Assistant Commissioner of Income-tax, V. M/s. Hule Constructions Pvt. Ltd., Beed

ITA 14/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9566 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 05-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Assessee Lawyers: MRS DEEPA KHARE
• Keywords: Business expenditure; Retrospective amendment; Non-deduction of tax
• Section: 201(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! , '#$ !% , ! & BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWAS THY, JM #' / ITA NO. 14/PUN/2015 ( )( / ASSESSMENT YEAR : 2011-12 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, AURANGABAD. ....... APPELLANT / V/S. M/S HULE CONSTRUCTIONS PVT. LTD. SHIVAJI CHOWK, PATODA, BEED-414204 PAN : AABCH8777M / RESPONDENT REVENUE BY : SHRI HITENDRA NINAWE ASSESSEE BY : MRS. DEEPA KHARE / DATE OF HEARING : 19.04.2017 / DATE OF PRONOUNCEMENT : 21.04.2017 * / ORDER PER VIKAS AWASTHY, JM THIS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), AURANGABAD DATED 20 .10.2014 FOR THE ASSESSMENT YEAR 2011-12. IN APPEAL, THE DEPARTMENT HAS RAISED SOLITARY ISSUE, ASSA ILING THE FINDINGS OF COMMISSIONER OF INCOME TAX(APPEALS) IN DELETING 2 ITA NO. 14/PUN/2015 A.Y. 2011-12 DISALLOWANCE OF RS.59,55,685/-MADE U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT). 2. SHRI HITENDRA NINAWE REPRESENTING THE DEPARTMENT SUB MITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELET ING DISALLOWANCE OF RS. 59,55,685/- U/S 40(A)(IA) ON THE GROUND TH AT THE SECOND PROVISO TO SECTION 40(A)(IA) INSERTED BY FINANCE ACT, 2012 W.E.F 01.04.2013 IS APPLICABLE RETROSPECTIVELY AND THE ASSESSEE IS ELIGIBLE TO CLAIM BENEFIT OF SAME IN ASSESSMENT YEAR 2010-11. THE LD. DR SUBMITTED THAT THE HONBLE KERALA HIGH COURT IN THE CASE OF PRUDEN TIAL LOGISTICS AND TRANSPORTS V/S. ITO REPORTED AS 364 ITR 689 HAS HELD THAT SECOND PROVISO TO SECTION 40(A) (IA) IS EFFECTIVE FROM 01.04.2013 ONLY. THE LD. DR PRAYED FOR REVERSING THE FINDINGS OF THE COMMISSIONER OF INC OME TAX (APPEALS) ON THE ISSUE AND RESTORING DISALLOWANCE U/S 40(A)(IA ) OF THE ACT MADE BY THE ASSESSEE. 3. ON THE OTHER HAND, MRS. DEEPA KHARE APPEARING ON B EHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAD MADE D ISALLOWANCE OF RS.59,55,685/-U/S 40(A)(IA) IN RESPECT OF INTEREST PAID TO SRE I EQUIPMENT FINANCE LTD. A NON BANKING FINANCE COMPANY (NBFC) WITHOUT DEDUCTING TAX AT THE TIME OF PAYMENT OF INTEREST. IN FIRST APPEAL, TH E COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION MADE BY THE A SSESSING OFFICER U/S 40(A)(IA) BY FOLLOWING THE DECISIONS OF PUNE BENCH OF T HE TRIBUNAL IN THE CASE OF ITO V/S M/S GAURIMAL MAHAJAN & SO NS IN ITA NO. 1852/PN/2012 FOR ASSESSMENT YEAR 2008-09 DECIDED O N 06.01.2014 AND ACIT V/S. POONAWALA FASHIONS PVT. LTD IN ITA NO. 184 8/PN/2012, FOR ASSESSMENT YEAR 2007-08 DECIDED ON 15.01.2014. THE LD . COUNSEL FURTHER SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN TH E CASE OF CIT 3 ITA NO. 14/PUN/2015 A.Y. 2011-12 V/S. ANSAL LAND MARK TOWNSHIP (P) LTD. REPORTED AS 377 IT R 635 HAS HELD THAT SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE AND IT HAS RETROSPECTIVE EFFECT FROM 01.04.2005. THE LD. COUN SEL TO FURTHER BUTTRESSES HER SUBMISSIONS HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE TRIBUNAL WHEREIN SIMILAR VIEW HAS BEEN TAKEN AND DISALLOWANCE U/S 40(A)(IA) HAS BEEN DELETED. I) DCIT V/S. M/S BHANDARI ASSOCIATES, ITA NO. 1129/ PN/2012, ASSESSMENT YEAR 2008-09 DATED 19.05.2014. II) ITO V/S. SHRI BALAJI TUKARAM GAIKWAD, ITA NO. 2 444/PN/2012, ASSESSMENT YEAR 2006-07, DATED 30.06.2014. III) NEW ALIGNMENT V/S. ITO REPORTED AS 69 TAXMANN. COM 122 [KOLKATA- TRIB] 4. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BE LOW. THE ONLY ISSUE RAISED BY THE DEPARTMENT IN APPEAL IS DELETING OF DIS ALLOWANCE MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE ACT. THE SECOND PR OVISO TO SECTION 40(A)(IA) WAS INSERTED BY THE FINANCE ACT, 2012 W.E.F 01.04.2013. THE AMENDMENT BROUGHT IN BY THE FINANCE ACT, 2 012 BY WAY OF INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA), WHETHER E FFECTIVE RETROSPECTIVELY OR FROM THE DATE MENTIONED IN THE FINANC E ACT, 2012, HAS BEEN DEBATED IN SEVERAL CASES BEFORE TRIBUNAL & VARIOUS H ONBLE HIGH COURTS. THE HONBLE KERALA HIGH COURT IN THE CASE OF PRUD ENTIAL LOGISTICS AND TRANSPORTS V/S. ITO (SUPRA) HAS HELD THAT SECOND P ROVISO TO SECTION 40(A)(IA) GIVING CONCESSION TO ASSESSEE FROM DEDUCTING TDS IN CASE RECIPIENT OF AMOUNT HAS ALREADY PAID TAXES ON SUCH AMOU NT WOULD BE AVAILABLE WITH EFFECT FROM 01.04.2013 ONLY. SUBSEQUENTLY, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S. ANSAL LAND MARK T OWNSHIP (P) LTD HELD THAT SECOND PROVISO TO SECTION 40(A)(IA) IS DECLAR ATORY AND 4 ITA NO. 14/PUN/2015 A.Y. 2011-12 CURATIVE AND HAS RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2005. VARIOUS BENCHES OF THE TRIBUNAL HAVE BEEN CONSISTENTLY HOLDING TH AT THE SECOND PROVISO TO SECTION 40(A) (IA) IS APPLICABLE RETROSPECTIVELY. 5. RECENTLY, PUNE BENCH OF THE TRIBUNAL IN THE CASE OF YA MAZAKI MAZAK INDIA PVT. LTD V/S. PR. CIT IN ITA NO. 153/PN/2015 FOR ASSESSMENT YEAR 2010-11 DECIDED ON 28.10.2016 HAS DEALT WITH THE ISSUE. THE CO-ORDINATE BENCH AFTER TAKING CONSIDERATION VA RIOUS DECISIONS INCLUDING THE DIVERGENT VIEW TAKEN BY THE HONBLE KERELA HIGH COURT IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPORTS V/S. ITO (SUPRA) AND THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S. A NSAL LAND MARK TOWNSHIP (P) LTD ( SUPRA) HAS HELD : 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRES ENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. THE ONLY ISSUE IN THE PRESENT APPEAL ARISING FROM THE ARGUME NTS MADE ON BEHALF OF BOTH THE SIDES IS; WHETHER THE SECOND PROVISO TO SE CTION 40(A)(IA) INSERTED BY FINANCE ACT, 2012, IS APPLICABLE RETROSPECTIVELY OR W.E.F. 01-04-2013. BEFORE WE PROCEED WITH THE ISSUE IT WOULD BE RELEVA NT TO FIRST REFER TO THE AMENDMENT BROUGHT IN BY THE FINANCE ACT, 2012 TO SE CTION 40(A)(IA) BY WAY OF INSERTION OF PROVISO. 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION S 30 TO [38], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMP UTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION, (A) IN THE CASE OF ANY ASSESSEE XXXXXXXXXX XXXXXXXXXX (IA) [ANY INTEREST, COMMISSION OR BROKERAGE,[RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R, AFTER DEDUCTION, [HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139;] 5 ITA NO. 14/PUN/2015 A.Y. 2011-12 PROVIDED THAT XXXXXXXXXX PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN A SSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTI ON 201, THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE O F FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. W ITH THE INTRODUCTION OF SECOND PROVISO IT WOULD BE IMPERATIVE THAT BEFORE DISALLOWING ANY AMOUNT FOR NON-DEDUCTION OF TAX AT SOURCE IT WOULD BE NECESSARY TO ASCERTAIN WHETHER THE RECIPIENT OF THE AMOUNT IN QUESTION HAD PAID TAXES ON SUCH AMOUNT. IF THE ANSWER IS IN AFFI RMATIVE NO DISALLOWANCE U/S. 40(A)(IA) IS WARRANTED ON SUCH PAYMENT. THE ME MORANDUM EXPLAINING THE INSERTION OF NEW PROVISO READS AS UNDER : A RELATED ISSUE TO THE ABOVE IS THE DISALLOWANCE U NDER SECTION 40(A)(IA) OF CERTAIN BUSINESS EXPENDITURE LIKE INTEREST, COMM ISSION, BROKERAGE, PROFESSIONAL FEE, ETC. DUE TO NON-DEDUCTION OF TAX. IT HAS BEEN PROVIDED THAT IN CASE THE TAX IS DEDUCTED IN SUBSEQUENT PREV IOUS YEAR, THE EXPENDITURE SHALL BE ALLOWED IN THAT SUBSEQUENT PRE VIOUS YEAR OF DEDUCTION. IN ORDER TO RATIONALISE THE PROVISIONS OF DISALLOWA NCE ON ACCOUNT OF NON- DEDUCTION OF TAX FROM THE PAYMENTS MADE TO A RESIDE NT PAYEE, IT IS PROPOSED TO AMEND SECTION 40(A)(IA) TO PROVIDE THAT WHERE AN ASSESSEE MAKES PAYMENT OF THE NATURE SPECIFIED IN THE SAID S ECTION TO A RESIDENT PAYEE WITHOUT DEDUCTION OF TAX AND IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201(1) ON ACCOUNT OF PAYMENT OF TAXES BY THE PAYEE, THEN, FOR THE PURPOSE OF ALLOWING DEDUCTION OF SUCH SUM, 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 B Y THE RESIDENT PAYEE. THESE BENEFICIAL PROVISIONS ARE PROPOSED TO BE APPL ICABLE ONLY IN THE CASE OF RESIDENT PAYEE. THESE AMENDMENTS WILL TAKE EFFECT FROM 1ST APRIL, 2 013 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YE AR 2013-14 AND SUBSEQUENT ASSESSMENT YEARS. 6 ITA NO. 14/PUN/2015 A.Y. 2011-12 7. IN THE PRESENT CASE IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS MADE PAYMENT OF RENT TO THE TUNE OF ` 1,15,90,000/- TO M/S. ELPRO INTERNATIONAL LTD. NO TAX HAS BEEN DEDUCTED ON THE AFORESAID PAYMENT BY THE ASSESSEE. THE ASSESSEE WAS SUPPOSED TO DEDUCT TAX AT SOURCE @ 0.75%, IN ACCORDANCE WITH THE LOW RATE TAX CERTIFIC ATE ISSUED BY THE DEPARTMENT. THE ASSESSING OFFICER DURING THE SCRUT INY ASSESSMENT PROCEEDINGS FAILED TO TAKE INTO CONSIDERATION THE R ENT PAID BY THE ASSESSEE WITHOUT DEDUCTION OF TAX AT SOURCE. THE PR. COMMISS IONER OF INCOME TAX INVOKED THE PROVISIONS OF SECTION 263 AND DIRECTED THE ASSESSING OFFICER TO MAKE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. WHILE ISSUING AFORESAID DIRECTIONS THE PR. COMMISSIONER OF INCOME TAX HELD THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM THE BENEFIT OF THE SECOND PRO VISO TO SECTION 40(A)(IA) INSERTED BY FINANCE ACT, 2012 AS THE AMENDMENT IS E FFECTIVE FROM 01-04- 2013. THE PR. COMMISSIONER OF INCOME TAX HAS FURTH ER PLACED RELIANCE ON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CA SE OF PRUDENTIAL LOGISTICS AND TRANSPORTS VS. INCOME TAX OFFICER (SU PRA) TO FORTIFY HIS VIEW. THE CONTENTION OF THE ASSESSEE IS THAT THE AMENDMEN T TO SECTION 40(A)(IA) BY WAY OF INSERTION OF THE SECOND PROVISO IS APPLIC ABLE WITH RETROSPECTIVE EFFECT. TO STRENGTHEN THIS CONTENTION SUPPORT HAS BEEN DRAWN FROM THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANSAL LAND MARK TOWNSHIP (P) LTD. (S UPRA). THE QUESTION BEFORE HON'BLE HIGH COURT FOR DETERMINATION WAS : 5. THE OTHER ISSUE URGED