DCIT, Pune V. M/S Bhandari Associates, Pune

ITA 1129/PUN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79827 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 31-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1129/PN/2012 (ASST.YEAR: 2008-09) DY.CIT, CIRCLE-3, PUNE .. APPELLANT VS. M/S. BHANDARI ASSOCIATES, 102, KUMAR VASTU, BHOSALENAGAR, RANGE HILLS, PUNE-411020 PAN NO.AABFB5812G .. RESPONDENT CO.NO.36/PN/2013 (ASST.YEAR: 2008-09) M/S. BHANDARI ASSOCIATES, 102, KUMAR VASTU, BHOSALENAGAR, RANGE HILLS, PUNE-411020 PAN NO.AABFB5812G .. CROSS OBJECTOR VS. DY.CIT, CIRCLE-3, PUNE .. APPELLANT IN THE APPEAL ASSESSEE BY : SHRI SUHAS P. BORA REVENUE BY : SHRI P.L. PATHADE DATE OF HEARING : 12-05-2014 DATE OF PRONOUNCEMENT : 19-05-2014 ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATE D 25-1-2012 OF THE CIT(A)-II, PUNE RELATING TO ASSESSMENT YEAR 2008-09 . FOR THE SAKE OF CONVENIENCE, BOTH WERE HEARD TOGETHER AND ARE BE ING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO.1129/PN/2012 (BY REVENUE) : 2. GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPE ALS) GROSSLY ERRED IN DELETING THE DISALLOWANCE OF RS.18,00,000/- MADE IN THE ASSESSMENT WITH REFERENCE TO THE ASSESSEE'S CLAIM ON ACCOUN T OF ADDITIONAL COST OF LAND INSTEAD OF CONFIRMING THE SAID DISALLOWANCE. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPE ALS) GROSSLY ERRED IN ALLOWING THE ABOVE CLAIM OF RS.18,00,000/- WITHOUT APPRECIATING THAT THE ASSESSEE WAS UNDER NO OBLIGATION A S PER THE DEVELOPMENT AGREEMENT TO MAKE ANY SUCH PAYMENT. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPE ALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT THE ASSESSEE COULD NOT SUBSTANTIATE THAT THE LAND OWNERS HAD CLAIMED ANY SUCH ADDITIONAL CONSIDERATION TO BE COMPENSATED FOR THE DELAY IN PAYM ENT. 5. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNE D COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRE CIATE THAT NO JUSTIFICATION WAS OFFERED BY THE ASSESSEE AS TO ON WHAT B ASIS THE ADDITIONAL COST OF RS. 18,00,000/- WAS DETERMINED. 6. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE U RGED AT THE TIME OF THE HEARING, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING O FFICER BE RESTORED. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF PROMOTE RS AND DEVELOPERS OF LAND AND EXECUTION OF CONSTRUCTION CO NTRACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT AS PER THE DEVELOPMENT AGREEMENT DATE D 17-5-2005, THE ASSESSEE WAS GRANTED DEVELOPMENT RIGHTS OF A LA ND AT BANER FOR A CONSIDERATION OF RS. 61,00,000/- AND ON THIS PROPER TY THERE WAS A CIVIL SUIT FILED BY VIDYANAGARI CO-OP.HSG. SOCIETY AND DUE TO THE SAME DEVELOPMENT WORK WAS NOT CARRIED OUT FOR A LON G TIME. THE A.O. FOUND THAT THE ASSESSEE HAD DEBITED RS. 18,00, 000/- AS ADDITIONAL COST FOR THE LAND AND THE SAME WAS PAID TO 3 PERSONS ON 3 17-7-2007. ACCORDING TO THE AO, IN THE DEVELOPMENT