DCIT, CHENNAI V. Star Investments Pvt. ltd., CHENNAI

ITA 158/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9018 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 20-01-2015
• Court: TRIBUNAL
• Department Lawyers: DR ANITA SUMANTH
• Assessee Lawyers: A V SREEKANTH; AJIT KUMAR VARMA
• Keywords: Earning of tax free income; Retrospective amendment; Question of law; Initiation of penalty proceedings
• Section: 133A; 14A; 201(1); 148

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I.T.A.NO S . 20 AND 21/MDS/2015 ASSESSMENT YEAR S :20 1 0 - 1 1 AND 2011 - 12 M/S. STAR INVESTMENTS PVT. LTD., NEW NO. 17/1, OLD NO. 9, BAZULLAH ROAD, T. NAGAR, CHENNAI 600 0 1 7 . [PAN: A A A CS4693J ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX , CO MPANY CIRCLE VI(4) , 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 0 34 . ( / APPELLANT ) ( / RESPONDENT ) ./ I.T.A.NO. 158/MDS/2015 / ASSESSMENT YEAR :2010 - 11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(2), AAYAKAR BHAVAN, NEW BLOCK, 7 TH FLOOR 121, M. G. ROAD, CHENNAI 600 03 4. VS. M/S. STAR INVESTMENTS PVT. LTD., NEW NO. 17/1, OLD NO. 9, BAZULLAH ROAD, T. NAGAR, CHENNAI 600 017 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : DR. ANITA SUMANTH, ADVOCATE / RESPO NDENT BY : SHRI AJIT KUMAR VARMA, CIT & SHRI A.V. SREEKANTH, JCIT / DATE OF HEARING : 30 . 03 .201 6 / DATE OF P RONOUNCEMENT : 21 .06 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH E CROSS APPEAL S FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) VI , CHENNAI , DATED 17 . 1 0 .20 1 4 RELEVANT TO THE ASSESSMENT I.T.A. NO S . 20, 21 & 158 /M/ 15 2 YEAR 20 1 0 - 1 1 . THE ASSESSEE HAS ALSO FILED APPEAL FOR THE ASSESSMENT YEAR 2011 - 1 2 AGAINST THE ORDER OF THE LD. CIT(A) VI DATED 14.10.2014. FIRST, WE SHALL TAKE UP CROSS APPEALS. 2. IN THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11, THE ONLY EFFECTIVE GROUND RAISED IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE OF .54,824/ - UNDER SECTION 14A OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND FINANCING. THE ASSESSEE HAS NOT FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 11 WITHIN THE DUE DATES AS PRESCRIBED UNDER INCOME TAX ACT. A SURVEY OPERATION UNDER SECTION 133A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] WAS CONDUCTED ON 24.01 . 2013 IN ASSESSEE S CASE. THE OUTCOME OF THE SURVEY PROCEEDINGS WAS NOT RECORDED IN THE ASSESSMENT ORDER AFTER CONDUCT ING THE SURVEY UNDER SECTION 133A OF THE ACT . SINCE THE ASSESSEE HAS NOT FILED ANY RETURN, THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 148 OF THE ACT DATED 25.01.2013 TO FILE THE RETURN FOR THE RELEVANT ASSESSMENT YEAR. ACCORDINGLY, THE ASSESSEE HAS FILED ITS RETURN ON 25.02.2013 BY DECLARING TOTAL INCOME OF .17,41,68,463/ - . SUBSEQUENTLY, NOTICE UNDER SECTION 143(2) DATED 20.05.2013 WAS SERVED ON THE ASSESSEE. AFTER CONSIDERING THE DETAILS FILED BY THE AR OF THE ASSESSEE, THE ASSESSING OFFICER HAS OB SERVED THAT THE ASSESSEE HAS EARNED EXEMPT I.T.A. NO S . 20, 21 & 158 /M/ 15 3 DIVIDEND INCOME OF .18,960/ - DURING THE FINANCIAL YEAR 2009 - 10 RELEVANT TO THE ASSESSMENT YEAR 2010 - 11. HOWEVER, THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES INCURRED TOWARDS EARNING EXEMPT INCOME. ACCORDINGLY, THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D WORKED OUT THE DISALLOWANCE AT .16,08,075/ - . 