ACIT, Pune V. Vishnu Mahadev Matere, Pune

ITA 1517/PUN/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8520 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 11-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S PRAVEENA
• Keywords: Retrospective amendment; Non-deduction of tax
• Section: 194C

Judgement Text

INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 1506/PN/2012 (ASSESSMENT YEAR : 2008-09) SHRI VISHNU MAHADEV MATERE, MATERE HOUSE, GUT NO.62, SECTOR 24, PRADHIKARAN, MOSHI, PUNE 412 105, PAN NO.ADEPM9511D .. APPELLANT VS. ACIT, RANGE-8, PUNE .. RESPONDENT ITA NO. 1517/PN/2012 (ASSESSMENT YEAR : 2008-09) ACIT, RANGE-8, PUNE .. APPELLANT VS. SHRI VISHNU MAHADEV MATERE, MATERE HOUSE, GUT NO.62, SECTOR 24, PRADHIKARAN, MOSHI, PUNE 412 105, PAN NO.ADEPM9511D .. RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK DEPARTMENT BY : SMT. S. PRAVEENA ORDER PER R.S. PADVEKAR, JM : THESE TWO CROSS APPEALS, ONE BY THE ASSESSEE AND ANOTHER BY THE REVENUE ARE FILED CHALLENGING THE IM PUGNED ORDER OF THE LD.CIT(A)-V, PUNE DATED 30-04-2012 FOR THE A.Y. 2008-09. 2. WE FIRST DECIDE ASSESSEES APPEAL BEING ITA NO.1506/PN/2012. THE ASSESSEE HAS TAKEN THE FOLLOW ING GROUNDS IN THE APPEAL : 2 1, THE LD. AO ERRED BOTH ON FACT AND LAW IN MAKING VARIOUS ADDITIONS AS STATED IN GROUNDS OF APPEAL. 2. THE LD.CIT(A) ERRED IN SUSTAINING THE ADDITION O F RS.15,00,000/- UNDER THE HEAD INFLATED EXPENDITURE ON THE FACE OF EVIDENCES PRODUCED BY THE APPELLANT. 2.1 THE ONLY SOLITARY ISSUE IS IN RESPECT OF THE AL LEGED INFLATED EXPENDITURE AND AO MADE THE DISALLOWANCE O N ADHOC BASIS AT RS.15 LAKHS. FACTS WHICH ARE REVEALED FRO M THE RECORD ARE AS UNDER. THE ASSESSEE IS A GOVERNMENT CIVIL CONTRACTOR. THE BUSINESS OF THE ASSESSEE HAS BEEN CONVERTED AND TAKEN OVER BY COMPANY V. M. MATERE INFRASTRUCTU RE PVT. LTD., W.E.F. 01-04-2008. THE ASSESSEE FILED THE RE TURN OF INCOME FOR THE A.Y. 2008-09 DECLARING INCOME OF RS.2,55,49,270/-. ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT HAS BEEN COMPLETED U/S.143(3) OF THE ACT. 2.2 SO FAR AS ISSUE BEFORE US IS CONCERNED, THE SAM E IS DISCUSSED IN PARA NO.7 OF THE ASSESSMENT ORDER. AO HAS OBSERVED THAT SURVEY ACTION WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 29-09-2006 AND STATEMEN T OF THE ACCOUNTANT OF THE ASSESSEE WAS RECORDED AND THE AO HAS REPRODUCED SOME OF THE QUESTIONS AND ANSWERS GIVEN BY THE ACCOUNTANT IN THE ASSESSMENT ORDER. AO HAS ALSO OB SERVED THAT THE ASSESSEE HAS DECLARED NET PROFIT AT 5.5% O NLY. AS NOTED BY THE AO, THE ASSESSEE HAS SHOWN THE PURCHAS E OF STONE METALS OF RS.53,89,499/-. THE AO HAS OBSERVE D THAT THE ASSESSEE OWNS STONE QUARRIES AND PRODUCED STONE METALS USED BY IT IN ROAD CONSTRUCTION. THE ASSESSEE EXPL AINED TO THE AO THAT THE TRANSPORT EXPENSES ARE AT HIGHER SI ZE THAN THE MATERIAL PURCHASED DUE TO THE STONE QUARRIES OF THE ASSESSEE. THE AO TRIED TO VERIFY THE METAL PURCHASES SHOWN BY THE 3 ASSESSEE FROM THE THIRD PARTY ON THE BASIS OF THE T ELEPHONE NOS. ON THE BILLS. HE HAS OBSERVED THAT TELEPHONE NUMBERS IN RESPECT OF SOME PARTIES WERE NOT EXISTED 2.3 AO HAS NOTED THAT THE DETAILS OF TRANSPORT EXPE NSES CLAIMED WERE ALSO CALLED. THE AO ASKED THE ASSESSE E TO PRODUCE THE FOLLOWING PARTIES WITH WHOM LARGE TRANS ACTIONS WAS SHOWN TO HAVE BEEN CARRIED OUT BY THE ASSESSEE : (I) AKASH DEEP TRANSPORT (II) PRATHAMESH TRANSPORT (III) VAIBHAV DEEP TRANSPORT 2.4 THE AO HAS NOTED THAT THOSE PARTIES WERE NOT PR ODUCED. IN RESPECT OF THE BRICK PURCHASE, IT WAS SEEN THAT THE PURCHASE OF RS.3,15,000/- WAS SHOWN TO BE PURCHASED FROM PARTH TRADERS. TRANSPORT CHARGES WAS SHOWN AT RS.10,38,700/- FOR THOSE BRICKS. THE AO HAS OBSERV ED THAT THE COPY OF THE BILLS SUBMITTED SHOWED THAT THE PAY MENTS HAVE BEEN MADE BY CHEQUES. AO HAS FURTHER NOTED TH AT IT WAS SEEN THAT THE HAND-WRITING ON THE BILLS IN RESP ECT OF THE PARTH TRADERS AND SAI TRANSPORTS WAS THE SAME. THE AO HAS ALSO NOTED THAT THE BILL NOS. 90 AND 88 OF THE SAI TRANSPORTS DATED 22-10-2007 SHOWED THAT THOSE BILLS HAVE RECEI VED BY THE SAME PERSON AT TWO DIFFERENT SITES, I.E. NEHRUN AGAR AND DIGHI WHICH WAS HAVING QUITE DISTANCE. AO HAS RAIS ED QUESTION MARK AS TO HOW THE SAME PERSON RECEIVED MA TERIAL SIMULTANEOUSLY AT TWO DIFFERENT SITES. 2.5 THE AO HAS ALSO OBSERVED THAT HE HAS ASKED THE ASSESSEE TO PRODUCE M/S. SAI TRANSPORTS BUT THE SAI D PARTY WAS NOT PRODUCED BY THE ASSESSEE. AS NOTED BY THE AO THE NOTICE U/S.133(6) WAS ISSUED TO M/S. SAI TRANSPORTS AT THE 4 ADDRESSED GIVEN BY THE ASSESSEE AND THE SAID NOTICE WAS ALSO SERVED ON ONE SHRI NITIN JAVALE ON BEHALF OF ONE PR AVIN JAVALE. 2.6 THE AO HAS ASKED THEM TO PRODUCE THE COPY OF TH E LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S. SAI TRANSPORTS AND THE COPY OF THE BANK STATEMENTS ETC. , AS PER THE BOOKS OF ACCOUNT OF THE ASSESSEE, TOTAL PAYMENT TO M/S. SAI TRANSPORTS SHOWN AT RS.10,38,700/-. THE AO HAS ALSO OBSERVED THAT M/S. SAI TRANSPORTS IS THE FRIEND OF THE ASSESSEE FROM WHOM THE ASSESSEE HAS SHOWN PURCHASE OF THE PIPES. THE ASSESSEE HAS ALSO SHOWN THAT ADVANCE OF RS.45 LAKHS IS RECEIVED BY HIM FROM M/S.VIJAY TRADERS. 2.7 THE AO ISSUED NOTICE US/.133(6) TO M/S. VIJAY T RADERS BUT THERE WAS NO RESPONSE AS NOTED BY THE AO. AFTE R RECORDING OF THESE FACTS, THE AO MADE ADHOC DISALLO WANCE OF RS.15 LAKHS OUT OF THE EXPENSES CLAIMED BY THE ASSE SSEE. 3. