Appeal details
Counselvise Citation
[2016] 131 COUNSELVISE.COM (IT) 0533 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
8 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-10-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Assessment Year
2010-2011
Appeal Filed On
03-02-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 153/PN/2016 %' ( ')( / ASSESSMENT YEAR : 2010-11 YAMAZAKI MAZAK INDIA PVT. LTD., 115, PUNE-NAGAR ROAD, SANASWADI, PUNE-412208 PAN : AAACY3446R ....... / APPELLANT ' / V/S. PR. COMMISSIONER OF INCOME TAX-4, PUNE / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI S.B. PRASAD / DATE OF HEARING : 24-10-2016 / DATE OF PRONOUNCEMENT : 28-10-2016 * / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF PR. COMMISSIONER OF INCOME TAX-4, PUNE DATED 30-12-2015 PA SSED U/S. 263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE AC T) FOR THE ASSESSMENT YEAR 2010-11. 2 ITA NO. 153/PN/2016, A.Y. 2010-11 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS ENGAGED IN MARKETING AND SALE OF PRODUCTS OF YM GROUP. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED A SSESSMENT YEAR ON 24-09-2010 DECLARING TOTAL INCOME OF ` 5,56,78,600/-. THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS. AC CORDINGLY, REFERENCE U/S. 92CA WAS MADE TO TRANSFER PRICING OFFICER (T PO) FOR COMPUTING ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRA NSACTION. NO ADJUSTMENT WAS MADE WITH RESPECT TO INTERNATIONAL TRANSAC TION. THE ASSESSING OFFICER ACCEPTED THE INCOME RETURNED BY THE AS SESSEE. DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER AP PEAL, THE ASSESSEE HAD PAID RENT OF ` 1,15,90,000/- TO M/S. ELPRO INTERNATIONAL LTD. WITHOUT DEDUCTING ANY TAX AT SOURCE. THE PR. COMM ISSIONER OF INCOME TAX ISSUED NOTICE U/S. 263 OF THE ACT ON 22-11-2 015 TO THE ASSESSEE FOR NOT DEDUCTING TAX AT SOURCE ON THE RENT PAID TO M/S. ELPRO INTERNATIONAL LTD. THE CONTENTION OF THE ASSESSEE WAS THAT TAX WAS NOT DEDUCTED ON THE BASIS OF CERTIFICATE ISSUED BY DEPARTMENT . ON PERUSAL OF RECORDS IT WAS FOUND THAT CERTIFICATE DATED 24-09-2009 ISSUED BY THE DEPARTMENT U/S. 197 OF THE ACT WAS WITH RESPECT TO DEDUCTION OF T DS AT LESSER RATE I.E. 0.75% PLUS S.C. & E.C., AS APPLICABLE. THE PR. COMMISSIONER OF INCOME TAX HELD THAT THE ASSESSING OFFICER HAS ERRED IN NOT DISALLOWING THE EXPENDITURE OF ` 1,15,90,000/- U/S. 40(A)(IA) OF THE ACT WHICH HAS RESULTED IN UNDER ASSESSMENT OF INCOME INCLUDING INTEREST U/S. 234B OF THE ACT. THE ASSESSEE WAS DECLARED AS ASSE SSEE IN DEFAULT FOR NON-DEDUCTION OF TDS. THE PR. COMMISSIONER OF IN COME TAX FURTHER HELD THAT THE SECOND PROVISO TO SECTION 40(A)(IA) INS ERTED BY FINANCE ACT, 2012 IS APPLICABLE WITH EFFECT FROM 01-04-2013 T HE SAID AMENDMENT IS PROSPECTIVE IN NATURE. TO SUPPORT HIS VIEW THE PR. COMMISSIONER OF INCOME TAX DRAWS STRENGTH FROM THE JUDG MENT OF 3 ITA NO. 153/PN/2016, A.Y. 2010-11 HON'BLE KERALA HIGH COURT IN THE CASE OF PRUDENTIAL LOGISTIC S AND TRANSPORTS VS. INCOME TAX OFFICER REPORTED AS 364 ITR 689 (KERALA). AGGRIEVED BY THE ORDER OF PR. COMMISSIONER OF INCOME TAX IN SETTING ASIDE THE ASSESSMENT ORDER AND DIRECTING THE AS SESSING OFFICER TO PASS FRESH ASSESSMENT ORDER WITH OBSERVATION THAT T HE PROVISIONS OF SECOND PROVISO TO SECTION 40(A)(IA) ARE PROSPECTIVE IN NATU RE AND HENCE, DOES NOT APPLY TO THE