2016 (8) TMI 252 - AT - Income Tax

TDS u/s 194C - non deduction of tds on freight paid - disallowance made u/s 40(a)(ia) - Held that - In view of amendment made to second proviso to section 40(a)(ia) by Finance Act, 2012, the disallowance should not be made by the AO if the payments made to payees have been assessed in their respective hands. Under these circumstances, respectively following the order of the Tribunal in assessee s own case for A.Y. 2007-08 as well as aforesaid order of Hon ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd 2015 (9) TMI 79 - DELHI HIGH COURT , we send this issue involved in A.Y. 2008-09 and 2009-10 also back to the file of the AO. The AO shall decide this issue in the light of the legal position as discussed above. The AO is directed to verify this fact after taking requisite guidance from the aforesaid judgments and decide this issue after giving adequate opportunity of hearing to the assessee. In case the need arises, the AO should use appropriate powers under the law to verify these facts directly from the payees and/or respective Assessing Officers of the payees. In case income of the payees are assessed and impugned sum has been included in the accounts of the payees, then no disallowance should be made u/s 40(a)(ia) in the hands of the assessee on account of non-deduction of tax at source. With these directions all appeals are treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for failure to deduct TDS under Section 194C on freight payments.
2. Retrospective applicability of the second proviso to Section 40(a)(ia).

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for failure to deduct TDS under Section 194C on freight payments:
The primary issue in the appeals is the disallowance made by the Assessing Officer (AO) under Section 40(a)(ia) due to the assessee's failure to deduct TDS under Section 194C on freight payments. The assessee argued that a similar issue had been previously decided in their favor for the assessment year 2007-08 by the Income Tax Appellate Tribunal (ITAT). The assessee requested that the matter be sent back to the AO to be re-evaluated in light of the tribunal's earlier decision and the Hon’ble Delhi High Court's judgment in the case of Ansal Land Mark Township (P) Ltd. The Revenue's representative, while relying on the judgment of the Hon’ble Kerala High Court in Prudential Logistics And Transports v. ITO, did not object to the matter being sent back to the AO for reconsideration.

The ITAT noted that the identical issue had been adjudicated in favor of the assessee in the previous year, where the tribunal had accepted the assessee's contention and deleted the disallowance. The tribunal referred to the relevant provisions of Section 40(a)(ia) and Section 201, emphasizing that if the payee had included the payment in their income tax return and paid the due taxes, the assessee should not be deemed in default.

2. Retrospective applicability of the second proviso to Section 40(a)(ia):
The tribunal discussed the retrospective applicability of the second proviso to Section 40(a)(ia), inserted by the Finance Act, 2012, effective from April 1, 2013. The assessee argued that this proviso, which states that disallowance should not be made if the payee has included the payment in their income tax return and paid the tax, should be applied retrospectively. The tribunal referenced various judicial pronouncements, including the decisions of the Pune Bench and Cochin Bench of the Tribunal, which had restored similar issues to the AO to examine the assessee's contention regarding the retrospective application of the proviso.

The tribunal also cited the Hon’ble Delhi High Court's judgment in the case of Ansal Land Mark Township (P) Ltd., which clarified that the second proviso to Section 40(a)(ia) is declaratory and curative in nature, having retrospective effect from April 1, 2005. The High Court held that as long as the payee had filed their return of income and paid the tax on the income, the assessee should not be treated as a person in default.

Conclusion:
The tribunal concluded that the AO should re-examine the issue in light of the legal position discussed, including the tribunal's previous order and the Delhi High Court's judgment. The AO was directed to verify whether the payees had included the payments in their income tax returns and paid the taxes. If so, no disallowance should be made under Section 40(a)(ia) for non-deduction of TDS. The appeals were allowed for statistical purposes, with instructions for the AO to provide adequate opportunity for the assessee to present their case and to verify the facts directly from the payees or their respective Assessing Officers if necessary.

Order Pronouncement:
The appeals filed by the assessee and revenue were partly allowed for statistical purposes, as per the directions discussed. The order was pronounced in the open court on June 24, 2016.