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE LD.CIT(A) BUT WITHOUT SUCCESS AS THE ADDITION WAS C ONFIRMED. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORD. THE LD. COUNSEL FOR THE ASSESS EE VEHEMENTLY ARGUED THAT ASSESSEE HAS HUGE TURNOVER A ND HE HAS DECLARED SUBSTANTIAL PROFIT CONSIDERING THE NAT URE OF BUSINESS OF THE ASSESSEE. THE PARTIES ARE SCATTERE D AND MANY TIMES NOT KNOWN TO THE ASSESSEE ALSO AS THE WORK IS CARRIED OUT IN THE INTERIOR PART OF THE DIFFERENT LOCATIONS . HE SUBMITS THAT THE AO HAS REFERRED TO THE SURVEY ACTION CARRI ED OUT ON 29-09-2006 IN WHICH THE ASSESSEE HAD ADMITTED ADDIT IONAL 5 INCOME OF RS.75 LAKHS AND RS.85 LAKHS FOR THE A.Y.2 006-07 AND 2007-08 RESPECTIVELY AND PRECISELY ON THAT ASPE CT THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE SHOULD HAV E ALSO OFFERED ADDITIONAL INCOME IN A.Y. 2008-09. HE SUBM ITS THAT ON MANY OCCASIONS, IT MAY NOT BE IN THE HANDS OF TH E ASSESSEE TO GET THE RELEVANT INFORMATION FROM THE T HIRD PARTIES AND AO IS WELL VESTED WITH THE POWERS US.13 1 TO ISSUE SUMMONS TO THOSE PARTIES AND ADMITTEDLY ALL THE ADD RESSES WERE AVAILABLE WITH HIM. IN RESPECT OF THE OBSERVA TION ON THE TELEPHONE NUMBERS OF THE PARTIES, LD. COUNSEL FOR T HE ASSESSEE SUBMITS THAT HOW THE AO CAN PUT THE ONUS O N THE ASSESSEE TO VERIFY THE TELEPHONE NUMBERS. HE SUBMI TS THAT IN PARA NO. 7.03 OF THE ASSESSMENT ORDER THE ASSESS EE WAS ASKED TO PRODUCE THE 3 PARTIES. IN RESPECT OF THOS E 3 PARTIES THE ASSESSEE HAS FURNISHED DETAILED ADDRESSES AND P AN NUMBERS TO THE AO TO CONDUCT FURTHER ENQUIRY BUT TH E AO HAS NOT DONE SO. 4.1 THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO TH E OBSERVATION OF THE AO IN RESPECT OF M/S. PARTH TRAD ERS AND M/S. SAI TRANSPORT WHERE ACCORDING TO THE AO HAND-W RITING IS SAME. HE SUBMITS THAT ONE PERSON CAN BE THE PROPRI ETOR OF DIFFERENT BUSINESSES. NOTHING IS WRONG IN THAT. H E ARGUED THAT ALL THE PAYMENTS ARE MADE BY ACCOUNT PAYEE CHE QUES AND TDS IS ALSO DEDUCTED. THE ACTION OF THE AO IS TOTALLY ERRONEOUS FOR MAKING ADHOC DISALLOWANCE ONLY ON DOU BTS AND SURMISES. WE HAVE ALSO HEARD THE LD. DEPARTMENTAL REPRESENTATIVE. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE AO. 6 5. WE FIND FORCE IN THE SUBMISSION OF THE LD. COUNS EL FOR THE ASSESSEE. NOWHERE, IT IS THE CASE OF THE AO TH AT PAYMENTS ARE MADE IN CASH. WE ALSO FOUND THAT ASSE SSEE HAS SUBMITTED PAN NUMBERS AND ADDRESSES OF THE PARTIES IN RESPECT OF WHOM THE AO HAS RAISED QUERIES. ADMITTE DLY, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONTRA CTS AND MORE PARTICULARLY HE CARRIED OUT THE GOVERNMENT CON TRACTS. IN RESPECT OF THE SAME HAND-WRITING AS DOUBTED BY T HE AO, IN OUR OPINION, NOTHING IS UNUSUAL IN THAT. PERSONS CAN HAVE TWO DIFFERENT BUSINESSES AND INFACT AO SHOULD MAKE ENQUIRY WITH THAT CONCERN PERSON AND NOT WITH THE ASSESSEE. NOWHERE IT IS THE CASE OF THE AO THAT MATERIAL WAS NOT AT A LL DELIVERED TO THE ASSESSEE. 6. WE ALSO FIND THAT AOS REFERENCE TO THE SURVEY ACTION HAS NO RELEVANCE TO THE A.Y. 2008-09. THE ASSESSEE HAS DECLARED SOME ADDITIONAL INCOME IN THE A.YRS. 2006- 07 AND 2007-08 BUT THAT DOES NOT MEAN THAT WITHOUT ANY BAS IS HE ALSO SHOULD DECLARE THE ADDITIONAL INCOME IN THE A. Y. 2008-09. IN OUR OPINION, THERE IS NO BASIS FOR MAKING THE AD HOC DISALLOWANCE NOR PROPER REASONINGS ARE GIVEN AND HE NCE AS RIGHTLY ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE, THE AO SHOULD HAVE FURTHER INVESTIGATED THE MATTER WITH TH E CONCERNED PARTIES BY USING HIS POWERS U/S.131 OF TH E ACT. WE FIND NO JUSTIFICATION IN SUSTAINING THE DISALLOWANC E MADE BY THE AO. WE ACCORDINGLY DELETE THE SAME AND THE GRO UNDS TAKEN BY THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 7 8. NOW WE TAKE UP THE REVENUES APPEAL BEING ITA NO.1517/PN/2012. THE REVENUE HAS TAKEN FOLLOWING G ROUNDS IN THE APPEAL : 1. WHETHER ON FACTS AND CIRCUMSTANCES THE LD.CIT(A ) WAS JUSTIFIED IN DELETING THE ADDITION MADE U/S. 40(A)( IA) OF THE INCOME TAX ACT WHEN THE ASSESSEE WAS REQUIRED TO DE DUCT TAX AT SOURCE U/S. 1941 INSTEAD OF SEC. 194C OF THE ACT? 2. WHETHER ON FACTS AND CIRCUMSTANCES THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION U/S. 40(A)(I A) IGNORING THE AMENDMENT BROUGHT IN BY THE FINANCE ACT, 2007, INSERTING CLAUSE 'A' TO SEC. 1941 OF THE IT. ACT? 3. WHETHER ON FACTS AND CIRCUMSTANCES THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION U/S 40(A)(IA ) MERELY RELYING ON THE FACT THAT THE CONTRACTUAL PAYMENT WA S MADE IN THE P.Y. RELEVANT TO A.Y. UNDER CONSIDERATION? 4. WHETHER ON FACTS AND CIRCUMSTANCES THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 68 LA CS MADE ON ACCOUNT OF CLOSING WIP IGNORING THE FACT THAT THE A SSESSEE HAS NOT MAINTAINED STOCK REGISTER AND THEREFORE BOO K RESULTS OF THE ASSESSEE ARE NOT VERIFIABLE? 8.1 THE FIRST ISSUE WHICH ARISE FROM THE GROUND NOS . 