M/s. Calcutta Export Co., Kolkata V. JCIT, R-34, KOLKATA, Kolkata

ITA 1355/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1507 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 17-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARJEE CIT L
• Assessee Lawyers: SHIKHA AGARWAL ACA LD
• Keywords: Retrospective amendment
• Section: 194C; 139

Judgement Text

1 ITA NO. 1355/KOL/2016 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KO LKATA BEFORE: SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JU DICIAL MEMBER I.T.A NO. 1355/K OL/2016 A.Y: 2012 -13 M/S. CALCUTTA EXPORT CO. VS. JCIT, RANGE-34, KOLK ATA PAN: AACFC 3872C [APPELLANT] [RESPONDEN T] FOR THE APPELLANT : SMT. SHIKHA AGARWAL, ACA, LD.AR FOR THE RESPONDENT : SHRI ARINDAM BHATTACHARJEE, ADDL. CIT, LD.DR DATE OF HEARING : 07-12-2017 DATE OF PRONOUNCEMENT : 14-02-2018 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DT . 7 TH APRIL, 2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)- 10, KOLKATA FOR THE A.Y 2012-13. 2. THE ONLY ISSUE IS TO BE DECIDED AS TO WHETHER TH E CIT-A JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE U/S.40(A)(IA) R.W. S 194C OF THE ACT WITHOUT TAKING RECOURSE TO SECOND PROVISO OF SECTIO N 40(A)(IA) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE LD.AR SUBMITS THAT THE ISSUE RAISED IN THE A PPEAL BY THE ASSESSEE IS COVERED BY THE DECISION DT. 26-8-2015 R EPORTED IN 377 ITR 635(DEL) OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT-1 VS. ANSAL LAND MARK TOWNSHIP(P) LTD REPORTED IN 377 ITR 635 ( DEL) AND BY AN ORDER OF TRIBUNAL, KOLKATA BENCHES IN THE CASE OF DCIT VS . M/S. FIVE STAR SHIPPING AGENCY PVT. LTD FOR ASSESSMENT YEAR 2006- 07. HE ALSO RELIED ON ORDER DT. 03-08-2017 IN ASSESSEES OWN CASE IN ITA NO. 47/KOL/2015 AND REFERRED TO PARA 4 OF THE SAID ORDER. IN VIEW OF AB OVE, HE SUBMITS THAT NOW THE ASSESSEE IS READY TO FURNISH ALL THE DETAILS OF FEES TO SHOW THAT THE RECIPIENT(S) HAVE RECEIVED THEIR AMOUNTS FROM THE A SSESSEE AND SHOWN THE 2 ITA NO. 1355/KOL/2016 SAME IN THEIR RESPECTIVE RETURNS OF INCOME. HE FURT HER SUBMITS THAT INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT IS CURATIVE IN NATURE AND IN VIEW OF THE SAME, THE ASSESSEE CANNO T BE HELD AS DEFAULTER FOR NON DEDUCTION OF TAX AT SOURCE U/S. 194C AS HEL D BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF SUPRA AND IN VIEW OF THE SAME, PRAYED TO REMAND THE MATTER TO THE FILE OF THE AO FOR VERIFI CATION OF THE SAME I.E. DETAILS OF FEES. 4. ON THE OTHER HAND, THE LD. DR SUBMITS THAT THE I NSERTION OF 2 ND PROVISO TO SECTION 40(A)(IA) WAS CONSIDERED BY THE CIT-A, BUT, FOR NOT GIVING ANY DETAILS IN RESPECT OF THE RECIPIENTS BEF ORE HIM, HE DISMISSED THE GROUND OF APPEAL. IN VIEW OF THIS, HE PRAYED TO DIS MISS THE GROUNDS OF APPEAL OF THE ASSESSEE BY CONFIRMING THE ORDER OF T HE CIT-A. 5. HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE FIND THAT THE AO DISALLOWED AN AMOUNT OF RS.8,77,089/- FOR NON DEDUC TION OF TDS AT SOURCE U/S. 194C OF THE ACT FROM THE 5 PARTIES. ACCORDING TO AO, THE ASSESSEE HAS NOT OFFERED ANY REPLY AND EXPLANATION TO THE OBJECT IONS RAISED BY THE AO IN HIS ORDER. THEREBY, HE ADDED THE IMPUGNED AMOUNT AN D ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. BEFORE THE CIT -A, WE FIND THAT THE EFFECT OF 2 ND PROVISO TO SECTION 40(A)(IA) R.W.S 194C OF THE ACT WAS RAISED. BUT, HOWEVER, THE ASSESSEE HAS NOT PRODUCED ANY DOC UMENT OR EVIDENCE TO THAT EFFECT. THUS, THE CIT-A DISMISSED THE GROUN DS APPEAL OF THE ASSESSEE. IN THIS REGARD, WE MAY REFER TO THE FOLLO WINGS :- 8. HEARD RIVAL SUBMISSIONS AND PERUSED THE RELEVAN T MATERIAL ON RECORD. AS RELIED BY THE LD.AR ON THE CASE LAW OF THE HONBLE HIGH CO URT OF DELHI SUPRA, WHILE DEALING WITH THE CASE ON HAND, HAD AN OCCASION TO READ DOWN THE DECISION OF AGRA BENCH OF TRIBUNAL IN ITA 337/AGRA/2013 AS IT WAS RELIED ON, AND HELD AND AGREED WITH THE REASONING AND CONCLUSION TO THE INSERTION OF SECOND PROVISO TO SE CTION 40(A)(IA) OF THE ACT BY THE LEGISLATURE. THE RELEVANT PORTION FROM PARAS 11 TO 14 ARE REPRODUCED HERE IN BELOW: 11. THE FIRST PROVISO TO SECTION 201 (1) OF THE ACT 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 AC COUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPE CT OF SUCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139 OF THE ACT. NO DOUBT, THERE IS A MANDATORY REQUIREMENT UNDER SECTION 201 TO DEDUCT T AX AT SOURCE UNDER CERTAIN CONTINGENCIES, BUT THE INTENTION OF THE LEGISLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJECT TO THE FULFILLMENT OF THE CONDIT IONS AS STIPULATED IN THE FIRST PROVISO TO SECTION 201(1). THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A) (IA) ALSO REQUIRES TO BE VIEWED IN THE SAME MANNER. THIS AGAIN IS A PROVI SO INTENDED TO BENEFIT THE ASSESSEE. THE EFFECT OF THE LEGAL FICTION CREATED THEREBY IS TO TREAT THE ASSESSEE AS A PERSON NOT IN DEFAULT OF DEDUCTING TAX AT SOURCE UNDER CERTAIN CO NTINGENCIES. 