3.1 ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) REWORKED OUT THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D AT .54,824/ - . 3.2 ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3.3 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE FINANCIAL YEAR 2009 - 10 RELEVANT TO THE ASSESSMENT YEAR 2010 - 11 UNDER CONSIDERATION, THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF .18,960/ - . HOWEVER, THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES INCURRED FOR EARNING THE ABOVE EXEMPT INCOME. AFTER CONSIDERING THE INVESTMENTS MADE BY THE AS SESSEE AND SUBSEQUENTLY DECREASING THE INVESTMENTS DURING THE FINANCIAL YEAR 2009 - 10, THE ASSESSING OFFICER, BY INVOKING PROVISIONS OF SECTION 14A R.W. RULE 8D WORKED OUT THE DISALLOWANCE TOWARDS EXPENDITURE FOR EARNING EXEMPT INCOME AT .16,08,075/ - . THE LD. CIT(A) RESTRICTED THE DISALLOWANCE AT .54,824/ - . IN SIMILAR FACTS AND CIRCUMSTANCES, THE HON BLE DELHI HIGH COURT IN CASE OF I.T.A. NO S . 20, 21 & 158 /M/ 15 4 JOINT INVESTMENTS PVT. LTD. V. CIT 372 ITR 694 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE HEAD - NOTES ARE AS UNDER: IN COME - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME - DISALLOWANCE - ASSESSEE WAS ENGAGED IN DIVERSE INVESTMENT ACTIVITIES AND IN THE COURSE OF ITS BUSINESS DERIVED INCOME FROM RENT, SALE OF INVESTMENTS, DIVIDEND AND INTEREST - FOR AY 2009 - 10, ASSESSEE HAD REPORTED A LOSS OF SPECIFIED AMOUNT - ASSESSEE DECLARED TAX EXEMPT INCOME IN THE FORM OF DIVIDEND TO THE TUNE OF RS.4 8 ,90,000 - ASSESSEE VOLUNTEERED RS.2,97,440 AS ATTRIBUTABLE U/S14A FOR THE PURPOSE OF DISALLOWANCE - AO ON THE BASIS OF HIS OWN UNDERSTANDING OF RULE 8 D OF THE INCOME TAX RULES DISALLOWED THE SUM U/S 14A READ WITH RULE 8 D - ASSESSEE CLAIMED THAT THE ENTIRE TAX EXEMPT INCOME OF RS.48,90,000 WAS LOWER THAN THE DISALLOWANCE - CIT(A) AND ITAT UPHELD AO'S ORDER - HELD, IN CASE OF CIT(A) V. TAIKISHA ENGINEERING INDIA LTD., IT WAS HELD BY PRESENT COURT THAT IN VIEW OF THE PECULIAR WORDING OF SECTION 14A (2) THAT COMPUTATION OR DISALLOWANCE OF THE ASSESSEE, OR CLAIM THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME SHOULD BE EXAMINE D WITH REFERENCE TO THE ACCOUNTS AND ONLY IF THE ASSESSEE'S EXPLANATION WAS UNSATISFACTORY, CAN THE AO PROCEED FURTHER - IN THE PRESENT CASE, FIRSTLY IT WAS NOT DISCLOSED BY THE AO THAT THE APPELLANT/ASSESSEE'S CLAIM FOR ATTRIBUTING RS.2,97,440 AS A DISALLOW ANCE U/S 14A HAD TO BE REJECTED - SECONDLY, THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO AN ASPECT WHICH WAS COMPLETELY UNNOTICED BY THE CIT(A) AND THE ITAT - THIRDLY, AN IMPORTANT ANOMALY WHICH INSTANT COURT CANNOT BE UNMINDFUL OF WAS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME WAS RS.48,90,000, THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110 PERCENT OF THAT SUM, THAT IS RS.52,56,197 - BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT THE EN TIRE TAX EXEMPT INCOME WAS TO BE DISALLOWED - THE WINDOW FOR DISALLOWANCE WAS INDICATED IN SECTION 14A, AND WAS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME' - THIS PROPORTION OR PORTION OF THE TA X EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE - ITAT AS WELL AS THE AO AND CIT(A) HAD ESCAPED THE MANDATE OF SECTION 14A(2) - IMPUGNED ORDER OF THE ITAT WAS SET ASIDE - QUESTION OF LAW WAS ANSWERED IN FAVOUR OF THE ASSESSEE - ORDER OF THE AO WAS SET ASIDE - INITIATION OF PENALTY PROCEEDINGS ALSO WAS SET ASIDE - MATTER WAS REMITTED TO THE AO FOR FRESH CONSIDERATION IN ACCORDANCE WITH THE ABOVE DIRECTIONS ASSESSEE S APPEAL ALLOWED. I.T.A. NO S . 