1 & 2 ARE WHETHER ON THE SHORT DEDUCTION OF TAX CAN DISAL LOWANCE BE MADE U/S.40(A)(IA) OF THE I.T. ACT? THE AO HAS DIS CUSSED THIS ISSUE IN PARA NOS. 3, 3.1 ONWARDS. THE AO HAS OBSE RVED THAT THE ASSESSEE HAS PAID CRANE HIRE CHARGES AND MACHIN ERY CHARGES ON WHICH TDS HAS BEEN MADE U/S.194C. THE A O HAS GIVEN THE PAYMENT MADE AND LIST OF THE CHARGES AND EQUIPMENTS HIRED AND THE SAID DETAILS ARE APPEARING IN PARA 3.01. AS NOTED BY THE AO, THE ASSESSEE HAS DEDUCTE D TDS AT 1% TREATING IT AS THE SUB CONTRACT U/S.194C. IN TH E OPINION OF THE AO THE ASSESSEE SHOULD HAVE DEDUCTED THE TAX U/ S.194I WHICH IS APPLICABLE TO THE HIRING OF THE MACHINERY. THE ASSESSEE JUSTIFIED HIS ACTION BY TAKING THE CONTENT ION THAT IT WAS A CONTRACT AND NOT HIRING OF THE MACHINERY. TH E AO TRIED TO MAKE OUT A CASE THAT ASSESSEE IS PAYING RENT HEN CE, 194I IS APPLICABLE AND ASSESSEE WAS UNDER OBLIGATION TO DEDUCT THE 8 TDS @10% AS THE AMOUNT PAID IS MORE THAN RS.1,20,00 0/-. THE AO, THEREFORE, INVOKED THE PROVISIONS OF SECTIO N 40(A)(IA) OF THE ACT AND MADE THE DISALLOWANCE TO THE EXTENT OF RS.16,20,895/-. THE AO FURTHER PROCEEDED TO MAKE A NOTHER DISALLOWANCE OF RS.2,92,185/-. HE REFERRED TO ANNE XURES 22 OF THE ASSESSEES SUBMISSION DATED 30-09-2010. HE HAS OBSERVED THAT THE ASSESSEE HAS PAID VEHICLE HIRING CHARGES ON WHICH NO TDS IS MADE. IN SUM AND SUBSTANCE IN RESP ECT OF SHORT DEDUCTION OF TDS, THE AO MADE DISALLOWANCE OF RS.16,20,895/-. FOR NON DEDUCTION OF TDS THE AO MA DE DISALLOWANCE OF RS.2,52,182/-. 9. THE ASSESSEE CHALLENGED THE DISALLOWANCES BEFORE THE CIT(A) AND LD.CIT(A) DELETED ADDITIONS MADE BY THE AO. 10. SO FAR AS THE SHORT DEDUCTION OF TAX IS CONCERN ED, THE LD.CIT(A) RELIED ON THE DECISION OF THE ITAT, KOLKA TA IN THE CASE OF DCIT, CIRCLE-33, KOLKATA VS. S.K. TEKRIWAL- 361 ITR 432 (CAL.) AND HE DIRECTED THE AO TO DELETE THE ADD ITION. THE REASONS AND FINDINGS OF THE LD.CIT(A) IS AS UNDER : 8. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND IT IS SEEN THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN COM ING TO CONCLUSION WITHOUT VERIFYING THE CRUCIAL FACTS RELA TING TO THE CONTRACT. BEFORE COMING TO THE CONCLUSION, IT WAS I NCUMBENT UPON THE ASSESSING OFFICER TO VERIFY THE TERMS OF CONTRACT TO ARRIVE AT THE CONCLUSION AS TO WHETHER THE EQUIPMEN T IS GIVEN ON HIRE OR SERVICES OF EQUIPMENT IS PROVIDED AND WH ETHER ALL THE RELATED EXPENSES ARE BORNE BY THE EQUIPMENT OWNER. IN THE FIRST CASE, WHERE ONLY EQUIPMENT IS GIVEN ON HIRE WITHOUT OPERATOR, ASSESSING OFFICER CAN HAVE A CASE FOR INV OKING PROVISIONS OF SEC.1941 OF THE IT. ACT BUT NOT IN TH E CASE WHERE OPERATOR IS PROVIDED BY THE EQUIPMENT OWNER AND DIE SEL AND OTHER EXPENSES ARE ALSO INCURRED BY HIM AND THE BILLING I S MADE ON HOURLY BASIS. IN SUCH A SITUATION, ELEMENT OF CONTRACT IS QUITE APPARENT. IN ANY CASE, DISALLOWANCE U/S.40(A)(IA) IS NOT REQUIRED TO BE MADE IN CASE OF SHORT DEDUCTION OF I DS. RELIANCE IS PLACED ON KOLKATA TRIBUNAL'S DECISION IN CASE OF DCIT CIRCLE 33, KOLKATA VS. S.K.TEKRIWAL REPORTED IN (2011) 15 TAXM AN. COM 9 289(KOL). ACCORDINGLY, IT IS HELD THAT THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF ?16,20,895/- U/S.40(A)(IA) OF THE I.T. ACT ON ACCOUNT OF SHORT D EDUCTION OF TDS. ACCORDINGLY, HE IS DIRECTED TO DELETE THE ADDI TION. 10.1 SO FAR AS THE ADDITION OF RS.2,51,185/- IS CON CERNED, THE LD.CIT(A) RELIED ON THE DECISION OF THE ITAT, VISAKHAPATNAM SPECIAL BENCH IN THE CASE OF MERYLIN SHIPPING AND TRANSPORTS VS. ACIT IN ITA NO.477/VIZ/2008 AND DELETED THE ADDITION. 11. WE HAVE HEARD THE PARTIES. SO FAR AS THE FIRST DISALLOWANCE IS CONCERNED, WE FIND THAT IT STANDS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE, I.E. IN RESPECT OF SHORT DEDUCTION OF TAX BY THE DECISION OF THE ITAT B BE NCH IN THE CASE OF BHARAT FORGE LTD., VS. ADDL.CIT, RANGE-1, P UNE IN ITA NO.340/PN/2012 DATED 30-09-2013. IN THE SAID CASE WHILE INTERPRETING THE SCOPE OF SECTION 40(A)(IA) OF THE I.T. ACT THE TRIBUNAL HELD AS UNDER : 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS. OSTENSIBLY, THE POINT MADE OUT BY THE ASSESSEE, IS TO THE EFFECT THAT SECTION 40(A)(IA) OF THE ACT CAN BE INV OKED ONLY IN CASES WHERE THERE IS A NON-DEDUCTION OF TAX AT SOUR CE AND NOT IN CASES WHERE THERE IS SHORT-DEDUCTION OF TAX AT SOURCE. IN THE PRESENT CASE, THE CHARGE MADE BY THE ASSESSI NG OFFICER IS THAT ASSESSEE HAS NOT DEDUCTED TAX AT AP PROPRIATE RATE UNDER SECTION 194C OF THE ACT. WITHOUT GOING I NTO THE MERITS OF THE RIVAL CLAIMS, FOR THE PRESENT, IT IS SUFFICIENT TO OBSERVE THAT THE ASSESSEE HAS BEEN HELD TO BE AN AS SESSEE IN DEFAULT FOR THE REASON THAT IT DEDUCTED TAX AT SOUR CE ON PAYMENTS MADE BY WAY OF DIE REPAIRS AND MOTOR REWIN DING EXPENSES WHICH WAS LOWER THAN THE RATE PRESCRIBED I N LAW, AS PER THE VIEW OF THE ASSESSING OFFICER. THE CONTROVE RSY IS AS TO WHETHER IN SUCH A SITUATION, PROVISIONS OF SECTI ON 40(A)(IA) OF THE ACT CAN BE ATTRACTED SO AS TO DISALLOW THE CORRESPONDING EXPENDITURE, WHICH ACCORDING TO THE A SSESSING OFFICER HAS SUFFERED DEDUCTION AT LOWER RATE OF TAX AT SOURCE. 