AGREEMENT THERE WAS NO OTHER CONTRACTUAL LIABILITY ON THE PAR T OF THE ASSESSEE TO PAY MORE THAN 61 LACS AS AGREED AND THE AMOUNT OF RS. 18 LACS WAS NOWHERE MENTIONED IN THE DEVELOPMENT AGREEMENT. HE , THEREFORE, HELD THAT THE SAID AMOUNT CANNOT BE CONSIDERED AS E XPENDITURE INCURRED FOR THE LAND. HE, ACCORDINGLY, DISALLOWED THE SAID AMOUNT OF RS. 18 LACS CLAIMED AS ADDITIONAL COST OF LAND A ND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE FIRM HAD PURCHASED A PROPERTY AT S.NO 47 AT VILLAGE BANER, PUNE AS PER THE DEVELOPMENT AGREEMENT DATED 17-5-2005 ADMEA SURING 1H 23R FROM SHRI. SHITARAM DHARAMA BHANDE & OTHERS FOR A CONSIDERATION OF RS.61,00,000/-. BECAUSE OF THE CI VIL SUIT FILED BY THE VIDYANAGARI CO-OP. HSG SOCIETY, THE DEVELOPMENT WORK ON LAND COULD NOT BE CARRIED OUT FOR A LONG TIME. IT W AS SUBMITTED THAT THE ASSESSEE FIRM PAID RS.6,11,000/- IMMEDIATELY TO THE SELLERS OF THE LAND OUT OF THE TOTAL AGREED CONSIDERATION OF R S. 61,00,000/- AND PROMISED TO PAY BALANCE AMOUNT WITHIN A PERIOD OF ONE YEAR. HOWEVER, DUE TO LITIGATION AND COURT MATTER THE ASS ESSEE DID NOT PAY THE AGREED CONSIDERATION WITHIN TIME. IT WAS AR GUED THAT AS THERE WAS DELAY IN PAYMENT AGREED UPON, THE SELLERS I.E. THE LANDLORD ASKED FOR ADDITIONAL CONSIDERATION TO COMP ENSATE FOR THE UNREASONABLE DELAY IN MAKING THE PAYMENT AND THEREF ORE, ON MUTUAL DISCUSSION WITH THE LANDLORD AND THE APPELLA NT FIRM IT WAS AGREED THAT THE ASSESSEE WILL PAY AN ADDITIONAL CON SIDERATION FOR DELAY AS THE PRICE OF LAND HAD ALSO INCREASED SINCE THE LAST 4 AGREEMENT DT.17-5-2005. ACCORDINGLY, A MEMORANDUM OF UNDERSTANDING WAS MADE AND THE ASSESSEE PAID RS.18, 00,000/- ON 17-7-2007 BY CROSSED ACCOUNT PAYEE CHEQUE TO THE L ANDOWNERS WHO OTHERWISE WERE NOT READY TO SIGN THE DOCUMENT. THE ASSESSEE HAS ALSO FURNISHED THE DETAILS OF TOTAL COST INCURR ED ON THE LAND WHICH IS AS UNDER: - OPENING WORK IN PROGRESS RS. 86,22,353 - ADDITIONAL LAND COST RS. 18,00,000 - DEVELOPMENT EXPENSES INCURRED DURING THE YEAR RS. 33,36,454 TOTAL RS.1,37,58,806 3.1 IT WAS ARGUED THAT SINCE THE PAYMENT MADE WAS A S PER THE UNDERSTANDING BETWEEN THE ASSESSEE FIRM AND THE LAN DLORD TOWARDS COMPENSATION FOR DELAY IN PAYMENT AS PER THE ORIGIN AL UNDERSTANDING, THEREFORE, THE SAID EXPENDITURE WAS AN ALLOWABLE BUSINESS EXPENSES. THE ASSESSEE FURNISHED THE COPIE S OF THE AGREEMENT, RECEIPT OF PAYMENT OF RS.18,00,000/- MAD E BY CHEQUE AND THE COPY OF BANK STATEMENTS IN SUPPORT OF THE C LAIM. 4. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDE R : 5.2 AN ASSESSEE IN BUSINESS MAY BE LIABLE FOR COMPENSATION EITHER FOR BREACH OF LAW OR BREACH OF CONTRACT. IF IT WERE BREACH OF LAW, IT IS NOT ALLOWABLE AS A DEDUCTION U/S.37(1) WHIC H HAS SUCH DEDUCTION. BUT WHERE THE ASSESSEE IS OBLIGED TO PAY COM PENSATION IN THE COURSE OF BUSINESS BECAUSE OF BREACH OF CONTRACT ON ITS PART, SUCH PAYMENT WILL NOT PARTAKE THE CHARACTER OF PENAL