Shaul Hameed, CHENNAI V. DCIT, CHENNAI

ITA 1614/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7928 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 30-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 01-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K.N.DHANDAPANI
• Keywords: Retrospective amendment
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 40(a)(ia); 201(1); 201

Judgement Text

, B/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL B/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ I.T.A.NO1614 /MDS./2016 ( / ASSESSMENT YEAR :2011-12) SHRI SHAHUL HAMEED JAHIR HUSSAIN , 6,KAMARAJ NAGAR, VALLUVAR SCHOOL STREET,AVADI, CHENNAI 600 071. VS. THE DCIT, BUSINESS CIRCLE XIII, CHENNAI-34. PAN ADJPJ 1267 C ( / APPELLANT ) ( / RESPONDENT ) ! ' # / APPELLANT BY : MR.N.DEVANATHAN, ADVOCATE $% ! ' # / RESPONDENT BY : MR.K.N.DHANDAPANI,JCIT,D.R & ' ' ( ) / DATE OF HEARING : 30.01.2017 *+ ' ( ) /DATE OF PRONOUNCEMENT : 02.02.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED B Y THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-7, CHEN NAI DATED 11.03.2016 PERTAINING TO ASSESSMENT YEAR 2011-12. ITA NO. 1614/MDS/2016 2 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD TO CONFIRMING THE DISALLOWANCE OF ` 8,68,005/- MADE U/S.40(A)(IA) OF THE ACT. 3. ACCORDING TO LD.A.R, THE LD.CIT(A) CONFIRMED TH E DISALLOWANCE U/S.40(A)(IA) OF THE ACT IN RESPECT OF PAYMENTS MAD E TO AUDIT FEES, INTEREST PAID TO KOTACH MAHINDRA, SHRIRAM CITY FINA NCE INDIA BULLS FINANCE, MR.MEHTHA AND M/S.ING VYSYA BANK. ACCORDIN G TO HIM, THE RECIPIENTS HAVE ALREADY INCLUDED THESE RECEIPTS AS THEIR INCOME AND IN VIEW OF THE JUDGEMNET OF DELHI HIGH COURT IN THE CA SE OF ANSAL LANDMARK TOWNSHIP IN 377 ITR 635(DEL.) WHEREIN HELD THAT:- THE FIRST PROVISO TO SECTION 201(1) OF THE ACT HAS BEEN INSERTED TO BENEFIT THE ASSESSEE. IT ALSO STATES THAT WHERE A PERSON FA ILS TO DEDUCT TAX AT SOURCE ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITE D TO THE ACCOUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEMED TO BE AN A SSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139 OF THE ACT. NO DOUBT, THERE IS A MANDAT ORY REQUIREMENT UNDER SECTION 201 TO DEDUCT TAX AT SOURCE UNDER CERTAIN C ONTINGENCIES BUT THE INTENTION OF THE LEGISLATURE IS NOT TO TREAT THE AS SESSEE AS A PERSON IN DEFAULT SUBJECT TO THE FULFILMENT OF THE CONDITIONS AS STIP ULATED IN THE FIRST PROVISO TO SECTION 201(1). THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) ALSO REQUIRES TO BE VIEWED IN THE SAME MANNER. THIS AGAI N IS A PROVISO INTENDED TO BENEFIT THE ASSESSEE. THE EFFECT OF THE LEGAL FI CTION CREATED THEREBY IS TO TREAT THE ASSESSEE AS A PERSON NOT IN DEFAULT OF DE DUCTING TAX AT SOURCE UNDER CERTAIN CONTINGENCIES. ITA NO. 1614/MDS/2016 3 12. RELEVANT TO THE CASE IN HAND, WHAT IS COMMON TO BOTH THE PROVISOS TO SECTION 40(A)(IA) AND SECTION 201(1) OF THE ACT IS THAT THE AS LONG AS THE PAYEE/RESIDENT (WHICH IN THIS CASE IS APIL) HAS FIL ED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS ALSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAULT. AS FAR AS THE PRESE NT CASE IS CONCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT THE PAYEE HAS F ILED RETURNS AND OFFERED THE SUM RECEIVED TO TAX. 13. TURNING TO THE DECISION OF THE AGRA BENCH OF TH E INCOME-TAX APPELLATE TRIBUNAL IN RAJEEV KUMAR AGARWAL V. ASST. CIT (SUPR A ), THE COURT FINDS THAT IT HAS UNDERTAKEN A THOROUGH ANALYSIS OF THE SECOND PR OVISO 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 R EFER TO PARAGRAPH 9 OF THE SAID ORDER WHICH READS AS UNDER (PAGE 485 OF 34 ITR (TRIB)) : 'ON A CONCEPTUAL NOTE, THE PRIMARY JUSTIFICATION FO R SUCH A DISAL LOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FO R THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUNT I N COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPI ENTS OF THE PAYME NTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THERE IS NO A CTUAL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVISE NOT DEDUCTING TAX A T SOURCE, WHEN SUCH TAX DEDUC TIONS ARE DUE BUT SO FAR AS THE LEGAL FRAMEWO RK IS CONCERNED, THIS PRO VISION IS NOT FOR THE PURPOSE OF PENALISING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEIN CENTIVISING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THING S AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNO TATIONS. 