MORANI FOURWHEELS PVT. LTD., Jaipur V. ACIT, Jaipur

ITA 175/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2118 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 26-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S L PODDAR AD SHR
• Keywords: Retrospective amendment
• Section: 40A(3); 194C

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JHERH FNOK FLAG] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SMT. DIVA SINGH, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO.175/JP/16 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 M/S MORANI FOURWHEELS PVT. LTD, PLOT NO. 1, MURTI KALA COLONY, GOPALPURA BYEPASS, JAIPUR CUKE VS. THE ACIT, CIRCLE-6, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAFCM0805P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S. L. PODDAR (AD.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI O.P. BHATEJA (ADDL. CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 23 .03.2017 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT: 12/05/2017. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD.CIT(A) - 2, JAIPUR DATED 01.01.2016 FOR A.Y. 2011-12. IN ITS APPEAL, THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 2,45,57 0/- U/S 40A(3) OF THE INCOME TAX ACT, 1961. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 86,76,5 12/- U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 IN SPITE OF SUBMISSION OF FORM NO. 26A UNDER RULE 31ACB IN ALL THE CASES. ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 2 3. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED ASSESSING OFFICER HAS ERRED IN SUSTAINING THE ADDIT ION OF RS. 26,687/- OUT OF DISALLOWANCE OF INTEREST PAYMENT ON TDS. 4. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED ASSESSING OFFICER HAS ERRED IN SUSTAINING THE ADDIT ION OF RS. 87,887/- DISALLOWANCE OUT OF CONVEYANCE EXPENSES AND TRAVELL ING EXPENSES. 5. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED ASSESSING OFFICER HAS ERRED IN SUSTAINING THE ADDIT ION OF RS. 1,50,000/- U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961. 6. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LEARNED ASSESSING OFFICER HAS ERRED IN SUSTAINING THE ADDITION OF RS. 4,62,014/- U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961. 7. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED ASSESSING OFFICER HAS ERRED IN SUSTAINING THE ADDITION OF RS. 10,00,000/- ON ACCOUNT OF EXCESS PAYMENT OF SALARY. 2. FIRSTLY IN RESPECT OF GROUND NO. 3, 4 AND 6, THE LD AR AT THE OUTSET SUBMITTED THAT HE DIDNT WISH TO PRESS THESE GROUND S OF APPEAL. HENCE, THE SAME ARE DISMISSED AS NOT PRESSED. 3. NOW COMING TO GROUND NO. 1 WHERE THE ASSESSEE HA S CHALLENGED THE ADDITION OF RS. 2,45,570/- MADE BY THE AO U/S 40A(3 ) OF THE I.T. ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER, FROM PERUSAL OF THE LEDGER OF ACCOUNT OF M/S BIKANER DETECTIVE SECU RITY SERVICE IN THE BOOKS OF THE ASSESSEE COMPANY, OBSERVED THAT ON NUMBER OF OCCASIONS, THE ASSESSEE COMPANY HAS MADE CASH PAYMENT ABOVE RS. 20 ,000/- IN VIOLATION TO SECTION 40A(3) OF THE I.T. ACT. THE AO FURTHER OBSE RVED THAT THE ASSESSEE IS UNDER CONTRACT WITH M/S BIKANER DETECTIVE SECURITY SERVICE AND HAS DEDUCTED TDS U/S 194C ON PAYMENT MADE TO M/S BIKANER DETECTI VE SECURITY SERVICE. ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 3 FURTHER, THE AO OBSERVED THAT THERE WAS NO COMPELLI NG REASON OR ANY UNAVOIDABLE CIRCUMSTANCES WHICH HAS BEEN BROUGHT TO HIS NOTICE BY THE ASSESSEE TO MAKE PAYMENT IN CASH. ACCORDINGLY, CASH PAYMENT OF RS. 2,45,570/- WAS HELD TO BE IN VIOLATION OF SECTION 4 0A(3) OF THE I.T. ACT AND THE SAME WAS DISALLOWED AND ADDED TO THE TOTAL INCOME O F THE ASSESSEE. 3.1. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATT ER IN APPEAL BEFORE THE LD. CIT(A). THE LD CIT(A) ALSO OBSERVED THAT THE A SSESSEE HAS A CONTRACTUAL ARRANGEMENT WITH M/S BIKANER DETECTIVE SECURITY SER VICE TO PROVIDE SECURITY SERVICES TO THE ASSESSEE AND THE ASSESSEE WAS UNDER THE OBLIGATION TO PAY TO THE AGENCY, M/S BIKANER DETECTIVE SECURITY SERVICE FROM WHOM THE SERVICES HAS BEEN AVAILED AND NOT DIRECTLY TO THE GUARDS T O WHOM THE PAYMENTS HAVE BEEN MADE IN CASH. THE LD CIT(A) ALSO CONFIRMED T HE AOS FINDINGS THAT THE PAYMENTS SO MADE ARE NOT COVERED UNDER ANY EXCEPTIO NAL OR UNAVOIDABLE CIRCUMSTANCES UNDER RULE 6DD AND THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER WAS CONFIRMED. 3.2. DURING THE COURSE OF HEARING, THE LD AR SUBMIT TED THAT THE PAYMENT WAS GENUINE AND WAS PAID TO INDIVIDUAL GUARDS AT TH E BEHEST OF M/S BIKANER DETECTIVE SECURITY SERVICE. THE SECURITY PERSONS EN GAGED BY THE ASSESSEE WERE NOT HAVING BANK ACCOUNTS AND AS SUCH UNDER COM PELLING CIRCUMSTANCES, THE PAYMENTS WERE MADE IN CASH. IT WAS FURTHER SUBM ITTED THAT IT IS NOT CASE OF THE ASSESSING OFFICER THAT THE PAYMENT IS NOT GE NUINE OR THAT THE SECURITY GUARDS WERE NOT ENGAGED BUT THE DISALLOWANCE HAS BEEN MADE PURELY ON TECHNICAL GROUNDS AND WITHOUT APPRECIATING THE SPIR IT OF SECTION 40A(3) OF THE ACT AS WELL AS FACTS OF THE CASE. IN SUPPORT, THE L D. AR RELIED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF ATTAR SINGH GURMUK H SINGH VS. ITO 191 ITR 667 (SC). IN ITS SAID DECISION, THE HONBLE SUPREM E COURT HAS LAID DOWN THE FOLLOWING PROPOSITION IN LAW: ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 4 SECTION 40A(3) MUST NOT BE READ IN ISOLATION OR TO THE EXCLUSION OF RULE 6DD. THE SECTION MUST BE READ LONG WITH THE RULE. I F READ TOGETHER, IT WILL BE CLEAR THAT THE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINESS ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITIES. SECTION 40A(3) ONLY EMPOWERS THE ASSESSING OFFICER TO DISALLOW THE DEDUCTION CLAIMED AS EXPENDITURE IN RESPECT OF WHIC H PAYMENT IS NOT MADE BY CROSSED CHEQUE OR CROSSED BANK DRAFT. THE PAYMENT BY CROSSED CHEQUE OR CROSSED BANK DRAFT IS INSISTED ON TO ENABLE THE ASSESSING AUTHORITY TO ASCERTAIN WHETHER THE PAYMEN T WAS GENUINE OR WHETHER IT WAS OUT OF THE INCOME FROM UNDISCLOSED S OURCE. THE TERMS OF SECTION 40A(3) ARE NOT ABSOLUTE. CONSIDERATION OF B USINESS EXPEDIENCY AND OTHER RELEVANT FACTORS ARE NOT EXCLUDED. GENUIN E AND BONA FIDE TRANSACTIONS ARE NOT TAKEN OUT OF THE SWEEP OF THE SECTION. IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSESSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CA USED GENUINE DIFFICULTY TO THE PAYEE. IT IS ALSO OPEN TO THE AS SESSEE TO IDENTIFY THE PERSON WHO HAS RECEIVED THE CASH PAYMENT. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE REQUIREMENT OF PA YMENT BY A CROSSED CHEQUE OR CROSSED BANK DRAFT IN THE CIRCUMS TANCES SPECIFIED UNDER THE RULE. IT WILL BE CLEAR FROM THE PROVISI ONS OF SECTION 40A(3) AND RULE 6DD THAT THEY ARE INTENDED TO REGULATE BU SINESS TRANSACTIONS AND TO PREVENT THE USE OF UNACCOUNTED MONEY OR REDU CE THE CHANCES TO USE BLACK MONEY FOR BUSINESS TRANSACTIONS. (SEE MUDIAM OIL COMPANY V. ITO (1973 92 ITR 519 (AP). IF THE PAYMEN T IS MADE BY A CROSSED CHEQUE DRAWN ON A BANK OR A CROSSED BANK DR AFT, THEN IT WILL BE EASIER TO ASCERTAIN, WHEN DEDUCTION IS CLAIMED, WHE THER THE PAYMENT WAS GENUINE AND WHETHER IT WAS OUT OF THE INCOME FR OM DISCLOSED SOURCES. IN INTERPRETING A TAXING STATUTE, THE COUR T CANNOT BE OBLIVIOUS OF THE PROLIFERATION OF BLACK MONEY WHICH IS UNDER CIRCULATION IN OUR COUNTRY. ANY RESTRAINT INTENDED TO CURB THE CHANCES AND OPPORTUNITIES TO USE OR CREATE BLACK MONEY SHOULD NOT BE REGARDED AS CURTAILING THE FREEDOM OF TRADE OR BUSINESS. 3.3. THE LD. DR IS HEARD WHO HAS RELIED UPON THE O RDER OF THE LOWER AUTHORITIES. ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 5 3.4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUE D THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS HAVING CONTRACTUAL ARRANGEMENT WITH M/S BIKANER DETECTIVE SECURITY SER VICE FOR PROVISION OF SECURITY GUARDS. IN TERMS OF THE SAID ARRANGEMENT, M/S BIKANER DETECTIVE SECURITY SERVICE HAS RAISED INVOICES ON THE ASSESSE E FROM TIME TO TIME AND WHICH HAVE BEEN ACCOUNTED FOR IN THE ASSESSEES BOO KS OF ACCOUNT IN THE NAME AND ACCOUNT OF M/S BIKANER DETECTIVE SECURITY SERVICE. THE ASSESSEE HAS ALSO DEDUCTED TDS UNDER SECTION 194C OF THE ACT WHILE MAKING THE PAYMENT TO SUCH SECURITY AGENCY. HOWEVER, THE PAYM ENT HAVE BEEN MADE IN CASH TO THE SECURITY GUARDS ON BEHALF OF M/S BIKANE R DETECTIVE SECURITY SERVICE. THE GENUINENESS AND THE BONA FIDE OF THE TRANSACTION ARE, THEREFORE, NOT IN DISPUTE. THE QUESTION THAT ARISES FOR CONSID ERATION IS WHAT WERE THE COMPELLING OR UNAVOIDABLE CIRCUMSTANCES WHICH REQUI RED THE ASSESSEE TO MAKE THE PAYMENT IN CASH. THE LD AR HAS CONTENDED THAT THE SECURITY PERSONS ENGAGED BY THE ASSESSEE WERE NOT HAVING BAN K ACCOUNTS AND AS SUCH UNDER COMPELLING CIRCUMSTANCES, THE PAYMENT WERE MA DE IN CASH. AS WE HAVE NOTED ABOVE, THE ASSESSEE WAS HAVING THE CONTR ACTUAL ARRANGEMENT WITH THE SECURITY AGENCY AND IT IS THE SECURITY AGENCY W HICH HAS ENGAGED THE SECURITY GUARDS WHOSE SERVICES WERE MADE AVAILABLE TO THE ASSESSEE. IT IS NOT A CASE WHERE THE SECURITY GUARDS WERE HIRED AND ENG AGED BY THE ASSESSEE. HENCE, THE ASSESSEE WAS UNDER AN OBLIGATION TO MAKE PAYMENT TO THE SECURITY AGENCY AND NOT TO THE INDIVIDUAL GUARDS AS CLAIMED BY IT. THE ASSESSEE COULD HAVE MADE PAYMENT TO THE SECURITY AGENCY THROUGH CH EQUE OR BANK DRAFT AND THEREAFTER, IT IS FOR THE SECURITY AGENCY TO ARRANG E FOR PAYMENT TO THE SECURITY GUARDS. THERE COULD BE OCCASIONS WHERE THE SECURIT Y GUARDS WERE IN NEED OF CASH AND THERE IS DELAY ON PART OF SECURITY AGENCY TO MAKE THE PAYMENT