TaxTMI 
TaxTMI 
2023 (11) TMI 758
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.... to verify whether the conditions provided in the proviso appended to Section 201(1) of the Income-tax Act, 1961 [in short, "the Act"] were fulfilled. This direction was issued concerning the fact that in the preceding AY i.e., AY 2007-08, a similar issue had arisen. 4.2 The record shows that no adverse finding was returned by the AO on whether the conditions prescribed in the first proviso to Section 201(1) of the Act stood fulfilled. For convenience, relevant observations made in this behalf by the Commissioner of Income Tax(Appeals) [CIT(A)], in the order dated 18.09.2020, are set forth hereafter: "4.9 I have considered the submissions of the appellant and considering the above documents and favorable orders of Hon'ble ITAT, Delhi and High Court of Delhi in appellant's own case (supra),it is being held that the [sic...that the] observations/findings of the Assessing Officer in Para 6 to 8 of the assessment order were beyond the scope of powers of the Assessing Officer in the set aside proceedings, where specific directions were given by the Hon'ble ITAT, Delhi. Further in absence of any adverse findings of the AO on the issue of compliance to the provisio....
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....iven retrospective effect. 11. Although the appeal preferred qua Ansal Land Mark Township Pvt. Ltd. case was dismissed as withdrawn by the Supreme Court, on the ground of low tax effect, the rationale provided by the coordinate bench of this court finds resonance with us. 12. Before adverting to the Ansal Land Mark decision, it would be useful to extract the relevant provisions of law, beginning with the second proviso to Section 40(a)(ia): "Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVIIB on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 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 payee referred to in the said proviso." [Emphasis is ours] 12.1 It is required to be noted that the second proviso was inserted in the statute via the Finance Act, 2012, albeit with effect from 01.04.2013. 13. Likewise, it would also be relevant to refer to the first proviso to section 2....
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.... section 201, the court in the Ansal Land Mark Township Pvt. Ltd. made the following observations: "8. It is seen that the issue in these AYs arises in the context of the disallowance by the Assessing Officer of the payment made by the Respondent Assessee to Ansal Properties and Infrastructure Ltd. ('APIL') which payment, according to the Revenue, ought to have been made only after deducting tax at source under Section 194J of the Act. Before the ITAT, it was urged by the Assessee that in view of the insertion of the second proviso to Section 40(a) (ia) of the Act, the payment made could not have been disallowed. Reliance was placed on the decision of the Agra Bench of ITAT in ITA No. 337/Agra/2013 (Rajiv Kumar Agarwal v. ACIT) in which it was held that the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and should be given retrospective effect from 1st April 2005. 9. It is seen that the second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions ....
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....o both the provisos to Section 40 (a) (ia) and Section 210 (1) [sic...201(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. 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra), the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: "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 motivat....