ACIT, New Delhi V. M/s. A & A Earthmovers Pvt. Ltd., New Delhi

ITA 2098/DEL/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0176 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K K JAISWAL
• Assessee Lawyers: DR RAKESH GUPTA SOMIL AGARWAL
• Keywords: Deemed to accrue or arise in india; Retrospective amendment; Deemed dividend
• Section: 201(1); 139

Judgement Text

ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `A NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.2098/DEL/2013 ASSESSMENT YEAR : 2009-10 ASSTT.COMMISSIONER OF INCOME TAX, VS A&A EART HMOVERS PVT. LTD., CIRCLE 1(1), C.R. BUILDING, N-176, PANCHSH EEL PARK, I.P. ESTATE, NEW DELHI. NEW DELHI (PAN: AAACC9835G) C.O. NO. 177/DEL/2013 (IN I.T.A.NO.2098/DEL/2013) ASSESSMENT YEAR : 2009-10 A&A EARTHMOVERS PVT. LTD., VS ASSTT.COMMISSI ONER OF INCOME TAX, NEW DELHI. CIRCLE 1(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI K.K. JAISWAL, DR RESPONDENT BY : DR. RAKESH GUPTA, SOMIL AGARWAL, ADVOCATES O R D E R PER CHANDRAMOHAN GARG, J.M. THE APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTIO N OF THE ASSESSEE HAVE BEEN FILED AGAINST THE ORDER OF CIT(A)-IV, NEW DELH I DATED 21.1.2013 PASSED IN APPEAL NO. 299/11-12 FOR AY 2009-10. ITA NO. 2098/DEL/2013 OF THE REVENUE 2. THE REVENUE HAS RAISED SOLE GROUND IN THIS APPEA L WHICH READS AS UNDER:- ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 2 1. WHETHER THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.42,97,686/- MADE U/S 2(22)(E) AS DEEMED DIVIDEND IGNORING THE FACT THAT COMPANY IS N OT ENGAGED IN THE ORDINARY COURSE OF MONEY LENDING AND FINANCE . 3. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. LD. COUNSEL FO R THE ASSESSEE, AT THE VERY OUTSET, POINTED OUT THAT THE ISSUE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS ANKITECH PVT. LTD. (2012) 340 ITR 14 (DEL) AND ALSO SUBMITTED THAT FOR THE PURPOSE OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961, THE AMOUNT RECEIVED BY THE ASSESSEE AS ADVANCES AND LOANS WOULD BE TREA TED AS DIVIDEND WITHIN THE MEANING OF SAID PROVISIONS OF THE ACT AND ADVANCES TO THE ASSESSEE COMPANY FROM ANOTHER COMPANY WHEREIN PERSONS HAVING SUBSTAN TIAL INTEREST IN THE ASSESSEE COMPANY AND ANOTHER COMPANY WHICH GAVE THE LOAN HAVING SUBSTANTIAL INTEREST, THEN ALSO IF THE ASSESSEE RECIPIENT COMPA NY OF LOAN IS NOT SHAREHOLDER OF COMPANY OF OTHER COMPANY WHICH GAVE THE LOAN, THEN THE AMOUNT OF LOAN IS NOT ASSESSABLE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE A CT. 4. LD. DR SUPPORTING THE ACTION OF THE AO SUBMITTED THAT THE AO WAS RIGHT IN MAKING ADDITION AND IN HOLDING THAT THE DEEMED D IVIDEND OF RS.42,97,686 (TO THE EXTENT OF ACCUMULATED PROFIT) IS TO BE TREATED AS DEEMED INCOME U/S 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE FROM THE LO AN TAKEN FROM M/S R.D. FINLEASE PVT. LTD. LD. DR VEHEMENTLY CONTENDED THA T THE CIT(A) WAS NOT JUSTIFIED AND CORRECT IN DELETING THE SAID ADDITION , THEREFORE, IMPUGNED ORDER MAY ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 3 BE SET ASIDE BY RESTORING THAT OF THE AO. LD. COUN SEL OF THE ASSESSEE REPLIED THAT SINCE THE ASSESSEE COMPANY IS NOT A SHAREHOLDER OF M/S R.D. FINLEASE PVT. LTD., THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) CANNO T BE INVOKED AND ADDITION IN THIS REGARD WAS RIGHTLY FOUND AS NOT SUSTAINABLE BY THE CIT(A). THE LD. COUNSEL OF THE ASSESSEE TOOK US THROUGH THE OPERATIVE PART OF THE IMPUGNED ORDER AND SUBMITTED THAT THE CIT(A) WAS RIGHT IN HOLDING THAT THE IMPUGNED ADDITION IN THE HANDS OF THE ASSESSEE COMPANY CANNOT BE SUSTAINED A S THE AMOUNT CAN BE BROUGHT TO TAX ONLY IN THE HANDS OF THE SHAREHOLDER OF THE LENDER COMPANY I.E. SHRI ASHISH ANAND AND NOT IN THE HANDS OF APPELLANT COMPANY WHICH IS NOT A REGISTERED SHAREHOLDER OF THE LENDER COMPANY. 5. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, F ROM OPERATIVE PART OF THE IMPUGNED ORDER, WE NOTE THAT THE CIT(A) GRANTED REL IEF FOR THE ASSESSEE WITH FOLLOWING OBSERVATIONS AND CONCLUSION:- 7.4 FURTHER, I FIND THAT IN ARRIVING AT THE ABOVE DECISION, THE HON'BLE ITAT HAS RELIED ON THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. HOTEL HILL TOP (20 09) 313 ITR 116 WHEREIN IT WAS HELD THAT DEEMED DIVIDEND CANNOT BE BROUGHT TO TAX IN THE HANDS OF A NON-SHAREHOLDER. IT WAS HE LD BY THE HON'BLE HIGH COURT THAT 'THE LIABILITY OF TAX, AS D EEMED DIVIDEND, COULD BE ATTRACTED IN THE HANDS OF THE IN DIVIDUALS, BEING THE SHAREHOLDERS, AND NOT IN THE HANDS OF THE FIRM. ' FURTHER, THE APEX COURT IN THE CASE OF C. P. SARATHY MUDALIAR CO NSIDERING THE PROVISIONS OF SECTION 2(6A)(E) OF THE I. T. ACT, 19 22, WHICH WAS SYNONYMOUS TO SECTION 2(22)(E) OF THE CURRENT ACT, HELD THAT SHAREHOLDER IN THE CONTEXT OF DEEMED DIVIDEND REFER RED TO ONLY REGISTERED SHAREHOLDER. THE ABOVE VIEW WAS ALSO CON FIRMED BY THE APEX COURT IN THE CASE OF RAMESHWARLAL SANWARMA L V. CIT 1980) 122 ITR 1. ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 4 7.5. RESPECTFULLY FOLLOWING THE RATIO OF THE ABOVE JUDGMENTS ON THE ISSUE, THE ADDITION OF RS.42,97,686/- IN THE HA NDS OF THE APPELLANT COMPANY CANNOT BE SUSTAINED AS THE AMOUNT CAN BE BROUGHT TO TAX ONLY IN THE HANDS OF THE SHAREHOLDER OF THE LENDER COMPANY, I.E. SHRI ASHISH ANAND AND NOT IN HANDS OF THE APPELLANT COMPANY WHICH IS NOT A REGISTERED SHAREHO LDER OF THE LENDER COMPANY. IN VIEW OF THE ABOVE DISCUSSION, TH E AFORESAID ADDITION IN THE HANDS OF THE APPELLANT COMPANY STAN DS DELETED. THE AO IS DIRECTED TO INFORM THE AO OF SHRI ASHISH ANAND TO TAKE NECESSARY ACTION IN HIS HANDS AS PER LAW. GROUND NO . 4 OF THE APPEAL IS ALLOWED IN THE MANNER INDICATED ABOVE. 6. IN VIEW OF ABOVE CONCLUSION OF THE FIRST APPELLATE AUTHORITY AND ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE IN HAND, WE NOTE THAT IN THE CASE OF CIT VS ANKITECH PVT. LTD. (SUPR A), AFTER CONSIDERING THE RATIO OF THE RELEVANT DECISIONS AND JUDGMENTS, IT WAS HEL D THAT IF THE AMOUNTS ADVANCED ARE FOR BUSINESS TRANSACTION BETWEEN THE P ARTIES, SUCH PAYMENTS WOULD NOT FALL WITHIN THE DEEMING PROVISIONS OF SECTION 2 (22)(E) OF THE ACT. LD. COUNSEL FURTHER SUBMITTED THAT IN THE SAID JUDGEMEN T, HONBLE DELHI HIGH COURT ALSO HELD THAT EVEN THE MONEY WHICH WAS PAID WAS NO T IN THE NATURE OF LOAN OR ADVANCE SIMPLICITOR, BUT THE AMOUNTS WERE ADVANCED FOR BUSINESS TRANSACTION. IN THIS SITUATION, EVEN THE SHAREHOLDER CANNOT BE FAST ENED WITH ANY TAX LIABILITY AS CONDITIONS STIPULATED UNDER SECTION 2(22)(E) OF THE ACT WOULD NOT BE TREATED AS SATISFIED. 7. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, W E ARE OF THE VIEW THAT AS PER PROVISIONS OF SECTION 2(22)(E) OF THE ACT, THE LIABILITY OF TAX CAN BE FASTENED ONLY ON THE SHAREHOLDER OF THE PAYER COMPANY. IN T HE PRESENT CASE, THE AO ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 5 COULD NOT BRING OUT ANY FACT TO SUPPORT THAT THE LO AN TAKEN BY THE ASSESSEE COMPANY FROM M/S R.D. FINLEASE PVT. LTD. SATISFIES THE REQUIREMENT OF SECTION 2(22)(E) OF THE ACT AS THE ASSESSEE COMPANY IS NOT A SHAREHOLDER OF M/S R.D. FINLEASE PVT. LTD. IN THE LIGHT OF ABOVE LEGAL PRO POSITION AND DICTA LAID DOWN BY THE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS ANKITECH PVT. LTD., WE ARE OF THE OPINION THAT THE ACTION TAKEN BY THE AO WAS NOT IN ACCORDANCE WITH LAW AND LETTER AND SPIRIT OF SECTION 2(22)(E) OF TH E ACT WHICH WAS RIGHTLY DIRECTED TO BE DELETED BY THE CIT(A) BY PASSING THE IMPUGNED ORDER. HENCE WE REACH TO A LOGICAL CONCLUSION THAT THE VIEW TAKEN BY THE CIT (A) DOES NOT CARRY ANY INFIRMITY OR PERVERSITY AND WE ARE UNABLE TO SEE AN Y VALID REASON TO INTERFERE WITH THE SAME. ACCORDINGLY, SOLE GROUND OF THE REV ENUE BEING DEVOID OF MERITS IS DISMISSED. C.O. NO. 177/DEL/2013 OF THE ASSESSEE 8. FIRSTLY, LD. COUNSEL OF THE ASSESSEE SUBMITTED T HAT THE ASSESSEE DOES NOT WANT TO PRESS GROUND NO. 2 AND THE SAME IS DISMISSE D AS NOT PRESSED. CO NO. 3 AND 4 ARE GENERAL IN NATURE WHICH NEED NO ADJUDICAT ION ON MERITS AND WE DISMISS THE SAME. THE SOLE GROUND OF C.O. NO. 1 OF THE ASS ESSEE READS AS UNDER:- THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT DEL ETING THE DISALLOWANCE OF RS. 54,51,000/- FULLY AS MADE BY LD . AO U/S 40(A)(IA) AND FURTHER ERRED IN SUSTAINING THE SAME TO THE EXTENT OF RS.16,32,925/- AND THAT TOO WITHOUT CONSIDERING THE SUBMISSION OF THE ASSESSEE. ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 6 9. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. LD. COUNSEL OF THE ASSESSEE SUBMITTED A COPY OF THE ORDER OF ITAT AGRA BENCH IN THE CASE OF SHRI RAJEEV KUMAR AGRAWAL VS JCIT DATED 29.5.2014 IN ITA NO. 338/AGRA /2013 FOR AY 2007-08 AND SUBMITTED THAT THE INSERTION OF SECOND PROVISO TO SECTION 40(1)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND HENCE IT HAS RETROSPECTIVE EFFECT FROM 1.4.2005 BEING THE DATE FROM WHICH SUB-CLAUSE (IA) OF SECTION 40A WAS INSERTED BY FINANCE NO.(2) ACT 2004. LD. COUNSEL FURTHER PO INTED OUT THAT THE ISSUE MAY BE SENT TO THE AO WITH A DIRECTION THAT THE AO SHAL L GIVE DUE AND FAIR OPPORTUNITY OF HEARING TO THE ASSSESSEE AND DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW BY WAY OF SPEAKING ORDER CONSID ERING THIS FACT THAT SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT IS DECLARAT ORY AND CURATIVE HAVING RETROSPECTIVE EFFECT FROM 1.4.2005. LD. DR REPLIED THAT THE ACTION OF THE AO WAS QUITE JUSTIFIED WHICH WAS RIGHTLY UPHELD BY THE CIT (A) AND CO OF THE ASSESSEE HAVING NO FORCE DESERVES TO BE DISMISSED. 10. LD. DR ALSO POINTED OUT THAT SUBSEQUENT AMENDME NT IS NOT APPLICABLE RETROSPECTIVELY TO THE EARLIER YEARS AND THE LD. DR OBJECTED TO REMAND OF ISSUE TO THE AO. 11. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS A ND PERUSAL OF THE MATERIAL PLACED ON RECORD, WE OBSERVE THAT THE AO MADE DISAL LOWANCE U/S 40(A)(IA) OF THE ACT BY OBSERVING THAT ON PERUSAL OF FORM 3CD IT WAS SEEN THAT THE AUDITORS HAD ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 7 REPORTED THAT THERE WAS TAX DEDUCTIBLE AT SOURCE W HICH WAS NOT DEDUCTED AT ALL OF RS.3,70,021/-. THE AO ALSO OBSERVED THAT IN FORM 3 CD TAX OF RS.1,75,119 HAS BEEN DEDUCTED BUT NOT CREDITED IN THE GOVERNMENT AC COUNT. HENCE, ASSUMING THAT THE RATE OF TDS IS 10% ON BOTH THE AMOUNTS, TH E AO MADE DISALLOWANCE OF RS.545100/-. ON APPEAL BY THE ASSESSEE, FIRST APPE LLATE AUTHORITY GRANTED RELIEF TO THE EXTENT OF RS.38,18,475/- BUT CONFIRMED THE A DDITION TO THE EXTENT OF RS.16,32,925 WITH FOLLOWING OBSERVATIONS AND CONCL USION:- 5.5.1 REGARDING THE BALANCE AMOUNT OF RS. 37,00,21 0/-, IT WAS SUBMITTED THAT THE SAME WAS CALCULATED BY THE A O ON THE REASONING THAT TDS WAS RS. 3,70,021/- WHICH WAS DED UCTED @ 10% AND THEREFORE, THE INTEREST PAYABLE MUST HAVE B EEN RS. 37,00,210/-. HOWEVER, THE TAX DEDUCTIBLE WAS @ 22. 66% ON THE INTEREST PAYMENT OF RS. 16,32,925/- AMOUNTING TO RS . 3,70,021/-. IT WAS SUBMITTED THAT THE SAID INTEREST INCOME OF R S. 16,32,925/- HAD BEEN ACCOUNTED BY JCB (INDIA) LTD. IN ITS RETUR N OF INCOME FOR THE AY 2009-10. THE APPELLANT PRODUCED A COPY O F CERTIFICATE TO THIS EFFECT ISSUED BY JCB (INDIA) LTD. IT WAS SU BMITTED THAT THE AO DID NOT APPRECIATE THE TRUE POSITION BY ASSUMING THAT THE INTEREST AMOUNT ON THIS ACCOUNT WOULD HAVE BEEN RS. 37,00,210/- @ 10% ON ACCOUNT OF TAX DEDUCTIBLE AT SOURCE OF RS. 3,70,021/- AND WAS LIABLE TO BE ADDED BACK TO THE INCOME OF TH E APPELLANT. I FIND FORCE IN THE SUBMISSIONS OF THE APPELLANT THAT THE CORRECT RATE OF TDS APPLICABLE ON THE INTEREST PAYMENT WAS 22.66 % AND NOT 10% AS APPLIED BY THE AO. THEREFORE, THE AMOUNT OF INTEREST PAYMENT ON WHICH TDS OF RS.3,70,021/- WAS REQUIRED TO BE MADE COMES TO RS. 16,32,925/-. HOWEVER, I DO NOT AG REE WITH THE SUBMISSIONS OF ID. AR THAT SINCE THE SAID INTEREST INCOME OF RS.16,32,925/- HAD BEEN ACCOUNTED FOR BY THE JCB (I NDIA) LTD. IN THE INCOME TAX RETURN FOR THE AY 2009-10 AND THEREF ORE NO ADDITION WAS REQUIRED TO BE MADE. SECTION 40(A)(IA) OF THE ACT PROVIDES THAT WHERE INTEREST WAS DEDUCTIBLE AND THE SAME HAS NOT BEEN DEDUCTED, THE AMOUNT IS TO BE DISALLOWED U/S 4 0(A)(IA). IT IS NOT MATERIAL WHETHER THE PERSON TO WHOM TDS HAS BEE N PAID ACCOUNTED IT IN ITS BOOKS OF ACCOUNTS OR NOT. THE C ASE LAWS RELIED UPON BY THE LD. AR ARE OF NO HELP TO THE APPELLANT AS THEY WERE ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 8 DECIDED ON DIFFERENT FACTS AND HENCE ARE DISTINGUIS HED. ON THE CONTRARY, SPECIAL BENCH OF ITAT VISAKHAPATNAM IN TH E CASE OF MERILYN SHIPPING & TRANSPORTS V. ADDL. CIT (2012) 1 36 ITD 0023S HAS HELD THAT DISALLOWANCE U/S 40(A)(IA) IS J USTIFIED IF TDS HAS NOT BEEN MADE BY THE ASSESSEE IRRESPECTIVE OF T HE FACT THAT THE TAX WAS PAID ON SUCH INCOME BY PAYEE. THE HON'BLE S PECIAL, BENCH HAS REFERRED TO THE DECISION OF HON'BLE ALLAH ABAD HIGH COURT IN THE CASE OF DEY'S MEDICAL (U.P.) (P) LTD. VS, UOI IN CIVIL MISC. W.P. NO. 186 (TAX) OF 2008 DATED 15.02. 2008 AND HELD THAT IN A SITUATION IN WHICH TAX HAS BEEN PAID ON INCOME BY PAYEE BUT NO TDS WAS MADE BY THE PAYER, DISALLOWANC E U/S 40(A)(IA) WILL BE STILL ATTRACTED AND THIS MAY BE A CASE OF CASUS OMISUS BUT THE COURT CANNOT FILL THIS GAP. THE HON' BLE SPECIAL BENCH ALSO RELIED ON THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF TUBE INVESTMENTS OF INDIA LTD. VS. A CIT (2010) 395 ITR 610 IN WHICH HON'BLE MADRAS HIGH COURT IN PARA 61 OF THE JUDGMENT HELD THAT WHOLE OF EXPENDITURE CLAIMED WIT HOUT MAKING TDS IS TO BE DISALLOWED. THEREFORE, THE ADDITION OF RS. 16,32,925/- IS CONFIRMED. THUS, THE APPELLANT GETS A RELIEF OF RS. 38,18,475/- (RS. 54,51,400/- - 16,32,925/-). THE GR OUND OF APPEAL IS PARTLY ALLOWED. 