AND IN SUCH CIRCUMSTANCES, ONE CAN UNDERSTAND THAT THE ASSESSEE COMPANY MIGHT HAVE BEEN APPROACHED BY THE SECURITY AGENCY TO MAKE PAYMENT TO THE GUARDS ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 6 ON ITS BEHALF. BUT IN THE INSTANT CASE, NOTHING HA S BEEN BROUGHT ON RECORD TO THIS EFFECT. RATHER, IN THE INSTANT CASE, THROUGHO UT THE FINANCIAL YEAR, THE PAYMENTS HAVE BEEN MADE IN CASH EXCEEDING RS 20,000 AND THE SAME WILL THEREFORE BE COVERED BY THE PROVISIONS OF SECTION 4 0A(3) OF THE ACT. AS HELD BY THE HONBLE SUPREME COURT IN CASE OF ATAR SINGH (SUPRA), IT IS OPEN TO THE ASSESSEE TO FURNISH TO THE SATISFACTION OF THE ASSE SSING OFFICER THE CIRCUMSTANCES UNDER WHICH THE PAYMENT IN THE MANNER PRESCRIBED IN SECTION 40A(3) WAS NOT PRACTICABLE OR WOULD HAVE CAUSED GEN UINE DIFFICULTY TO THE PAYEE. RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EX EMPTED FROM THE REQUIREMENT OF PAYMENT BY A CROSSED CHEQUE OR CROSS ED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED UNDER THE RULE. FROM PERUS AL OF MATERIAL AVAILABLE ON RECORD, THE ASSESSEE HAS NEITHER BROUGHT ON RECORD ANY SUCH EXCEPTIONAL OR UNAVOIDABLE CIRCUMSTANCES TO THE NOTICE OF THE ASSE SSING OFFICER NOR THE ASSESSING OFFICER HAS RECORDED ANY SATISFACTION IN THIS REGARD IN TERMS OF RULE 6DD OF THE ACT. IN LIGHT OF ABOVE WE ARE UNABLE TO AGREE TO THE CONTENTION OF THE LD. AR. THE GROUND TAKEN BY THE ASSESSEE IS TH US DISMISSED. 4. NOW COMING TO GROUND NO. 2, WHERE THE ASSESSEE H AS CHALLENGED THE ADDITION OF RS. 86,76,512/- U/S 40(A)(IA) OF THE AC T. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS PAID AN AMOUNT OF RS. 86,76,512/- TO VARIOUS NON-BA NKING FINANCE COMPANIES WITHOUT DEDUCTION OF TAX U/S 194A OF THE ACT AND WH ICH WAS DISALLOWED BY THE AO IN TERMS OF SECTION U/S 40(A)(IA) OF THE ACT AND LATER ON, CONFIRMED BY THE LD CIT(A). 4.1. DURING THE COURSE OF HEARING, THE LD. AR DRAWN OUR REFERENCE TO THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT WHIC H WAS INTRODUCED BY THE FINANCE ACT 2012 AND SUBMITTED THAT HONBLE DELHI HIGH COURT IN CASE OF CIT ANSAL LANDMARK TOWNSHIP PVT. LTD. 234 TAXMAN 825 HA S HELD THAT SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT IS DECLARAT ORY AND CURATIVE AND IT HAS RETROSPECTIVE EFFECT FROM 01.04.2005, AND IN COMPLI ANCE THEREOF, THE ASSESSEE ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 7 HAS SUBMITTED FORM NO. 26A BEFORE THE LOWER AUTHOR ITIES WHICH WERE NOT CONSIDERED BY THE LOWER AUTHORITIES BY HOLDING THAT THE SAID AMENDMENT IS PROSPECTIVE IN NATURE. 4.2. THE LD. DR DRAWN OUR REFERENCE TO THE DECISION OF HONBLE KERALA HIGH COURT IN CASE OF THOMAS GEORGE MUTHOOT V. CIT (63 T AXMANN.COM 99) WHEREIN IT HAS BEEN HELD THAT THE SECOND PROVISO TO SECTION 40(A)(IA) INTRODUCED W.E.F. 01.04.13 IS PROSPECTIVE IN NATURE . 