BY THE REVENUE DURING THE COURSE OF ARGUMENTS PERTAINS TO THE RETROSPECTIVITY OF THE SE COND PROVISO TO SECTION 40(A) (IA) OF ACT. THE HON'BLE HIGH COURT ANSWERED THE QUESTION BY HOL DING THE AMENDMENT TO BE RETROSPECTIVE. THE RELEVANT EXTRACT OF THE JU DGMENT IS REPRODUCED AS UNDER : 12. RELEVANT TO THE CASE IN HAND, WHAT IS COMMON T O BOTH THE PROVISOS TO SECTION 40 (A) (IA) AND SECTION 210 (1) OF THE ACT IS THAT THE AS LONG AS THE PAYEE/RESIDENT (WHICH IN THIS CASE IS ALIP) HAS FILED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WH ICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS ALSO PAID T AX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERS ON IN DEFAULT. AS FAR AS THE PRESENT CASE IS CONCERNED, IT IS NOT DIS PUTED BY THE REVENUE THAT THE PAYEE HAS FILED RETURNS AND OFFERED THE SU M RECEIVED TO TAX. 13. TURNING TO THE DECISION OF THE AGRA BENCH OF IT AT IN RAJIV KUMAR AGARWAL V. ACIT (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 SOUGHT TO EXPLAIN THE RATIONALE BEHIND ITS INSERTION. IN 7 ITA NO. 14/PUN/2015 A.Y. 2011-12 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 REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INT O ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE R ECIPIENTS OF THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRIC TIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS A BLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISAL LOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUC H 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 SCHEME OF SECTION 40(A)(IA), AS ON TH E STATUTE, AND TO EXAMINE WHETHER OR NOT, ON A 'FAIR, JUST AND EQUITA BLE' INTERPRETATION OF LAW- AS IS THE GUIDANCE FROM HON' BLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT COULD NOT BE AN 'INTENDED CONSEQU ENCE' TO DISALLOW THE EXPENDITURE, DUE TO NON DEDUCTION OF T AX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESPONDING INCOME I S BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE SCHEME OF SECTIO N 40(A)(IA), AS WE SEE IT, IS AIMED AT ENSURING THAT AN EXPENDITURE SH OULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAS REMAI NED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESS EE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN I NCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY F OR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C, AND, SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PROVISIONS OF SECTION 40(A)(IA), AS THEY EXISTED PRIOR TO INSE RTION OF SECOND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOUS INTEN TIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDING LAPSES DID NOT RESUL T IN ANY LOSS TO THE EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN CO MPASSIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNINTENDED 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 AS 8 ITA NO. 14/PUN/2015 A.Y. 2011-12 RETROSPECTIVE IN NATURE EVEN THOUGH IT MAY NOT STAT E SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETRO SPECTIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVI SION WAS INTRODUCED. IN VIEW OF THESE DISCUSSIONS, AS ALSO F OR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN 'INTENDED CONSEQUENCE' TO PUNISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DEC LINING THE DEDUCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. THAT W ILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. A CCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTIO N 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETRO SPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE 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 INSERTI ON OF THE SECOND PROVISO TO SECTION 40(A) (IA) OF THE ACT AND ITS CONCLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSP ECTIVE EFFECT FROM 1ST APRIL 2005, MERITS ACCEPTANCE. 15. IN THAT VIEW OF THE MATTER, THE COURT IS UNABLE TO FIND ANY LEGAL INFIRMITY IN THE IMPUGNED ORDER OF THE ITAT IN ADOP TING THE RATIO OF THE DECISION OF THE AGRA BENCH, ITAT IN ( RAJIV KUMAR AGARWAL V. ACIT ). 8. SIMILAR VIEW HAS BEEN TAKEN BY THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF NEW ALIGNMENT VS. INCOME TAX OFFICER (S UPRA) AND MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RELIANCE COMMU NICATIONS LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA). IN BO TH THE ABOVE SAID CASES, THE TRIBUNAL HAS FOLLOWED THE DECISION OF HO N'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANSAL LAND MARK TOWNSHIP (P) LTD. (SUPRA). 9. ONE OF THE CONTENTIONS OF THE LD. DR IS THAT IN THE CASES CITED ON BEHALF OF THE ASSESSEE, THE DECISION RENDERED BY HO N'BLE KERALA HIGH COURT HAS NOT BEEN CONSIDERED. WE FIND THAT RAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF R K P COMPANY VS. INCOME TAX OFFICER (SUPRA ) HAS CONSIDERED THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE O F THOMAS GEORGE MUTHOOT VS. CIT (SUPRA), IN WHICH THE JUDGMENT REND ERED IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPORTS VS. INCOME TAX OFFICER (SUPRA) WAS CONSIDERED. THE RAIPUR BENCH BY FOLLOWING THE JUDG MENT OF HON'BLE DELHI HIGH COURT HELD THAT THE AMENDMENT IS RETROSPECTIVE IN NATURE. THE RELEVANT EXTRACT OF THE FINDINGS OF RAIPUR BENCH OF THE TRIBUNAL ARE REPRODUCED HERE-IN-BELOW : 9 ITA NO. 14/PUN/2015 A.Y. 2011-12 4. WE FIND THAT HONBLE DELHI HIGH COURT HAS SPECI FICALLY APPROVED THE STAND TAKEN BY A COORDINATE BENCH OF THIS TRIBU NAL, IN THE CASE OF RAJEEV KUMAR AGARWAL VS ACIT [(2014) 149 ITD 363 (AGRA)], AND UPHELD THE ACTION OF THE TRIBUNAL IN FOLLOWING THE SAME. 9. . NOW THAT THE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNINTENDED HARDSHIPS, SUCH AN AMEN DMENT 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 AS RETROSPECTIVE IN NATURE EVEN THOUGH IT M AY NOT STATE SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIME WHEN TH E RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSI ONS, AS ALSO FOR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUB SCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN INTENDED CONSEQUEN CE TO PUNISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. THAT W ILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. A CCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTIO N 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETRO SPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) A CT, 2004. 