TaxTMI 
TaxTMI 
2015 (8) TMI 42
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....ed out that the issue is squarely covered in favour of the assessee by the order of the Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Ankitech Pvt. Ltd. (2012) 340 ITR 14 (Del) and also submitted that for the purpose of section 2(22)(e) of the Income Tax Act, 1961, the amount received by the assessee as advances and loans would be treated as dividend within the meaning of said provisions of the Act and advances to the assessee company from another company wherein persons having substantial interest in the assessee company and another company which gave the loan having substantial interest, then also if the assessee recipient company of loan is not shareholder of company of other company which gave the loan, then the amount of loan is not assessable as deemed dividend u/s 2(22)(e) of the Act. 4. Ld. DR supporting the action of the AO submitted that the AO was right in making addition and in holding that the deemed dividend of Rs. 42,97,686 (to the extent of accumulated profit) is to be treated as deemed income u/s 2(22)(e) of the Act in the hands of the assessee from the loan taken from M/s R.D. Finlease Pvt. Ltd. Ld. DR vehemently contended that the CIT(A) was n....
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....of the appellant company stands deleted. The AO is directed to inform the AO of Shri Ashish Anand to take necessary action in his hands as per law. Ground No. 4 of the appeal is allowed in the manner indicated above." 6. In view of above conclusion of the first appellate authority and on careful consideration of the facts and circumstances of the present case in hand, we note that in the case of CIT vs Ankitech Pvt. Ltd. (supra), after considering the ratio of the relevant decisions and judgments, it was held that if the amounts advanced are for business transaction between the parties, such payments would not fall within the deeming provisions of section 2(22)(e) of the Act. Ld. Counsel further submitted that in the said judgement, Hon'ble Delhi High Court also held that even the money which was paid was not in the nature of loan or advance simplicitor, but the amounts were advanced for business transaction. In this situation, even the shareholder cannot be fastened with any tax liability as conditions stipulated under Section 2(22)(e) of the Act would not be treated as satisfied. 7. On careful consideration of above submissions, we are of the view that as per provisions of sec....
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....o the asssessee and decide the matter afresh in accordance with law by way of speaking order considering this fact that second proviso to section 40(a)(ia) of the Act is declaratory and curative having retrospective effect from 1.4.2005. Ld. DR replied that the action of the AO was quite justified which was rightly upheld by the CIT(A) and CO of the assessee having no force deserves to be dismissed. 10. Ld. DR also pointed out that subsequent amendment is not applicable retrospectively to the earlier years and the ld. DR objected to remand of issue to the AO. 11. On careful consideration of above submissions and perusal of the material placed on record, we observe that the AO made disallowance u/s 40(a)(ia) of the Act by observing that on perusal of Form 3CD it was seen that the auditors had reported that there was tax deductible at source which was not deducted at all of Rs. 3,70,021/-. The AO also observed that in Form 3CD tax of Rs. 1,75,119 has been deducted but not credited in the Government account. Hence, assuming that the rate of TDS is 10% on both the amounts, the AO made disallowance of Rs. 545100/-. On appeal by the assessee, first appellate authority granted relief to....
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....OI in Civil Misc. W.P. No. 186 (Tax) of 2008 dated 15.02.2008 and held that in a situation in which tax has been paid on income by payee but no TDS was made by the payer, disallowance u/s 40(a)(ia) will be still attracted and this may be a case of casus omisus but the Court cannot fill this gap. The Hon'ble Special Bench also relied on the decision of Hon'ble Madras High Court in the case of Tube Investments of India Ltd. vs. ACIT (2010) 395 ITR 610 in which Hon'ble Madras High Court in para 61 of the judgment held that whole of expenditure claimed without making TDS is to be disallowed. Therefore, the addition of Rs. 16,32,925/- is confirmed. Thus, the appellant gets a relief of Rs. 38,18,475/- (Rs. 54,51,400/- - 16,32,925/-). The ground of appeal is partly allowed." 12. Now, we consider the ratio of the order of ITAT Agra dated 29.5.2014 (supra) wherein the Tribunal held as under:- "4. Vide our order of even date we have upheld the grievance of the assessee and observed as follows:- 2. The issue in appeal lies in a rather narrow compass of undisputed material facts. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the a....
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....n 201, then, for the purpose of this sub -clause, 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". In other words, as long as the assessee cannot be treated as an assessee in default, the disallowance under section 40(a)(ia) cannot come into play either. To understand the effect of this proviso, it is useful to refer to first proviso to section 201(1), which is also introduced by the Finance Act 2012 and effective 1st July 2012, and which provides that "any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident-(i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and(iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this eff....
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.... of TDS provisions" and went on to add that "If, in attaining this main objective of augmentation of such provisions, the assessee suffers disallowance of any amount in the year of default, which is otherwise deductible, the legislature allowed it to continue". It was further observed that "this is the cost which parliament has awarded to those assessees who fail to comply with the relevant provisions by considering overall objective of boosting TDS compliance"(Emphasis by underlining supplied by us). In other words, the amendment was held to be prospective because, in the wisdom of the special bench, the 2010 amendment to Section 40(a)(ia) by inserting first proviso thereto, which is what the special bench was dealing with, was an "intended consequence" of the provision of Section 40(a)(ia). 6. However, the stand so taken by the special bench was disapproved by Hon'ble Delhi High Court in the case of CIT Vs Rajinder Kumar (362 ITR 241). While doing so, Their Lordships observed that, "The object of introduction of Section 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries........Failure to deduct TDS or depos....
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...., but is only a mean of recovering due taxes on income embedded in the payments made by the assessee. That's how, as we have seen a short while ago, Hon'ble Delhi High Court has visualized the scheme of things - as evident from Their Lordships' reference to augmentation of recoveries in the context of "loss of revenue" and "depriving the Government of the tax due and payable". 8. With the benefit of this guidance from Hon'ble Delhi High Court, in view of legislative amendments made from time to time, which throw light on what was actually sought to be achieved by this legal provision, and in the light of the above analysis of the scheme of the law, we are of the considered view that section 40(a)(ia) cannot be seen as intended to be a penal provision to punish the lapses of non deduction of tax at source from payments for expenditure - particularly when the recipients have taken into account income embedded in these payments, paid due taxes thereon and filed income tax returns in accordance with the law. As a corollary to this proposition, in our considered view, declining deduction in respect of expenditure relating to the payments of this nature cannot be treate....
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....rovided for in Section 271 C, 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 the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is....
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....The CIT(A) further noted that it is not material whether the person to whom TDS has been paid accounted for it in its books of accounts or not. 14. While we consider the ratio laid down by ITAT Agra in its order dated 29.5.2014 (supra), we find ourselves in agreement with the conclusion that the provisions of section 40a(ia) of the Act as it existed prior to insertion of second proviso went much beyond the obvious intention of the legislature and created undue hardship even in the cases in which asessee's tax withholding lapses did not result in any loss to the exchequer. Subsequently, the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such as amendment in law. In view of the well-settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In this situation, agreeing to the said legal proposition of ITAT, Agra, we hold that the insertion of se....