Case Law Details
Meera Roadlines Vs ITO (ITAT Raipur)
ITAT Raipur held that belated return of income filed by payee u/s. 139(4) satisfies the 1st proviso to section 201(1) of the Income Tax Act hence assessee cannot be treated as ‘assessee in default’.
Facts- The assessee firm had filed its return of income on 11.2019, declaring an income of Rs.87,490/-. The DCIT, CPC while processing the return of income took cognizance of the qualification by the Meera Road Lines Vs. ITO-2(1), Bhilai ITA No. 310/RPR/2024 chartered accountant of the assessee firm in his tax audit report, and disallowed u/s. 40(a)(ia) of the Act the interest paid by the assessee firm to NBFCs aggregating to Rs.8,39,753/-. The A.O observed that as the assessee firm had failed to deduct tax at source on the interest paid to the NBFCs, viz. (i) Cholamandalam Investment and Finance Company Ltd.; and (ii) HDB Financial Services Ltd., therefore, 30% of the interest expenditure was liable to be disallowed u/s. 40(a)(ia) of the Act.
CIT(A) upheld the disallowance u/s. 40(a)(ia). Being aggrieved, the present appeal is filed.
Conclusion- Held that as the “1st proviso” to Section 201(1) of the Act, inter alia, contemplates that the payee should have furnished his return of income u/s. 139 of the Act, therefore, I am of a firm conviction that the belated return of income filed by the respective payees u/s. 139(4) of the Act in the present case would duly satisfy the said pre-condition for triggering the concession therein contemplated for not treating the assessee-payer as an “assessee-in-default”. Accordingly, I am unable to concur with the CIT(Appeals), who had declined to allow concession of “1st proviso” to Section 201(1) of the Act and had rejected the claim of the assessee firm for not being treated as an “assessee in default”.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal filed by the assessee firm is directed against the order passed by the ADDL/JCIT(A)-6, Chennai dated 06.05.2024, which in turn arises from the intimation issued by the Centralized Processing Centre (CPC)/A.O under Sec.143(1) of the Income-tax Act, 1961 (in short ‘the Act’) dated 01.05.2020 for the assessment year 20 19-20. The assessee firm has assailed the impugned order on the following grounds of appeal:
“1. That the learned Addl./JCIT(A)-6, Chennai has erred in law and on facts. in maintaining the disallowance u/s. 40(a)(ia) of the I.T. Act, 1961 to the extent of 30%. on the ground that the payments by the payees can be deemed to have been made only on the dates of filing their returns, which are beyond the filing their returns, which are beyond the due dates specified u/s. 139(1), which is wrong and bad in law since the word used under proviso to section 201(1) is Sec.139 and not 139(1).
2. That the appellant craves leave to add, amend or alter the ground(s) of appeal at the time of hearing.”
2. Controversy involved in the present appeal that is required to be resolved before adverting to the facts lies in a narrow compass, i.e. as to whether or not the disallowance u/s.40(a)(ia) of the Act of assessee’s claim for deduction of interest paid to NBFCs is sustainable?
3. Succinctly stated, the assessee firm had filed its return of income on 11.2019, declaring an income of Rs.87,490/-. The DCIT, CPC while processing the return of income took cognizance of the qualification by the Meera Road Lines Vs. ITO-2(1), Bhilai ITA No. 310/RPR/2024 chartered accountant of the assessee firm in his tax audit report, and disallowed u/s. 40(a)(ia) of the Act the interest paid by the assessee firm to NBFCs aggregating to Rs.8,39,753/-. The A.O observed that as the assessee firm had failed to deduct tax at source on the interest paid to the NBFCs, viz. (i) Cholamandalam Investment and Finance Company Ltd.; and (ii) HDB Financial Services Ltd., therefore, 30% of the interest expenditure was liable to be disallowed u/s. 40(a)(ia) of the Act.
4. Aggrieved the assessee firm carried the matter in appeal before the CIT(Appeals) who principally concurred with the view taken by the A.O. The CIT(Appeals), however, observed that the assessee’s chartered accountant had wrongly reported the failure on the part of the assessee to deduct tax at source on the interest paid to NBFCs at Col.21(b)(i) of his audit report instead of reporting it in Col.21(b)(ii) which, thus, had resulted into disallowance of the entire amount of such interest expenditure u/s 40(a)(i) of the Act. Accordingly, the CIT(Appeals) restricted the disallowance u/s.40(a)(ia) of the Act to 30% of the amount of the subject interest expenditure. Apropos the certificates of the chartered accountants of the respective payees that were filed by the assessee firm under the “proviso” to Section 201(1) of the Act to support its claim that now when the interest income had been brought to tax in the hands of the said payees, therefore, it could not be held as an “assessee-in-default”, the same did not find favor with the CIT(Appeals). The CIT(Appeals) was of the view that as both the Meera Road Lines Vs. ITO-2(1), Bhilai ITA No. 310/RPR/2024 respective payees had not filed their returns of income for the subject year within the prescribed time period contemplated in sub-section (1) of Section 139 of the Act, therefore, the concession provided in the “1st proviso” to Section 201(1) of the Act for not treating the payer, i.e the assessee firm as an “assessee-in-default” for the reason that the interest income had been brought to tax in the hands of the respective payees could not be invoked. Accordingly, the CIT(Appeals) though confined the disallowance to 30% of the amount of interest expenditure but principally concurred with the A.O and upheld the disallowance u/s. 40(a)(ia) of the Act. For the sake of clarity, the observations of the CIT(Appeals) are culled out as under:
“4. Decision:
4.1 The only issue in this appeal is the disallowance u/s 40(a)(i) made by the AO, CPC in his order u/s 143(1) dated 01.05.2020. The appellant had filed its return on 14.11.2019 with an income of Rs.87,490. The DCIT, CPC while processing the return added Rs.8,39,753 being the disallowance u/s 40(a)(i) quantified by the Chartered Accountant in his tax audit report. Aggrieved, the appellant has filed this appeal raising two grounds. Notice u/s 250 was issued and the appellant filed its submissions along with documents in support of the same. The issue on hand is that the appellant had paid interest on vehicle loans taken from Cholamandalam Investment and Finance Company Ltd and HDB Financial Services Ltd without deduction of tax thereon. The total of these amounts comes to Rs.8,39,753 which was reported in the tax audit report. However, these transactions were reported in col. 21(b)(i) meant for transactions covered u/s 40(a)(i) instead of reporting them under col. 21(b) (ii) meant for transactions covered u/s 40(a)(ia). This resulted in complete disallowance as against a disallowance @ 30%. Now, the appellant has filed the necessary certificates by the CAs under the proviso to section 20 1(1) in the cases of the payees. The appellant requests that these may be considered and relief granted.
4.2 The facts and submissions have been considered. The above referred transactions are covered u/s 40(a)(ia) and as such, the disallowance can only be @ 30%. In any case, the appellant has filed copies of the certificates under the proviso to section 20 1(1) issued by the CAs of the payee companies. The said proviso provides that where such a certificate is issued, the payer would be not be deemed to be an assessee in default u/s 201(1). The second proviso to section 40(a)(ia) provides that where an assessee is not deemed to be in default by virtue of the proviso to section 20 1(1), then it shall be deemed that the assessee has the deducted and paid the tax on such sums on the date of furnishing of the return of income by the payee. In the present case, the appellant had filed its return of income 14.11.2019.
4.3 From the certificates issued by the CAs of the payees, it is seen that Cholamandalam Investment and Finance Company Ltd. filed its return on 31.10.2019 as seen below:
In the case of HDB Financial Services Ltd. the return was filed on 01.09.2020 as seen below:
According to the second proviso to section 40(a)(ia), where tax is not deducted and the payees take the payment into consideration in their returns, it would be deemed that the liability under this provision is discharged on the date of filing of return by the payees. In the present case, the appellant filed its return on 14.11.2019 as against the due date of 30.09.20 19 and Cholamandalam Investment and Finance Company Ltd filed its return on 31.10.2019. HDB Financial Services Ltd filed its return on 01.09.2020. Therefore, these payments can be deemed to have been paid only on those dates, which are beyond the due dates specified u/s 139(1) in the case of the appellant. Hence the disallowance made by the AO is in order. However, since these are payments covered u/s 40(a)(ia) and not u/s 40(a)(i), the AO is directed to restrict the disallowance to 30%. The first ground is partly allowed. The second being general in nature is not separately adjudicated.