TY, SO THAT IT CANNOT BE DISALLOWED. THE LAW ON THIS POINT IS WELL SET TLED AS DECIDED IN CIT VS AMALGAMATED DEVELOPMENT LTD (1967) 65 ITR (SC). IT WAS HELD TO BE A CASE OF COMMERCIAL EXPEDIE NCY. THE SUPREME COURT ITSELF IN PRAKASH COTTON MILLS P LTD. VS CIT (1993) 201 ITR 684 (SC) HAD HELD THAT EVEN WHERE PENALTY I S LEVIED, IT MAY NOT ALWAYS BE A PUNITIVE ONE, SO THAT WHERE IT IS COMP ENSATORY, IT MAY WELL HAVE TO BE ALLOWED. THE PUNJAB AND HARYANA COURT 5 THEREFORE, ALLOWED A CLAIM FOR COMPENSATION FOR BREA CH OF CONTRACTUAL OBLIGATION IN CIT VS SA BUILDERS P LTD (2 008) 299 ITR 88 (P&H) AFTER REVIEW OF THE CASE LAW ON THE SUBJECT AND FOLLOWING ITS OWN DECISIONS IN CIT VS MURARILAL AHUJA AND SONS (19 89) 177 ITR 88 (P&H) AND CIT VS INDO ASIAN SWITCH GEAR P LTD (1996) 222 ITR 772 (P&H) 5.3 IN VIEW OF THE ABOVE FACT AND THE RATIO OF THE JUDI CIAL DECISIONS THE DISALLOWANCES MADE BY THE A.O. IS DIRECTED TO BE DELETED AND GROUND NO. 3 RAISED BY THE APPELLANT IS L IABLE TO BE ALLOWED. 4.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER HAS NOT DOUBTED THE PAYMENT TO TH E LAND OWNERS BUT DISALLOWED THE AMOUNT OF RS.18 LAKHS ON THE GRO UND THAT ASSESSEE WAS UNDER NO OBLIGATION AS PER THE DEVELOP MENT AGREEMENT TO MAKE ANY SUCH PAYMENT. THE EXISTENCE OF A CIVIL SUIT ON THE IMPUGNED LAND BECAUSE OF WHICH THE DEVELOPMENT WORK ON THE LAND COULD NOT BE CARRIED OUT FOR A LONG TIME WAS WITHIN THE KNOWLEDGE OF THE ASSESSING OFFICER. THERE IS NO DISPUTE TO T HE FACT THAT THE PAYMENT OF RS.18 LAKHS HAS BEEN MADE ON 17-07-2007 ALTHOUGH THE DEVELOPMENT AGREEMENT WAS DATED 17-05-2005 AND THE PAYMENT HAVE BEEN MADE BY CROSSED ACCOUNT PAYEE CHEQUE TO T HE LAND OWNERS. IN VIEW OF THE ABOVE AND IN VIEW OF THE DE TAILED REASONING GIVEN BY THE LD.CIT(A) WE FIND NO INFIRMITY IN HIS ORDER. ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAI SED BY THE REVENUE ARE DISMISSED. 6 CO.NO.36/PN/2013 (BY ASSESSEE) : 6. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUNDS OF CO NO. 2 AND 3 FOR WHICH THE L D. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCO RDINGLY, THE GROUNDS OF APPEAL NO. 2 & 3 ARE DISMISSED AS NOT P RESSED. 7. GROUND OF C.O.NO.1 BY THE ASSESSEE READS AS UNDE R : 1. THE LD.CIT(A) ERRED IN CONFIRMING ADDITION OF R S.1,80,440/- U/S. 40(A)(IA) WITHOUT APPRECIATING THE CONTENTION O F THE APPELLANT. 7.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVE D FROM THE AUDIT REPORT FILED IN FORM NO.3CD (.17(F)) THAT AN AMOUNT OF RS.1,80,440/- HAS BEEN PAID TO ONE AKRUTI FOR PRI NTING AND NO TDS WAS MADE ON THIS ACCOUNT. THE ASSESSING OFFICE R, THEREFORE, DISALLOWED THE SAME U/S.40(A)(IA) OF THE I.T.ACT. 7.2 IN APPEAL THE LD.CIT(A) UPHELD THE ADDITION MAD E BY THE ASSESSING OFFICER FOR WHICH THE ASSESSEE IS IN APPE AL BEFORE US. 7.3 THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO T HE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF IT O