18. TO ANSWER THE AFORESAID CONTROVERSY, ONE MAY N OTICE THE CRUCIAL EXPRESSION IN SECTION 40(A)(IA) OF THE ACT WHICH PRESCRIBES THAT THE EXPENDITURE SPECIFIED THEREIN S HALL BE DISALLOWED 'ON WHICH TAX IS DEDUCTIBLE AT SOURCE UN DER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE D ATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139.' CLEA RLY, THE PHRASEOLOGY TO SECTION 40(A)(IA) OF THE ACT SEEKS T O DISALLOW 10 AN EXPENDITURE ONLY IN SITUATIONS WHERE THE TAX IS DEDUCTIBLE AT SOURCE AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFT ER DEDUCTION A.Y. 2007-08 HAS NOT BEEN PAID AS PER THE PERIOD PRESCRIBED THEREIN. THE PHRASEOLOGY USED IN SECTION 40(A)(IA) OF THE ACT CLEARLY REMOVES FROM ITS PURVIEW CASES W HERE TAX HAS BEEN SHORT-DEDUCTED. THEREFORE, THE INFERENCE D RAWN BY THE CIT(A) IS BORNE OUT OF A PLAIN READING OF SECTI ON 40(A)(IA) OF THE ACT. MOREOVER, THE DECISIONS OF THE PUNE BEN CH OF THE TRIBUNAL IN THE CASE OF SANDVIK ASIA LTD. VS. JCIT 146 TTJ 644 (PUNE); AND, ALSO THE MUMBAI BENCH OF THE TRIBU NAL IN THE CASE OF CHANDABHOY & JASSOBHOY VIDE ITA NO.20/MUM?2010 DATED 08.07.2011 SUPPORT THE AFORESA ID PREMISE. THUS, IN THE PRESENT CASE THE PROVISIONS O F SECTION 40(A)(IA) OF THE ACT ARE NOT ATTRACTED AS THIS IS A CASE OF SHORT-DEDUCTION OF TAX AT SOURCE UNDER SECTION 194C OF THE ACT AND NOT A CASE OF NON-DEDUCTION OF TAX AT SOURC E. THE DISALLOWANCE OUT OF DIE REPAIRS AND MOTOR REWINDING EXPENSES IS HEREBY SET-ASIDE. 19. RESULTANTLY, APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. 11.1 WE, THEREFORE, CONFIRM THE ORDER OF THE LD.CIT (A) DELETING THE ADDITION OF RS.16,20,895/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) BY THE AO ON THE CH ARGE OF SHORT DEDUCTION OF TAX AT SOURCE. ACCORDINGLY, GRO UND NOS.1 & 2 ARE DISMISSED. 12. SO FAR AS THE ADDITION OF RS.2,52,185/- ON ACCO UNT OF NON DEDUCTION OF TDS MADE ON THE VEHICLE HIRING CHA RGES IS CONCERNED, IN OUR OPINION WE FIND THAT THE DECISION OF THE MERILYN SHIPPING AND TRANSPORTS (SUPRA) HAS BEEN RE VERSED BY THE HONBLE HIGH COURT OF KOLKATA AND HONBLE HI GH COURT OF GUJARAT IN THE CASE OF CIT VS. CRESCENT EXPORT S YNDICATE REPORTED IN 216 TAXMANN 258 (CAL.) AND CIT VS. SIKANDARKHAN N. TUNVAR 35 ITR 312 (GUJ. H.C.) IT I S ALSO SEEN THAT ITAT, PUNE IN THE CASE OF ACIT, CIRCLE-2, KOLHAPUR VS. BHARAT D. IN ITA NO.600/PN/2012 FOLLOWING THE P RINCIPLES LAID DOWN IN THE CASE OF CRESCENT EXPORT SYNDICATE( SUPRA) AND SIKANDARKHAN N. TUNVAR (SUPRA) HELD AS UNDER : 3.1 ADMITTEDLY, ALL THE PAYMENTS ARE MADE ON ONE D ATE I.E. 30-05-2007 THAT IS ALMOST AFTER TWO MONTHS FRO M THE END OF THE FINANCIAL YEAR I.E. 31-03-2007, THE DATE OF THE BILLS ARE 11 PRIOR TO MARCH 2007. NOW THE ISSUE STANDS COVERED AGAINST THE ASSESSEE BY THE FOLLOWING TWO DECISIONS (I) CIT VS. SIKANDARKHAN N TUNVAR (2013) 33 TAXMANN.COM 133 (GUJARAT) AND (II) CIT, KOLKATA VS. CRESCENT EXPORT SYNDICATE (2013) 33 TAXMANN.COM 250 (KOLKATA). IN THE CASE O F CRESCENT EXPORT SYNDICATE (SUPRA) THE DECISION OF T HE HON'BLE SPECIAL BENCH OF THE ITAT IN THE CASE OF ME RILYN SHIPPING AND TRANSPORTS 136 ITD 23 (SB) (VISAKHA) H AS COME FOR THE JUDICIAL SCRUTINY IN WHICH IT WAS HELD THAT THE DISALLOWANCE U/S. 40(A)(IA) APPLIES ONLY TO AMOUNTS PAYABLE AS ON 31 ST MARCH OF THE PREVIOUS YEAR ON WHICH THE TDS HAS NOT BEEN DEDUCTED AND NO DISALLOWANCE TO BE MADE IN RESPECT OF SUMS PAID DURING THE PREVIOUS YEAR WITHO UT DEDUCTING TDS. THE HON'BLE HIGH COURT REVERSED THE DECISION OF THE SPECIAL BENCH IN THE CASE OF MERILY N SHIPPING AND TRANSPORT (SUPRA). THE OPERATIVE PART OF THE J UDGMENT IS AS UNDER: IN VIEW OF ABOVE DISCUSSION, WE ANSWER THE QUESTION AS UNDER:- THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME T AX ACT, 1961, ARE APPLICABLE NOT ONLY TO THE AMOUNT WHICH I S SHOWN AS PAYABLE ON THE DATE OF BALANCE-SHEET, BUT IT IS APPLICABLE TO SUCH EXPENDITURE, WHICH BECOME PAYABL E AT ANY TIME DURING THE RELEVANT PREVIOUS YEAR AND WAS ACTUALLY PAID WITHIN THE PREVIOUS YEAR. IN THE RESU LT THE QUESTION IS DECIDED IN FAVOUR OF REVENUE AND AGAINS T THE ASSESSEE.' BEFORE DEALING WITH THE SUBMISSIONS OF THE LEARNED COUNSEL APPEARING FOR THE ASSESSEES IN BOTH THE APPEALS WE HAVE TO EXAMINE THE CORRECTNESS OF THE MAJORITY VIEWS IN THE CASE OF MERILYN SHIPPING. WE ALREADY HAVE QUOTED EXTENSIVELY BOTH THE MAJORIT Y AND THE MINORITY VIEWS EXPRESSED IN THE AFORESAID CASE. THE MAIN THRUST OF THE MAJORITY VIEW IS BASED ON THE FA CT 'THAT THE LEGISLATURE HAS REPLACED THE EXPRESSION 'AMOUNT S CREDITED OR PAID' WITH THE EXPRESSION 'PAYABLE' IN THE FINAL ENACTMENT. COMPARISON BETWEEN THE PRE-AMENDMENT AND POST AMENDMENT LAW IS PERMISSIBLE FOR THE PURPOSE OF ASCERTAINING THE MISCHIEF SOUGHT TO BE REMEDIED OR THE OBJECT SOUGHT TO BE ACHIEVED BY AN AMENDMENT. THIS IS PRECISELY WHAT WAS DONE BY THE APEX COURT IN THE CA SE OF CIT VS. KELVINATOR REPORTED IN 2010(2) SCC 723. BUT THE SAME COMPARISON BETWEEN THE DRAFT AND THE ENACTED L AW IS NOT PERMISSIBLE. NOR CAN THE DRAFT OR THE BILL BE U SED FOR THE PURPOSE OF REGULATING THE MEANING AND PURPORT O F THE ENACTED LAW. IT IS THE FINALLY ENACTED LAW WHICH IS THE WILL OF THE LEGISLATURE. THE LEARNED TRIBUNAL FELL INTO AN ERROR IN NOT REAL IZING THIS ASPECT OF THE MATTER. THE LEARNED TRIBUNAL HELD 'THAT WHERE LANGUAGE IS C LEAR THE INTENTION OF THE LEGISLATURE IS TO BE GATHERED FROM THE LANGUAGE USED'. HAVING HELD SO, IT WAS NOT OPEN TO SEEK TO INTERPRET THE SECTION ON THE BASIS OF ANY COMPARISO N BETWEEN THE DRAFT AND THE SECTION ACTUALLY ENACTED NOR WAS IT OPEN TO SPECULATE AS TO THE EFFECT OF THE SO-CAL LED REPRESENTATIONS MADE BY THE PROFESSIONAL BODIES. 