5. In the result, the appeal is partly allowed.
5. The assessee being aggrieved with the order of the ADDL/JCIT(A) has carried the matter in appeal before the tribunal.5. 6. 6.
6. I have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and material available on record.
7. Before proceeding any further, I deem it fit to cull out the provisions of Section 20 1(1) of the Act, which reads as under:
“201. Consequences of failure to deduct or pay.
(1) Where any person, including the principal officer of a company,-
(a)who is required to deduct any sum in accordance with the provisions of this Act; or
(b)referred to in sub-section (1A) of section 192, being an employer;
does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an asses see in default in respect of such tax:
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 payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee-
(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 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 an accountant in such form as may be prescribed:
Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.
(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,-
(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and
(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid,
and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200:
Provided that in case any person, including the principal officer of a company 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 payee or on the sum credited to the account of a payee but is not deemed to be an assessee in default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such payee]
[Provided further that where an order is made by the Assessing Officer for the default under sub-section (1), the interest shall be paid by the person in accordance with such order.]
(2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).
(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of seven years from the end of the financial year in which payment is made or credit is given or two years from the end of the financial year in which the correction statement is delivered under the proviso to subsection (3) of section 200, whichever is later.
(4) The provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may, apply to the time limit prescribed in sub-section (3).
Explanation-For the purposes of this section, the expression “accountant” shall have the meaning assigned to it in the Explanation to sub-section (2) of section 288.]”
(emphasis supplied by me)
8. Admittedly, it is a matter of fact borne from record that the respective payees had placed on record certificates issued by the chartered accountants wherein they had stated that interest paid by the assessee company to the said entities had been disclosed by them in their respective return of income and the corresponding taxes was paid on the same. Although the returns of income of both the aforementioned payees were filed beyond the prescribed time period contemplated for doing needful by them within the prescribed time period contemplated under sub-section (1) of Section 139 of the Act, but I am of a firm conviction that the same would by no means jeopardize the entitlement of the assessee firm to invoke the concession for not treating it as “assessee in default” as carved out in the “1st proviso” to Section 20 1(1) of the Act. I say so, for the reason that the “1st proviso” to Section 201(1) of the Act, inter alia, mandates that the payees had furnished the return of income u/s. 139 of the Act. As there is no pre‑ condition that the return of income ought to have been filed by payee within the prescribed time period contemplated under sub-section (1) of Section 139 of the Act, therefore, I am unable to concur with the CIT(Appeals) who had declined the assessee’s claim for not being treated as “assessee in default” as per the mandate of the “1st proviso” to Section 20 1(1) of the Act. Although both the aforementioned payees had filed their respective returns of income for the subject year beyond the prescribed time period contemplated under sub-section (1) of Section 139 of the Act, viz. (i) M/s. Cholamandalam Investment and Finance Company Ltd. (return filed on 3 1.10.2019); and (ii) HDB Financial Services Ltd. (return filed on 0 1.09.2020), but the said fact would by no means preclude the assessee from availing the concession for not being treated as “assessee in default” per the mandate of the “1st proviso” to Section 201(1) of the Act. As the belated returns of income filed by both the payees, i.e the NBFC’s under sub-section (4) of Section 139 of the Act continue to fall within the meaning of a return of income filed u/s. 139 of the Act, therefore, the pre-condition to the said extent contemplated in the “1st proviso” to Section 201(1) of the Act having been satisfied by the said respective payees, thus entitled the assessee firm for availing the concession therein contemplated for not being treated as an “assessee in default” qua the corresponding payments made to the said entities.
