2020 (7) TMI 72 - AT - Income Tax

Addition u/s 40(a)(ia) - default under the first proviso of section 201(1) - Scope of amendment - HELD THAT - We find that various submissions were made by the assessee before CIT(A) regarding section 201 amended by Finance Act, 2012. Reliance was also placed on the Tribunal order rendered in the case of Bharti Shipyard Ltd., Vs. DCIT 2011 (9) TMI 258 - ITAT MUMBAI wherein it was held that this amendment is retrospective. As per the relevant paras reproduced from the order of CIT(A) as above, it is seen that there is no discussion or decision about these arguments made by the assessee in the written submissions filed by the assessee before CIT(A). Hence, we feel it proper to set aside the order of CIT(A) in both these cases and restore this matter back to the file of AO in both the cases for a fresh decision - Appeals of the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of the CIT(A)'s order.
2. Applicability of Section 40(a)(ia) regarding non-deduction of tax at source.
3. Consideration of submissions and evidence provided by the assessee.
4. Retrospective application of the amendment to Section 201 by the Finance Act, 2012.

Issue-wise Detailed Analysis:

1. Validity of the CIT(A)'s Order:
The assessee contended that the CIT(A)'s order was "bad and unsustainable in the eye of law" as it was passed without properly understanding the facts involved. The Tribunal noted that the CIT(A) failed to consider the detailed written submissions provided by the assessee, which included arguments regarding the amendment to Section 201 of the Income Tax Act, 1961. The CIT(A) did not address these arguments in their order, leading to the conclusion that the order lacked proper consideration of the facts and submissions presented.

2. Applicability of Section 40(a)(ia) Regarding Non-Deduction of Tax at Source:
The core issue was the disallowance of ?1,31,80,311 under Section 40(a)(ia) due to the assessee's failure to deduct tax at source on payments made for "Sales Promotion, Advertisement, Commission, and Audit Fee." The CIT(A) upheld the AO's decision, stating that the assessee did not provide any explanation for the failure to deduct tax at source either during the assessment or appellate proceedings. However, the assessee argued that the disallowance was not warranted as the expenditure was mainly for business promotion, which did not necessitate tax deduction at source.

3. Consideration of Submissions and Evidence Provided by the Assessee:
The assessee submitted that the payees had filed their returns of income, included the payments received from the assessee in their income, and paid the due taxes. This compliance should exempt the assessee from being deemed in default under Section 201, as amended by the Finance Act, 2012. The Tribunal found that the CIT(A) did not discuss or decide on these submissions, which included supporting documents like income tax returns, financial statements, and declarations from the payees. Therefore, the Tribunal decided to remand the matter back to the AO for a fresh decision, emphasizing the need to examine the assessee's claims in light of the amended provisions.

4. Retrospective Application of the Amendment to Section 201 by the Finance Act, 2012:
The assessee relied on the Tribunal's decision in Bharti Shipyard Ltd. vs. DCIT, which held that the amendment to Section 201 by the Finance Act, 2012, is retrospective. This amendment states that a payer who fails to deduct tax at source shall not be deemed an assessee in default if the payee has filed their return of income, taken into account the sum for computing income, and paid the tax due. The Tribunal agreed with this interpretation and decided that the AO should consider this retrospective application when re-examining the assessee's claims.

Conclusion:
The Tribunal set aside the orders of the CIT(A) and remanded the matter back to the AO for a fresh decision. The AO was instructed to examine the assessee's claims regarding compliance with the amended provisions of Section 201 and provide a reasonable opportunity for the assessee to be heard. The appeals were allowed for statistical purposes, and no comments were made on the merits of the case.