted the Finance Bill 2012 wherein, the amendment to section 40 has been made. Ld A.R. also relied upon the decision of ITAT Agra Bench in the case of Rajeev Kumar Agarwal vs ACIT (2014) 45 taxmann.com 555 (Agra -Trib), wherein, the issue in controversy is covered by the above decision. He therefore, urged to allow the appeal of the assessee. 8. Ld D.R., on the other hand, relied upon the order of ld CIT . 9. Having heard both the sides, we find that as per section 194 and 191 of the Act, which provides that the person shall be deemed to be an issue in default in respect of non/short deduction of tax only in cases where the payee has also faile....
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....even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee"s tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to....