20, 21 & 158 /M/ 15 5 3.4 IN THE PRESENT CASE, THE ASSESSEE HAS EA RNED EXEMPT DIVIDEND INCOME OF . 18,960 / - . THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES TO EARN THE ABOVE DIVIDEND INCOME. THE ASSESSING OFFICER DISALLOWED THE EXPENSES TO THE TUNE OF .1 6 ,0 8 , 075 / - BY INVOKING SECTION 14A R.W.R. 8D. BY TAKING INTO CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND KEEPING IN VIEW OF THE ABOVE DECISION OF THE HON BLE DELHI HIGH COURT, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING EXCESSIVE DISALLOWANCE. THEREFORE, WE RESTRICT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE AND ORDERED ACCORDINGLY. 4. IN THE CROSS APPEALS FOR THE ASSESSMENT YEAR 2010 - 11, THE APPEAL OF THE REVENUE IS FOUND TO HAVE BEEN FILED LATE BY TWO DAY S IN FILING THE APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, THE BENCH HAS ASKED THE LD. DR REASON FOR NOT FILING THE PETITION FOR CONDONATION OF DELAY. THE LD. DR HAS SUBMITTED THAT BY OVERSIGHT, THE DEPARTMENT HAS NOT FILED THE PETITION FOR CONDONATIO N OF DELAY IN TIME AND PLEADED FOR CONDONING THE DELAY. WHEN THE BENCH ASKED, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT OBJECTED TO CONDONE THE DELAY OF TWO DAYS IN FILING THE APPEAL AND ADMIT THE APPEAL FOR HEARING. ACCORDINGLY, THE APPEAL FILED BY THE REV ENUE WAS ADMITTED FOR HEARING. I.T.A. NO S . 20, 21 & 158 /M/ 15 6 5 . THE FIRST GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO RESTRICTION OF DISALLOWANCE TO .54,824/ - UNDER SECTION 14A OF THE ACT. IN ASSESSEE S APPEAL FOR THE ASSESSMENT YEAR 2010 - 11, IN VIEW OF THE DECISIO N OF THE HON BLE DELHI HIGH COURT IN CASE OF JOINT INVESTMENTS PVT. LTD. V. CIT 372 ITR 694, WE HELD THAT THE ASSESSING OFFICER CANNOT MAKE EXCESSIVE DISALLOWANCE UNDER SECTION 14A OF THE ACT OVER AND ABOVE THE EXEMPT INCOME EARNED BY THE ASSESSEE AND DIRE CTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. THUS, THE GROUND RAISED BY THE REVENUE IS LIABLE TO BE DISMISSED AND DISMISSED ACCORDINGLY. 6 . THE NEXT GROUND RAISED IN THE APPEAL OF THE REVE NUE IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICE TO ALLOW THE CLAIM OF EXPENSES OF .31 CRORES AS DEDUCTION. THE ASSESSEE IS STATED TO HAVE FILED ITS RETURN OF INCOME BY DISALLOWING A SUM OF .31.00 CRORES BEING THE INTEREST PAYABLE T O UB LTD., WHICH HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT ON WHICH TDS WAS NOT DEDUCTED AND FILED THE COMPUTATION OF INCOME ALONG WITH ITS RETURN BELATEDLY ON 09.10.2012 . T HEREAFTER, IN RESPONSE TO THE NOTICE DATED 25.01.2013 ISSUED UNDER SECTION 14 8 OF THE ACT, THE ASSESSEE FILED ANOTHER RETURN OF INCOME ON 25.02.2013 . BEFORE THE LD. CIT(A), THE ASSESSEE HAS SUBMITTED THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE, VIDE ITS LETTER DATED 04.09.2013, REQUESTED THE ASSESSING OFFICER TO ALLOW THE I.T.A. NO S . 