12 THE LEARNED TRIBUNAL HELD THAT 'SECTION 40(A)(IA) O F THE ACT CREATES A LEGAL FICTION BY VIRTUE OF WHICH EVEN THE GENUINE AND ADMISSIBLE EXPENSES CLAIMED BY AN ASSES SEE UNDER THE HEAD 'INCOME FROM BUSINESS AND PROFESSION ' IF THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES A RE DISALLOWED'. HAVING HELD SO WAS IT OPEN TO THE TRIBUNAL TO SEEK TO JUSTIFY THAT 'THIS FICTION CANNOT BE EXTENDED ANY F URTHER AND, THEREFORE, CANNOT BE INVOKED BY ASSESSING OFFI CER TO DISALLOW THE GENUINE AND REASONABLE EXPENDITURE ON THE AMOUNTS OF EXPENDITURE ALREADY PAID'? DOES THIS NOT AMOUNT TO DELIBERATELY READING SOMETHING IN THE LAW WHICH IS NOT THERE? WE, AS SUCH, HAVE NO DOUBT IN OUR MIND THAT THE LEA RNED TRIBUNAL REALIZED THE MEANING AND PURPORT OF SECTIO N 40(A)(IA) CORRECTLY WHEN IT HELD THAT IN CASE OF OM ISSION TO DEDUCT TAX EVEN THE GENUINE AND ADMISSIBLE EXPENSES ARE TO BE DISALLOWED. BUT THEY SOUGHT TO REMOVE THE RIG OUR OF THE LAW BY HOLDING THAT THE DISALLOWANCE SHALL BE R ESTRICTED TO THE MONEY WHICH IS YET TO BE PAID. WHAT THE TRIB UNAL BY MAJORITY DID WAS TO SUPPLY THE CASUS OMISSUS WHICH WAS NOT PERMISSIBLE AND COULD ONLY HAVE BEEN DONE BY TH E SUPREME COURT IN AN APPROPRIATE CASE. REFERENCE IN THIS REGARD MAY BE MADE TO THE JUDGMENT IN THE CASE OF BHUWALKA STEEL INDUSTRIES VS. BOMBAY IRON & STEEL L ABOUR BOARD REPORTED IN 2010 (2) SCC 273. 'UNPROTECTED WORKER' WAS FINALLY DEFINED IN SECTION 2 (II) OF THE MATHADI ACT AS FOLLOWS:- UNPROTECTED WORKER' MEANS A MANUAL WORKER WHO IS ENGAGED OR TO BE ENGAGED IN ANY SCHEDULED EMPLOYMENT.' THE CONTENTION RAISED WITH REFERENCE TO WHAT WAS TH ERE IN THE BILL WAS REJECTED BY THE SUPREME COURT BY HO LDING AS FOLLOWS: - 'IT MUST, AT THIS JUNCTURE, BE NOTED THAT IN SPITE OF SECTION 2(11), WHICH INCLUDED THE WORDS 'BUT FOR TH E PROVISIONS OF THIS ACT IS NOT ADEQUATELY PROTECTED BY LEGISLATION FOR WELFARE AND BENEFITS OF THE LABOUR FORCE IN THE STATE', THESE PRECISE WORDS WERE REMOVED BY THE LEGISLATURE AND THE DEFINITION WAS MADE LIMITED AS IT HAS BEEN FINALLY LEGISLATED UPON. IT IS TO BE NO TED THAT WHEN THE BILL CAME TO BE PASSED AND RECEIVED T HE ASSENT OF THE VICE- PRESIDENT ON 05-06-1969 AND WAS FIRST PUBLISHED IN THE MAHARASHTRA GOVERNMENT GAZET TE EXTRAORDINARY, PART IV ON 13-06-1969, THE AFOREMENTIONED WORDS WERE OMITTED. THEREFORE, THIS WOULD BE A CLEAR POINTER TO THE LEGISLATIVE INTENT THAT THE LEGISLATURE BEING CONSCIOUS OF THE FACT AND BEI NG ARMED WITH ALL THE COMMITTEE REPORTS AND ALSO BEING ARMED WITH THE FACTUAL DATA, DELIBERATELY AVOIDED THOSE WORDS. WHAT THE APPELLANTS ARE ASKING WAS TO READ IN THAT DEFINITION, THESE PRECISE WORDS, WHICH WERE CONSCIOUSLY AND DELIBERATELY OMITTED FROM THE DEFINITION. THAT WOULD AMOUNT TO SUPPLYING THE CASU S OMISSUS AND WE DO NOT THINK THAT IT IS POSSIBLE, PARTICULARLY, IN THIS CASE. THE LAW OF SUPPLYING TH E CASUS OMISSUS BY THE COURTS IS EXTREMELY CLEAR AND SETTLED THAT THOUGH THIS COURT MAY SUPPLY THE CASUS OMISSUS, IT WOULD BE IN THE RAREST OF THE RARE CASE AND THUS SUPPLYING OF THIS CASUS OMISSUS WOULD BE 13 EXTREMELY NECESSARY DUE TO THE INADVERTENT OMISSION ON THE PART OF THE LEGISLATURE. BUT, THAT IS CERTAI NLY NOT THE CASE HERE'. WE SHALL NOW ENDEAVOUR TO SHOW THAT NO OTHER INTERPRETATION IS POSSIBLE. THE KEY WORDS USED IN SECTION 40(A)(IA), ACCORDING TO US, ARE 'ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHA PTER XVII -B'. IF THE QUESTION IS 'WHICH EXPENSES ARE SO UGHT TO BE DISALLOWED?' THE ANSWER IS BOUND TO BE 'THOSE EXPENSES ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII -B. ONCE THIS IS REALIZED NOTHING TURN S ON THE BASIS OF THE FACT THAT THE LEGISLATURE USED THE WOR D 'PAYABLE' AND NOT 'PAID OR CREDITED'. UNLESS ANY AM OUNT IS PAYABLE, IT CAN NEITHER BE PAID NOR CREDITED. IF AN AMOUNT HAS NEITHER BEEN PAID NOR CREDITED, THERE CAN BE NO OCCASION FOR CLAIMING ANY DEDUCTION. THE LANGUAGE USED IN THE DRAFT WAS UNCLEAR AND SUSCEPTIBLE TO GIVING MORE THAN ONE MEANING. BY LOO KING AT THE DRAFT IT COULD BE SAID THAT THE LEGISLATURE WANTED TO TREAT THE PAYMENTS MADE OR CREDITED IN FAVOUR OF A CONTRACTOR OR SUB-CONTRACTOR DIFFERENTLY THAN THE P AYMENTS ON ACCOUNT OF INTEREST, COMMISSION OR BROKERAGE, FE ES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S BECAUSE THE WORDS 'AMOUNTS CREDITED OR PAID' WERE USED ONLY IN RELATION TO A CONTRACTOR OR SUB-CONTRACTOR. THIS DI FFERENTIAL TREATMENT WAS NOT INTENDED. THEREFORE, THE LEGISLAT URE PROVIDED THAT THE AMOUNTS, ON WHICH TAX IS DEDUCTIB LE AT SOURCE UNDER CHAPTER XVII-B PAYABLE ON ACCOUNT OF INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, F EES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S OR TO A CONTRACTOR OR SUB-CONTRACTOR SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME OF AN ASSESSEE IN CASE HE HAS NOT DEDUCED, OR AFTER DEDUCTION HAS NOT PAID WITHIN THE SPECIFIED TIME. THE LANGUAGE USED BY THE LEGISLATUR E IN THE FINALLY ENACTED LAW IS CLEAR AND UNAMBIGUOUS WHEREA S THE LANGUAGE USED IN THE BILL WAS AMBIGUOUS. A FEW WORDS ARE NOW NECESSARY TO DEAL WITH THE SUBMISSION OF MR. BAGCHI AND MS. ROYCHOWDHURI. THER E CAN BE NO DENIAL THAT THE PROVISION IN QUESTION IS HARSH. BUT THAT IS NO GROUND TO READ THE SAME IN A MANNER WHICH WAS NOT INTENDED BY THE LEGISLATURE. THIS IS OUR AN SWER TO THE SUBMISSION OF MR. BAGCHI. THE SUBMISSION OF MS. ROYCHOWDHURI THAT THE SECOND PROVISO SOUGHT TO BECO ME EFFECTIVE FROM 1ST APRIL, 2013 SHOULD BE HELD TO HA VE ALREADY BECOME OPERATIVE PRIOR TO THE APPOINTED DAT E CANNOT ALSO BE ACCEDED TO FOR THE SAME REASON INDIC ATED ABOVE. THE LAW WAS DELIBERATELY MADE HARSH TO SECUR E COMPLIANCE OF THE PROVISIONS REQUIRING