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 EQU ITABLE' INTERPRETATION OF LAWAS IS THE GUIDANCE FROM THE HON'BLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDIN G, IT COULD NOT BE AN 'INTENDED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NON-DEDUCTION OF ITA NO. 1614/MDS/2016 4 TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESP ONDING 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 SH OULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATIO N IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED D UE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT IS NOT, IN OUR CONSIDERE D VIEW, A PENALTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITH HOLDING LAPSE. THE PENALTY FOR TAX WITHHOLDING LAPSE PER SE IS SEPA RATELY PROVIDED FO R IN SECTION 271C, AND, SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PRO VISIONS OF SECTION 40(A)(IA), AS THEY EXISTED PRIOR TO INSERTION OF SE COND 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 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 CU R ATIVE 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 OF TIM E WHEN THE RELATED LEGAL PROVISION WAS INTRO DUCED. IN VIEW OF THESE DISCUSS IONS, AS ALSO FOR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUBSCRI BE TO THE VIEW THAT IT COULD HAVE BEEN AN 'INTENDED CONSEQUENCE' TO PUNISH THE A SSESSEES FOR NON- DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTI ON IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DUL Y BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PRO VISO TO SE CTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETRO SPECTIVE EFFECT FROM APRIL 1, 2005, BEING THE DATE FROM WHICH SUB-CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004.' ITA NO. 1614/MDS/2016 5 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASONI NG OF THE AGRA BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL AS REGARDS THE RA TIONALE BEHIND THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA ) OF THE ACT AND ITS CONCLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFECT FROM APRIL 1, 2005, MERITS ACC EPTANCE. LD.A.R PLEADED THAT THIS DISALLOWANCE CANNOT BE MAD E. 4. ON THE OTHER HAND, LD.D.R SUBMITTED THAT THIS A MENDMENT IS ONLY PROSPECTIVE AND CANNOT BE TREATED AS RETROSPEC TIVE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD.A.R IS THAT T HE RECIPIENT OF THE PAYMENTS HAD OFFERED THE INCOME FOR TAXATION, AS SU CH THE ISSUE IS SQUARELY COVERED BY THE JUDGEMENT OF DELHI HIGH COU RT CITED SUPRA. IN OUR OPINION, THERE IS A FORCE IN THE ARGUMENT OF THE LD.A.R AND DELHI HIGH COURT IN THE CASE CITED SUPRA CONSIDERED THIS ISSUE AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FURTHE R, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI N.PALANI VELU VS. ITO REPORTED IN [2015] 40 ITR (TRIB) 325 [CHENNAI] VIDE ORDER DATED 29.04.2015 WHEREIN HELD THAT:- ITA NO. 1614/MDS/2016 6 4. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERI AL ON RECORD. WE FIND THAT THE SPECIAL BENCH OF THE TRIBUN AL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V. ADDL. CIT [2012 ] 16 ITR (TRIB) 1 (VISAKHAPATNAM) [SB] AND JUDGMENT OF THE AL LAHABAD HIGH COURT IN THE CASE OF CIT V. VECTOR SHIPPING SER VICES (P.) LTD. IN [2013] 357 ITR 642 (ALL) HELD THAT SECTION 40(A) (IA) OF THE ACT IS NOT APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE O F THE YEAR RELEVANT TO THE ASSESSMENT YEAR IN RESPECT OF THESE PAYMENTS. HOWEVER, THE ASSESSEE HAS NOT BROUGHT ON RECORD, THE DETAILS OF OUTSTANDING EXPEN SES OR SCHEDULE OF SUNDRY CREDITORS SHOWING WHETHER THE IMPU GNED AMOUNT IS OUTSTANDING AT THE END OF THE CLOSE OF TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR EITHER IN THE NAME OF THE PARTY OR OUTSTANDING EXPENSES. HENCE, IN THE INTERE ST OF JUSTICE, WE ARE REMITTING THE ISSUE BACK TO THE FILE OF THE A SSESSING OFFICER WITH DIRECTION TO VERIFY THE CLAIM OF THE AS SESSEE AND THE ASSESSEE SHALL PLACE NECESSARY EVIDENCE IN SUPPORT OF HIS CLAIM. 5. FURTHER, WE MAKE IT CLEAR THAT IF THE IMPUGNED AM OUNT IS NOT OUTSTANDING AT THE END OF THE CLOSE OF THE ASSESSME NT YEAR IN RESPECT OF THE EXPENSES EITHER AS OUTSTANDING EXPEN SES OR AS SUNDRY CREDITORS, THIS AMOUNT CANNOT BE DISALLOWED. THIS GROUND IS REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. ITA NO. 1614/MDS/2016 7 6. IN VIEW OF THE ABOVE ORDER, WE ARE INCLINED TO REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDE RATION IN THE LIGHT OF ABOVE JUDGMENTS. THE GROUND RAISED BY THE ASSESSEE U/S.40(A)(IA) OF THE ACT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 2 ND FEBRUARY, 2017 AT CHENNAI. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 2 ND FEBRUARY, 2017 . K S SUNDARAM. , ' $(-. /.( / COPY TO: 1 . ! / APPELLANT 3. & 0( () / CIT(A) 5. .3 4 $(5 / DR 2. $% ! / RESPONDENT 4. & 0( / CIT 6. 4 6 7 ' / GF