20, 21 & 158 /M/ 15 7 CLAIM OF DEDUCTION UNDER SECTION 40(A)(IA) OF THE ACT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY CONSIDERING VARIOUS CASE LAW, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF EXPENSE OF .31.00 CRORES AS DEDUCTION UNDER S ECTION 40(A)(IA) OF THE ACT. 6.1 AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6.2 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, THE ASSESSEE HAS NOT DEDUCTED TDS ON THE INTEREST OF .31.00 CRORES PAID TO M/S, UNITED BREWERIES LTD. HOWEVER, SINCE BY VIRTUE OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT, THE RELATED TDS IS DEEMED TO HAVE BEEN DEDUCTED AND PAID ON 30.09.2010 BEING THE DATE OF FILING OF RETURN O F INCOME BY M/S. UNITED BREWERIES LTD. (THE DEDUCTEE), THE ASSESSEE HAS CLAIMED DEDUCTION BY VIRTUE OF SECTION 40(A)(IA) OF THE ACT, SINCE 30.09.2010 WAS ALSO THE DUE DATE FOR THE ASSESSEE FOR FILING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. IT IS AN ADMITTED FACT THAT BOTH THE ASSESSEE AND THE DEDUCTEE HAVE FILED THEIR RETURNS OF INCOME ON THE DUE DATE OF FILING OF RETURN IN TERMS OF SECTION 139(1) OF THE ACT. THE ONLY DISPUTE RAISED BY THE DEPARTMENT IS THAT THE SECOND PROVISO TO SECTION 40(A) (IA) OF THE ACT IS NOT APPLICABLE FOR THE ASSESSMENT YEAR 2010 - 11 SINCE THE SAID SECOND PROVISO IS ONLY OPERATIVE FROM 01.04.2013 AS PER THE AMENDMENT MADE BY THE FINANCE ACT, 2012. THE ABOVE GROUND HAS RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A) AS AN I.T.A. NO S . 20, 21 & 158 /M/ 15 8 AD DITIONAL GROUND. ACCORDINGLY, T HE LD. CIT(A) ASKED COMMENTS OF THE ASSESSING OFFICER ON THE ALLOWABILITY OF SUM OF .31.00 CRORES AS DEDUCTION UNDER THE FIRST PROVISO TO SECTION 40(A)(IA) OF THE ACT READ WITH SECOND PROVISO THERETO. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS OBJECTED THAT THE SECOND PROVISO IS ONLY OPERATIVE FROM 01.04.2013 AND WOULD NOT COVER FOR THE ASSESSMENT YEAR 2010 - 11. 6.3 IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS FAILED TO DEDUCT AND REMIT TDS TOWARDS INTEREST PAID TO M/S. UNITED BREWERIES LTD., A RESIDENT, FOR THE ASSESSMENT YEAR 2010 - 11. IN THE NEXT STEP, IT HAS TO BE SEEN WHETHER T HE ASSESSEE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE PROVISO TO SECTION 201(1) OF THE ACT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE HAS FURNISHED ALL THE EVIDENCE TO THE EFFECT THAT IT HAS COMPLIED WITH ALL THE CONDITIONS AS LAI D DOWN IN THE FIRST PROVISO TO SECTION 201(1) OF THE ACT AND AFTER VERIFICATION OF THE PARTICULARS, THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS SATISFIED ALL THE CONDITIONS LAID DOWN IN THE FIRST PROVISO TO SECTION 201(1) OF THE ACT AND THERE IS NO D ISPUTE ON THIS ACCOUNT AND THE ASSESSEE HAS TO BE TREATED AS ASSESSEE NOT DEEMED TO BE IN DEFAULT. THE DEDUCTEE I.E., M/S. UNITED BREWERIES LTD. HAVE FILED THEIR RETURN OF INCOME ON 30.09.2010, IT HAS TO BE DEEMED THAT THE ASSESSEE REMITTED THE TDS AS ON 3 0.09.2010. I.T.A. NO S . 