9. My aforesaid conviction that a belated return of income filed under sub-section (4) of Section 139 of the Act falls within the meaning of return of income filed u/s. 139 of the Act is supported by the judgment of the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Jagriti Agrawal, ITA No.176 of 2011, dated 03. 10.2011. The Hon’ble High Court in its aforesaid order, had observed, that sub-section (4) of Section 139 provides an extended period of limitation as an exception to sub-section (1) of Section 139 of the Act. The Hon’ble High Court had after relying upon the judgment of the Hon’ble High Court of Karnataka in the case of Fathima Bai Vs. Income Tax Officer (2009) 32 DTR 243 (Kar) and that of the Hon’ble High Court of Gauhati in the case of CIT Vs Rajesh Kumar Jalan (2006) 286 ITR 274 (Gau) held that the “due date” for furnishing return of income as per sub-section (1) of Section 139 of the Act is subject to the extended time period provided under sub-section (4) to Section 139 of the Act. For the sake of clarity, the observations of the Hon’ble High Court are culled out as under:
“The Revenue has claimed the following substantial question of law, as arisen from the order of the Tribunal:
“Whether in the facts and circumstances of the case and in aw the ITAT was justified in allowing the benefit of exemption under Section 44 of the Income tax Act by wrongly interpreting Section 54 of the I.T. Act in which the due date for furnishing the return of income is mentioned as per Section 139(1) and not as per Section 139(4) of the Act?”
The assessee sold her house property for Rs. 45 lacs and claimed deduction under Section 54 of the Income Tax Act, 1961 (for short Meera Road Lines Vs. ITO-2(1), Bhilai ITA No. 310/RPR/2024 ‘the Act’). The assessee was served with a notice under Section 142(1) of the Act, as to why the amount deducted be not added to her income as long term capital gain, as the assessee failed to deposit the amount in Capital Gain Account Scheme and also failed to purchase house property before the due date of filing the return of income. The assessee contested the claim of the Revenue and asserted that she is not liable to deposit the amount in Capital Gain Deposit Scheme and that the due date of filing the return of income tax is not as specified in Section 139(1) but as specified in Section 139(4) of the Act. The Assessing Officer declined the claim of the assessee and returned finding that the assessee has concealed her particulars of income and initiated proceedings for penalty as well.
The appeal against the said order was accepted by the Commissioner of Income Tax (Appeals). It was found that the appellant has purchased new residential property on 2.1.2007 and the due date as per Section 139(4) is 31.3.2007 and thus, the assessee has complied with the provisions of Section 54 of the Act. It was held that Section 139 includes Sub Section (4) as well. The said order of the Commissioner of Income Tax has been affirmed in appeal as well.
It may be noticed that the assessee sold her residential house on 13.1.2006 for a sum of Rs. 45 lacs and purchased another property jointly with Mr. D. P. Azad, her father-in-law on 2.1.2007 for a consideration of Rs. 95 lacs. The due date of filing of return as per Section 139(1) of the Act was 31.7.2006, but the assessee filed her return on 28.3.2007 and that extended due date of filing of return as per Section 139(4) is 31.3.2007.
Section 54 of the Act contemplates that the capital gain arises from the transfer of a long term capital asset, but if the assessee within a period of one year before or two years after the date on which the transfer took place purchases residential house, then instead of the capital gain, the income would be charged in terms of provisions of Sub Section (1) of Section 54. As per Sub-Section (2), if the amount of capital gains is not appropriated by the assessee towards the purchase of new asset within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under Section 139, the amount shall be deposited by him before furnishing such return not later than due date applicable in the case of assessee for furnishing the return of income under Sub Section (1) of Section 139 in an account in any such Bank or institution as may be specified. Relevant Sub-Section (2) of Section 54 of the Act reads as under:
“(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under Section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under Sub-Section (1) of Section 139 in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazettee, frame in this behalf and such return shall be accompanied by proof of such deposit, and for the purposes of Sub-Section (1), the amount, if any, already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this Sub-Section is not utilized wholly or partly for the purchase or construction of the new asset within the period specified in Sub-Section (1), then,-
(i)the amount not so utilized shall be charged under Section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and
(ii)the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.”
The question which arises is; whether the return filed by the assessee before the expiry of the year ending with the Assessment Year is valid under Section 139(4) of the Act.
Learned counsel for the revenue has argued that the assessee was required to file return under Sub section (1) of Section 139 of the Act in terms of Sub section (2) of Section 54 of the Act. It is contended that Sub section (4) is not applicable in respect of the assessee so as to avoid payment of long terms capital gain.
On the other hand, learned counsel for the respondent relies upon a Division Bench judgment of Karnataka High Court reported as Fathima Bai vs. Income Tax Officer (2009) 32 DTR 243, where in somewhat similar circumstances, it has been held that time limit for deposit under Scheme or utilization can be made before the due date for filing of return under Section 139(4) of the Act. Learned counsel for the respondent also relies upon a Division Bench judgment of Gauhati High Court reported as Commissioner of Income Tax vs Rajesh Kumar Jalan (2006) 286 ITR 274.
Having heard learned counsel for the parties, we are of the opinion that Sub-Section (4) of Section 139 of the Act is, in fact, a proviso to Sub-Section (1) of Section 139 of the Act. Section 139 of the Act fixes the different dates for filing the returns for different assesses. In the case of assessee as the respondent, it is 31st day of July of the Assessment Year in terms of clause (c) of the Explanation 2 to Sub-Section 1 of Section 139 of the Act, whereas Sub-Section (4) of Section 139 provides for extension in period of due date in certain circumstances. It reads as under:
“(4) Any person who has not furnished a return within the time allowed to him under Sub-Section (1), or within the time allowed under a notice issued under Sub-Section (1) of Section 142, may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier;
Provided that where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year”. A reading of the aforesaid Sub-Section would show that if a person has not furnished the return of the previous year within the time allowed under Sub-Section (1) i.e. before 31st day of July of the Assessment Year, the assessee can file return before the expiry of one year from the end of the relevant Assessment Year.
The sale of the asset having been taken place on 13.1.2006, falling in the previous year 2006-2007, the return could be filed before the end of relevant assessment year 2007-2008 i.e. 31.3.2007. Thus, Sub- Section (4) of Section 139 provides extended period of limitation as an exception to Sub-Section (1) of Section 139 of the Act. Sub-Section (4) is in relation to the time allowed to an assessee under Sub-Section (1) to file return. Therefore, such provision is not an independent provision, but relates to time contemplated under Sub-Section (1) of Section 139. Therefore, such Sub-Section (4) has to be read along with Sub-Section (1). Similar is the view taken by the Division Bench of Karnataka and Gauhati High Courts in Fatima Bai and Rajesh Kumar Jalan cases (supra) respectively.
In view of the above, we find that due date for furnishing the return of income as per Section 139(1) of the Act is subject to the extended period provided under Sub-Section (4) of Section 139 of the Act.
Consequently, the question of law is answered against the Revenue and in favour of the assessee. Thus, the present appeal is dismissed.”
10. As the “1st proviso” to Section 201(1) of the Act, inter alia, contemplates that the payee should have furnished his return of income u/s. 139 of the Act, therefore, I am of a firm conviction that the belated return of income filed by the respective payees u/s. 139(4) of the Act in the present case would duly satisfy the said pre-condition for triggering the concession therein contemplated for not treating the assessee-payer as an “assessee-in-default”. Accordingly, I am unable to concur with the CIT(Appeals), who had declined to allow concession of “1st proviso” to Section 20 1(1) of the Act and had rejected the claim of the assessee firm for not being treated as an “assessee in default”. Thus, the Ground of appeal No.1 raised by the assessee is allowed in terms of the aforesaid observations.
11. Ground of appeal No.2 being general in nature is dismissed as not
12. In the result, appeal of the assessee firm is allowed in terms of the aforesaid observations.
Order pronounced in open court on 23rd day of September, 2024.
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