VS. M/S. THEEKATHIR PRESS VIDE ITA NO.2076/MDS/2012 AND CO NO.155/MDS/2013 ORDER DATED 18-09-2013 FOR A.Y. 200 9-10 SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION, F OLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. VEGETABLE PRODUCTS LTD. REPORTED IN 88 ITR 192 HAS HELD THAT DISALLOWANCE U/S.40(A)(IA) APPLIES ONLY TO THOSE AM OUNTS WHICH ARE PAYABLE AND NOT TO THOSE AMOUNTS ALREADY PAID. WHIL E PASSING THIS 7 ORDER, THE TRIBUNAL HAS CONSIDERED THE DECISIONS OF DIFFERENT HIGH COURTS BOTH FOR AND AGAINST THE ASSESSEE ON THIS IS SUE. HE ACCORDINGLY SUBMITTED THAT IN VIEW OF THE ABOVE DEC ISION THE ORDER OF THE CIT(A) BE SET-ASIDE AND THE DISALLOWANCE BE DELETED. 7.4 IN HIS ALTERNATE CONTENTION, THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE FINANCE ACT, 2010 HAS AMENDED TH E FIRST PROVISO TO SECTION 40(A)(IA) W.E.F. 01-04-2010. REFERRING TO THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF KANHUBHAI RAMJI BHAI REPORTED IN 135 TTJ 364 AND THE DECISIO N OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN CREATIONS VIDE ITA NO.302/2011 HE SUBMITTED THAT IT HAS BEEN HELD IN THE SAID DECISIONS THAT THE SAID AMENDMENT IS RETROSPECTIVE IN NATURE ON THE REASONING THAT IT IS CLARIFICATORY IN NATURE. IT W AS INTRODUCED TO ELIMINATE UNINTENDED CONSEQUENCES. HE SUBMITTED TH AT THE SECOND PROVISO IN SECTION 40(A)(IA) WAS INSERTED BY THE FI NANCE ACT, 2012 W.E.F. 01-04-2013 WHEREIN IT IS STATED THAT THE DIS ALLOWANCE U/S.40(A)(IA) OF THE ACT NEED NOT BE MADE IF THE AS SESSEE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SECTION 201(1) OF THE I.T. ACT. HE SUBMITTED THAT THE AFORESAID PROVISO WHICH WAS MADE EFFECTIVE FROM 01-04-2013 SH OULD BE APPLIED RETROSPECTIVELY SINCE IT HAS BEEN INTRODUCE D TO ELIMINATE UNINTENDED CONSEQUENCES WHICH MAY CAUSE UNDUE HARDS HIP TO TAX PAYERS. 7.5 REFERRING TO THE DECISION OF THE COCHIN BENCH O F THE TRIBUNAL IN THE CASE OF ANTONY D. MUNDACKAL VS. THE ACIT VID E ITA 8 NO.38/COCH/2013 ORDER DATED 29-11-2013 FOR A.Y. 200 9-10 HE SUBMITTED THAT THE TRIBUNAL AFTER THOROUGHLY CONSID ERING THE ISSUE HAS RESTORED THE MATTER TO THE FILE OF THE ASSESSIN G OFFICER WITH CERTAIN DIRECTIONS. HE SUBMITTED THAT SINCE THE AS SESSEE IS ARGUING THIS ASPECT FOR THE FIRST TIME BEFORE THE TRIBUNAL WHICH HAS NOT BEEN RAISED BEFORE THE LOWER AUTHORITIES, THEREFORE, HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE IN THE LIGHT OF THE DIRECTION OF THE TRIB UNAL. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUBMITTED THAT THE PUNE BENCH OF THE TRIBUNAL IN TH E CASE OF SHRI VINAY ASHWINIKUMAR JONEJA VS. ITO VIDE ITA NO.1514/ PN/2012 ORDER DATED 22-10-2013 HAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE EVEN IF NOTHING REMAINS PAYABLE IF A SSESSEE HAS NOT DEDUCTED ANY TAX ON THE AMOUNTS WHICH HAS ALREADY B EEN PAID. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD. 8.1 THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY OP POSED THE NEW ARGUMENTS BEING ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE REGARDING NO DISALLOWANCE U/S40(A)(IA) WHERE THE AS SESSEE IS NOT IN DEFAULT IN VIEW OF AMENDMENT TO FIRST PROVISO TO SE CTION 201(1). HE, HOWEVER, SUBMITTED THAT IT IS UPTO THE DISCRETION O F THE BENCH TO TAKE A VIEW AS TO WHETHER THE MATTER SHOULD BE REST ORED TO THE FILE OF THE ASSESSING OFFICER. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) 9 AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS BROUGHT TO OUR NOT ICE BY BOTH THE SIDES. THERE IS NO DISPUTE TO THE FACT THAT THE AS SESSEE HAS NOT DEDUCTED TDS ON AN AMOUNT OF RS.1,80,440/- FOR WHIC H THE ASSESSING OFFICER APPLYING THE PROVISIONS OF SECTIO N 40(A)(IA) MADE ADDITION OF THE ABOVE AMOUNT WHICH HAS BEEN UPHELD BY LD.CIT(A). THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF VINAY ASHWINIKUMAR JONEJA (SUPRA) HAS ALREADY TAKEN A VIE W THAT PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE EVEN IF NO AMOUNT IS PAYABLE AT THE END OF THE YEAR. THEREFORE, THE ORD ER OF THE CIT(A) ON THIS ISSUE HAS TO BE UPHELD. 9.1 HOWEVER, THE ASSESSEE HAS MADE A NEW LEGAL ARGU MENT THAT THE FINANCE ACT, 2010 HAS AMENDED THE FIRST PROVISO TO SECTION 40(A)(IA) W.E.F. 01-04-2010 AND IT HAS BEEN HELD BY VARIOUS JUDICIAL AUTHORITIES THAT SUCH AMENDMENT IS RETROSPECTIVE IN NATURE. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SECOND PROVISO TO SECTION 40(A)(IA) WAS INSERTED BY THE FI NANCE ACT, 2012 W.E.F. 01-04-2013 WHEREIN IT IS STATED THAT DISALLO WANCE U/S.40(A)(IA) OF THE ACT NEED NOT BE MADE IF THE ASSESSEE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SECT ION 201(1) OF THE I.T. ACT., THEREFORE, THIS SHOULD ALSO BE HELD AS R ETROSPECTIVE SINCE IT HAS BEEN INTRODUCED TO ELIMINATE UNINTENDED CONSEQU ENCES WHICH MAY CAUSE UNDUE HARDSHIP TO THE TAX PAYERS. 9.2 WE FIND SOME FORCE IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE COCHIN BENCH OF THE 10 TRIBUNAL IN THE CASE OF ANTONY D. MUNDACKAL (SUPRA) RELIED ON BY LD. COUNSEL FOR THE ASSESSEE, HAD AN OCCASION TO DE CIDE AN ISSUE IN THE LIGHT OF THE ABOVE ARGUMENT AND HAS RESTORED TH E ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 7 OF THE ORDER READ AS UNDER: 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. ACCORDING TO THE ASSESSEE, THERE IS NO WRIT TEN CONTRACT BETWEEN HIM AND THE PERSONS DOING POLISHING WORKS. ACCO RDINGLY, THE ASSESSEE HAS CONTENDED BEFORE US THAT THE PROVISIONS OF SEC. 194C SHALL NOT APPLY TO THE POLISHING CHARGES. HOWEVER , WE NOTICE THAT THE ASSESSING OFFICER HAS GIVEN A CLEAR FINDING THA T ESSENTIAL INGREDIENTS OF A CONTRACT ARE VERY MUCH AVAILABLE IN THE POLISHING WORKS ENTRUSTED BY THE ASSESSEE. FURTHER WE NOTICE THAT THE CBDT, VIDE CIRCULAR NO.433 DATED 25-09-1985 (1986)(157 IT R ST. 27) HAS CLARIFIED THAT THE PROVISIONS OF SEC. 194C ARE WIDE EN OUGH TO COVER ORAL CONTRACTS ALSO. A