TaxTMI 
TaxTMI 
2021 (11) TMI 670
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.... and the same was not remitted to the Government account. Assessee was required to explain as to why interest expenses should not be disallowed u/s. 40(a)(ia) of the Act. Even though assessee agreed for disallowance before the Assessing Officer but still he agitated before the Ld.CIT(A). Before the Ld.CIT(A) assessee contended as under: - "In the matter we submit that the addition made to the income of your Appellant by way of disallowance of interest expenses u/s.40(a)(ia) is incorrect and invalid for the following amongst other reasons: - a) We submit that your Appellant and its group was passing through a very bad phase of liquidity crunch and therefore could not make the payment of TDS within the due date of filing of return u/s.139. The scheme of section 40(a)(ia) was aimed at ensuring that expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure had remained untaxed due to tax withholding lapses by the assessee, that section 40(a)(ia) could not be seen as intended to be a penal provision to punish the lapes of non-deduction of tax at source from payments for expenditure, particularly when the re....
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....ame up for hearing on 05.03.2021 one of the Directors of the Assessee Company Smt. Janvi Pamnani appeared and filed written submissions. 5. Ld. DR vehemently supported the orders of the authorities below. 6. We have heard the rival submissions, perused the orders of the authorities below and the written submissions filed before us. Before the Ld.CIT(A) as well as before us it was contended by the assessee that provisions of section 40(a)(ia) are not applicable in its case as the interest amount paid by the assessee was already accounted for by the payee in its return filed for the relevant assessment year and also paid the requisite taxes. It was further contended in the written submissions that the Ld.CIT(A) completely ignored the evidences furnished by the assessee in respect of interest income shown by the payee in its Books of Accounts and payment of taxes thereon. It was further contended that second provision of section 40 is retrospective and applicable from 01.04.2005 and therefore since the payee has considered the amounts paid by the assessee as part of its income and filed return u/s. 139(1) of the Act and paid taxes no disallowance is warranted u/s. 40(a)(ia) of the A....
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.... 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 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 insertion of the second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from April 1, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. The first proviso to section 201(1) of the Act has been inserted to benefit the assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident, such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under section 139 . What is common to both provisos to sections 40(a)(ia) and 201(1) of the Act is that as long as the payee or resident has filed its return of income disclosing the payment received by and in ....
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....it provides that where an assessee fails to deduct whole or any part of the tax at source but is not deemed to be an assessee in default under the first proviso to Section 201(1), then for the purpose of clause 40(a)(ia), 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 payee. The Revenue would content that the benefit of this proviso would be available to the assessee only prospectively w.e.f. 1.4.2013. Various Courts, however, have seen this proviso as beneficial to the assessee and curative in nature. The leading judgment on this point was of the Division Bench of Delhi Court in the case of CIT Vs. Ansal Land Mark Township P Ltd. The Court held that Section 40(a)(ia) is not a penalty and insertion of second proviso is declaratory and curative in nature and would have retrospective effect form 1.4.2005 i.e the date from the main proviso 40(a)(ia) itself was inserted. Several High Courts have adopted the same lines. We may also note that the Supreme Court in the case of Hindustan Coca Cola Beverages P Ltd Vs. CIT2 even in absence of second proviso to Section 40(a)(ia) had noticed that the payee had ....
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.... the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax." 10. The ratio of the above decisions is squarely applicable to the facts of the assessee's case. We find that the assessee before the Ld.CIT(A....