3 ITA NO. 1355/KOL/2016 12. RELEVANT TO THE CASE IN HAND, WHAT IS COMMON TO BOTH THE PROVISOS TO SECTION 40 (A) (IA) AND SECTION 201 (1) OF THE ACT IS THAT THE AS LONG AS THE PAYEE/RESIDENT (WHICH IN THIS CASE IS APIL) HAS FILED ITS RETURN OF INCOME D ISCLOSING THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS A LSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAUL T. AS FAR AS THE PRESENT CASE IS CONCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT T HE PAYEE HAS FILED RETURNS AND OFFERED THE SUM RECEIVED TO TAX. 13. TURNING TO THE DECISION OF THE AGRA BENCH OF IT A T IN RAJIV KUMAR AGARWAL V. A CIT (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 S OUGHT 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 SU CH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FOR THE LOSS OF REVEN UE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRIC TIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THA T THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEW ORK IS CONCERNED, THIS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTIVIZING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNOTATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHE ME OF SECTION 40(A)(IA), AS ON THE STATUTE, AND TO EXAMINE WHETHER OR NOT, ON A 'FAIR, JUST AND EQUITABLE' INTERPRETATION OF LAW- AS IS THE GUIDANCE FROM HON'BLE DELHI HIGH COU RT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT COULD NO T BE AN 'INTENDED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NON DEDUCTION OF T AX AT SOURCE, EVEN IN .A SITUATION IN WHICH CORRESPONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE SCHEME OF SECTION 40(A)(IA), AS WE SEE IT, IS AIMED AT ENS URING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY FOR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C, AND, SECTION 40(A)(IA) DOES NOT A DD TO THE SAME. THE PROVISIONS OF SECTION 40 A)(IA1 AS THEY' EXISTED PRIOR TO INSERTI ON OF SECOND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDING LA PSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN COMPAS SIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNI NTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL SETTLED LEGAL POSITION TO THE EFFECT THAT A CURATIVE AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERTION OF SEC OND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEG AL 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 CONSE QUENCE' TO PUNISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DED UCTION 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. ACCORD INGLY, 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 TH E DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) A CT, 2004.' 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASONI NG OF THE AGRA BENCH OF ITAT AS REGARDS THE RATIONALE BEHIND THE INSERTION OF THE S ECOND 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 1 ST APRIL 2005, MERITS ACCEPTANCE. 6. THE ASSESSEE AGITATED THAT THE RESIDENT IN TERMS OF 2 ND PROVISO ALSO PAID TAX ON RECEIPT OF INCOME AND PLEADED TO RESTOR E THE ISSUE TO THE FILE OF AO. THE TRIBUNAL OBSERVED THAT THE 2 ND PROVISO TO SECTION 40(A)(IA) OF THE IS CURATIVE AND TAKES CARE OF UNINTENDED CONS EQUENCE AND RESTORED THE FILE TO THE AO. WE ARE OF THE VIEW THAT THE FAC TS THEREIN ARE SIMILAR TO 4 ITA NO. 1355/KOL/2016 THE FACTS OF THE CASE ON HAND. RESPECTFULLY FOLLOWI NG THE JUDGMENT OF THE HONBLE HIGH COURT OF DELHI SUPRA AND ORDER OF COORDINATE BENCH OF KOLKATA TRIBUNAL, WE REMAND THE MATTER TO THE FILE OF AO FOR EXAMINATION AND FOR VERIFICATION OF THE REQUIRED DETAILS OF THE RESPECTIVE RECIPIENTS AND DIRECT THE ASSESSEE TO COOPERATE IN COMPLETING THE ASSESSMENT. PRELIMINARY GROUND RAISED BY THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 14-0 2-2018 SD/- SD/- WASEEM AHMED S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14-02-2018 PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/ASSESSEE: M/S. CALCUTTA EXPORT CO. 18 R.N MUKHERJEE ROAD, KOLKATA-700 001. 2 RESPONDENT/REVENUE : THE JCIT, RANGE-34, AAYKAR BHA WAN POORVA, 110 SHANTI PALLY, KOLKATA-700 107. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, SR.PS/H.O.O ITAT KOLKATA