2016 (2) TMI 1005 - AT - Income Tax

Addition for trade outstanding u/s 68 - Verification of the sundry creditors - Held that - Assessing Officer is of the view that the assessee has tried to cover up unexplainable credits by splitting them under 38 names under the imprest account. However, the Ld. AR has submitted that all the entries appearing therein can be explained and correlated by the assessee, if given a chance to do so. Therefore, in the interest of justice, we restore the matter to the file of the Assessing Officer for fresh adjudication. Disallowance u/s 40(a)(ia) - retrospective amendment - Held that - We find that the Agra Bench of the ITAT in the case of Rajiv Kumar Agrawal (2014 (6) TMI 79 - ITAT AGRA) wherein held a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced - it cannot subscribe to the view that it could have been an intended consequence to punish the assessees for non-deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax - That will be going much beyond the obvious intention of the section - 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 thus, the matter is remitted back to the AO for fresh adjudication

Summary

Issues Involved:
1. Error of Jurisdiction.
2. Addition for trade outstanding u/s 68 of the Act.
3. Disallowance u/s 40(a)(ia) of the Act for Rs. 727,215.

Issue-wise Detailed Analysis:

1. Error of Jurisdiction:
The appellant initially raised the issue that the assessment was initiated by a non-jurisdictional officer, which could invalidate the proceedings. However, this ground was not pressed by the appellant during the hearing, and hence, it was dismissed as not pressed.

2. Addition for Trade Outstanding u/s 68 of the Act:
The Assessing Officer (AO) added Rs. 10,39,891/- to the income of the assessee on account of unexplained cash credits, as the assessee failed to furnish copies of accounts of any creditors. The AO believed that neither the identity nor the creditworthiness of the creditors could be established. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, noting that the assessee could not provide confirmed copies of accounts and that many petty creditors were outstanding for long periods without explanation.

During the appeal, the assessee argued that all transactions were managed through an imprest account by the site in charge, and the group credit balance was Rs. 9,84,554.25. The assessee submitted a group summary to support this claim. The tribunal found that the AO suspected the assessee of covering up unexplained credits by splitting them into multiple entries. However, the tribunal decided to restore the matter to the AO for fresh adjudication, allowing the assessee to explain and correlate the entries.

3. Disallowance u/s 40(a)(ia) of the Act for Rs. 727,215:
The AO disallowed Rs. 7,27,815/- under section 40(a)(ia) of the Income Tax Act, 1961, as the assessee failed to fulfill TDS requirements on certain payments. The CIT(A) upheld this disallowance, rejecting the assessee's argument that section 40(a)(ia) applied only to amounts payable and not amounts actually paid.

The assessee relied on the Agra Bench of the ITAT's decision in I.T.A. No. 337/Agra/2013, which held that the second proviso to section 40(a)(ia) is declaratory and curative, with retrospective effect from 01.04.2005. The tribunal agreed with this view, noting that the provision should be interpreted in a fair, just, and equitable manner. The tribunal emphasized that section 40(a)(ia) aims to ensure that income embedded in payments is taxed, not to penalize for non-deduction of TDS if the recipient has already paid taxes on the income.

The tribunal remitted the matter to the AO for fresh adjudication, directing the AO to verify whether the payee filed their return of income and paid taxes within the stipulated time. If the payee had done so, no disallowance should be made.

Conclusion:
The appeal was partly allowed for statistical purposes, with the tribunal restoring the matter to the AO for fresh adjudication on both the issues of unexplained cash credits and TDS disallowance, ensuring a fair opportunity for the assessee to present their case. The tribunal's decision emphasized the importance of a fair and just interpretation of tax provisions, aligning with legislative intent and judicial precedents.