CASE OF ASSESSEE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE S UBMITTED THAT THE PR. COMMISSIONER OF INCOME TAX HAS ERRED IN HOLD ING THAT THE SECOND PROVISO TO SECTION 40(A)(IA) IS PROSPECTIVE IN NATURE. THE LD. AR ADMITTED THAT THE ASSESSEE HAS ERRED IN NOT DEDUCTING TAX AT SOURCE ON THE RENT PAID TO M/S. ELPRO INTERNATIONAL LTD. IN THE EA RLIER ASSESSMENT YEAR THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE ON RE NTAL INCOME PAID TO M/S. ELPRO INTERNATIONAL LTD. ON THE BASIS OF CERTIFICATE ISSU ED BY THE DEPARTMENT. IN THE ASSESSMENT UNDER APPEAL THE ASSE SSEE WAS UNDER BONAFIDE BELIEF THAT NO TAX IS TO BE DEDUCTED IN THE PRESE NT ASSESSMENT YEAR AS WELL. HOWEVER, IN ASSESSMENT YEAR 2010-11, THE D EPARTMENT ISSUED CERTIFICATE TO DEDUCT TAX @ 0.75%. THE ASSESSEE FA ILED TO TAKE NOTE OF THE SAME AND MADE THE PAYMENT WITHOUT DEDUCTI NG TAX AT SOURCE. THE LD. AR CONTENDED THAT ALTHOUGH NO TAX HAS BEEN DEDUCTED AT SOURCE ON THE PAYMENT OF RENTAL INCOME TO M/S. ELPRO INTERNATIONAL LTD., YET THE ASSESSEE CANNOT BE HELD AS AN ASSESSEE IN DEFAULT. M/S. ELPRO INTERNATIONAL LTD. HAS DISCLOSED RENTAL INCOME RECEIV ED FROM ASSESSEE IN ITS RETURN OF INCOME. SINCE, THE RENTAL INCOME HAS ALREADY BEEN OFFERED TO TAX NO DISALLOWANCE U/S. 40(A)(IA) IS WARRANTE D. THE LD. AR ADMITTED THAT DURING THE COURSE OF ASSESSMENT PROC EEDINGS THE 4 ITA NO. 153/PN/2016, A.Y. 2010-11 ASSESSING OFFICER HAS NOT LOOKED INTO THE FACT WHETHER TDS WAS DEDUCTED OR NOT ON RENT PAID BY ASSESSEE TO M/S. ELPRO INTERNATIONAL LTD. HOWEVER, THE PR. COMMISSIONER OF INCOME TAX HAS ERR ED IN REMITTING THE MATTER BACK TO ASSESSING OFFICER WITH THE OB SERVATIONS THAT THE SECOND PROVISO TO SECTION 40(A)(IA) INSERTED BY F INANCE ACT, 2012 IS PROSPECTIVE IN NATURE. THE PR. COMMISSIONER OF IN COME TAX SHOULD HAVE SIMPLY SET ASIDE THE ASSESSMENT ORDER AND REMITTED THE MATTER BACK TO ASSESSING OFFICER TO LOOK INTO THE PROVISION S APPLICABLE WITH RESPECT TO TDS VIS--VIS RENT PAID BY THE ASSESSEE TO M/S. ELPRO INTERNATIONAL LTD. 3.1 THE LD. AR SUBMITTED THAT THE HON'BLE KERALA HIGH COU RT IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPORTS VS. INCOME TA X OFFICER (SUPRA) HAS HELD THAT THE SECOND PROVISO TO SECTION 40(A)(IA ) INSERTED BY FINANCE ACT, 2012 IS PROSPECTIVE IN NATURE AND IS EFFECTIVE FROM 01-04-2013. THE HON'BLE DELHI HIGH COURT ON THE OTHER H AND IN SUBSEQUENT JUDGMENT DELIVERED ON 26-08-2015 IN ITA NO. 160/2015 IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANSAL LAND MAR K TOWNSHIP (P) LTD. [377 ITR 635 (DELHI)] HAS UPHELD THE VIEW OF AGRA BENCH OF THE TRIBUNAL HOLDING THE SAID PROVISO IS DECLARATOR Y AND CURATIVE AND HAS RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2005. THE LD. AR FURTHER PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE TRIBU NAL TO SUPPORT HIS CONTENTIONS : I. NEW ALIGNMENT VS. INCOME TAX OFFICER, 69 TAXMANN.COM 122 (KOLKATA-TRIB.); II. RELIANCE COMMUNICATION LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX (TDS), 69 TAXMANN.COM 307 (MUMBAI-TRIB.); 5 ITA NO. 153/PN/2016, A.Y. 2010-11 III. R K P COMPANY VS. INCOME TAX OFFICER IN ITA NO. 106/RPR/ 2016 FOR ASSESSMENT YEAR 2010-11 DECIDED ON 24,06-2016 (RAIP UR- TRIB.). 4. ON THE OTHER HAND SHRI S.B. PRASAD REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE ORDER OF PR. COMMISSIONER OF INC OME TAX INVOKING THE PROVISIONS OF SECTION 263 AND SETTING ASIDE TH E ASSESSMENT ORDER. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER DUR ING THE ASSESSMENT PROCEEDINGS HAS ERRED IN NOT TAKING INTO CON SIDERATION THAT THE ASSESSEE HAS MADE PAYMENT OF RENT TO THE TUNE OF ` 1,15,90,000/- WITHOUT DEDUCTING TAX AT SOURCE. THE CERTIFICATE ISSUED B Y DEPARTMENT CLEARLY INDICATES THAT TDS HAS TO BE DEDUCTED @ 0.75% P LUS S.C. & E.C., IF APPLICABLE. THE LD. DR CONTENDED THAT THE SECOND PRO VISO INTRODUCED BY THE FINANCE ACT, 2012 APPLIES W.E.F. 01-04-201 3. THE HON'BLE KERALA HIGH COURT IN THE CASE OF PRUDENTIAL LOGISTIC S AND TRANSPORTS VS. INCOME TAX OFFICER (SUPRA) HAS UNAMBIGUOUSL Y HELD THAT THE BENEFIT OF SECOND PROVISO TO SECTION 40(A)(IA) GIVING CONCE SSION TO ASSESSEE FROM DEDUCTING TDS IN CASE RECIPIENT OF AMOUNT H AS ALREADY PAID TAX ON SUCH AMOUNT WOULD BE APPLICABLE W.E.F. 01-04-20 13 ONLY. THE PR. COMMISSIONER OF INCOME TAX BY FOLLOWING THE DECISION OF HON'BLE KERALA HIGH COURT HAS GIVEN DIRECTIONS TO THE ASS ESSING OFFICER TO PASS FRESH ASSESSMENT ORDER. THE DECISION OF HON'BLE DELHI HIGH COURT ON WHICH THE LD. AR HAS PLACED RELIANCE HAS NOT CON SIDERED THE JUDGMENT OF HON'BLE KERALA HIGH COURT. 5. CONTROVERTING THE SUBMISSIONS OF LD. DR, THE LD. AR POINT ED THAT THE RAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF R K P COM PANY VS. INCOME TAX OFFICER (SUPRA) HAS TAKEN INTO CONSIDERATION THE JUDGMENT 6 ITA NO. 153/PN/2016, A.Y. 2010-11 OF HON'BLE KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT VS. CIT REPORTED AS 63 TAXMANN.COM 99 (KERALA) IN WHICH THE D ECISION RENDERED IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPOR TS VS. INCOME TAX OFFICER (SUPRA) WAS REFERRED. THE RAIPUR BENCH OF THE TRIBUNAL HAS ALSO CONSIDERED THE JUDGMENT RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANSAL LAND MARK TOWNSHIP (P) LTD. (SUPRA) AN D HAS THEREAFTER DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. REPORTED AS 88 ITR 192 (SC). 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S 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 SECTION 40(A)(IA) INSERTED BY FINANCE ACT, 2012, IS APPLICABLE RETROSPEC TIVELY OR W.E.F. 01-04-2013. BEFORE WE PROCEED WITH THE ISSUE IT WO ULD BE RELEVANT TO FIRST REFER TO THE AMENDMENT BROUGHT IN BY T HE FINANCE ACT, 2012 TO SECTION 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 COMPUTIN G 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, R OYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTO R, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR F OR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER C HAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, [HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139;] 7 ITA NO. 153/PN/2016, A.Y. 2010-11 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 ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201 , THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHALL BE DEEMED THAT THE ASSESS EE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF 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 IMPERA TIVE THAT BEFORE DISALLOWING ANY AMOUNT FOR NON-DEDUCTION OF TA X AT SOURCE IT WOULD BE NECESSARY TO ASCERTAIN WHETHER THE RECIPIENT OF THE AMOUNT IN QUESTION HAD PAID TAXES ON SUCH AMOUNT. IF THE ANSWE R IS IN AFFIRMATIVE NO DISALLOWANCE U/S. 40(A)(IA) IS WARRANTED ON SUCH PAYMENT. THE MEMORANDUM 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, COMMI SSION, 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. 