CONTRACT IS NORMALLY REDUCED IN WRITING IN ORDER TO MAKE CLEAR THE TERMS AND CONDITIONS, OBLIGAT IONS OF THE PARTIES TO THE CONTRACT ETC. IF THE CONDITIONS OF CON TRACT ARE OTHERWISE UNDERSTOOD BY THE PARTIES, IN VIEW OF THE R EPEATED TRANSACTIONS, IN OUR VIEW, THE ABSENCE OF A WRITTEN CO NTRACT WOULD NOT MAKE ANY DIFFERENCE. IN THE INSTANT CASE, THE ASSESS EE IS REPEATEDLY GIVEN WORKS TO THE POLISHING PEOPLE AND H ENCE THE TERMS AND CONDITIONS OF THE WORK WOULD BE CLEARLY UNDERSTOO D BY BOTH THE PARTIES. ACCORDINGLY, WE REJECT THIS CONTENTION OF THE ASSESSEE AND HOLD THAT THE PROVISIONS OF SEC. 194C SHALL APPLY T O THE POLISHING WORKS GIVEN BY THE ASSESSEE. 7.1 ACCORDING TO LD A.R, THE ASSESSEE HAS ACTED AS A CON DUIT PIPE IN CONNECTION WITH THE POLISHING WORKS BETWEEN THE CU STOMERS AND THE PERSON DOING POLISHING JOB. ACCORDINGLY, IT WAS SU BMITTED THAT THERE IS NO PROFIT ELEMENT IN THE SAID TRANSACTIONS. TH E LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS INCLUDED THE COS T OF POLISHING WORKS IN THE SALE VALUE OF ALUMINIUM EXTRUSIO NS, WITHOUT KNOWING TAX IMPLICATIONS. HOWEVER, WE NOTICE THAT TH E ASSESSEE DID NOT FURNISH ANY PROOF TO SUBSTANTIATE THE ABOVE SAID CL AIMS. THE ASSESSEE, BEING A DEALER IN ALUMINIUM EXTRUSIONS, HAS ONLY SUPPLIED THE PRODUCTS AFTER CARRYING OUT THE POLISHING WORKS A CCORDING TO THE TASTE AND REQUIREMENT OF CUSTOMERS. IT IS ONLY ONE OF THE MANY BUSINESS TECHNIQUES NORMALLY ADOPTED BY A BUSINESS MAN TO IMPROVE HIS SALES, SINCE IT WILL BE VERY DIFFICULT FOR CUSTOMERS TO IDENTIFY THE POLISHING PEOPLE AND GET THE WORK DONE BY THEMSELVES. HENCE, WE ARE OF THE VIEW THAT IT MAY NOT BE CORREC T TO ARGUE THAT THE CONTRACT EXISTED BETWEEN THE CUSTOMERS AND THE POL ISHING PEOPLE. IN FACT, THE CUSTOMER MAY NOT HAVE ANY CONT ACT WITH THE POLISHING PEOPLE IN THIS TYPE OF TRANSACTIONS. HENCE, IT IS HARD TO BELIEVE THE CLAIM OF THE ASSESSEE THAT HE HAS ACTED AS ME RE CONDUIT PIPE BETWEEN THE CUSTOMERS AND POLISHING PEOPLE, ACCOR DINGLY, THE CLAIM THAT THE ASSESSEE STANDS IN A FIDUCIARY CAPACITY IS ALSO LIABLE TO BE REJECTED. IN THIS KIND OF FACTUAL SITUATION, IN OU R VIEW, THE EXISTENCE OR ABSENCE OF PROFIT ELEMENT IN THE POLISHIN G WORKS DOES NOT MAKE ANY DIFFERENCE. 11 7.2 THE LD COUNSEL, BY PLACING RELIANCE ON THE DECI SION OF SPECIAL BENCH IN THE CASE OF MERYLINE SHIPPING AND TR ANSPORTS (SUPRA) CONTENDED THAT THE PROVISIONS OF SEC. 40(A)(IA) SHALL APPLY ONLY TO AMOUNT PAYABLE AND NOT TO THE AMOUNT PAID. HOWEVER, THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIK ANDAR KHAN N TUNVAR (357 ITR 312) AND THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE (ITAT 20 OF 2013) HAVE HELD THAT THE DECISION RENDERED BY THE SPECIAL BENCH IN THE CASE OF MERYLINE SHIPPING & TRANSPORTS IS NOT A GOOD LAW. THE LD A.R, HOWEVER, PLACED RELIANCE ON THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES (357 IT R 642). ON A CAREFUL PERUSAL