20, 21 & 158 /M/ 15 9 6.4 WITH REGARD TO RETROSPECTIVE APPLICABILITY OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT, THOUGH AMENDED BY FINANCE ACT, 2012 WITH EFFECT FROM 01.04.2013, THE AGRA BENCH OF THE TRIBUNAL IN THE CASE OF RAJEEV KUMAR AGARWAL V. ADDL. CIT 45 TAXMANN.COM 555 (AGRA TRIB) HAS HELD 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 INTO ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISALL OWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEWORK IS CONCERNED, THIS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE PENAL P ROVISIONS 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 THE STATUTE, AND TO EXAMINE WHETHER OR NOT, ON A FAIR, JUST AND EQUITABLE INTERPRETATION OF LAW - AS IS THE GUIDANCE FROM HON BLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT COULD NOT BE AN INTENDED CONSEQUENCE TO DIS ALLOW 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 RECIPIENT. THE SCHEME OF SECTION 40(A)(IA), AS WE SEE IT, IS AIMED AT ENSURING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX WITHHOLDING LAPSE B UT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY FOR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C, AND, SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE P ROVISIONS 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 I N ANY LOSS TO THE EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, I.T.A. NO S . 20, 21 & 158 /M/ 15 10 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 NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM 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 SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN INTENDED CONSEQUENCE TO PUNISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLI NING THE DEDUCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA ) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004. 6. 5 I N VIEW OF LEGISLATIVE AMENDMENTS MADE FROM TIME TO TIME, WHICH THROW LIGHT ON WHAT WAS ACTUALLY SOUGHT TO BE ACHIEVED BY THIS LEGAL PROVISION, WE ARE OF THE CONSIDERED VIEW THAT SECTION 40(A)(IA) OF THE ACT CANNOT BE SEEN AS INTENDED TO BE A PENAL PROVISION TO PUNISH THE LAPSES OF NON DEDUCTION OF TAX AT SOURCE FROM PAYMENTS FOR EXPENDITURE - PARTICULARLY 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 COROLLARY TO THIS PROPOSITION, IN OUR CONSIDERED VIEW, DECLINING DEDUCTION IN RESPECT OF EXPENDITURE RELATING TO THE PAYMENTS OF THIS NATURE CANNOT BE TREATED AS AN INTENDED CONSEQUENCE OF S ECTION 40(A)(IA) OF THE ACT . MOREOVER, THE ABOVE DECISION OF THE TRIBUNAL HAS NOT BEEN REVERSED BY AN Y HIGH COURT, IT CAN BE SAFELY INTERPRET THAT THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT SHALL EFFECT RETROSPECTIVELY SINCE THE I.T.A. NO S . 20, 21 & 158 /M/ 15 11 ABOVE RATIO LAID DOWN BY THE AGRA BENCH OF THE TRIBUNAL HAS BEEN AFFIRMED BY THE DELHI BENCHES OF THE TRIBUNAL IN THE CA SE OF ANSAL LANDMARK TOWNSHIP PVT. LTD. V. ADDL.CIT IN I.T.A. NO. 2972/DEL/2012 FOR THE ASSESSMENT YEAR 2008 - 09 AND IN I.T.A. NO. 877/DEL/2013 FOR THE ASSESSMENT YEAR 2009 - 10. AGAINST THE DECISION OF THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF ANSAL L ANDMARK TOWNSHIP PVT. LTD. V. ADDL.CIT (SUPRA), THE DEPARTMENT WENT IN APPEAL BEFORE THE HON BLE DELHI HIGH COURT AND VIDE ITS ORDER DATED 26.08.2015 BY CONFIRMING THE ORDER OF THE DELHI BENCHES OF THE TRIBUNAL, THE HON BLE DELHI HIGH COURT HAS HELD THAT T HE SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND HAS RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2005. DURING THE COURSE OF HEARING, THE LD. DR HAS RELIED ON THE DECISION IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPORTS V. ITO [2 014] 364 ITR 689 (KER.), WHEREIN THE HON BLE KERALA HIGH COURT HAS TAKEN A VIEW THAT THE APPLICATION OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT IS ONLY PROSPECTIVE. SINCE THERE EXIST S TWO CONTRADICTORY DECISIONS, WE ARE OF THE CONSIDERED OPINION THA T THE HON BLE SUPREME COURT IN THE CASE OF CIT V. VEGETABLE PRODUCTS LTD. 88 ITR 192 HAS HELD THAT THE DECISION FAVOURABLE TO THE ASSESSEE HAVE TO BE ACTED UPON. 6.6 THUS, RESPECTFULLY FOLLOWING THE DECISION OF THE AGRA BENCHES OF THE TRIBUNAL IN THE CA SE OF RAJEEV KUMAR AGARWAL V. ADDL. CIT (SUPRA), WHICH WAS DULY AFFIRMED BY THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF ANSAL I.T.A. NO S . 20, 21 & 158 /M/ 15 12 LANDMARK TOWNSHIP PVT. LTD. V. ADDL.CIT(SUPRA) AND SUBSEQUENTLY CONFIRMED BY THE HON BLE DELHI HIGH COURT, WE FIND NO INFIRMI TY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. I.T.A. NO. 21/MDS/2015 [A.Y. 2011 - 12] 7 . THE ONLY GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE UNDER S ECTION 40(A)(IA) OF THE ACT OF .3 1 .00 CRORES. AS FACTS ARE SIMILAR AS WE HAVE DECIDED SIMILAR ISSUE RAISED BY THE REVENUE IN THE ASSESSMENT YEAR 2010 - 11 DECIDED HEREINABOVE, THERE IS NO DISPUTE THAT THE ASSESSEE HAS SATISFIED FIRST PROVISO TO SECTION 201( 1) OF THE ACT. HOWEVER, THE ONLY DISPUTE IS THAT THE DEDUCTEE M/S. UNITED BREWERIES LTD. HAS FILED ITS RETURN OF INCOME ON 30.11.2011, WHICH WAS BEYOND THE DUE DATE OF RETURN UNDER SECTION 139(1) OF THE ACT I.E., 30.09.2011 FOR THE ASSESSMENT YEAR 2011 - 12 IN THE CASE OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT IT IS NOT UNDER DISPUTE THAT THE TDS HAS NOT BEEN PAID BY THE DEDUCTEE, BUT, FILING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT BY THE DEDUCTEE BELATEDLY I.E., JUST TWO MONTHS, THE ASSESSEE SHOULD NOT BE PENALIZED WHEN IT IS NOT PREJUDICIAL TO THE INTEREST OF REVENUE. IF THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THIS CASE, PAYMENT OF TAX D UE BY THE DEDUCTEE IS NOT IN DISPUTE AND WHEN THERE IS NO REVENUE LOSS TO THE GOVERNMENT AND JUST BECAUSE THE DEDUCTEE HAS FILED THE RETURN I.T.A. NO S . 20, 21 & 158 /M/ 15 13 BELATEDLY THAT TOO WITH TWO MONTHS DELAY, THE ASSESSEE SHOULD NOT BE PENALISED AND THE ASSESSEE WOULD NOT BE DEEMED TO BE IN DEFAULT, WHERE THE TAX HAS BEEN PAID ON THE ACCOUNT OF REMITTANCE BY THE DEDUCTEE IN ITS RETURN OF INCOME. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE REVERSE THE FINDINGS OF THE AUTHORITIES BELOW AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAI M OF THE ASSESSEE IN VIEW OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT. THUS, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11 IS PARTLY ALLOWED, THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2010 - 11 IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2011 - 12 IS ALLOWED. ORDER PRONOUNCED ON THE 21 ST JUNE , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDD Y ) JUDICIAL MEMBER CHENNAI, DATED, THE 21 . 0 6 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.