8 ITA NO. 153/PN/2016, A.Y. 2010-11 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. 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 A FORESAID PAYMENT BY THE ASSESSEE. THE ASSESSEE WAS SUPPOSED TO DEDUC T TAX AT SOURCE @ 0.75%, IN ACCORDANCE WITH THE LOW RATE TAX CERTIFICATE ISSUE D BY THE DEPARTMENT. THE ASSESSING OFFICER DURING THE SCRUTINY ASS ESSMENT PROCEEDINGS FAILED TO TAKE INTO CONSIDERATION THE RENT PA ID BY THE ASSESSEE WITHOUT DEDUCTION OF TAX AT SOURCE. THE PR. C OMMISSIONER OF INCOME TAX INVOKED THE PROVISIONS OF SECTION 263 AND DIR ECTED 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 T HE SECOND PROVISO TO SECTION 40(A)(IA) INSERTED BY FINANCE ACT, 2012 AS THE AMENDMENT IS EFFECTIVE FROM 01-04-2013. THE PR. COMMISSIONE R OF INCOME TAX HAS FURTHER PLACED RELIANCE ON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPORTS VS. INCOME TAX OFFICER (SUPRA) TO FORTIFY HIS VIEW. THE CONTE NTION OF THE ASSESSEE IS THAT THE AMENDMENT TO SECTION 40(A)(IA) BY WA Y OF INSERTION OF THE SECOND PROVISO IS APPLICABLE 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 IN COME TAX VS. ANSAL LAND MARK TOWNSHIP (P) LTD. (SUPRA). THE QUESTION BEFORE HON'BLE HIGH COURT FOR DETERMINATION WAS : 9 ITA NO. 153/PN/2016, A.Y. 2010-11 5. THE OTHER ISSUE URGED BY THE REVENUE DURING THE COURSE OF ARGUMENTS PERTAINS TO THE RETROSPECTIVITY OF THE SECOND PROVI SO TO SECTION 40(A)(IA) OF ACT. THE HON'BLE HIGH COURT ANSWERED THE QUESTION BY HOLDING THE AMENDMENT TO BE RETROSPECTIVE. THE RELEVANT EXTRACT O F THE JUDGMENT IS REPRODUCED AS UNDER : 12. RELEVANT TO THE CASE IN HAND, WHAT IS COMMON T O BOTH THE PROVISOS TO SECTION 40 (A) (IA) ANDSECTION 210 (1) OF THE AC T 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 PERSON IN DE FAULT. AS FAR AS THE PRESENT CASE IS CONCERNED, IT IS NOT DISPUTED BY TH E REVENUE THAT THE PAYEE HAS FILED RETURNS AND OFFERED THE SUM RECEIVE D 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 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 FO R THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUN T IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF TH E PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD, THE REFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THE RE IS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT D EDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, SO F AR AS THE LEGAL FRAMEWORK IS CONCERNED, THIS PROVISION IS NOT FOR T HE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE 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 HUMBLE UNDERSTANDIN G, IT COULD NOT BE AN 10 ITA NO. 153/PN/2016, A.Y. 2010-11 'INTENDED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NON DEDUCTION OF TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESPONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPI ENT. THE SCHEME OF SECTION 40(A)(IA), AS WE SEE IT, IS AIMED AT ENSURI NG THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDIT URE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESS EE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX WITHHOLDING