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2016 (5) TMI 755 - AT - Income TaxDisallowance u/s 40(a)(ia) - retrospectivity - Held that - Hon ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (I) Pvt.Ltd., 2015 (9) TMI 79 - DELHI HIGH COURT has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005. Once it is held that the Assessee is entitled to the benefit of 2nd proviso to Sec.40(a)(ia) of the Act, the CIT(A) ought to have directed the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act ought to have been sustained by the CIT(A). The CIT(A) ought to have also directed the AO that in case the recipient parties are not cooperating in providing details, the AO should call for the information u/s. 133(6) or 131 of the Act, for verification of the same. In this regard we also find that the Assessee has furnished all the details of assessment particulars of the recipients of payment from the Assessee. The AO therefore should not have any difficulty in making the required verification. We therefore set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the disallowance u/s.40(a)(ia) of the Act and remand the issue to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not cooperating in providing details, the AO should be directed to call for the information u/s. 133(6) or 131 of the Act, for verification of the same. - Decided in favour of assessee for statistical purpose.
Issues Involved:
1. Justification of CIT(A) in sustaining the addition made by the AO under Section 40(a)(ia) of the Income Tax Act, 1961. 2. Verification of whether the payees included the receipts in their returns of income and paid taxes on the same. 3. Application of the second proviso to Section 40(a)(ia) retrospectively. Detailed Analysis: 1. Justification of CIT(A) in Sustaining the Addition: The primary issue in this appeal is whether the CIT(A) was justified in sustaining the addition of ?1,81,96,525 made by the AO under Section 40(a)(ia) of the Income Tax Act, 1961. The Assessee, a partnership firm engaged in civil contracts, filed its return of income for AY 2012-13 declaring a total income of ?14,00,570. The AO, in the assessment order, determined the total income at ?2,17,39,410, making additions on account of disallowance under Section 40(a)(ia) amounting to ?1,99,30,315 and interest under Section 244A amounting to ?4,08,524. 2. Verification of Receipts by Payees: The Assessee argued that the AO should verify if the payees had declared the receipts in their returns of income. The Assessee cited the second proviso to Section 40(a)(ia) introduced by the Finance Act, 2012, which states that if the payees have filed their returns showing the receipts, it shall be deemed that the Assessee has deducted and paid the tax. The Assessee managed to collect Form 26A from three parties initially and later from six parties, covering payments of ?1,14,92,300. However, for the remaining payments of ?84,38,015, the Assessee could not collect Form 26A due to non-cooperation from the payees. 3. Application of the Second Proviso Retrospectively: The CIT(A) accepted the Assessee's contention that the second proviso to Section 40(a)(ia) is curative and retrospective. However, the CIT(A) restricted the disallowance to ?1,81,96,525 as the Assessee had not provided Form 26A for all parties. The Assessee argued that the AO and first appellate authorities have statutory powers under Sections 133(6) and 131 to obtain the necessary information from the payees. The ITAT, in the case of Ramakrishna Vedanta Math v. Income-tax Officer, held that the AO should first ascertain the facts about the payment of taxes directly from the recipients before invoking Section 201(1). The ITAT Kolkata in Vas Electronics Vs. ACIT also held that the AO should verify whether the recipients included the income in their returns and paid taxes. The Assessee requested that the disallowance be set aside and remanded to the AO for verification. The learned DR argued that the benefit of the second proviso should not be allowed as the TDS was not paid on or before the due date for filing the return under Section 139(1). Conclusion: The ITAT concluded that the CIT(A) should have directed the AO to verify whether the recipients included the receipts in their returns and paid taxes. The AO should use statutory powers to obtain information if the payees do not cooperate. The order of the CIT(A) was set aside, and the issue was remanded to the AO for verification. The appeal was allowed for statistical purposes, and the stay application was dismissed as infructuous.
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