12. NOW, WE CONSIDER THE RATIO OF THE ORDER OF ITAT AGRA DATED 29.5.2014 (SUPRA) WHEREIN THE TRIBUNAL HELD AS UNDER:- 4. VIDE OUR ORDER OF EVEN DATE WE HAVE UPHELD THE GRIEVANCE OF THE ASSESSEE AND OBSERVED AS FOLLOWS:- 2. THE ISSUE IN APPEAL LIES IN A RATHER NARROW COMP ASS OF UNDISPUTED MATERIAL FACTS. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS MADE INTEREST PAYMENTS, AGGREGATING TO RS 5,01,872, WITHOUT DISCHARGING HIS TAX WITHHOLDING O BLIGATIONS UNDER SECTION 194A . IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER, HAVING NOTED THE UNDISPUTED POSITION REGAR DING APPLICABILITY OF SECTION 194 A ON THE FACTS OF THIS CASE, AND HAVING NOTED THAT THE SCOPE OF SECTION 40(A)(IA) RESTRICTING DEDUCTION IN RESPECT OF SUMS IN RESPECT OF WHICH TA X WITHHOLDING LIABILITY IS NOT DISCHARGED, DISALLOWED RS 5,01,872 UNDER SECTION 40(A)(IA) R.W.S. 194 A OF THE ACT . AGGRIEVED, ASSESSEE CARRIED THE ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 9 MATTER IN APPEAL BEFORE THE CIT(A). IT WAS, INTER A LIA, CONTENDED BY THE ASSESSEE THAT IN VIEW OF THE INSERTION OF SE COND PROVISO TO SECTION 40(A)(IA) BY THE FINANCE ACT 2012, AND IN VIEW OF THE FACT THAT THE RECIPIENTS OF THE INTEREST HAVE ALREADY IN CLUDED THE INCOME EMBEDDED IN THESE PAYMENTS IN THEIR TAX RETU RNS FILED UNDER SECTION 139 , DISALLOWANCE UNDER SECTION 40(A)(IA) COULD NOT BE INVOKED IN THIS CASE. IT WAS ALSO CONTENDED THAT EVEN THOUGH THIS PROVISO IS STATED TO BE EFFECTIVE 1ST A PRIL 2013, SINCE THE AMENDMENT IN 'DECLARATORY AND CURATIVE IN NATUR E, AND, THEREFORE, IT SHOULD BE GIVEN 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'. NON E OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE LEARNED CIT(A). RELYING UPON A SPECIAL BENCH DECISION IN THE CASE OF BHARAT I SHIPYARD LTD VS. DCIT (141 TTJ 129), HAS REJECTED THIS PLEA AND CONCLUDED THAT INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) CANNOT BE HELD TO HAVE RETROSPECTIVE EFFECT. THE DI SALLOWANCE WAS THUS CONFIRMED BY THE LEARNED CIT(A). THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE AS ALSO THE APPLICABLE LEGAL POSITION. 4. LET US FIRST TAKE A LOOK AT THE LEGISLATIVE AMEN DMENT OF SECTION 40(A)(IA) , VIDE FINANCE ACT 2012, AND TRY TO APPRECIATE THE SCHEME OF THINGS AS EVIDEN T IN THE AMENDED SECTION . SECOND PROVISO TO SECTION 40(A)(IA) , INTRODUCED WITH EFFECT FROM 1 ST APRIL 2013, PROVIDES, 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 T O 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 SHA LL 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 REFERRED TO IN THE SAID PROVISO'. IN OTHER WO RDS, AS LONG AS THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DE FAULT, THE DISALLOWANCE UNDER SECTION 40(A)(IA) CANNOT COME INTO PLAY EITHER. TO UNDERSTAND THE EFFECT OF THIS PROVISO, I T IS USEFUL TO REFER TO FIRST PROVISO TO SECTION 201(1) , WHICH IS ALSO INTRODUCED ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 10 BY THE FINANCE ACT 2012 AND EFFECTIVE 1ST JULY 2012, AND WHICH PROVIDES THAT 'ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER ON T HE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT-(I) HAS FURNISHED HIS RET URN OF INCOME UNDER SECTION 139 ; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND(III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETUR N OF INCOME, AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFE CT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED.' THE UNAMBIGUOUS UNDERLYING PRINCIPLE SEEMS TO BE THAT I N THE SITUATIONS IN WHICH THE ASSESSEE'S TAX WITHHOLDING LAPSE HAVE NOT RESULTED IN ANY LOSS TO THE EXCHEQUER, AND THIS FAC T CAN BE REASONABLY DEMONSTRATED, THE ASSESSEE CANNOT BE TRE ATED AS AN ASSESSEE IN DEFAULT. THE NET EFFECT OF THESE AMENDM ENTS IS THAT THE DISALLOWANCE UNDER SECTION 40(A)(IA) SHALL NOT BE ATTRACTED IN THE SITUATIONS IN WHICH EVEN IF THE ASSESSEE HAS NOT DE DUCTED TAX AT SOURCE FROM THE RELATED PAYMENTS FOR EXPENDITURE BU T THE RECIPIENT OF THE MONIES HAS TAKEN INTO ACCOUNT THES E RECEIPTS IN COMPUTATION OF HIS INCOME, PAID DUE TAXES, IF ANY, ON THE INCOME SO COMPUTED AND HAS FILED HIS INCOME TAX RETURN UND ER SECTION 139(1) . THERE IS ALSO A PROCEDURAL REQUIREMENT OF ISSUANC E OF A CERTIFICATE, IN THE PRESCRIBED FORMAT, EVIDENCING C OMPLIANCE OF THESE CONDITIONS BY THE RECIPIENTS OF INCOME, BUT T HAT IS ESSENTIALLY A PROCEDURAL ASPECT OF THE MATTER. THE LEGISLATIVE AMENDMENT SO BROUGHT ABOUT BY THE FINANCE ACT , 2012, SO FAR AS THE SCHEME OF DISALLOWANCE UNDER SECTION 40(A)(IA) IS CONCERNED, SUBSTANTIALLY MITIGATES THE RIGOUR OF, WHAT OTHERWI SE SEEMED TO BE, A RATHER HARSH DISALLOWANCE PROVISION. 5. AS FOR THE QUESTION AS TO WHETHER THIS AMENDMENT CAN BE TREATED AS RETROSPECTIVE IN NATURE, EVEN IN THE CAS E OF BHARTI SHIPYARD (SUPRA) - A SPECIAL BENCH DECISION VEHEMEN TLY RELIED UPON IN SUPPORT OF REVENUE'S CASE, THE SPECIAL BENC H, ON PRINCIPLES, SUMMED UP THE SETTLED LEGAL POSITION TO THE EFFECT THAT 'ANY AMENDMENT OF THE SUBSTANTIVE PROVISION WHICH I S AIMED AT ...... (INTER ALIA) REMOVING UNINTENDED CONSEQUENCE S TO MAKE THE PROVISIONS WORKABLE HAS TO BE TREATED AS RETROSPECT IVE NOTWITHSTANDING THE FACT THAT THE AMENDMENT HAS BEE N GIVEN EFFECT PROSPECTIVELY'. IT WAS HELD THAT IF THE CONS EQUENCES SOUGHT TO BE REMEDIED BY THE SUBSEQUENT A.Y. 2007-08 AMEND MENTS WERE ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 11 TO BE TREATED AS 'INTENDED CONSEQUENCES', THE AMEND MENT COULD NOT BE TREATED AS RETROSPECTIVE IN EFFECT. THE SPEC IAL BENCH THE N PROCEEDED TO DRAW A LINE OF DEMARCATION BETWEEN INT ENDED CONSEQUENCES AND UNINTENDED CONSEQUENCES, AND FINAL LY THE RETROSPECTIVITY OF FIRST PROVISO WAS DECIDED AGAINS T THE ASSESSEE ON THE GROUND THAT THIS SPECIAL BENCH WAS OF THE CO NSIDERED VIEW THAT 'THE OBJECTIVE SOUGHT TO BE ACHIEVED BY BRINGI NG OUT SECTION 40(A)(IA) IS THE AUGMENTATION OF TDS PROVISIONS' AND WENT ON TO ADD THAT 'IF, IN ATTAINING THIS MAIN OBJECTIVE OF A UGMENTATION OF SUCH PROVISIONS, THE ASSESSEE SUFFERS DISALLOWANCE OF ANY AMOUNT IN THE YEAR OF DEFAULT, WHICH IS OTHERWISE DEDUCTIB LE, THE LEGISLATURE ALLOWED IT TO CONTINUE'. IT WAS FURTHER OBSERVED THAT 'THIS IS THE COST WHICH PARLIAMENT HAS AWARDED TO T HOSE ASSESSEES WHO FAIL TO COMPLY WITH THE RELEVANT PROVISIONS BY CONSIDERING OVERALL OBJECTIVE OF BOOSTING TDS COMPLIANCE'(EMPHA SIS BY UNDERLINING SUPPLIED BY US). IN OTHER WORDS, THE AM ENDMENT WAS HELD TO BE PROSPECTIVE BECAUSE, IN THE WISDOM OF TH E SPECIAL BENCH, THE 2010 AMENDMENT TO SECTION 40(A)(IA) BY INSERTING FIRST PROVISO THERETO, WHICH IS WHAT THE SPECIAL BENCH WA S DEALING WITH, WAS AN 'INTENDED CONSEQUENCE' OF THE PROVISIO N OF SECTION 40(A)(IA) . 