LAPS E BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GO ING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY FOR TAX WITHHOLD ING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C, AND, SECT ION 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 B EYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDS HIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN COMPASSIONATE 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 CURATIV E AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSP ECTIVE IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERT ION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT O F TIME WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DI SCUSSIONS, AS ALSO FOR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUB SCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN 'INTENDED CONSEQUENCE' TO PUN ISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOM E IS DULY BROUGHT TO TAX. 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 CURATIVE IN NA TURE 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 FI NANCE (NO. 2) ACT, 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 CO NCLUSION 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 AG ARWAL V. ACIT). 11 ITA NO. 153/PN/2016, A.Y. 2010-11 8. SIMILAR VIEW HAS BEEN TAKEN BY THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF NEW ALIGNMENT VS. INCOME TAX OFFICER (SUPRA) A ND MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RELIANCE COMMUN ICATIONS LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA). IN BOTH THE ABOVE SAID CASES, THE TRIBUNAL HAS FOLLOWED THE DECISION OF HON'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 CAS ES CITED ON BEHALF OF THE ASSESSEE, THE DECISION RENDERED BY HON'BLE KERALA HIGH COURT HAS NOT BEEN CONSIDERED. WE FIND THAT RAIPUR BEN CH OF THE TRIBUNAL IN THE CASE OF R K P COMPANY VS. INCOME TAX OFFICE R (SUPRA) HAS CONSIDERED THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT VS. CIT (SUPRA), IN WHICH THE JUDG MENT RENDERED IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPOR TS VS. INCOME TAX OFFICER (SUPRA) WAS CONSIDERED. THE RAIPUR BENCH BY FOLLO WING THE JUDGMENT OF HON'BLE DELHI HIGH COURT HELD THAT THE AMENDM ENT IS RETROSPECTIVE IN NATURE. THE RELEVANT EXTRACT OF THE FIND INGS OF RAIPUR BENCH OF THE TRIBUNAL ARE REPRODUCED HERE-IN-BELOW : 4. WE FIND THAT HONBLE DELHI HIGH COURT HAS SPECI FICALLY APPROVED THE STAND TAKEN BY A COORDINATE BENCH OF THIS TRIBUNAL, 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 COM PASSIONATE 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 CURATIV E AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSP ECTIVE IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERT ION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT O F TIME WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DI SCUSSIONS, AS ALSO FOR 12 ITA NO. 153/PN/2016, A.Y. 2010-11 THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUB SCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN INTENDED CONSEQUENCE TO PUN ISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOM E IS DULY BROUGHT TO TAX. 