4.3 THE SECOND PROVISO TO SECTION 40(A)(IA) READS A S UNDER:- PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DE DUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIO NS OF CHAPTER XVIIB 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 AS SESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISH ING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAI D PROVISO 4.4 HONBLE DELHI HIGH COURT IN CASE OF ANSAL LANDM ARK TOWNSHIP PVT. LTD. HAS HELD AS UNDER:- 13. TURNING TO THE DECISION OF THE AGRA BENCH OF I TAT IN RAJIV KUMAR AGARWAL'S CASE (SUPRA ), THE COURT FINDS THAT IT HA S 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 THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD, T HEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THA T THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVI ZE 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 T HE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 8 PENAL PROVISIONS 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 ST ATUTE, AND TO EXAMINE WHETHER OR NOT, ON A 'FAIR, JUST AND EQUITABLE' INT ERPRETATION OF LAW AS IS THE GUIDANCE FROM HON'BLE DELHI HIGH COURT ON IN TERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT CO ULD NOT BE AN '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 271C, AND, SECTI ON 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 UND UE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDING LA PSES 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 AMEN DMENT IN LAW, IN VIEW OF THE WELL SETTLED LEGAL POSITION TO THE EFFE CT THAT A CURATIVE AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSPECTIVE IN NATURE EVEN THOUGH IT MAY NOT STAT E SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPEC TIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSIONS, AS ALSO FOR THE DETAILED REAS ONS SET OUT EARLIER, WE CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEE N AN 'INTENDED CONSEQUENCE' TO PUNISH THE ASSESSEES FOR NON-DEDUCT ION OF TAX AT SOURCE BY DECLINING THE DEDUCTION IN RESPECT OF REL ATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TA X. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECT ION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SEC TION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETRO SPECTIVE EFFECT FROM ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 9 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAU SE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (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 CON CLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSP ECTIVE EFFECT FROM 1ST APRIL 2005, MERITS ACCEPTANCE. 4.5 HONBLE KERALA HIGH COURT IN CASE OF THOMAS GEO RGE MUTHOOT HAS HELD AS UNDER:- A STATUTORY PROVISION, UNLESS OTHERWISE EXPRESSLY S TATED TO BE RETROSPECTIVE OR BY INTENDMENT SHOWN TO BE RETROSPE CTIVE, IS ALWAYS PROSPECTIVE IN OPERATION. FINANCE ACT, 2012 SHOWS T HAT THE SECOND PROVISO TO SECTION 40(A)(IA) HAS BEEN INTRODUCED WI TH EFFECT FROM 01.04.2013. READING OF THE SECOND PROVISO DOES NOT SHOW THAT IT WAS MEANT OR INTENDED TO BE CURATIVE OR REMEDIAL IN NAT URE, AND EVEN THE APPELLANTS DID NOT HAVE SUCH A CASE. INSTEAD, BY TH IS PROVISO, AN ADDITIONAL BENEFIT WAS CONFERRED ON THE ASSESSES. S UCH A PROVISION CAN ONLY BE PROSPECTIVE AS HELD BY THIS COURT IN PRUDEN TIAL LOGISTICS AND TRANSPORTS (SUPRA). THEREFORE, THIS CONTENTION RAIS ED ALSO CANNOT BE ACCEPTED. 