Shri Kirankumar Mohanbhai Patel, Baroda V. The Income tax Officer,Ward-3(1), Baroda

ITA 1490/AHD/2008

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9676 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-01-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 30-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: M K PATEL
• Keywords: Non-deduction of tax

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD - , , BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ I.T.A. NO.1490/AHD/2008 ( / ASSESSMENT YEAR : 2005-06) SHRI KIRANKUMAR MOHANBHAI PATEL PROP.SURBHI CATERERS 14, BHADRAN NAGAR NEW SAMA ROAD VADODARA 390 008 / VS. THE INCOME TAX OFFICER WAD-3(1) VADODARA 390 007 $ ./ ./ PAN/GIR NO. : AKJPP 6844 R ( $' / APPELLANT ) .. ( ()$' / RESPONDENT ) $' * / APPELLANT BY : SHRI M.K. PATEL, AR ()$' + * / RESPONDENT BY : MS. SONIA KUMAR, SR.DR ,- + . / DATE OF HEARING 29/01/2016 /0 + . / DATE OF PRONOUNCEMENT 02/02/2016 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-II, BARODA [ CIT(A) IN SHORT] DATED 08/02/2008 PERTAINING TO ASSESSMENT YEAR (AY) 2005-06. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- ITA NO.1490/AHD /2008 SHRI KIRANKUMAR MOHANBHAI PATEL VS. ITO ASST.YEAR 2005-06 - 2 - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.ASSESSING OFFICER, WARD 3(1) ERRED IN DISALLOWIN G AND THE LD.COMMISSIONER OF INCOME TAX (APPEALS)-II ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSE OF RS.31,93,458/- UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961. 2. THE APPELLANT CRAVES LEAVE TO AMEND, TO ALTER, TO A DD OR TO DELETE THE GROUNDS OF APPEAL. 2. APART FROM THE ABOVE GROUNDS, THE ASSESSEE HAS A LSO RAISED ADDITIONAL GROUND OF APPEAL THAT READS UNDER:- (1) IN THE ALTERNATE, AND WITHOUT PREJUDICE, NO DISALL OWANCE U/.40(A)(IA) OF THE ACT IS CALLED FOR, IN VIEW OF INSERTION OF S ECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT. 2.1. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 23/03/2007, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE ADDITION ON ACCOUNT OF DISALLOWANCE U/S.40(1)(IA) O F THE ACT OF RS.31,93,458/- ON ACCOUNT OF NON-DEDUCTION OF TAX. 3. DURING THE COURSE OF HEARING, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN VIEW OF THE AMENDMENT IN THE PROV ISIONS OF SECTION 40(A)(IA) OF THE ACT, THE ISSUE IS NOW COVERED IN F AVOUR OF ASSESSEE BY THE DECISION OF THE COORDINATE BENCH (ITAT AGRA BENCH, AGRA) RENDERED IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ADDL.CIT IN IT A NO.337/AGRA/2013 FOR AY 2006-07, DATED 29 TH MAY-2013. HE SUBMITTED ITA NO.1490/AHD /2008 SHRI KIRANKUMAR MOHANBHAI PATEL VS. ITO ASST.YEAR 2005-06 - 3 - THAT THE ISSUE REQUIRES TO BE SENT BACK TO THE FILE OF AO FOR DECISION AFRESH. 3.1. ON THE CONTRARY, THE LD.SR.DR OPPOSED THE SUBM ISSIONS OF THE LDCS AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISION RELIED UPON BY THE LD.COUNS EL FOR THE ASSESSEE. SO FAR AS THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS CONCERNED, WE FIND THAT THE COORDINATE BENCH HAS DECIDED THE ISSUE IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ADDL.CIT (SUPRA), BY OBSERVING AS UNDER:- 9. ON A CONCEPTUAL NOTE, PRIMARY JUSTIFICATION FOR SUCH 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 DISALLOWAN CE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUCTIO NS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEWORK IS CONCERNED, THIS PROVI SION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOUR CE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTI VIZING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNOTATIONS. WHE N 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 COU RT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMB LE UNDERSTANDING, IT ITA NO.1490/AHD /2008 SHRI KIRANKUMAR MOHANBHAI PATEL VS. ITO ASST.YEAR 2005-06 - 4 - COULD NOT BE AN 'INTENDED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NON DEDUCTION OF TAX AT SOURCE, EVEN IN A SI TUATION 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 A IMED AT ENSURING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION I N 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 W ITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME 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 INSERTION OF SECOND PROVIS O THERETO, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. NOW TH AT THE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCOMING S OF PROVISION, AND THUS OBVIATE THE UNINTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL SETTLED LEGAL POSITION TO THE E FFECT THAT A CURATIVE AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSPECTIVE IN NATURE EVEN THOUGH IT MAY NOT STAT E SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPEC TIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSIONS, AS ALSO FOR THE DETAILED REAS ONS SET OUT EARLIER, WE CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEE N AN 'INTENDED CONSEQUENCE' TO PUNISH THE ASSESSEES FOR NON DEDUCT ION OF TAX AT SOURCE BY DECLINING THE DEDUCTION IN RESPECT OF RELATED PA YMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. TH AT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. A CCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTION 40( A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFF ECT FROM 1 ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 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 OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS AND AFTER CARRY ING OUT NECESSARY ITA NO.1490/AHD /2008 SHRI KIRANKUMAR MOHANBHAI PATEL VS. ITO ASST.YEAR 2005-06 - 5 - VERIFICATIONS REGARDING RELATED PAYMENTS HAVING BEE N TAKEN INTO ACCOUNT BY THE RECIPIENTS IN COMPUTATION OF THEIR I NCOME, REGARDING PAYMENT OF TAXES IN RESPECT OF SUCH INCOME AND REGA RDING FILING OF THE RELATED INCOME TAX RETURNS BY THE RECIPIENTS. WHILE GIVING EFFECT TO THESE DIRECTIONS, THE ASSESSING OFFICER SHALL GIVE DUE AN D FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE, DECIDE THE MATTER IN ACCOR DANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. WE ORDER SO. 4.1. SINCE THE FACTS IN THE PRESENT CASE ARE IDENTI CAL AS ALSO NO CHANGE INTO THE FACTS AND CIRCUMSTANCES OF THE CASE ARE PO INTED OUT BY THE REVENUE, THEREFORE RESPECTFULLY FOLLOWING THE DECIS ION OF THE COORDINATE BENCH IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ADDL. CIT(SUPRA), WE HEREBY SET ASIDE THE ORDER OF THE LD.CIT(A) AND REM IT THE ISSUE BACK TO THE FILE OF THE AO TO DECIDE IT AFRESH IN THE LIGHT OF THE DECISION OF THE COORDINATE BENCH IN THE CASE OF RAJEEV KUMAR AGARWA L VS. ADDL.CIT(SUPRA). THUS, GROUND (INCLUDING ADDL.GROU ND) RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 2ND FEBRUARY, 2 016 AT AHMEDABAD. SD/- SD/- ( ) ( ) ( MANISH BORAD ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 02/ 02 /2016 4..., ,.../ T.C. NAIR, SR. PS ITA NO.1490/AHD /2008 SHRI KIRANKUMAR MOHANBHAI PATEL VS. ITO ASST.YEAR 2005-06 - 6 - !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ()$' / THE RESPONDENT. 3. 56 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-II, BARODA 5. 8,9 (56 , . 560 , / DR, ITAT, AHMEDABAD 6. 9;< =- / GUARD FILE. ! / BY ORDER, )8 ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 1.2.16 (DICTATION-PAD 5+P AGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 1.2.16 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.2.2.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2.2.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER