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TMI Blog2021 (1) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... - Benefit of second proviso to Section 40(a) (ia) - HELD THAT:- In this case, the assessee has furnished Certificates from Chartered Accountant in Annexure -A to Form 26A in respect of interest payment to NBFCs and the AO has not raised any objection or doubt regarding the certificate furnished from the Chartered Accountants regarding interest payment during the financial year 2011-12 but only basis for denying the benefit of second proviso to section 40(a)(ia) of the Act. Hon ble Delhi High Court in the case of Ansal Land Mark Townships (P) Ltd., [ 2015 (9) TMI 79 - DELHI HIGH COURT] has held that the second proviso to Section 40(a) (ia) of the Act is declaratory and curative and has retrospective effect from 1st April 2005 being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. Respectfully following the same, we hold that the benefit of such proviso is available to the assessment for the transactions and payment made by it during financial year 2011-12 i.e. 1.4.2011 to 31.3.2012. Hence, we allow this ground of appeal of the assessee. Disallowance of interest on mobilization advance paid - assessee has paid interest to rail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest (Rs.) 1. IDBI Bank (OD) 7,29,844 2. IDBI Bank(Escrow) 1,64,376 3. SBI, Jajpur 6,46,001 4. Export Import Bank 103,02,220 5. PNB (Loan on BG) 64,76,313 6. PNB (loan for LC) 5,82,026 7. ICICI Bank Ltd(Loan on BG) 13,53,876 Total: 202,54,656 5. Before the AO, since the assessee could not explain the reasons for non-deposit before due date of filing the return of income, the Assessing Officer disallowed the same and added to the total income of the assessee. 6. On appeal before the ld CIT(A), the assessee explained that due to economic slowdown of infrastructure industry, the assessee company had suffered huge loss and as a result, all loan account from bank was declared as non-performing assets (NPA). Therefore, the assessee could not deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u Enterprises 22,894 5. ODC on NBFC 19,892 6. ARSS Atlanta JV 188,79,299 7. ARSS HCIL Consortium JV 19,95,961 8. ARSS ANPR JV 4,84,262 9. Atlanta ARSS JV 245,94,111 10. Patel ARSS JV 48,07,028 Total: 5,17,74,383 12. The Assessing Officer found that the assessee has not deducted tax at source from the above interest payments as per the provisions of section 194A of the I.T.Act, 1961. Therefore, the AO required the assessee to explain as to why total interest payment should not be disallowed u/s.40(a)(ia) of the Act. In reply thereto, the assessee furnished certificate from Chartered Accountant in Annexure-A to Form 26A in respect of interest on mobilization advance paid during the F.Y. 2011-12. The AO discussed the provisions of section 40(a)(ia) of the Act inserted by the Finance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (Hi) as paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from on accountant in such form as may be prescribed. This proviso was introduced by Finance Act, 2012 to be operative from 01/07/2012. d) Accordingly both the proviso to section 201(1) and section 40(a)(ia) of the Income Tax Act, 1961 were to be operative from 01.07.2012 and 01.04.2013 respectively. e) From the insertion of the second proviso, the unambiguous underlying principle seems to be that in situations in which the assessee's tax withholding lapse have not resulted in any loss to the revenue and this fact is reasonably demonstrated by filing Form No. 26A, the appellant can not be treated as assessee in default. f) The ultimate aim of the insertion of the second proviso is that the disallowance U/s. 40(a)(ia) shall not ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal has restricted the disallowance of expenditure from 100% to 30%. 17. Ld A.R. submitted that the second proviso to section 40(a)(ia) of the Act was inserted by the Finance Act, 2012 w.e.f. 1.4.2013 and the purpose of introduction of said proviso is to introduce a legal fiction where an assessee fails to deduct tax in accordance with the provisions of Chapter XVII B and where such assessee is deemed not to be an assessee in default in terms of the first proviso to sub-section(1) of Section 201 of the Act, then, in such event, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso. Ld A.R. submitted that the second proviso to section 40(a)(ia) of the Act has to be given retrospective effect in view of order of ITAT Agra Bench in the case of Rajeev Kumar Agarwal vs Addl. CIT in ITA No.337/Agra/2013 for A.Y.2006- 07 order dated 29.5.2013 and judgment of Hon ble High Court of Delhi in the case of CIT vs Ansal Land Mark Township (P) Ltd. (supra). 18. Further, drawing our attention towards para 4 of last operative part at page 6 of the assessment order, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso to section 40(a)(ia) by the Finance Act, 2012 of the Act is prospective or retrospective in nature. The Hon ble Delhi High Court in the case of Anshal Land Mark Township (P) Ltd., (supra) referring to the order of Agra Bench in the case of Rajeev Kumar Agarwal (supra) in paras 8 to 15 held thus: 8. It is seen that the issue in these AYs arises in the context of the disallowance by the Assessing Officer of the payment made by the Respondent Assessee to Ansal Properties and Infrastructure Ltd. ( APIL ) which payment, according to the Revenue, ought to have been made only after deducting tax at source under Section 194J of the Act. Before the ITAT, it was urged by the Assessee that in view of the insertion of the second proviso to Section 40(a) (ia) of the Act, the payment made could not have been disallowed. Reliance was placed on the decision of the Agra Bench of ITAT in ITA No. 337/Agra/2013 ( Rajiv Kumar Agarwal v. ACIT ) in which it was held that the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and should be given retrospective effect from 1st April 2005. 9. It is seen that the second proviso to Section 40(a) (ia) was ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax. 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an intended consequence to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, meri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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