2015 (3) TMI 803 - AT - Income Tax

Addition u/s 40(a)(ia) - non deduction of tds on interest paid to Bajaj Auto Finance Ltd. and legal charges paid - amounts which are actually paid and are not outstanding as on the year end - Held that - As at the time of hearing, assessee made a new legal argument that second proviso to section 40(a)(ia) of the Act was inserted by Finance Act, 2012 w.e.f. 01.04.2013, whereby it is provided that the disallowance u/s 40(a)(ia) of the Act would not be made if the assessee is not deemed to be an assessee in default under the first proviso to section 201(1) of the Act. The stand of the assessee is that the said proviso should be understood as retrospective in nature as it has been introduced to eliminate unintended consequences which may cause undue hardships to the tax payers. It was pointed out that in similar circumstances, the Pune Bench of the Tribunal in the case of ITO vs. M/s Gaurimal Mahajan & Sons 2015 (3) TMI 770 - ITAT PUNE following the decision of Antony D. Mundackal vs. ACIT 2013 (12) TMI 67 - ITAT COCHIN has restored the matter back to the file of the Assessing Officer. In the precedent Gaurimal Mahajan(supra), the Tribunal noted that such a plea was raised for the first time before the Tribunal and the correctness or otherwise of the contentions raised was not examined by the lower authorities. Therefore, the Tribunal restored the matter back to the file of the Assessing Officer for examination afresh, following the decision of the Cochin Bench of the Tribunal in the case of Antony D. Mundackal (supra) in a similar circumstance. The Ld. Representative submitted that the matter be restored back to the file of the Assessing Officer in the light of the order of the Tribunal dated 06.01.2014 (supra). The aforesaid plea of the respondent-assessee has not been seriously opposed by the Ld. Departmental Representative appearing for the Revenue. Following the aforesaid precedent, we therefore deem it fit and proper to restore the matter back to the file of the Assessing Officer who shall consider the plea of the assessee based on the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act w.e.f. 01.04.2013 in the light of the directions of cases quoted. - Decided in favour of assessee for statistical purposes

Summary

Issues Involved:
1. Justification of the CIT(A)'s deletion of the addition of Rs. 16,82,727/- under Section 40(a)(ia) of the Income-tax Act, 1961.
2. Applicability of Section 40(a)(ia) to amounts that are paid versus those that are payable at the end of the year.

Issue-wise Detailed Analysis:

1. Justification of the CIT(A)'s Deletion of the Addition:
The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 16,82,727/- made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income-tax Act, 1961. The AO had disallowed this amount, which included Rs. 16,42,152/- in interest paid to Bajaj Auto Finance Ltd. and Rs. 40,120/- in legal charges, due to the assessee's failure to deduct tax at source. The CIT(A) set aside this disallowance, relying on the Special Bench decision in the case of M/s Merilyn Shipping & Transports vs. Addl. CIT, which held that Section 40(a)(ia) applies only to amounts payable at the end of the year, not to amounts already paid. The Tribunal noted that a similar issue had been addressed by its Co-ordinate Bench in the case of Vinay Ashwinikumar Joneja Vs. ITO, which held that Section 40(a)(ia) applies to amounts actually paid during the year, not just those outstanding at year-end.

2. Applicability of Section 40(a)(ia) to Paid vs. Payable Amounts:
The Tribunal examined the applicability of Section 40(a)(ia) in light of various judicial precedents. It referenced the Hon'ble Calcutta High Court's decision in CIT Vs. Crescent Export Syndicate and the Hon'ble Gujarat High Court's decision in CIT Vs. Sikandarkhan N. Tunvar, both of which held that Section 40(a)(ia) applies to all amounts on which tax is deductible, whether paid or payable. The Tribunal noted that the Special Bench decision in Merilyn Shipping was reversed by the Calcutta High Court, which clarified that the term "payable" in Section 40(a)(ia) includes both paid and payable amounts. This interpretation aligns with the legislative intent to ensure compliance with TDS provisions and prevent tax evasion.

Separate Judgment Analysis:
The Tribunal also considered a new legal argument raised by the respondent-assessee regarding the second proviso to Section 40(a)(ia) inserted by the Finance Act, 2012, effective from 01.04.2013. This proviso states that disallowance under Section 40(a)(ia) would not be made if the assessee is not deemed to be an assessee in default under the first proviso to Section 201(1). The Tribunal, following its precedent in the case of ITO vs. M/s Gaurimal Mahajan & Sons, restored the matter to the AO for fresh examination of this argument.

Conclusion:
The Tribunal reversed the CIT(A)'s decision and upheld the AO's disallowance under Section 40(a)(ia), aligning with the judicial precedents that interpret "payable" to include both paid and payable amounts. However, it restored the matter to the AO to consider the applicability of the second proviso to Section 40(a)(ia) inserted by the Finance Act, 2012, providing the assessee an opportunity to present their case. The appeal was treated as allowed for statistical purposes.