6. HOWEVER, THE STAND SO TAKEN BY THE SPECIAL BENC H WAS DISAPPROVED BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS RAJINDER KUMAR (362 ITR 241). WHILE DOING SO, THEIR LORDSHIPS OBSERVED THAT, 'THE OBJECT OF INTRODUCTION OF SECTION 40(A)(IA) IS TO ENSURE THAT TDS PROVISIONS ARE SCRUPULOUSLY IMPL EMENTED WITHOUT DEFAULT IN ORDER TO AUGMENT RECOVERIES..... ...FAILURE TO DEDUCT TDS OR DEPOSIT TDS RESULTS IN LOSS OF REVENU E AND MAY DEPRIVE THE GOVERNMENT OF THE TAX DUE AND PAYABLE ' (EMPHASIS BY UNDERLINING SUPPLIED BY US)'. HAVING NOTED THE U NDERLYING OBJECTIVES, THEIR LORDSHIPS ALSO PUT IN A WORD OF C AUTION BY OBSERVING THAT, 'THE PROVISION SHOULD BE INTERPRETE D IN A FAIR, JUST AND EQUITABLE MANNER'. THEIR LORDSHIPS THUS RECOGNI ZED THE BIGGER PICTURE OF REALIZATION OF LEGITIMATE TAX DUE S, AS OBJECT OF SECTION 40(A)(IA) , AND THE NEED OF ITS FAIR, JUST AND EQUITABLE INTERPRETATION. THIS APPROACH IS QUALITATIVELY DIFF ERENT FROM PERCEIVING THE OBJECT OF SECTION 40(A)(IA) AS AWARDING OF COSTS ON THE 'ASSESSEES WHO FAIL TO COMPLY WITH THE RELEVANT PROVISIONS BY CONSIDERING OVERALL OBJECTIVE OF BOOSTING TDS COMPL IANCE'. NOT ONLY THE CONCLUSIONS ARRIVED AT BY THE SPECIAL BENC H WERE DISAPPROVED BUT THE VERY FUNDAMENTAL ASSUMPTION UND ERLYING ITS APPROACH, I.E. ON THE ISSUE OF THE OBJECT OF SECTION 40(A)(IA) , WAS ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 12 REJECTED TOO. IN ANY EVENT, EVEN GOING BY BHARTI SH IPYARD DECISION (SUPRA), WHAT WE HAVE TO REALLY EXAMINE IS WHETHER 2012 AMENDMENT, INSERTING SECOND PROVISO TO SECTION 40(A)(IA) , DEALS WITH AN 'INTENDED CONSEQUENCE' OR WITH AN 'UNINTEND ED CONSEQUENCE'. 7. WHEN WE LOOK AT THE OVERALL SCHEME OF THE SECTIO N AS IT EXISTS NOW AND THE BIGGER PICTURE AS IT EMERGES AFTER INSE RTION OF SECOND PROVISO TO SECTION 40(A)(IA) , IT IS BEYOND DOUBT THAT THE UNDERLYING OBJECTIVE OF SECTION 40(A)(IA) WAS TO DISALLOW DEDUCTION IN RESPECT OF EXPENDITURE IN A SITUATION IN WHICH THE INCOME EMBEDDED IN RELATED PAYMENTS REMAINS UNTAXED DUE TO NON DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE. IN OTHER WORDS, DEDUCTIBILITY OF EXPENDITURE IS MADE CONTINGENT UPO N THE INCOME, IF ANY, EMBEDDED IN SUCH EXPENDITURE BEING BROUGHT TO TAX, IF APPLICABLE. IN EFFECT, THUS, A DEDUCTION FOR EXPEND ITURE IS NOT ALLOWED TO THE ASSESSEES, IN CASES WHERE ASSESSEES HAD TAX WITHHOLDING OBLIGATIONS FROM THE RELATED PAYMENTS, WITHOUT A.Y. 2007-08 CORRESPONDING INCOME INCLUSION BY THE RECIP IENT. THAT IS THE CLEARLY DISCERNABLE BIGGER PICTURE, AND, UNMIST AKABLY, A VERY PRAGMATIC AND FAIR POLICY APPROACH TO THE ISSUE - H OWSOEVER BELATED THE REALIZATION OF UNINTENDED AND UNDUE HAR DSHIPS TO THE TAXPAYERS MAY HAVE BEEN. IT SEEMS TO PROCEED ON THE BASIS, AND RIGHTLY SO, THAT SEEKING TAX DEDUCTION AT SOURCE CO MPLIANCE IS NOT AN END IN ITSELF, SO FAR AS THE SCHEME OF THIS LEGA L PROVISION IS CONCERNED, BUT IS ONLY A MEAN OF RECOVERING DUE TAX ES ON INCOME EMBEDDED IN THE PAYMENTS MADE BY THE ASSESSEE. THAT 'S HOW, AS WE HAVE SEEN A SHORT WHILE AGO, HON'BLE DELHI HIGH COURT HAS VISUALIZED THE SCHEME OF THINGS - AS EVIDENT FROM T HEIR LORDSHIPS' REFERENCE TO AUGMENTATION OF RECOVERIES IN THE CONT EXT OF 'LOSS OF REVENUE' AND 'DEPRIVING THE GOVERNMENT OF THE TAX D UE AND PAYABLE'. 