TaxTMI 
TaxTMI 
TaxTMI 
2016 (6) TMI 1428
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....4/- under section 14A of the Act. 3. Brief facts of the case are that the assessee is engaged in the business of trading in shares and financing. The assessee has not filed return of income for the assessment year 2010-11 within the due dates as prescribed under Income Tax Act. A survey operation under section 133A of the Income Tax Act, 1961 ["Act" in short] was conducted on 24.01.2013 in assessee's case. The outcome of the survey proceedings was not recorded in the assessment order after conducting the survey under section 133A of the Act. Since the assessee has not filed any return, the Assessing Officer issued notice under section 148 of the Act dated 25.01.2013 to file the return for the relevant assessment year. Accordingly, the assessee has filed its return on 25.02.2013 by declaring total income of Rs..17,41,68,463/-. Subsequently, notice under section 143(2) dated 20.05.2013 was served on the assessee. After considering the details filed by the AR of the assessee, the Assessing Officer has observed that the assessee has earned exempt dividend income of Rs..18,960/- during the financial year 2009-10 relevant to the assessment year 2010-11. However, the assessee has not adm....
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....erence to the accounts and only if the assessee's explanation was unsatisfactory, can the AO proceed further-In the present case, firstly it was not disclosed by the AO that the appellant/assessee's claim for attributing Rs. 2,97,440 as a disallowance u/s 14A had to be rejected-Secondly, there appears to have been no scrutiny of the accounts by the AO an aspect which was completely unnoticed by the CIT(A) and the ITAT-Thirdly, an important anomaly which instant court cannot be unmindful of was that whereas the entire tax exempt income was Rs. 48,90,000, the disallowance ultimately directed works out to nearly 110 percent of that sum, that is Rs. 52,56,197- By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income was to be disallowed-The window for disallowance was indicated in Section 14A, and was only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income"-This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case-ITAT as well as the AO and CIT(A) had escaped the mandate of Section 14A(2)-Impugned order....
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.... ld. CIT(A) has erred in directing the Assessing Office to allow the claim of expenses of Rs..31 crores as deduction. The assessee is stated to have filed its return of income by disallowing a sum of Rs..31.00 crores being the interest payable to UB Ltd., which has been debited to the profit and loss account on which TDS was not deducted and filed the computation of income along with its return belatedly on 09.10.2012. Thereafter, in response to the notice dated 25.01.2013 issued under section 148 of the Act, the assessee filed another return of income on 25.02.2013. Before the ld. CIT(A), the assessee has submitted that during the assessment proceedings, the assessee, vide its letter dated 04.09.2013, requested the Assessing Officer to allow the claim of deduction under section 40(a)(ia) of the Act. After considering the submissions of the assessee and by considering various case law, the ld. CIT(A) directed the Assessing Officer to allow the claim of expense of Rs..31.00 crores as deduction under section 40(a)(ia) of the Act. 6.1 Aggrieved, the Revenue is in appeal before the Tribunal. 6.2 We have heard both sides, perused the materials on record and gone through the orders of ....
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.... of income on 30.09.2010, it has to be deemed that the assessee remitted the TDS as on 30.09.2010. 6.4 With regard to retrospective applicability of second proviso to section 40(a)(ia) of the Act, though amended by Finance Act, 2012 with effect from 01.04.2013, the Agra Bench of the Tribunal in the case of Rajeev Kumar Agarwal v. Addl. CIT 45 Taxmann.com 555 (Agra - Trib) has held as under: "9. On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different t....
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....gly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004." 6.5 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, we are of the considered view that section 40(a)(ia) of the Act 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 treated as an "intended consequence" of section 40(a)(ia) of the Act. Moreover, the above decision of the Tribunal has not been reversed by any High Court, it can be safely interpret that the second proviso to section 40(a)(ia) of the Act shall effect....