AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 616
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble cause Ld. CIT(A) has upheld the disallowance. Therefore, the order passed by Ld. CIT(A) suffers from illegality. b. That even if the relief is allowed to the appellant in accordance with first proviso to section 40(a)(i)(a) then the assessee will not get effective relief as against the tax liability for the present year of a sum of Rs. 2.66 crores, the relief which will be allowable to the appellant will be only a meager sum of Rs. 10,17,338/-. Thus, it was demonstrated that the grant of relief under first proviso in the year in which TDS was paid will not be an effective remedy to the appellant and, therefore, the disallowance in the year under consideration has brought unintended hardship to the appellant as has been recognized by Hon'ble Jurisdictional High Court in the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../- was required to be made by granting the benefits of amendments brought in section 40(a)(ia) by Finance (No 2) Act 2014 w.e.f 01.04.2015 as the said amendments has been considered to have retrospective applicability by the several decisions rendered by ITAT which were also relied upon in the written submission filed before Ld.CIT(A). 4. Without prejudice to the above, under the facts and circumstance of the case even if it is held that assessee is not entitled to get benefit of second proviso even to the extent of Rs. 4,92,46,824/-( in respect of 7 dedcutees for which the evidence was filed before CIT(A) and which was 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 Rs. 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 Rs. 1,71,70,299/- from Rs. 5,72,34,330/-. 5. Without prejudice to the above, d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd 01.02.2016. It was submitted that TDS payable was of Rs. 17,16,461/-, but, the addition is made of Rs. 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Rs. 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 contractors, namely, M/s. Garvit Stonex, M/s. Chanda Marbles and M/s. Nidhi Granites as to whether the said parties have deposited the tax or not and further or restrict the addition to 30% of R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere 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. * In this regard it is respectfully submitted that according to the rules of interpretation entire section has to be read together. Section 40(a)(ia) refers the disallowance to be made in a case where there are following defaults :- a. In a case where tax has not been deducted b. After deduction, tax has not been paid on or before the due date specified u/s 139(1) * In the light of the above, the case of the assessee is covered under the second proviso of section 40(a)(ia). Having regard to the cardinal rules of i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 256, their Lordships while explaining the principle of matching have recognized the situation which is being faced by marginal and medium tax payers and observed that provisions of section 40(a)(ia) should be interpreted in a liberal and equitable manner so that the assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandate. "26. Principle of matching which is disturbed by Section 40(a)(ia) of the Act, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses as they have necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low G.P. rate and when expenditure which becomes subject-m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 of the time prescribed under subsection (1) of Section 200. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of Section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.-For the purposes of this subclause,- (A) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (B) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (ia) [any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....T. Act is not application on such transaction. This addition is, therefore, liable to be deleted. We, accordingly, set aside the Orders of the authorities below and delete the addition of Rs. 29,01,190/-. This ground of appeal of assessee is allowed. 8. Learned Counsel for the Assessee submitted that assessee is eligible for relief of 70% out of disallowances, in accordance with the Amendments brought to the Statute by the Finance Act, 2014, w.e.f. 01.04.2015, whereby disallowances was restricted to 30% from 100%. The amended provision of Section 40(a)(ia) reads as under : "(ia) [thirty percent of any sum payable to a resident], on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub-section (1) of section 139]. [Provided that where in respect of any such sum, tax 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, [thirty per cent of] such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er by directing the AO to confirm from the contractors, namely, M/s. Garvit Stonex M/s. Chanda Marbles and M/s. Nidhi Granites as to whether the said parties have deposited the tax or not and further or restrict the addition to 30% of Rs. 7,51,322/-. In our view, it will be tied of justice if the disallowance is only restricted to 30% of Rs. 7,51,322/-. Accordingly, the appeal of the assessee is partly allowed in the above said manner." 10. Following the above decision, we set aside the orders of the authorities below and direct the assessing officer to follow the order of ITAT, Jaipur Bench in the case of Shri Rajendra Yadav vs., ITO (supra), and in case of disallowance under section 40(a)(ia) of the Income Tax Act, 1961, the same should be restricted to 30% only as against 100% because the amended provision is curative in nature and have made to remove the undue hardships to assessee and accordingly should be applied retrospectively. 10.1. Learned Counsel for the Assessee further submitted that deductees have filed their ITR under section 139(1) and have shown the same amount as income, which have been offered to tax and have also paid the taxes thereon. All the documentary e....