M/S Arihant Foam P. Ltd., Chandigarh v. Commissioner Of Income Tax, Chandigarh

ITA No.103 & 155 of 2017 (O&M) 211 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH 1. ITA No.103 of 2017 (O&M) Decided on 17.09.2018 M/s Arihant Foam P. Ltd., Chandigarh Versus Appellant Commissioner of Income Tax, Chandigarh Respondent 2. ITA No. 155 of 2017 M/s Arihant Foam P. Ltd., Chandigarh Versus Appellant Commissioner of Income Tax, Chandigarh Respondent * * * CORAM : HON'BLE MR. JUSTICE AJAY KUMAR MITTAL, JUDGEHON'BLE MR. JUSTICE AVNEESH JHINGAN, JUDGE Present :Mr. B.M. Monga, Advocate and Mr. Rohit Kaura, Advocate for the appellant. Ms. Urvashi Dhugga, Sr. Standing Counsel for Revenue. AVNEESH JHINGAN, J. * * * This order shall dispose of ITA Nos.103 and 155 of 2017.In both the appeals, the facts and the issue raised are similar hence,are being disposed of by a common order. The assessment yearsinvolved are 2011-12 and 2012-13. For the sake of convenience, thefacts narrated in ITA No.103 of 2017 are being extracted. 2. The appellant has filed appeal under Section 260A of the ITA No.103 & 155 of 2017 (O&M) Income Tax Act, 1961 (for brevity 'the Act') against the order of IncomeTax Appellate Tribunal, Chandigarh (hereinafter referred to as 'theTribunal') passed in ITA No. 761/CHD/2015, dated 21.06.2016. 3.Appellant claims that following substantial questions of law arise for consideration in the present appeal:- Whether on thefacts and in the circumstances of the case,the Income Tax Appellate Tribunal tsjustified in rejectingthe appeal of appellant thereby — confirmidisallowance/addition of Rs.16,88,163/- without grantingsufficient opportunity of hearing to the appellant bygrossly violating the principles ofnaturaljustice?the Income Tax Appellate Tribunal tsjustified in rejectingthe appeal of appellant thereby — confirmidisallowance/addition of Rs.16,88,163/- without grantingsufficient opportunity of hearing to the appellant bygrossly violating the principles ofnaturaljustice? B)Whether the Income Tax Appellate Tribunal isjustified inconfirming the order of authorities below therebyconfirming disallowance u/s 40(a)(ia) ofIncome Tax Act,1961 against the well settled law as laid down in the caseof Hindustan Coca-Cola Beverages (P.) Ltd. Vs. CIT[2007] 293 ITR 226(SC)?confirming the order of authorities below therebyconfirming disallowance u/s 40(a)(ia) ofIncome Tax Act,1961 against the well settled law as laid down in the caseof Hindustan Coca-Cola Beverages (P.) Ltd. Vs. CIT[2007] 293 ITR 226(SC)? C)Whether the ITAT was justified in ignoring the principlesof consistency by notfollowing their own well settled lawthat when the payee had paid the due taxes, assesseecannot be treated as assessee in default as decided byHon'ble Delhi High Courtfollowed time and again by theHon'ble Chandigarh ITATBench in numerous cases?of consistency by notfollowing their own well settled lawthat when the payee had paid the due taxes, assesseecannot be treated as assessee in default as decided byHon'ble Delhi High Courtfollowed time and again by theHon'ble Chandigarh ITATBench in numerous cases?D)Whether the Tribunal is right in law in brushing aside thepurposive conscious and intentional usage of the term“PAYABLE” by the legislature in all its wisdom inSection 40(a) (ia) of the 'Act' and substituting the same bthe term “PAID” in the name of giving effect to thesupposed underlying object behind the said enactment? purposive conscious and intentional usage of the term“PAYABLE” by the legislature in all its wisdom inSection 40(a) (ia) of the 'Act' and substituting the same bthe term “PAID” in the name of giving effect to thesupposed underlying object behind the said enactment? 4.For the assessment year 2011-12, the appellant filed income tax return declaring income of 49,30,492/-. The case wastaken up in scrutiny. The assessing authority issued a notice to the 4.For the assessment year 2011-12, the appellant filed income tax return declaring income of 49,30,492/-. The case wastaken up in scrutiny. The assessing authority issued a notice to the appellant to show cause as to why expenses claimed of interest paidto M/s Bajaj Finance Ltd. and M/s Sabsons Agency Pvt. Ltd., withoutthe deduction of tax at source (TDS) be not disallowed. 