DEDUCTIONS O F TAX AT SOURCE. IT IS NOT THE CASE OF AN INADVERTENT ERROR. FOR THE REASONS DISCUSSED ABOVE, WE ARE OF THE OPIN ION THAT THE MAJORITY VIEWS EXPRESSED IN THE CASE OF ME RILYN SHIPPING & TRANSPORTS ARE NOT ACCEPTABLE. THE SUBMI SSIONS ADVANCED BY LEARNED ADVOCATES HAVE ALREADY BEEN DEA LT WITH AND REJECTED. THE APPEAL IS, THUS, ALLOWED IN FAVOUR OF THE REVEN UE. 4. WE, THEREFORE, REVERSE OF ORDER OF THE LD. CIT(A ) AND RESTORE THE ORDER OF THE ASSESSING OFFICER AND ALLO W THE 14 GROUNDS TAKEN BY THE REVENUE. IN THE RESULT, THE R EVENUES APPEAL IS ALLOWED. WE THEREFORE REVERSE THE ORDER OF THE LD.CIT(A) ON THIS ISSUE AND RESTORE THE ORDER OF THE AO. THE ALTERNATE PLE A OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT NEW PROVISO TO SEC TION 40(A)(IA) HAS BEEN INTRODUCED BY THE FINANCE ACT, 2 012 W.E.F. 01-04-2013 AND THE SAID PROVISION HAS COME FOR THE CONSIDERATION BEFORE THE ITAT, AGRA BENCHES, AGRA I N THE CASE OF RAJEEV KUMAR AGARWAL VS. ADDL.CIT, RANGE-3, MATH URA IN ITA NO.337/AGRA/2013 DATED 29-05-2013 AND THE TRIBU NAL HAS HELD AS UNDER: 5. AS FOR THE QUESTION AS TO WHETHER THIS AMENDMEN T CAN BE TREATED AS RETROSPECTIVE IN NATURE, EVEN IN THE CA SE OF BHARTI SHIPYARD (SUPRA) A SPECIAL BENCH DECISION VEHEMEN TLY RELIED UPON IN SUPPORT OF REVENUES CASE, THE SPECI AL BENCH, ON PRINCIPLES, SUMMED UP THE SETTLED LEGAL POSITION TO THE EFFECT THAT ANY AMENDMENT OF THE SUBSTANTIVE PROV ISION WHICH IS AIMED AT (INTER ALIA) REMOVING UNINTEND ED CONSEQUENCES TO MAKE THE PROVISIONS WORKABLE HAS TO BE TREATED AS RETROSPECTIVE NOTWITHSTANDING THE FACT T HAT THE AMENDMENT HAS BEEN GIVEN EFFECT PROSPECTIVELY. IT WAS HELD THAT IF THE CONSEQUENCES SOUGHT TO BE REMEDIED BY T HE SUBSEQUENT AMENDMENTS WERE TO BE TREATED AS INTEND ED CONSEQUENCES, THE AMENDMENT COULD NOT BE TREATED A S RETROSPECTIVE IN EFFECT. THE SPECIAL BENCH THEN PRO CEEDED TO DRAW A LINE OF DEMARCATION BETWEEN INTENDED CONSEQU ENCES AND UNINTENDED CONSEQUENCES, AND FINALLY THE RETROS PECTIVITY OF FIRST PROVISO WAS DECIDED AGAINST THE ASSESSEE O N THE GROUND THAT THIS SPECIAL BENCH WAS OF THE CONSIDERE D VIEW THAT THE OBJECTIVE SOUGHT TO BE ACHIEVED BY BRINGI NG OUT SECTION 40(A)(IA) IS THE AUGMENTATION OF TDS PROVIS IONS AND WENT ON TO ADD THAT IF, IN ATTAINING THIS MAIN OBJ ECTIVE OF AUGMENTATION OF SUCH PROVISIONS, THE ASSESSEE SUFFE RS DISALLOWANCE OF ANY AMOUNT IN THE YEAR OF DEFAULT, WHICH IS OTHERWISE DEDUCTIBLE, THE LEGISLATURE ALLOWED IT TO CONTINUE. IT WAS FURTHER OBSERVED THAT THIS IS THE COST WHIC H PARLIAMENT HAS AWARDED TO THOSE ASSESSEES WHO FAIL TO COMPLY WITH THE RELEVANT PROVISIONS BY CONSIDERING OVERALL OBJECTIVE OF BOOSTING TDS COMPLIANCE(EMPHASIS BY UNDERLINING SUPPLIED BY US). IN OTHER WORDS, THE AM ENDMENT WAS HELD TO BE PROSPECTIVE BECAUSE, IN THE WISDOM O F THE SPECIAL BENCH, THE 2010 AMENDMENT TO SECTION 40(A)( IA) BY INSERTING FIRST PROVISO THERETO, WHICH IS WHAT THE SPECIAL BENCH WAS DEALING WITH, WAS AN INTENDED CONSEQUENC E OF THE PROVISION OF SECTION 40(A)(IA). 6. HOWEVER, THE STAND SO TAKEN BY THE SPECIAL BENCH WAS DISAPPROVED BY HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS RAJINDER KUMAR (362 ITR 241). WHILE DOING SO, T HEIR LORDSHIPS OBSERVED THAT, THE OBJECT OF INTRODUCTIO N OF 15 SECTION 40(A)(IA) IS TO ENSURE THAT TDS PROVISIONS ARE SCRUPULOUSLY IMPLEMENTED WITHOUT DEFAULT IN ORDER T O AUGMENT RECOVERIES..FAILURE TO DEDUCT TDS OR DEP OSIT TDS RESULTS IN LOSS OF REVENUE AND MAY DEPRIVE THE GOVERNMENT OF THE TAX DUE AND PAYABLE (EMPHASIS B Y UNDERLINING SUPPLIED BY US). HAVING NOTED THE UND ERLYING OBJECTIVES, THEIR LORDSHIPS ALSO PUT IN A WORD OF C AUTION BY OBSERVING THAT, THE PROVISION SHOULD BE INTERPRET ED IN A FAIR, JUST AND EQUITABLE MANNER. THEIR LORDSHIPS THUS R ECOGNIZED THE BIGGER PICTURE OF REALIZATION OF LEGITIMATE TAX DUES, AS OBJECT OF SECTION 40(A)(IA), AND THE NEED OF ITS FA IR, JUST AND EQUITABLE INTERPRETATION. THIS APPROACH IS QUALITAT IVELY DIFFERENT FROM PERCEIVING THE OBJECT OF SECTION 40 (A)(IA) AS AWARDING OF COSTS ON THE ASSESSEES WHO FAIL TO COM PLY WITH THE RELEVANT PROVISIONS BY CONSIDERING OVERALL OBJ ECTIVE OF BOOSTING TDS COMPLIANCE. NOT ONLY THE CONCLUSIONS ARRIVED AT BY THE SPECIAL BENCH WERE DISAPPROVED BUT THE V ERY FUNDAMENTAL ASSUMPTION UNDERLYING ITS APPROACH, I.E . ON THE ISSUE OF THE OBJECT OF SECTION 40(A)(IA), WAS REJE CTED TOO. IN ANY EVENT, EVEN GOING BY BHARTI SHIPYARD DECISION (SUPRA), WHAT WE HAVE TO REALLY EXAMINE IS WHETHER 2012 AMENDMENT, INSERTING SECOND PROVISO TO SECTION 40( A)(IA), DEALS WITH AN INTENDED CONSEQUENCE OR WITH AN UNINTENDED CONSEQUENCE. 