4.6 ADMITTEDLY, THERE IS NO JURISDICTIONAL HIGH COU RT DECISION THAT HAS BEEN RENDERED IN THE CONTEXT OF APPLICABILITY OF THE SEC OND PROVISIO TO SECTION 40(A)(IA) OF THE ACT. THE QUESTION THAT ARISES FOR CONSIDERATION IS THAT IN ABSENCE OF THE JURISDICTIONAL HIGH COURT DECISION A ND IN VIEW OF CONTRARY DECISION TAKEN BY TWO HIGH COURTS, WHICH DECISION W ILL PREVAIL AND APPLY IN THE INSTANT CASE. IN THIS REGARD, WE REFER TO THE DECI SION OF HONBLE SUPREME COURT IN CASE OF CIT VS. INDIAN VEGETABLE PRODUCTS LTD. (88 ITR 192) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT WHERE TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISION ARE POSSIBLE, THAT CONSTRUCTI ON WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED. IN LIGHT OF THAT, RESPECT FULLY FOLLOWING THE DELHI HIGH COURT DECISION IN CASE ANSAL LANKMARK TOWNSHIP PVT. LTD. (SUPRA), THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT IS R EAD AS RETROSPECTIVE IN ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 10 NATURE AND WILL THUS BE APPLICABLE IN THE INSTANT C ASE. IN LIGHT OF THE ABOVE DISCUSSION, WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE. THE AO SHALL VE RIFY WHETHER PAYEES HAVE FILED THEIR RETURN OF INCOME AND WHETHER SUCH RETUR N OF INCOME INCLUDES THE AMOUNT PAID/CREDITED BY THE ASSESSEE WITHOUT DEDUCT ION OF TAX AT SOURCE AND WHETHER DUE TAXES HAVE BEEN PAID THEREON. IN THE R ESULT, GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 5. NOW COMING TO GROUND NO. 5 WHERE THE ASSESSEE HA S CHALLENGED THE ADDITION OF RS. 1,50,000/- U/S 40(A)(IA) OF THE ACT . THE TDS ON SUCH PAYMENT AS ADMITTED BY THE ASSESSEE HAS BEEN DEDUCTED IN TH E NEXT FINANCIAL YEAR. HENCE, THE SAME SHALL BE ALLOWED TO THE ASSESSEE IN COMPUTING ITS TAXABLE INCOME FOR THE NEXT FINANCIAL YEAR AND THERE IS NO BASIS FOR CLAIM OF THE SAID EXPENDITURE IN THE YEAR UNDER CONSIDERATION. IN THE RESULT, GROUND IS DISMISSED. 6. NOW COMING TO GROUND NO. 7, WHERE THE ASSESSEE H AS CHALLENGED THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ADDITION OF RS. 10,00,000/-ON ACCOUNT OF EXCESS PAYMENT OF SALARY. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CARRIED OUT THE MONTHLY ANALYSIS OF SALARY PAID BY THE ASSESSEE AND NOTICED THAT DURING THE MO NTH OF NOVEMBER, 2010, JANUARY, 2011 AND MARCH, 2011, THE ASSESSEE HAS CLA IMED EXCESS SALARY EXPENDITURE AS COMPARED TO OTHER MONTHS. REGARDING THE EXCESS SALARY PAID IN THE MONTH OF NOVEMBER, 2010, THE PLEA OF THE ASS ESSEE WAS ACCEPTED THAT THE SALARY EXPENDITURE INCLUDES PAYMENT OF BONUS WH ICH HAS RESULTED IN INCREASE SALARY EXPENDITURE IN THAT MONTH. HOWEVER IN RESPECT OF JANUARY AND MARCH, 2011, THE PLEA OF ASSESSEE WAS NOT ACCEPTED. THE ASSESSING OFFICER OBSERVED THAT MAXIMUM AMOUNT OF SALARY HAS BEEN PAI D IN CASH AND THE ASSESSEE COMPANY IS HAVING PERMAMENT ESTABLISHMENT AND HAS THEREFORE TO EMPLOY STAFF ON A REGULAR BASIS AND AS SUCH THERE I S LEAST POSSIBILITY FOR TEMPORARY DEPLOYMENT OF STAFF DURING THESE TWO MONT HS. FURTHER, ASSESSING ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 11 OFFICER OBSERVED THAT THE SALARY SHEETS FURNISHED B Y THE ASSESSEE ARE INCOMPLETE AND HAS FINALLY TAKEN HIS FINDINGS AS UN DER: 17.3 THUS, ON THE BASIS OF ABOVE FACTS & CIRCUMSTA NCES AND THE DISCUSSIONS