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2016 (9) TMI 389 - AT - Income TaxDisallowances u/Sec 40(a)(ia) - retrospectivity - Held that - The 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. 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 purposes.
Issues Involved:
1. Disallowance of ?25,31,998/- under Section 40(a)(ia) for payments to M/s. Gordon Woodroffe Logistic Ltd. 2. Disallowance of ?38,12,856/- under Section 40(a)(ia) for payments to M/s. The Shipping Corporation of India Ltd. 3. Applicability of CBDT Circular No. 723 dated 19.09.1995. 4. Bonafide belief of the assessee regarding non-applicability of TDS provisions. 5. Dismissal of appeal on technical grounds rather than merit. Issue-wise Detailed Analysis: 1. Disallowance of ?25,31,998/- under Section 40(a)(ia) for payments to M/s. Gordon Woodroffe Logistic Ltd.: The assessee made payments to M/s. Gordon Woodroffe Logistic Ltd. without deducting TDS. The Assessing Officer (AO) disallowed the amount under Section 40(a)(ia) of the Income Tax Act, 1961, as the assessee failed to provide any certificate supporting the claim for exemption under Section 194C. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this disallowance. 2. Disallowance of ?38,12,856/- under Section 40(a)(ia) for payments to M/s. The Shipping Corporation of India Ltd.: Similar to the first issue, the assessee made payments to M/s. The Shipping Corporation of India Ltd. without deducting TDS. The AO disallowed this amount under Section 40(a)(ia) due to the absence of a certificate supporting the claim for exemption under Section 194C. The CIT(A) also confirmed this disallowance. 3. Applicability of CBDT Circular No. 723 dated 19.09.1995: The assessee argued that the payments made to shipping agents of non-resident ship owners for the carriage of goods are exempt from TDS under CBDT Circular No. 723 dated 19.09.1995. However, the CIT(A) did not consider this circular and confirmed the disallowances. 4. Bonafide belief of the assessee regarding non-applicability of TDS provisions: The assessee contended that it was under a bonafide belief that the payments made were not subject to TDS provisions. Despite this argument, the CIT(A) upheld the disallowances made by the AO under Section 40(a)(ia). 5. Dismissal of appeal on technical grounds rather than merit: The assessee argued that the CIT(A) dismissed the appeal on technical grounds, relying solely on the judgment of the Hon’ble Calcutta High Court in the case of CIT vs. Md. Jakir Hossain Mondal. The CIT(A) did not consider the merits of the case, leading to the confirmation of the disallowances. Tribunal’s Analysis and Decision: The Tribunal considered the amendments to Section 40(a)(ia) by the Finance Act, 2012, which inserted a second proviso effective from 1-4-2013. This proviso states that if the payees have declared the receipt from the assessee in their return of income, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing the return of income by the resident payee. The Tribunal referred to the ITAT Kolkata's decision in the case of Ramakrishna Vedanta Math v. Income-tax Officer, which emphasized that the AO must verify whether the recipients have paid taxes on the income received from the assessee before invoking Section 201(1). The Tribunal also cited the ITAT Kolkata's decision in Vas Electronics Vs. ACIT, which directed the AO to verify the inclusion of receipts in the recipients' returns of income and the payment of taxes. The Tribunal concluded that the CIT(A) should have directed the AO to verify whether the recipients included the receipts in their returns and paid taxes. If the recipients included the receipts and paid taxes, no disallowance under Section 40(a)(ia) should be made. The Tribunal set aside the order of the CIT(A) and remanded the issue to the AO for verification. Conclusion: The appeal by the assessee was allowed for statistical purposes. The AO was directed to verify whether the recipients included the receipts in their returns of income and paid taxes. If the recipients did so, no disallowance under Section 40(a)(ia) should be made. If the recipients did not cooperate, the AO should use statutory powers to obtain the necessary information.
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