7. WHEN WE LOOK AT THE OVERALL SCHEME OF THE SECTIO N AS IT EXISTS NOW AND THE BIGGER PICTURE AS IT MERGES AF TER INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA), I T IS BEYOND DOUBT THAT THE UNDERLYING OBJECTIVE OF SECTION 40(A )(IA) WAS TO DISALLOW DEDUCTION IN RESPECT OF EXPENDITURE IN A SITUATION IN WHICH THE INCOME EMBEDDED IN RELATED PAYMENTS R EMAINS UNTAXED DUE TO NON DEDUCTION OF TAX AT SOURCE BY TH E ASSESSEE. IN OTHER WORDS, DEDUCTIBILITY OF EXPENDIT URE IS MADE CONTINGENT UPON THE INCOME, IF ANY, EMBEDDED I N SUCH EXPENDITURE BEING BROUGHT TO TAX, IF APPLICABLE. IN EFFECT, THUS, A DEDUCTION FOR EXPENDITURE IS NOT ALLOWED TO THE ASSESSEES, IN CASES WHERE ASSESSEES HAD TAX WITHHO LDING OBLIGATIONS FROM THE RELATED PAYMENTS, WITHOUT CORRESPONDING INCOME INCLUSION BY THE RECIPIENT. TH AT IS THE CLEARLY DISCERNABLE BIGGER PICTURE, AND, UNMISTAKA BLY, A VERY PRAGMATIC AND FAIR POLICY APPROACH TO THE ISSUE H OWSOEVER BELATED THE REALIZATION OF UNINTENDED AND UNDUE HAR DSHIPS TO THE TAXPAYERS MAY HAVE BEEN. IT SEEMS TO PROCEED ON THE BASIS, AND RIGHTLY SO, THAT SEEKING TAX DEDUCTION AT SOURCE COMPLIANCE IS NOT AN END IN ITSELF, SO FAR AS THE SCHEME OF THIS LEGAL PROVISION IS CONCERNED, BUT IS ONLY A ME AN OF RECOVERING DUE TAXES ON INCOME EMBEDDED IN THE PAY MENTS MADE BY THE ASSESSEE. THATS HOW, AS WE HAVE SEEN A SHORT WHILE AGO, HONBLE DELHI HIGH COURT HAS VISUALIZED THE SCHEME OF THINGS AS EVIDENT FROM THEIR LORDSHIPS REFERENCE TO AUGMENTATION OF RECOVERIES IN THE CON TEXT OF LOSS OF REVENUE AND DEPRIVING THE GOVERNMENT OF THE TAX DUE AND PAYABLE. 8. WITH THE BENEFIT OF THIS GUIDANCE FROM HONBLE D ELHI HIGH COURT, IN VIEW OF LEGISLATIVE AMENDMENTS MADE FROM TIME TO TIME, WHICH THROW LIGHT ON WHAT WAS ACTUALLY SOUGH T TO BE ACHIEVED BY THIS LEGAL PROVISION, AND IN THE LIGHT OF THE ABOVE ANALYSIS OF THE SCHEME OF THE LAW, WE ARE OF THE CO NSIDERED VIEW THAT SECTION 40(A)(IA) CANNOT BE SEEN AS INTE NDED TO BE A PENAL PROVISION TO PUNISH THE LAPSES OF NON DEDU CTION OF TAX AT SOURCE FROM PAYMENTS FOR EXPENDITURE- PARTIC ULARLY WHEN THE RECIPIENTS HAVE TAKEN INTO ACCOUNT INCOME EMBEDDED IN THESE PAYMENTS, PAID DUE TAXES THEREON AND FILED INCOME TAX RETURNS IN ACCORDANCE WITH THE LAW . AS A 16 COROLLARY TO THIS PROPOSITION, IN OUR CONSIDERED VI EW, DECLINING DEDUCTION IN RESPECT OF EXPENDITURE RELATING TO TH E PAYMENTS OF THIS NATURE CANNOT BE TREATED AS AN INTENDED CONSEQUENCE OF SECTION 40(A)(IA). IF IT IS NOT AN INTENDED CONSEQUENCE I.E. IF IT IS AN UNINTENDED CONSEQUENCE , EVEN GOING BY BHARTI SHIPYARD DECISION (SUPRA), REMOVIN G UNINTENDED CONSEQUENCES TO MAKE THE PROVISIONS WORK ABLE HAS TO BE TREATED AS RETROSPECTIVE NOTWITHSTANDING THE FACT THAT THE AMENDMENT HAS BEEN GIVEN EFFECT PROSPECTIV ELY. REVENUE, THUS, DOES NOT DERIVE ANY ADVANTAGE FROM S PECIAL BENCH DECISION IN THE CASE BHARTI SHIPYARD (SUPRA). 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 CORRESPONDIN G INCOME NOT BEING TAKEN INTO ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF TH E PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRIC TIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSES SEE IS ABLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF R EVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX A T SOURCE, WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS TH E LEGAL FRAMEWORK IS CONCERNED, THIS PROVISION IS NOT FOR T HE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSE S. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINC ENTIVIZING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THING S AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUS IVE, CONNOTATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHE ME OF SECTION 40(A)(IA), AS ON THE STATUTE, AND TO EXAMIN E WHETHER OR NOT, ON A FAIR, JUST AND EQUITABLE INTERPRETAT ION OF LAW- AS IS THE GUIDANCE FROM HONBLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMB LE 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 IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE S CHEME OF SECTION 40(A)(IA), AS WE SEE IT, IS AIMED AT ENSURI NG THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN T HE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBED DED IN SUCH EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT IS NOT, IN O UR CONSIDERED VIEW, A PENALTY FOR TAX WITHHOLDING LAPS E BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PEN ALTY FOR 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 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 LAPSES DID NOT RESULT IN ANY LOSS TO TH E EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN COMPAS SIONATE 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 RETROSPECTIVE IN N ATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERT ION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT F ROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSIONS, AS ALSO FOR THE DETAILED REASONS SET OUT-EARLIER, WE CANNOT SUBSCRI BE TO THE VIEW THAT IT COULD HAVE BEEN AN INTENDED CONSEQUEN CE TO PUNISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT S OURCE BY 17 DECLINING THE DEDUCTION IN RESPECT OF RELATED PAYME NTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO T AX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CUR ATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTI ON 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 ASSE SSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF OUR ABOVE O BSERVATIONS AND AFTER CARRYING OUT NECESSARY VERIFICATIONS REGA RDING RELATED PAYMENTS HAVING BEEN TAKEN INTO ACCOUNT BY THE RECIPIENTS IN COMPUTATION OF THEIR INCOME, REGARDI NG PAYMENT OF TAXES IN RESPECT OF SUCH INCOME AND REGA RDING FILING OF THE RELATED INCOME TAX RETURNS BY THE RE CIPIENTS. WHILE GIVING EFFECT TO THESE DIRECTIONS, THE ASSES SING OFFICER SHALL GIVE DUE AND FAIR OPPORTUNITY OF HEARING TO T HE ASSESSEE, DECIDE THE MATTER IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. WE ORDER SO. 