CONCLUSION IS ARRIVED THAT THE EXPENDITURE BOOKED B Y THE ASSESSEE COMPANY ON ACCOUNT OF SALARY IS EXCESSIVE, UNREASONABLE AND HAS BEEN MANIPULATED BY THE ASSESSEE COMPANY TO AVOID TAX LIABILITY ON SUCH EXCESS AMOUNT. THIS IS SUSTAINED WITH THE FACT THAT THE ASSESSEE COMPANY H AS ALLOWED PETTY SALARIES TO RELATIVES OF KEY MANAGEMENT PERSONNEL (MS KANISH KA MORANI FOR RS. 1,56,000/- AND MS. SIMMY MORANI FOR RS. 1,56,000/-) IN CASH. MOREOVER, THE ASSESSEE COMPANY COULD NOT FURNISH THE ADDRESS, DES IGNATION, EDUCATIONAL QUALIFICATION AND COPY OF APPOINTMENT LETTER OF THE EMPLOYEES TO WHOM PAYMENT OF SALARY HAS BEEN SAID TO BE MADE. AS SUCH , THE EXPENDITURE OF SALARY IS NOT OPEN TO VERIFICATION. IT WOULD NOT BE OUT OF PLACE TO MENTION HERE THAT TO KEEP THE AFORESAID RECORD IS AN ESSENTIAL E LEMENT OF ANY ESTABLISHMENT. NEVERTHELESS TO SAY THAT SALARY PAYMENT TO MAXIMUM EMPLOYEES HAVE BEEN PAID IN CASH. 17.4 IT IS NOTICED THAT THE AVERAGE SALARY PAID FOR THE MONTHS EXCLUDING THE SALARY FOR THE MONTHS OF JANUARY, 2011 AND MARCH, 2 011 COMES TO RS. 10,70,842/-. CONSIDERING THE AVERAGE SALARY PAID BY THE ASSESSEE COMPANY, THE EXCESS SALARY PAID BY THE ASSESSEE COMPANY FOR THE MONTHS OF JANUARY, 2011 AND MARCH, 2011 COMES TO RS. 15,20,391/- [(21, 39,285+ 15,22,790)- (10,70,842X2)]. THEREFORE, IN VIEW OF ABOVE FACTS E XCESS SALARY BEING RS. 15,20,391/- IS HEREBY DISALLOWED AND ADDED TO THE T OTAL INCOME OF THE ASSESSEE. 6.1. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MA TTER IN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE FINDING OF THE ASSESSI NG OFFICER THAT THE SALARY SHEETS PRODUCED FOR THE MONTH OF JANUARY AND MARCH WERE NOT COMPLETE AND DID NOT BEAR THE COMPLETE DETAILS OF THE EMPLOYEES. THE DISALLOWANCE WAS ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 12 CONFIRMED HOWEVER THE QUANTUM OF DISALLOWANCE WAS R EDUCED RS. 10,00,000/- IN PLACE OF RS. 15,20,391/- MADE BY THE ASSESSING O FFICER. 6.2. DURING THE COURSE OF HEARING THE LD. AR SUBMIT TED ARE AS UNDER:- 2. PAYMENT OF SALARY IS GENUINE AND WELL SUPPORTED BY VOUCHERS:- IN THIS REGARD IT IS SUBMITTED THAT THE LEARNED ASSESSING O FFICER HAS NOWHERE MENTIONED THAT PAYMENT OF SALARY WAS BOGUS OR THAT THE EMPLOYEES WERE NOT EXISTING. IT WAS OF THE JOB OF THE LEARNED ASSESSIN G OFFICER TO OPINE REGARDING THE REASONABLENESS OF THE SALARY. THE LEARNED ASSES SING CANNOT STEP INTO THE SHOES OF THE ASSESSEE TO DECIDE HOW TO CONDUCT THE BUSINESS AND WHICH EMPLOYEES TO BE EMPLOYED AND AT WHAT SALARY. THE LE ARNED ASSESSING OFFICER WAS CONCERNED ONLY REGARDING THE GENUINENESS OF THE PAYMENT OF SALARY AND THAT THE SAME WAS INCURRED FOR BUSINESS PURPOSES. W HILE MAKING THE DISALLOWANCE THE LEARNED ASSESSING OFFICER HAS NOWH ERE OBSERVED THAT PAYMENT OF SALARY TO ANY EMPLOYEE WAS BOGUS OR THAT IT WAS FOR PURPOSES OTHER THAN BUSINESS. FURTHER DURING THE COURSE OF A SSESSMENT PROCEEDINGS THE SALARY SHEETS WERE PRODUCED BEFORE THE LEARNED ASSE SSING OFFICER. HOWEVER THE LEARNED ASSESSING OFFICER REJECTED THE SHEETS O BSERVING THAT ADDRESSES WERE NOT COMPLETE. HOWEVER THE LEARNED ASSESSING OF FICER NEVER INSISTED FOR PRODUCTION OF ANY EMPLOYEE FOR FINDING OUT THE GENU INENESS OF PAYMENT. THE LEARNED ASSESSING OFFICER WAS ON THE MODE OF REJECT ING THE SALARY SHEETS AND IN FINDING AN EXCUSE FOR MAKING THE ADDITION. 