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 CURATIVE IN NA TURE 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 FI NANCE (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 CARRYING OUT NECESSARY VERIFICATIONS REGARDING RELATED PAYMENTS HAVING BEE N TAKEN INTO ACCOUNT BY THE RECIPIENTS IN COMPUTATION OF THEIR INCOME, R EGARDING PAYMENT OF TAXES IN RESPECT OF SUCH INCOME AND REGARDING FILIN G OF THE RELATED INCOME TAX RETURNS BY THE RECIPIENTS. WHILE GIVING EFFECT TO THESE DIRECTIONS, THE ASSESSING OFFICER SHALL GIVE DUE AND FAIR OPPORTUNI TY OF HEARING 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 TA KEN INTO ACCOUNT RELATED PAYMENTS INTO COMPUTATION OF HIS INCOME AND OFFERING THE SAME TO TAX, AND, IF SO, DELETE THE DISALLOWANCE UNDER SECT ION 40(A)(IA) IN RESPECT OF THE SAME. 6. WHEN, HOWEVER, WE ASKED THE LEARNED DEPARTMENTAL REPRESENTATIVE AS TO WHY WE SHOULD ALSO NOT REMIT THE MATTER TO TH E FILE OF THE ASSESSING OFFICER, WITH THE SAME DIRECTIONS, HE, ALONGWITH HI S SENIOR COLLEAGUE SHRI DARHAN SINGH, WHO HAPPENS TO BE THE CIT(A) AUTHORIN G 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 THE CASE OF THOMAS GEORGE MUTHOOT VS CI T [(2015) 63 TAXMANN.COM 99 (KERALA)]; SECOND, THAT EVEN IF INSE RTION OF SECOND PROVISO TO SECTION 40(A)(IA) CAN BE CONSTRUED AS RE TROSPECTIVE IN EFFECT, 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; AN D, THIRD, THAT THERE IS NO DECISION ON THIS ISSUE BY HONBLE JURISDICTIONAL HI GH COURT AND, AS SUCH, THE STAND OF THE ASSESSING OFFICER CANNOT BE FAULTE D. 13 ITA NO. 153/PN/2016, A.Y. 2010-11 7. AS FOR HONBLE KERALA HIGH COURTS DECISION IN T HE CASE OF THOMAS GEORGE MUTHOOT (SUPRA), UNDOUBTEDLY, OUTSIDE THE JU RISDICTION OF HONBLE KERALA HIGH COURT AND OUTSIDE THE JURISDICTION OF H ONBLE DELHI HIGH COURT- WHICH HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, THERE ARE CONFLICTING DECISIONS ON THE ISSUE OF RESTROSPECTIV ITY 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, TH EREFORE, THERE IS NO MEETING GROUND BETWEEN THESE TWO JUDGMENTS. THE DIF FICULTY 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 INAPPRO PRIATE FOR US TO CHOOSE VIEWS OF ONE OF THE HIGH COURTS BASED ON OUR PERCEP TIONS ABOUT REASONABLENESS OF THE RESPECTIVE VIEWPOINTS, AS SUC H AN EXERCISE WILL DE FACTO AMOUNT TO SITTING IN JUDGMENT OVER THE VIEWS OF THE HIGH COURTS SOMETHING DIAMETRICALLY OPPOSED TO THE VERY BASIC P RINCIPLES OF HIERARCHICAL JUDICIAL SYSTEM. WE HAVE TO, WITH OUR HIGHEST RESPECT OF BOTH THE HONBLE HIGH COURTS, ADOPT AN OBJECTIVE CRITERI ON FOR DECIDING AS TO WHICH OF THE HONBLE HIGH COURT SHOULD BE FOLLOWED BY US. WE FIND GUIDANCE FROM THE JUDGMENT OF HONBLE SUPREME COURT IN THE MATTER OF CIT VS. VEGETABLE PRODUCTS LTD. [(1972) 88 ITR 192 (SC)]. HONBLE SUPREME COURT HAS LAID DOWN A PRINCIPLE THAT 'IF TW O REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED'. THIS PRINCIP LE HAS BEEN CONSISTENTLY FOLLOWED BY THE VARIOUS AUTHORITIES AS ALSO BY THE HONBLE SUPREME COURT ITSELF. IN ANOTHER SUPREME COURT JUDG MENT, PETRON ENGG. CONSTRUCTION (P) LTD. & ANR. VS. CBDT & ORS. (1988) 75 CTR (SC) 20 : (1989) 175 ITR 523 (SC), IT HAS BEEN REITERATED THA T THE ABOVE PRINCIPLE OF LAW IS WELL ESTABLISHED AND THERE IS NO DOUBT ABOUT THAT. HONBLE SUPREME COURT HAD, HOWEVER, SOME OCCASIONS TO DEVIA TE FROM THIS GENERAL PRINCIPLE OF INTERPRETATION OF TAXING STATU TE WHICH CAN BE CONSTRUED AS EXCEPTIONS TO THIS GENERAL RULE. IT HA S BEEN HELD THAT THE RULE OF RESOLVING