TaxTMI 
TaxTMI 
2017 (5) TMI 1737
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....#39;ble Tribunal, while dismissing the aforesaid grounds of appeal raised by the applicant, primarily relied on the decision of the Hon'ble Delhi High Court in the case of CIT v. Idea Cellular Limited 325 ITR 148 and concluded [2010] 189 Taxman 118 that the payments made by the applicant to the distributors was in the nature of 'commission' and therefore, tax was required to be deducted at source under section 194H of the Act. The said order of the Tribunal was recalled for adjudicating the alternate contentions raised without prejudice, regarding the applicability of provisions of section 40(a)(ia) of the Act projected vide ground Nos. 6.7 to 6.9 of the original memo of appeal. At the time of hearing of the recalled appeal, the following alternative contentions were accordingly raised by the applicant before the Hon'ble Tribunal: (a) Disallowance under section 40(a)(ia) of the Act was not at all warranted inasmuch as the applicant was under bona fide belief that tax was not deductible as source [contentions noted in para 6 of the order]; Without prejudice (b) Disallowance under section 40(a)(ia) of the Act should have, if at all ....
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....mbay High Court. Hon'ble Bombay High Court has also held so for the reason that there is no loss to the revenue as presumably the recipient of income has discharged its tax liability. Therefore respectfully following the decision of the Hon'ble Bombay High Court in CIT versus Kotak securities Limited (supra) we also hold that disallowance under section 40(a)(ia) cannot be made in this case in view of the old practice of not deductions tax at source which has been accepted by the revenue and existence of bona fide belief of the assessee for non-deductibility of tax at source on such payments. However, the above direction is subject to verification by the Ld. Assessing officer that recipient of the income has discharged their own tax liability. In view of this we set aside this ground of appeal to the file of the Ld. Assessing officer for verification that recipient of the income has discharged their tax liability and if found so to delete the addition accordingly........." (Emphasis Supplied) It is respectfully submitted that the Hon'ble Tribunal has, while following the decision of the Hon'ble Bombay High Court in the case of Kotak Securities (supra), in....
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....ssee solely on the ground of bona fide belief regarding non-deduction of tax at source out of the payment in question. Pertinently, the aforesaid decision of the High Court has subsequently been followed by various co-ordinate Benches of the Tribunal, wherein relief has been allowed only on the ground of bona fide belief without any further caveat/condition for verification of payment of taxes by the recipient of income. In view of the aforesaid, it is submitted that while accepting the decision of the Hon'ble Bombay High Court in Kotak Securities (supra) in principle, the direction by the Tribunal for restricting relief to the extent of payment of taxes by the recipient(s) is contrary to the said decision as also decision of various co-ordinate benches of the Tribunal, which clearly constitutes mistake apparent from record. The alternate proposition that if the payee had paid tax on income received from the applicant, there could be no disallowance under section 40(d)(ia) of the Act was raised vide contention (c) to the present appeal that amendments in the said section, being curative and procedural in nature, would apply retrospectively to the year under co....
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.... disjunctive reliefs vide separate paragraphs forming part of overall paragraph 15 of the appellate order, inadvertently directed in the first part of para 15 that the relief on account of bona fide belief was subject to verification that the payees had paid tax on their income, which was as pointed out earlier, even otherwise, not in consonance with the decision of the Hon'ble Bombay High Court accepted and relied upon by the Hon'ble Tribunal. In view of the aforesaid, it is respectfully prayed that paragraph 15 of the order dated 24.10.2016 may kindly be modified, by deleting the sentence beginning with the words "However the" and ending with the words "delete the addition accordingly". Contention referred in sub-point (ii) supra, namely, the disallowance should be restricted to 30% of the expenditure, though noted/recorded in para 8 has not been adjudicated in the order dated... Contention (b): It was submitted that disallowance under section 40(a)(ia) of the Act should have if at all been restricted to the amount remaining payable as on the last date of the previous year. The aforesaid contention, though noted/recorded in para 7 has n....
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....ayments without deduction of tax at source, is deductible in computation of assessee's income. However, as it involves factual verifications, we are not inclined to deal with the same, on merits, at this stage. We, therefore, deem it fit and proper to remit this issue to file of the Assessing Officer to adjudication de novo, by way of a speaking order, in accordance with the law and after giving a fair and reasonable opportunity of hearing to the assessed. The assessee is directed to make all such legal and factual submissions on this aspect, as he may deem appropriate, and the Assessing Officer shall adjudicate on the same by specifically dealing with the same by way of a speaking order. We direct so. 80. The additional ground of appeal, as set out above, is thus admitted in principle but remitted to the file of the Assessing Officer for adjudication on merits" (Emphasis Supplied) In the recalled order dated 24.10.2016, the Hon'ble Tribunal has not adjudicated the aforesaid additional ground on the erroneous premise that since relief had already been granted to the applicant in modified grounds of appeal Nos. 6.7 to 6.9 the issue raised in the addition....
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....igh Court in case of CIT v. Kotak Security Ltd. [2012] 340 ITR 33/20 taxmann.com 846 has held that disallowance u/s. 40(a)(ia) of the Act was not at all warranted as the applicant was under bona fide belief that tax was not deductible at source. The Hon'ble Bombay High Court in para No. 31 has stated that if both the parties for nearly a decade proceeded on the footing that section 194J of the Act is not attracted then in the assessment year in question no fault can be found with the assessee in not deducting the tax at source u/s. 194J of the Act and consequently no action could be taken u/s. 40(a)(ia) of the Act. The similar facts are also in the case of the assessee as it is undertaking similar transactions of sales of prepaid sim cards since 1995-96 without deducting tax at source and revenue also has not questioned non-deduction of tax at source by the assessee. The first time the disallowance has been made in the impugned assessment year. In view of this, it is contended that assessee was under a bona fide belief for almost more than a decade that provisions of tax deduction at source do not apply to the transaction of sale of prepaid sim cards. The revenue has not contro....