3. PAYMENT OF SALARY TO SIMMY MORANI AND KANISHKA M ORANI IS BELOW THE LEVEL OF REASONABLENESS:- PAYMENT OF SALARY TO SIMMY MORA NI AND KANISHKA MORANI HAS BEEN OBSERVED BY THE LEARNED ASSESSING IS VERY PETTY WHICH IS RS. 1,60,000/- EACH FOR THE WHOLE YEAR. THE SALARY COME S TO RS. 13,000/- PER MONTH. IT IS SUBMITTED THAT EVEN A PEON IN THE GOVT . DRAWS MORE SALARY THAN THIS. BOTH SIMMY AND KANISHKA MORANI ARE EDUCATED A ND QUALIFIED. THE PAYMENT OF SALARY HAS BEEN MADE TO THEM FOR GENERAL ADMINISTRATION AND OVER ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 13 ALL SUPERVISION UPON THE EMPLOYEES. THE VERY PRESEN CE OF A PERSON FROM THE OWNERS SIDE ACCELERATES THE WORKING AND EFFICIENCY OF REST OF THE EMPLOYEES. THEREFORE SUCH A PETTY AMOUNT PAID TO SIMMY AND KAN ISKHA MORANI DID NOT REQUIRE ANY ADVERSE REMARKS. 4. DISALLOWANCE WRONGLY MADE ON THE BASIS OF AVERAG ING :- IT IS FURTHER SUBMITTED THAT DISALLOWANCE OF SALARY HAS BEEN MADE PURELY ON ESTIMATE BASIS. THE SALARY HAS BEEN DISALLOWED WHICH THE EXC ESS AFTER AVERAGING THE SALARY FROM APRIL TO DECEMBER. THE LEARNED ASSESSIN G OFFICER HAS ONLY OBSERVED THAT PAYMENT OF SALARY JANUARY, FEBRUARY A ND MARCH WAS EXCESSIVE. IT IS SUBMITTED THAT IT IS TOWARDS THE CLOSE OF THE FINANCE YEAR THAT MORE ADHOC EMPLOYEES ARE EMPLOY FOR MEETING THE TARGETS OF SAL ES AND FOR EFFECTING THE OUTSTANDING RECOVERY. IN VIEW OF THIS NO DISALLOWAN CE OF SALARY WAS REQUIRED. THE ADDITION SUSTAINED BY THE LEARNED CIT(A) FOR RS . 10,00,000/- DESERVES TO BE DELETED. THE ENTIRE PAYMENT OF SALARY WAS GENUIN E AND FOR THE PURPOSE OF BUSINESS. IT IS SUBMITTED THAT DURING THE YEAR THE SALES OF THE ASSESSEE HAVE INCREASED FROM RS. 56.40 CRORE IN ASSESSMENT YEAR 2 010-11 TO RS. 83.85 CRORE. THE INCREASE IS AROUND 50%. IN VIEW OF THIS HIGHER PAYMENT OF SALARY WAS FULLY JUSTIFIED. 6.3 THE LD. DR IS HEARD WHO HAS RELIED ON THE ORDE R OF THE LOWER AUTHORITIES. 6.4 THE LIMITED ISSUE UNDER CONSIDERATION RELATES T O SALARY PAYMENT FOR THE MONTH OF JANUARY AND MARCH 2011 CLAIMED BY THE ASSE SSEE COMPANY. CONTRARY CLAIMS HAVE BEEN MADE REGARDING THE CLAIM OF THE SALARY EXPENDITURE. HOWEVER, WE FIND THAT THERE IS NOT EN OUGH MATERIAL AVAILABLE ON RECORD TO DECIDE THE SUBJECT MATTER. IN THE INTERE ST OF JUSTICE, IT WOULD BE APPROPRIATE TO SET ASIDE THE MATTER TO THE FILE OF THE AO TO EXAMINE THE SAME AFRESH. NEEDLESS TO SAY, THE ASSESSEE WILL PROVIDE ALL RELEVANT INFORMATION AND ITA NO. 175/JP/16 M/S MORANI FOURWHEELS PVT. LTD,JA IPUR VS. ACIT CIRCLE-6,JAIPUR 14 DOCUMENTS AS CALLED FOR BY THE AO. IN THE RESULT, GROUND TAKEN BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12/05/2017 . SD/- SD/- (DIVA SINGH ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 12/05/2017 VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S MORANI FOURWHEELS PVT. LTD. JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-6, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, 6. XKMZ QKBZY@ GUARD FILE (ITA NO.175/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.