10. IN VIEW OF THE ABOVE DISCUSSIONS, WE DEEM IT FI T AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFIC ER FOR FRESH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS AND AFTER CARRYING OUT NECESSARY VERIFICATIONS REGARDING RELA TED PAYMENTS HAVING BEEN TAKEN INTO ACCOUNT BY THE RECIPIENTS IN COMPUTATION OF THEIR INCOME, REGARDING PAYMENT OF TAXES IN RESPECT OF SUCH INCOME AND REGARDING FILING OF THE RELATED INCOME TAX RETU RNS BY THE RECIPIENTS. WHILE GIVING EFFECT TO THESE DIRECTIONS , THE ASSESSING OFFICER SHALL GIVE DUE AND FAIR OPPORTUNITY OF HEAR ING TO THE ASSESSEE, DECIDE THE MATTER IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. WE ORDER SO 5. IN EFFECT THUS, THEIR LORDSHIPS HAVE APPROVED TH E ACTION OF THE TRIBUNAL IN REMITTING THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ASCERTAIN WHETHER THE RECIPIENT HAS TAKEN INTO ACCOUNT RELATED PAYMENTS INTO COMPUTATION OF HIS IN COME AND OFFERING THE SAME TO TAX, AND, IF SO, DELETE THE DI SALLOWANCE UNDER SECTION 40(A)(IA) IN RESPECT OF THE SAME. 10 ITA NO. 14/PUN/2015 A.Y. 2011-12 6. WHEN, HOWEVER, WE ASKED THE LEARNED DEPARTMENTAL REPRESENTATIVE AS TO WHY WE SHOULD ALSO NOT REMIT T HE MATTER TO THE FILE OF THE ASSESSING OFFICER, WITH THE SAME DIRECT IONS, HE, ALONGWITH HIS SENIOR COLLEAGUE SHRI DARHAN SINGH, WHO HAPPENS TO BE THE CIT(A) AUTHORING THE IMPUGNED ORDER AND WHO WAS ON DUTY AS CIT(DR) BEFORE US, HAD THREE POINTS TO MAKE- FIRST, THAT THERE ARE DECISIONS IN SUPPORT OF THE STAND OF THE ASSESSING OFFICERS STAND, BY WAY OF HONBLE KERALA HIGH COURTS DECISION IN T HE CASE OF THOMAS GEORGE MUTHOOT VS CIT [(2015) 63 TAXMANN.COM 99 (KERALA)]; SECOND, THAT EVEN IF INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) CAN BE CONSTRUED AS RETROSPECTIVE IN EFFE CT, THE CORRESPONDING RULE IN THE INCOME TAX RULES 1962 IS NOT, AND HAS NOT BEEN HELD TO BE, RETROSPECTIVE, AND THE SECOND PROV ISO TO SECTION 40(A)(IA) CANNOT, THEREFORE, BE GIVE RETROSPECTIVE EFFECT; AND, THIRD, THAT THERE IS NO DECISION ON THIS ISSUE BY HONBLE JURISDICTIONAL HIGH COURT AND, AS SUCH, THE STAND OF THE ASSESSING OFFI CER CANNOT BE FAULTED. 7. AS FOR HONBLE KERALA HIGH COURTS DECISION IN T HE CASE OF THOMAS GEORGE MUTHOOT (SUPRA), UNDOUBTEDLY, OUTSIDE THE JURISDICTION OF HONBLE KERALA HIGH COURT AND OUTSI DE THE JURISDICTION OF HONBLE DELHI HIGH COURT- WHICH HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, THERE ARE CONFLICT ING DECISIONS ON THE ISSUE OF RESTROSPECTIVITY OF SECOND PROVISO TO SECTION 40(A)(IA). IT IS THUS EVIDENT THAT VIEWS OF THESE TWO HIGH COURTS ARE IN DIRECT CONFLICT WITH EACH OTHER. CLEARLY, THEREFORE, THERE IS NO MEETING GROUND BETWEEN THESE TWO JUDGMENTS. THE DIFFICULTY ARISES AS TO WHICH OF THE HONBLE NON JURISDICTIONAL HIGH COURT IS TO BE FOLLOWED BY US IN THE PRESENT SITUATION. IT WILL BE WHOLLY I NAPPROPRIATE FOR US TO CHOOSE VIEWS OF ONE OF THE HIGH COURTS BASED ON OUR PERCEPTIONS ABOUT REASONABLENESS OF THE RESPECTIVE VIEWPOINTS, AS SUCH AN EXERCISE WILL DE FACTO AMOUNT TO SITTING IN JUDGMEN T OVER THE VIEWS OF THE HIGH COURTS SOMETHING DIAMETRICALLY OPPOSED TO THE VERY BASIC PRINCIPLES OF HIERARCHICAL JUDICIAL SYSTEM. WE HAVE TO, WITH OUR HIGHEST RESPECT OF BOTH THE HONBLE HIGH COURTS, AD OPT AN OBJECTIVE CRITERION FOR DECIDING AS TO WHICH OF THE HONBLE H IGH COURT SHOULD BE FOLLOWED BY US. WE FIND GUIDANCE FROM THE JUDGME NT OF HONBLE SUPREME COURT IN THE MATTER OF CIT VS. VEGETABLE PR ODUCTS LTD. 11 ITA NO. 14/PUN/2015 A.Y. 2011-12 [(1972) 88 ITR 192 (SC)]. HONBLE SUPREME COURT HAS LAID DOWN A PRINCIPLE THAT 'IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE A SSESSEE MUST BE ADOPTED'. THIS PRINCIPLE HAS BEEN CONSISTENTLY FOLL OWED BY THE VARIOUS AUTHORITIES AS ALSO BY THE HONBLE SUPREME COURT ITSELF. IN ANOTHER SUPREME COURT JUDGMENT, PETRON ENGG. CONSTR UCTION (P) LTD. & ANR. VS. CBDT & ORS. (1988) 75 CTR (SC) 20 : (198 9) 175 ITR 523 (SC), IT HAS BEEN REITERATED THAT THE ABOVE PRINCIP LE OF LAW IS WELL ESTABLISHED AND THERE IS NO DOUBT ABOUT THAT. HONB LE SUPREME COURT HAD, HOWEVER, SOME OCCASIONS TO DEVIATE FROM THIS GENERAL PRINCIPLE OF INTERPRETATION OF TAXING STATUTE WHICH CAN BE CONSTRUED AS EXCEPTIONS TO THIS GENERAL RULE. IT HAS BEEN HEL D THAT THE RULE OF RESOLVING AMBIGUITIES IN FAVOUR OF TAXPAYER DOES NO T APPLY TO DEDUCTIONS, EXEMPTIONS AND EXCEPTIONS WHICH ARE ALL OWABLE ONLY WHEN PLAINLY AUTHORISED. THIS EXCEPTION, LAID DOWN IN LITTMAN VS. BARRON 1952(2) AIR 393 AND FOLLOWED BY APEX COURT I N MANGALORE CHEMICALS & FERTILIZERS LTD. VS. DY. COMMR. OF CT ( 1992) SUPPL. (1) SCC 21 AND NOVOPAN INDIA LTD. VS. CCE & C 1994 (73) ELT 769 (SC), HAS BEEN SUMMED UP IN THE WORDS OF LORD LOHEN , 'IN CASE OF AMBIGUITY, A TAXING STATUTE SHOULD BE CONSTRUED IN FAVOUR OF A TAX- PAYER DOES NOT APPLY TO A PROVISION GIVING TAX-PAYE R RELIEF IN CERTAIN CASES FROM A SECTION CLEARLY IMPOSING LIABILITY'. T HIS EXCEPTION, IN THE PRESENT CASE, HAS NO APPLICATION. THE RULE OF R ESOLVING AMBIGUITY IN FAVOUR OF THE ASSESSEE DOES NOT ALSO APPLY WHERE THE INTERPRETATION IN FAVOUR OF ASSESSEE WILL HAVE TO T REAT THE PROVISIONS UNCONSTITUTIONAL, AS HELD IN THE MATTER OF STATE OF M.P. VS. DADABHOYS NEW CHIRMIRY PONRI HILL COLLIERY CO. LTD . AIR 1972 (SC) 614. THEREFORE, WHAT FOLLOWS IS THAT IN THE PECULIA R CIRCUMSTANCES OF THE CASE AND LOOKING TO THE NATURE OF THE PROVISION S WITH WHICH WE ARE PRESENTLY CONCERNED, THE VIEW EXPRESSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ANSAL LANDMARK (SUPRA), W HICH IS IN FAVOUR OF ASSESSEE, IS REQUIRED TO BE FOLLOWED BY U S. REVENUE DOES NOT, THEREFORE, DERIVE ANY ADVANTAGE FROM HONBLE K ERALA HIGH COURTS DECISION IN THE CASE OF THOMAS GEORGE MUTHO OT (SUPRA). 10. IT IS A WELL SETTLED LAW THAT WHERE TWO DIVERGE NT VIEWS ARE POSSIBLE AND BOTH THE VIEWS ARE EQUALLY CONVINCING, THE VIEW IN FAVOUR OF THE ASSESSEE MUST BE ADOPTED. THUS, APPLYING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT V S. VEGETABLE PRODUCTS LTD. (SUPRA) WE ACCEPT THE CONTENTIONS OF THE ASSES SEE AND HOLD THAT THE 12 ITA NO. 14/PUN/2015 A.Y. 2011-12 SECOND PROVISO TO SECTION 40(A)(IA) INSERTED BY FIN ANCE ACT, 2012 IS APPLICABLE RETROSPECTIVELY W.E.F. 01-04-2005 . 6. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISIONS DISCUSSED ABOVE, WE FIND NO ERROR IN THE ORDER OF COMMISSIONER OF IN COME TAX (APPEALS) IN DELETING DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE ACT. 7. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED BE ING DEVOID OF ANY MERIT. ORDER PRONOUNCED ON FRIDAY, THE 21 ST DAY OF APRIL, 2017. SD/- SD/- ( /ANIL CHATURVEDI) ( $ !% /VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; !' / DATED : 21 ST APRIL, 2017. SB *+,-$.$) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (A), AURANGABAD. 4. THE CIT, AURANGABAD. #$ %&' () , * () , + +,- , / DR, ITAT, B BENCH, PUNE. 6. './01 / GUARD FILE. 23456789 *: / BY ORDER, /ASSISTANT REGISTRAR * () , / ITAT, PUNE