OF THE DECISION GIVEN BY HON'BLE ALLA HABAD HIGH COURT, WE NOTICE THAT THE HIGH COURT HAS DECIDED THE ISSUE REFERRED TO IT ON A DIFFERENT FOOTING AND HAS MADE A PASSING C OMMENT ABOUT THE DECISION RENDERED BY THE SPECIAL BENCH. THUS, THE RATIO OF THE SAID DECISION IS DIFFERENT FROM THAT RENDERED IN THE C ASE OF MERYLINE SHIPPING AND TRANSPORTS BY THE SPECIAL BENCH. HENCE, WE ARE INCLINED TO REJECT THE CONTENTIONS OF THE ASSESSEE ON T HIS POINT ALSO. 7.3 THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCO-COLA BEVE RAGES LTD (SUPRA) IN ORDER TO CONTEND THAT THE REVENUE IS NOT E NTITLED TO RECOVER TAXES, IF THE RECIPIENT HAS DECLARED THE PAYM ENTS IN HIS RETURN OF INCOME. WE NOTICE THAT THE ABOVE SAID DECI SION WAS RENDERED IN THE CONTEXT OF THE PROVISIONS OF SEC. 201 (1) AND HENCE, WE ARE OF THE VIEW THAT THE RATIO OF THE SAID DECISIO N CANNOT BE APPLIED TO THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT, 7.4 THE LAST CONTENTION OF THE ASSESSEE IS THAT THE SECON D PROVISO TO SEC, 40(A)(IA) OF THE ACT, INSERTED BY THE FINANCE ACT, 2012 WITH EFFECT FROM 1.4.2013 IS CLARIFICATORY IN N ATURE AND HENCE THE BENEFIT OF THE SAME SHOULD BE APPLIED RETROSPECTIV ELY. HOWEVER, THE CORRECTNESS OF THIS CONTENTION HAS NOT BEEN EXAMINE D BY THE TAX AUTHORITIES. HENCE, IN THE INTEREST OF NATURAL JUSTICE , WE ARE OF THE VIEW THAT THIS CONTENTION OF THE ASSESSEE REQUIRES EXAMIN ATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE MODI FY THE ORDER OF THE LD.CIT(A) AND SET ASIDE THIS GROUND TO THE FIL E OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE ABO VE SAID CONTENTION OF THE ASSESSEE AND DECIDE THE SAME IN ACCOR DANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING H EARD. WE MAKE IT CLEAR THAT WE HAVE, IN EFFECT, REJECTED ALL THE CONTENTIONS OF THE ASSESSEE EXCEPT THE GROUND RELATING TO APPLICABILIT Y OF THE SECOND PROVISO TO SEC.40(A)(IA) OF THE ACT TO THE YEAR UNDER CONSIDERATION. 9.3 SINCE THE ABOVE ARGUMENTS ARE BEING ADVANCED BE FORE THE TRIBUNAL FOR THE FIRST TIME AND THE CORRECTNESS OF THE CONTENTION HAS NOT BEEN EXAMINED BY THE TAX AUTHORITIES, THEREFORE , RESPECTFULLY FOLLOWING THE DECISION OF THE COCHIN BENCH OF THE T RIBUNAL CITED (SUPRA) AND IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMIN E THE ABOVE 12 CONTENTION OF THE ASSESSEE AND DECIDE THE ISSUE AFR ESH AND IN ACCORDANCE WITH LAW. NEEDLESS TO SAY, THE ASSESSIN G OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . WE HOLD AND DIRECT ACCORDINGLY. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CO FILED BY THE ASSESSEE IS ALLOWED FOR STATIST ICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 19-05-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBE R SATISH PUNE DATED : 19 TH MAY, 2014. COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-II, PUNE 4. CIT-II, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECR ETARY, ITAT, PUNE BENCHES, PUNE