AMBIGUITIES IN FAVOUR OF TAXPAYER DOES NOT APPLY TO DEDUCTIONS, EXEMPTIONS AND EXCEPTIONS WHICH ARE ALL OWABLE ONLY WHEN PLAINLY AUTHORISED. THIS EXCEPTION, LAID DOWN IN LI TTMAN VS. BARRON 1952(2) AIR 393 AND FOLLOWED BY APEX COURT IN MANGA LORE CHEMICALS & FERTILIZERS LTD. VS. DY. COMMR. OF CT (1992) SUPPL. (1) SCC 21 AND NOVOPAN INDIA LTD. VS. CCE & C 1994 (73) ELT 769 (S C), HAS BEEN SUMMED UP IN THE WORDS OF LORD LOHEN, 'IN CASE OF A MBIGUITY, A TAXING STATUTE SHOULD BE CONSTRUED IN FAVOUR OF A TAX-PAYE R DOES NOT APPLY TO A PROVISION GIVING TAX-PAYER RELIEF IN CERTAIN CASES FROM A SECTION CLEARLY IMPOSING LIABILITY'. THIS EXCEPTION, IN THE PRESENT CASE, HAS NO 14 ITA NO. 153/PN/2016, A.Y. 2010-11 APPLICATION. THE RULE OF RESOLVING AMBIGUITY IN FAV OUR OF THE ASSESSEE DOES NOT ALSO APPLY WHERE THE INTERPRETATION IN FAV OUR OF ASSESSEE WILL HAVE TO TREAT THE PROVISIONS UNCONSTITUTIONAL, AS H ELD IN THE MATTER OF STATE OF M.P. VS. DADABHOYS NEW CHIRMIRY PONRI HIL L COLLIERY CO. LTD. AIR 1972 (SC) 614. THEREFORE, WHAT FOLLOWS IS THAT IN THE PECULIAR CIRCUMSTANCES OF THE CASE AND LOOKING TO THE NATURE OF THE PROVISIONS WITH WHICH WE ARE PRESENTLY CONCERNED, THE VIEW EXPRESSE D BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ANSAL LANDMARK (SUP RA), WHICH IS IN FAVOUR OF ASSESSEE, IS REQUIRED TO BE FOLLOWED BY U S. REVENUE DOES NOT, THEREFORE, DERIVE ANY ADVANTAGE FROM HONBLE KERALA HIGH COURTS DECISION IN THE CASE OF THOMAS GEORGE MUTHOOT (SUPR A). 10. IT IS A WELL SETTLED LAW THAT WHERE TWO DIVERGENT VIEW S ARE POSSIBLE AND BOTH THE VIEWS ARE EQUALLY CONVINCING, THE VIEW IN FAVO UR 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 VS. VEG ETABLE PRODUCTS LTD. (SUPRA) WE ACCEPT THE CONTENTIONS OF THE A SSESSEE AND HOLD THAT THE SECOND PROVISO TO SECTION 40(A)(IA) INSERTED B Y FINANCE ACT, 2012 IS APPLICABLE RETROSPECTIVELY W.E.F. 01-04-2005. 11. IN SO FAR AS ASSUMING OF JURISDICTION BY PR. COMMISSIONE R OF INCOME TAX U/S. 263 OF THE ACT IS CONCERNED, WE FIND THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS HAS FAILED TO CON SIDER THE PAYMENT OF RENT WITHOUT DEDUCTION OF TAX AT SOURCE AND /OR WITHOUT ASCERTAINING THE FACT WHETHER THE TAX HAS BEEN PAID BY THE RECIPIENT OF THE RENT. THE LD. AR HAS PLACED ON RECORD A COPY OF FOR M NO. 26A AT PAGES 20 TO 22 OF THE PAPER BOOK TO SHOW THAT M/S. ELP RO INTERNATIONAL LTD. HAS PAID TAX ON RENTAL INCOME RECEIVED FROM THE ASSE SSEE. HOWEVER, THIS FACT REQUIRES VERIFICATION. THEREFORE, WE DEEM IT APPROPRIATE TO MODIFY THE IMPUGNED ORDER AND DIRECT TH E ASSESSING OFFICER TO PASS FRESH ORDER AFTER CONSIDERING THE FACT THAT RENT PAYMENT 15 ITA NO. 153/PN/2016, A.Y. 2010-11 HAS BEEN MADE BY THE ASSESSEE TO M/S. ELPRO INTERNATION AL LTD. WITHOUT DEDUCTING TAX AT SOURCE AND ITS IMPLICATIONS UNDER THE P ROVISIONS OF THE ACT. THE ASSESSING OFFICER SHALL PASS ASSESSMENT ORDER IN ACCORDANCE WITH LAW, AFTER AFFORDING SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON FRIDAY, THE 28 TH DAY OF OCTOBER, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 28 TH OCTOBER, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. PR. COMMISSIONER OF INCOME TAX-4, PUNE 4. !'( %%)* , )* , + +,- , / DR, ITAT, B BENCH, PUNE. 5. ( . /0 / GUARD FILE. // ! % // TRUE COPY// #1 / BY ORDER, %2 )- / PRIVATE SECRETARY, )* , / ITAT, PUNE
