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TMI Blog2021 (11) TMI 670X X X X Extracts X X X X X X X X Extracts X X X X ..... ificate issued by the Chartered Accountant clearly suggest that the interest paid by the assessee was accounted for by the payees in its Books of Accounts and returns were filed within the due date certified u/s. 139(1) of the Act and taxes were paid on such interest income. No disallowance u/s. 40(a)(ia) is warranted as the payee has accounted for the interest income in its Books of Accounts and filed its return of income u/s. 139(1) of the Act. However, since the information filed by the assessee showing that the payee had accounted for the interest receipts in its Books of Accounts and paid taxes, were never examined by the lower authorities, subject to verification of these evidences by the Assessing Officer, we direct to delete the disallowance made u/s. 40(a)(ia) of the Act. The assessee shall furnish all these evidences before the Assessing Officer. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from April 1, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. The first proviso to section 201(1) has been inserted to benefit the assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident, such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under section 139. What is common to both provisos to sections 40(a)(ia) and 201(1) is that as long as the payee or resident 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. Considering the facts of the case we submit that the proviso to the section is applicable from 1-4-2005, that the deductee had paid the taxes on the income that was subject of TDS provisions. In support we submit relevant evidences marked "Exhibit B". The proviso to section 40( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been decided in favour of the assessee by various Tribunals as well as Hon'ble High Courts. In the case of E-Commerce Magnum Solutions Ltd., v. DCIT (supra) the Coordinate Bench of the Tribunal following the decision of the Hon'ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P) Ltd (supra) held as under: - "5. We have heard the rival submissions and perused the material before us. We find that the assessee had, while finding its original return of income, had made a disallowance of ₹ 1.03 Crores, that it had not deducted tax at source as per the provisions of chapter XVII of the Act, that later on it withdrew the disallowance made under section 40(a)(ia) in the revised return, that it relied upon the case of Hindustan Coca-Cola Beverages Private Ltd.(293 ITR 226), that the AO and the FAA held that facts of Hindustan Coca-Cola Beverages Private Ltd. were distinguishable, that the provisions of section 40(a)(ia) were amended by the Finance act, 2012, that second proviso had been brought in statute book with effect from 01/04/2013, that the act of the assessee of deleting the addition under section 40(a)(ia) in the revised return for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it, TDS provisions were introduced-the person making payment was made responsible to deduct tax and pay it with the government account. But, the proviso to section 40(a)(ia)made it clear that if the deductee pays the taxes on the entire income liable for taxation then no action would be taken against the deductor. The proviso is quite logical. It ensures that whole of the taxable income is taxed. Once the specific purpose is served there is no justification to indulge in unnecessary litigation. It is not the case of the AO or the FAA that the deductee had not paid the taxes on the taxable income or that it was not paid within the prescribed time limit. Therefore, reversing the order of the FAA we decide the effective ground of appeal in favour of the assessee." 8. In the case of Pr.CIT v. Perfect Circle India Pvt. Ltd., in Income Tax Appeal No. 707 of 2016 dated 07.01.2019 before Hon'ble Bombay High Court, the revenue sought admission of the following question of law in its appeal: - "Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in rejecting the disallowance of ₹ 1,44,78,0007- made by the AO u/S. 40(a)(ia) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. 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". 10. It is pointed out by learned counsel for the Revenue that the first proviso to Section 201 (1) of the Act was inserted with effect from 1st July 2012. The said proviso reads as under: "Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to 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 (iii) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the payees and the certificate issued by the Chartered Accountant clearly suggest that the interest paid by the assessee was accounted for by the payees in its Books of Accounts and returns were filed within the due date certified u/s. 139(1) of the Act and taxes were paid on such interest income. Therefore, applying the ratio of the above decisions we hold that no disallowance u/s. 40(a)(ia) is warranted as the payee has accounted for the interest income in its Books of Accounts and filed its return of income u/s. 139(1) of the Act. However, since the information filed by the assessee showing that the payee had accounted for the interest receipts in its Books of Accounts and paid taxes, were never examined by the lower authorities, subject to verification of these evidences by the Assessing Officer, we direct to delete the disallowance made u/s. 40(a)(ia) of the Act. The assessee shall furnish all these evidences before the Assessing Officer. ITA.No. 385/Mum/2016 (A.Y. 2013-14) 11. Facts being identical the decision taken by us in the appeal in ITA.No. 386/Mum/2016 (A.Y. 2013-14) shall apply mutatis-mutandis for this appeal also. We order accordingly. 12. In the result, bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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