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....is argument of the appellant is also set aside to the file of the Ld. Assessing Officer with a direction to give the benefit of the above proviso to the appellant in case the 1st contention of bona fide belief of the assessee does not survive on any amount." 5. The second contention of the assessee was with respect to alternative plea that disallowance, if any, for non-deduction of tax should be restricted to 30% of the expenditure. The claim of the assessee was that Finance Act, 2014 has amended the provisions of section 40(a)(ia) to restrict the disallowance for non-deduction of tax at source to the extent of 30% of the expenditure. Contention of the assessee has been recorded at page Nos. 28 to 31 of the order. We have carefully considered the rival contentions. Prior to amendment the section reads as under:-- "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 carrying out any work)" The Finance (No. 2) Act, 2014, w.e.f. 1-4-2015 substituted the above....
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.... are inseparable. For this reason we are guided by the decision of Honourable supreme court in case of CIT v. Vatika Township (P.) Ltd. [2014] 367 ITR 466/227 Taxman 121/49 taxmann.com 249 (SC) where in para Nos. 32-34 it has been held as under:-- "32. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision in L' Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [1994] 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a l....
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....llowance coupled with the increase in scope of the disallowance is not retrospective in nature, and 7. The next argument of the assessee was that disallowance u/s. 40(a)(ia) should have if at all been restricted to the amount remaining payable at on the last date of the previous year. The argument of the assessee is recorded at para No. 7 at page No. 10 to 16 of the order. We have carefully considered the rival contentions, however we have come across the recent decision of the Hon'ble Supreme Court in case of M/s. Palam Gas Services v. CIT in Civil Appeal No. 5512/2017, dated 03.05.2017, wherein Hon'ble Supreme Court has held that disallowance u/s. 40(a)(ia) cannot be restricted to amount payable at the end of the year only but also applies to the amount paid during the year also. In view of this, above argument of the assessee is rejected. 8. The next argument of the assessee was that Assessing Officer could not have disallowed the amount to the extent of no order u/s. 201 passed treating the assessee to be 'assessee in default'. The relevant arguments of the assessee are recorded at para No. 9 of the order. The assessee has relied upon the decision of coord....
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....efore, there was no amount on which tax was deductible. Therefore, section 40(a)(ia) cannot come into play. The machinery provisions cannot operate independently and before the computation provisions contained in section 40(a)(ia) can come into the play, the effect of applicability of machinery provision has to be considered. 44. Now, if we accept the submissions advanced by Ld. CIT (DR) that the provisions of section 40(a)(ia) and provisions of section 201 operate in two independent fields then it would lead to contradictory findings by Tribunal for the same assessment year in respect of the same subject matter and issue. Had there been no decision of Tribunal in assessee's own case for the same assessment year, then in view of the decision of Hon'ble Jurisdictional High Court in the case of Idea Cellular Ltd. (supra) deduction could not be allowed to assessee. However, in view of the decision of Hon'ble Supreme Court, keeping in view the integrated scheme of the Act, we are of the opinion that Non-deduction of tax under Chapter XVIIB leads to consequences contemplated u/s. 201 and, therefore, Section 40(a)(ia) and provisions contained in chapter XVII-B consti....
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.... Finance Act, 2012 also visualizes a situation that when the assessee is not 'deemed to be in default' u/s. 201 of the Act, and if the payee has filed the return, the disallowance u/s. 40(a)(ia) shall not be made. In view of this we do not agree with the contention of the assessee that unless there is an order u/s. 201 of the Act the impugned amount cannot disallowed u/s. 40(a)(ia) of the Act. 10. The next contention of the assessee is that additional ground of appeal admitted has not been adjudicated. The additional ground raised by the assessee is as under:-- "That in the facts and circumstances of the case and in law, the assessee ought to be allowed deduction of liability borne by the assessee in pursuance of order(s) passed under section 201(1) of the Income-tax Act, 1961. ('the Act)" 11. The assessee has submitted that similar additional ground was admitted and adjudicated by coordinate bench for A.Y. 2008-09 in assessee's own case in ITA No. 5816/Del/2012, dated 11.03.2014. We have carefully perused the above decision which is as under:-- "78. The assessee has moved an application for admission of additional ground which is reproduc....
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....e larger business interest, strictly in the capacity as a trader, in order to avoid any forceful/coercive steps by the Department. In the aforesaid circumstances, the applicant should be held entitled to deduction of the demands crystallized and/or paid during the year under consideration pursuant to orders passed under section 201 of the Act. In view of the aforesaid, it is respectfully prayed, that the amount of tax liability accrued/borne by the applicant in pursuance of the orders passed under section 201(1), should be directed to be considered for allowance as business deduction under sections 28/37 of the Act. Prayer: The aforesaid issue of allowability of payment of tax liability accrued/borne in pursuance of orders passed under section 201(1) of the Act is, it is submitted, purely a legal issue, and facts in relation to the same are already available on record. The additional ground of appeal is being raised on the applicant being recently advised of the correct legal position and the omission to raise the aforesaid additional ground of appeal earlier is neither willful nor deliberate. The additional ground of appeal calls for being admitted and a....