2015 (12) TMI 1839 - AT - Income Tax

Additions u/s 40(a)(ia) - Whether disallowances on the basis of a deeming fiction, thereby causing great hardships to various tax payers even in some genuine cases? - HELD THAT - Assessee should be provided with full opportunity to explain its case, before final tax liability is determined against it applying such deeming provisions. It is noted that second proviso was inserted to section 40(a)(ia) to mitigate hardships of the tax payers. The said proviso has been inserted to avoid the unintended consequences created by section 40(a)(ia). Under these circumstances, its benefit should be given to all the assessee irrespective to the fact that at what stage their cases are pending. It is further worth noting that in the case of CIT vs. Ansal Land Mark Township (P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT has discussed this entire issue at length, and held that second proviso is declaratory and curative and has retrospective effect from 1st April 2005. In view of this major legal development, we find that the assessee deserves another opportunity. We send this issue back to the file of AO with the direction that he shall exercise his requisite powers under the law to call for requisite information from the concerned payees. The assessee shall also extend full cooperation to the AO by furnishing all the documents and details in the form of names and address, PAN nos. place of assessment and confirmations etc., to the extent as feasible for the assessee. Needless to add, the AO shall give adequate opportunity of hearing to the assessee. Thus, these grounds are allowed for statistical purposes. Prior period expenses - HELD THAT - We find that the claim of the assessee should not have been denied in this manner by the lower authorities. We send this issue back to the file of the AO to consider this claim after verification of requisite facts taking cognizance of the revised computation filed by the assessee during the course of assessment proceedings. Thus, this ground is allowed for statistical purposes. Claim on account of contribution to PF and ESIC - HELD THAT - As already held that the claim has been rightly allowed by the CIT(A), therefore, following our order as has been given in the asessee s appeal, we uphold the order of Ld. CIT(A) on this issue, rejecting the grounds raised by the Revenue.

Summary

Issues Involved:

1. Disallowance under Section 40(a)(ia) for non-deduction of TDS.
2. Deduction of prior period expenses.
3. Deduction of PF and ESIC contributions.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:

The assessee challenged the confirmation of additions made by the AO under Section 40(a)(ia) for non-deduction of TDS on various payments. The assessee acknowledged the failure to deduct TDS but argued that the payments were included in the payees' taxable income, and taxes were paid. The Tribunal referred to the judgment of the Hon'ble Delhi High Court in CIT vs. Ansal Land Mark Township (P) Ltd., which held that the second proviso to Section 40(a)(ia) is declaratory and curative, having retrospective effect from 1st April 2005. The Tribunal remanded the issue back to the AO to verify if the payees had included the income in their returns and paid due taxes, directing the AO to use his powers to obtain requisite information and provide the assessee with an opportunity to present supporting documents. This ground was allowed for statistical purposes.

2. Deduction of Prior Period Expenses:

The assessee claimed a deduction for expenses of Rs. 18,41,716/- disallowed in A.Y. 2010-11 as prior period expenses. The AO rejected this claim, and the CIT(A) upheld the AO's decision citing the Supreme Court judgment in Goetze India Ltd. However, the Tribunal noted that the CIT(A) had allowed similar claims for PF and ESIC contributions made in a revised computation during assessment proceedings, referencing the CBDT Circular No. 14 (XL-35) and various judicial pronouncements. The Tribunal found that the legitimate claim of the assessee should not have been denied and remanded the issue back to the AO for verification, directing the AO to consider the revised computation filed by the assessee. This ground was allowed for statistical purposes.

3. Deduction of PF and ESIC Contributions:

The Revenue challenged the CIT(A)'s decision to allow the assessee's claim for PF and ESIC contributions amounting to Rs. 14,32,481/-. The Tribunal upheld the CIT(A)'s decision, referencing the detailed discussion and reliance on the CBDT Circular No. 14 (XL-35) and various judicial precedents. The Tribunal reiterated that the legitimate claim of the assessee should be granted, rejecting the Revenue's grounds. Consequently, the Revenue's appeal was dismissed.

Additional Notes:

- The Tribunal dealt with the assessee's appeal for A.Y. 2010-11, which involved a similar issue of disallowance under Section 40(a)(ia) for non-deduction of TDS on interest paid to NBFCs. The Tribunal remanded this issue back to the AO with the same directions as given for A.Y. 2009-10.
- General grounds raised by the assessee were dismissed.

Conclusion:

The assessee's appeals were partly allowed, and the Revenue's appeal was dismissed. The Tribunal emphasized the need for verification and the application of legal provisions to ensure that legitimate claims are not denied. The order was pronounced in the open court on 18.12.2015.