5.The appellant filed reply to the notice. The AssessingOfficer being dissatisfied, vide order dated 16.12.2013, disallowedunder 40(a)(ia) of the Act the expenses claimed of interest paid of�13,78,291/- to M/s Bajaj Finance Ltd. and �3,09,872/- paid to M/sSabsons Agency Pvt. Ltd. 6.Being aggrieved of the order, an appeal was filed beforeCommissioner of Income Tax (Appeals) [CIT(A)]. In appeal, thechallenge was made against the disallowance of the expenses andalso to the action of Assessing Officer making addition of �15,000/-holding the portion of expenses as personal expenses. CIT(A) videorder dated 01.06.2015 partly allowed the appeal. Disallowance ofexpenses was upheld but the addition made of �15,000/- was setaside. 7.Further, appeal was filed before the Tribunal. Appeal wasfixed for hearing on 17.06.2016. A request was made on behalf of theappellant for adjournment to enable it to produce certificates underSection 201(1) of the Act. Instead of granting adjournment, theTribunal reserved the order and vide order dated 21.06.2016dismissed the appeal. Hence, the present appeal. 8.During the pendency of the appeal in this Court, anapplication was moved for adducing additional evidence. After notice,the application was allowed and additional evidence was taken on record. 9.In the additional evidence, the appellant has produced acertificate under Section 201(1) of the Act. In the said certificate, ithas been mentioned that the payments received from the appellant inthe three loan accounts have been shown in the Profit & Loss account by M/s Bajaj Finance Ltd. The relevant portion is quoted below :- “That, the said Company 1.e. M/s Arihant Foam (P) Ltd.,haspaid to Bajaj Finance Ltd. interests on all the above three loansand the income so accrued to us has been properly shown in theprofit & loss account of Bajaj Finance Ltd., in every financialyear and regarding which necessary certificates under firstproviso to sub section (1) of section 201 of the Income Tax Act,1961 has been issued by our CA M/s B.K. Kothari & Co.” 10.Further, the order of the Tribunal for assessment year2013-14 has been placed on record to show that on similar issuematter has been remanded back by the Tribunal to the AssessingOfficer. The order passed by AO in pursuance to the remand has alsobeen placed on record in which the earlier expenses disallowed underSection 40(a)(ia) of the Act have been allowed. 11.Learned counsel for the appellant argued that the Tribunalerred in dismissing the appeal without affording sufficient opportunityto the appellant to substantiate that the appellant was not anassessee in default and that the case of the appellant would becovered under second proviso to Section 40(a)(ia) of the Act. 12.He further contended that the certificates have alreadybeen placed before this Court to establish that the payment of interestmade by the appellant on which there was failure to deduct TDS, havebeen credited by the payee in its Profit & Loss account and has filedhis income tax returns accordingly. 13.Learned counsel for the Revenue rebutted the contentionsraised by counsel for the appellant. It was argued that the certificatesnow being relied upon in this Court were never produced before theAssessing Officer and the Revenue was deprived of an opportunity to verify the certificates. 14.Before proceeding further, it would be appropriate to quotesecond proviso to Section 40(a)(ia) as was inserted by Finance Act,2012 w.e.f. 01.04.2013 : 12.He further contended that the certificates have alreadybeen placed before this Court to establish that the payment of interestmade by the appellant on which there was failure to deduct TDS, havebeen credited by the payee in its Profit & Loss account and has filedhis income tax returns accordingly. 13.Learned counsel for the Revenue rebutted the contentionsraised by counsel for the appellant. It was argued that the certificatesnow being relied upon in this Court were never produced before theAssessing Officer and the Revenue was deprived of an opportunity to verify the certificates. 14.Before proceeding further, it would be appropriate to quotesecond proviso to Section 40(a)(ia) as was inserted by Finance Act,2012 w.e.f. 01.04.2013 : “Provided further that where an assessee fails to deduct thewhole or any part of the tax in accordance with the provisionsof Chapter XVII-B on any such sum but is not deemed to be anassessee in default under the first proviso to sub-section(1) ofsection 201, then, for the purpose of this sub-clause, it shall bedeemed that the assessee has deducted and paid the tax on suchsum on the date offurnishing ofreturn ofincome by the residentpayee referred to in the said proviso. 