13. THE LD. COUNSEL SUBMITS THAT IN VIEW OF THE DEC ISION IN THE CASE OF RAJEEV KUMAR AGARWAL (SUPRA) THIS ISSUE MAY BE REMITTED BACK TO THE FILE OF THE AO FOR FRESH ADJUD ICATION ON THE SAME LINE OF DIRECTIONS AS GIVEN IN THE CASE CI TED (SUPRA). THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTIO N TO REMIT THIS ISSUE TO THE FILE OF THE AO. WE ACCORDI NGLY FOLLOWING THE DECISION IN THE CASE OF RAJEEV KUMAR AGARWAL (SUPRA) REMIT THIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN THE LIGHT OF THE DIRECTIONS GIVEN I N PARA NO.10 OF THE ORDER OF THE TRIBUNAL IN CASE OF RAJEEV KUMA R AGARWAL (SUPRA). IN THE RESULT, GROUND NO.3 BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 14. NOW WE PROCEED TO DECIDE GROUND NO.4 WHICH IS I N RESPECT OF THE ADDITION OF RS.60 LAKHS MADE ON ACCO UNT OF CLOSING WORK-IN-PROGRESS (IN SHORT WIP). FACTS W HICH ARE REVEALED FROM THE RECORD ARE AS UNDER. THE AO HAS OBSERVED THAT FROM THE PROFIT AND LOSS ACCOUNT IT WAS SEEN T HAT THE ASSESSEE HAS NOT SHOWN ANY CLOSING WIP BUT OPENING WIP IS SHOWN AT RS.1,03,80,650/-. THE AO SOUGHT THE EXPLA NATION 18 OF THE ASSESSEE AS TO WHY THERE IS NO CLOSING WIP. THE ASSESSEE EXPLAINED THAT HE IS ENGAGED IN THE BUSINE SS OF ROAD CONSTRUCTION AND DEVELOPMENT AND THE MAJOR STOCK CA RRIED OUT BY THE ASSESSEE AT ANY POINT OF TIME IS THE CONTRAC T WIP WHICH IS DEALT CONTINUOUSLY AT INTERVALS OF 10 TO 15 DAYS BY WAY OF RA BILLS. THE ASSESSEE ALSO EXPLAINED THAT ALL THE BILLS IN RESPECT OF ENTIRE CONTRACT WIP IS CUSTOMERS AS ON 3 1-03-2008 HAVE BEEN RAISED AND HENCE, THERE IS NO CARRYING VA LUE OF WIP AT THE END OF THE FINANCIAL YEAR. THE AO PREPARED THE MONTH- WISE SUMMARY OF THE CONTRACT RECEIPTS OF PURCHASE/D IRECT EXPENSES WHICH IS AS UNDER : MONTH CONTRACT RECEIPTS PURCHASE / DIRECT EXPENSES APR - 07 277.02 209.76 MAY - 07 178.55 326.22 JUNE - 07 125.46 204.48 JULY - 07 424.91 228.91 AUG - 07 136.54 173.17 SEPT - 07 388.82 257.61 OCT - 07 939.02 359.00 NOV - 07 241.57 347.94 DEC - 07 314.74 328.72 JAN - 08 493.11 430.46 FEB - 08 392.25 464.26 MAR - 08 704.43 729.64 TOTAL 4616.42 4060.17 14.1 AO HAS DISCUSSED THIS ISSUE IN PARA NO.4.03, 4 .04 WHICH IS AS UNDER AND FINALLY MADE ADDITION OF RS.68 LAKH S CONSIDERING THE FACT THAT THE ASSESSEE HAS OFFERED ADDITIONAL INCOME OF RS.75 LAKHS IN A.Y. 2006-07 AND RS.85 LAK HS IN A.Y. 2007-08. 15. THE ASSESSEE CHALLENGED THE SAID ADDITION BEFOR E THE LD.CIT(A) AND THE LD.CIT(A) DELETED THE ADDITION. NOW THE REVENUE IS IN APPEAL BEFORE US. 19 16. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITS THA T IT IS CERTAINLY STRANGE THAT ASSESSEE IS NOT HAVING CLOSI NG WIP OR ANY STOCK WHEN INFACT HIGH WIP IS SHOWN AS OPENING STOCK. HE SUBMITS THAT AO HAS PROPERLY WORKED OUT THE ADDI TION BY DEMONSTRATING THE FACT THAT THERE IS MONTH-WISE VAR IATION IN THE BILLING CONTRACT RECEIPTS SHOWN BY THE ASSESSEE . THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT THE WORKIN G MADE BY THE AO IS ON SCIENTIFIC BASIS AND HENCE THE LD.C IT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. 17. PER CONTRA THE LD. COUNSEL FOR THE ASSESSEE POI NTED OUT FROM THE ASSESSMENT ORDER THAT AS PER THE CHART PRE PARED BY THE AO THE RECEIPTS AND EXPENDITURE IN PARA NO.4.02 WHICH IS OBVIOUSLY CLEAR THAT THE RECEIPTS ARE VERY HIGH IN MARCH 2008. HE SUBMITS THAT IT IS NOT UNCOMMON FOR THE CONTRACT ORS WHO UNDERTAKE THE ROAD CONSTRUCTION WORKS AND OTHER CIV IL WORKS OF THE GOVERNMENT DEPARTMENTS TO RAISE ENTIRE BILLS BEFORE MARCH WHEREBY THE FUNDS OF THE GOVERNMENT WOULD NOT BE LAPSED. HE SUBMITS THAT APART FROM THE TABLE, THE AO HAS NOT DEMONSTRATED AT ALL THAT THE ASSESSEE HAS CONCEALED OR UNDERSTATED CONTRACT RECEIPTS AS COMPARED TO THE PU RCHASE AS WELL AS OPENING WIP. HE SUBMITS THAT THE CONTRACT RECEIPTS ARE RS. 4616.42 LAKHS AND AGAINST THAT TOTAL PURCHA SES ARE RS.4460.17 LAKHS. HE VEHEMENTLY ASSAILED THE FINDI NG OF THE AO IN PARA NO.4.04 AND SUBMITS THAT AO CANNOT BIFUR CATE THE FINANCIAL YEAR INTO TWO PARTS AS THE INCOME IS TO B E COMPUTED FOR THE WHOLE FINANCIAL YEAR. THERE IS NO SPECIFIC CHARGE BY THE AO THAT THE ASSESSEE HAS SUPPRESSED ANY CONTRAC T RECEIPTS. 20 17.1 WE FIND FORCE IN THE SUBMISSION OF THE LD. COU NSEL FOR THE ASSESSEE. WE FIND THAT IN THE MONTH OF MARCH 20 08, THE CONTRACT RECEIPTS ARE SHOWN BY THE ASSESSEE AT RS.7 04.43 LAKHS. MOREOVER, THE AO HAS GONE WITH CERTAIN STRA NGE WORKING BY SPLITTING THE FINANCIAL YEAR INTO TWO PA RTS. IT IS NOT ALWAYS NECESSARY THAT THE ASSESSEE WHO IS DOING CIV IL CONTRACTING BUSINESS MUST HAVE THE CLOSING WIP IF E NTIRE BILLING IS DONE AND SALES/RECEIPTS ARE RECORDED IN BOOKS OF ACCOUNTS. WE FIND THAT THE ASSESSEE HAS ALREADY EX PLAINED BEFORE THE AO THAT HE HAS ALREADY RAISED THE ENTIRE BILLS AND RECEIPTS IN RESPECT OF THE CONTINUING CONTRACT WORK ING AND OFFERED THE ENTIRE INCOME TO TAX IN THE A.Y. 2008-0 9. IN OUR OPINION, THE REASONS GIVEN BY THE LD.CIT(A) CANNOT BE DISTURBED. WE ACCORDINGLY CONFIRM THE SAME AND GRO UND NO.4 IS DISMISSED. 18. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 16-10-2014. SD/- SD/- (G.S.PANNU) (R.S . PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 16 TH OCTOBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-III, PUNE 4. CIT-III, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, ITAT, PUNE BENCHES, PUNE