15.By introduction of second proviso to Section 40(a)(ia) fiction has been created that the assessee who had failed to deductTDS but is not deemed to be an assessee in default in term of firstproviso to Section 201(1), in that case it shall be deemed thatassessee had deducted and paid tax on such sum on the date offurnishing of return of income by the resident payee referred to in thesaid proviso. 16.At this stage, it would be appropriate to quote first provisoto Section 201 as inserted by Finance Act, 2012 w.e.f. 01.07.2012:- Provided that any person, including the principal officer of acompany, who fails to deduct the whole or any part of the tax inaccordance with the provisions of this Chapter on the sum paidto a resident or on the sum credited to the account ofa residentshall not be deemed to be an assessee in default in respect ofsuch tax ifsuch resident-(1)hasfurnished his return ofincome under Section 139;(11)has taken into account such sum for computing income incompany, who fails to deduct the whole or any part of the tax inaccordance with the provisions of this Chapter on the sum paidto a resident or on the sum credited to the account ofa residentshall not be deemed to be an assessee in default in respect ofsuch tax ifsuch resident-(1)hasfurnished his return ofincome under Section 139;(11)has taken into account such sum for computing income in such return of income; and (111)has paid the tax due on the income declared by him insuch return of income, and the person furnishes a certificate to this effect from anaccountant in suchform as may be prescribed. 17.First proviso to Section 201 stipulates that a person who has failed to deduct tax in accordance with provisions ofSection XVII-B shall not be deemed to be an assessee in default, if acertificate is furnished from an accountant in a prescribed form to theeffect that resident has furnished return of Income Tax under Section139 of the Act; has taken into account the sum received for computingincome in the return of income tax and has paid tax due on theincome declared by him in such return. 18.There is mandatory requirement under Chapter XVII-B ofthe Act to deduct TDS under certain eventualities and in case offailure to do so, consequences have also been mentioned underSection 201. With the insertion of second proviso to Section 40(a)(ia)and first proviso to Section 201(1) of the Act, exception has beencarved that subject to the fulfilment of condition as stipulated in firstproviso to Section 201 of the Act, the assessee shall not be treated asassessee in default and the expenses so claimed will be allowed. 18.There is mandatory requirement under Chapter XVII-B ofthe Act to deduct TDS under certain eventualities and in case offailure to do so, consequences have also been mentioned underSection 201. With the insertion of second proviso to Section 40(a)(ia)and first proviso to Section 201(1) of the Act, exception has beencarved that subject to the fulfilment of condition as stipulated in firstproviso to Section 201 of the Act, the assessee shall not be treated asassessee in default and the expenses so claimed will be allowed. 19. This Court in Pr. Commissioner of Income Tax-2,Chandigarh Vs. Shivpal Singh Chaudhary (ITA No. 558 of 2017) on05.07.2018, agreeing with the view of Delhi High Court in CIT vs.Ansal Land Mark Township Private Limited, (2015) 377 ITR 635(Delhi)held that the second proviso to Section 40(a)(ia) and firstproviso to Section 201(1) of the Act though inserted by Finance Act, 2012, would be applicable retrospectively w.e.f. 01.04.2005. The relevant portion of the decision is quoted below:- “We are in agreement with the view of the Delhi High Court inAnsal Land Mark Township Pvt. Limited’s case (supra)approving the reasoning ofthe Agra Bench ofthe ITAT wherebyholding the rationale behind the insertion of the second Provisoto Section 40(a)(ia) of the Act and that it is merely declaratoryand curative and thus, applicable retrospectively with effectfrom Ist April, 2005.” 20.In the facts of the present case and in view of theadditional evidence adduced in this Court without expressing anyopinion on the merits of the case, the matter is remanded back to theAssessing Officer to decide the issue of disallowance of expensesunder Section 40(a)(ia) afresh after hearing the appellant and afterconsidering the evidence produced by the appellant. 21.The appeals are, accordingly, disposed of. (AJAY KUMAR MITTAL) JUDGE September 17, 2018pankaj baweja (AVNEESH JHINGAN) JUDGE Whether speaking/reasoned: Yes / NoWhether reportable :Yes / No