8. WITH THE BENEFIT OF THIS GUIDANCE FROM HON'BLE D ELHI HIGH COURT, IN VIEW OF LEGISLATIVE AMENDMENTS MADE FROM TIME TO TIME, WHICH THROW LIGHT ON WHAT WAS ACTUALLY SOUGHT TO BE ACHIEVED BY THIS LEGAL PROVISION, AND IN THE LIGHT OF THE ABOVE ANALYSIS OF THE SCHEME OF THE LAW, WE ARE OF THE CONSIDERED VIEW TH AT SECTION 40(A)(IA) 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 RE CIPIENTS HAVE TAKEN INTO ACCOUNT INCOME EMBEDDED IN THESE PAYMENT S, PAID DUE TAXES THEREON AND FILED INCOME TAX RETURNS IN ACCOR DANCE WITH THE ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 13 LAW. AS A COROLLARY TO THIS PROPOSITION, IN OUR CON SIDERED VIEW, DECLINING DEDUCTION IN RESPECT OF EXPENDITURE RELAT ING TO THE PAYMENTS OF THIS NATURE CANNOT BE TREATED AS AN 'IN TENDED CONSEQUENCE' OF SECTION 40(A)(IA) . IF IT IS NOT AN INTENDED CONSEQUENCE I.E. IF IT IS AN UNINTENDED CONSEQUENCE , EVEN GOING BY BHARTI SHIPYARD DECISION (SUPRA), 'REMOVING UNIN TENDED CONSEQUENCES TO MAKE THE PROVISIONS WORKABLE HAS TO BE TREATED AS RETROSPECTIVE NOTWITHSTANDING THE FACT THAT THE AMENDMENT HAS BEEN GIVEN EFFECT PROSPECTIVELY'. REVENUE, THUS, DO ES NOT DERIVE ANY ADVANTAGE FROM SPECIAL BENCH DECISION IN THE CA SE BHARTI SHIPYARD (SUPRA). 9. ON A CONCEPTUAL NOTE, PRIMARY JUSTIFICATION FOR SUCH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN TH E 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 ACTU AL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT D EDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, S O FAR A S THE LEGAL FRAMEWORK IS CONCERNED, THIS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOUR CE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTIVIZING A LAPSE AND PUNISHING A LAPSE ARE T WO DIFFERENT THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNOTATIONS. WHEN WE APPRECIATE THE OBJ ECT OF SCHEME OF SECTION 40(A)(IA) , AS ON THE STATUTE, 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 COU RT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMB LE UNDERSTANDING, IT COULD NOT BE AN 'INTENDED CONSEQU ENCE' TO DISALLOW THE EXPENDITURE, DUE TO NON DEDUCTION OF T AX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESPONDING INCOME I S 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 EXPENDIT URE SHOULD NOT A.Y. 2007-08 BE ALLOWED AS DEDUCTION IN THE HANDS O F AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXP ENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY T HE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TA X WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RE STRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY FOR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROV IDED FOR IN ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 14 SECTION 271 C, AND, SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PROVISIONS OF SECTION 40(A)(IA) , AS THEY EXISTED PRIOR TO INSERTION OF SECOND PROVISO THERETO, WENT MUCH BEYO ND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UND UE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDI NG LAPSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. NOW THAT T HE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCO MINGS OF PROVISION, AND THUS OBVIATE THE UNINTENDED HARDSHIP S, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL SETTLED LEGAL POSITION TO THE EFFECT THAT A CURATIVE AMENDMENT TO AVOID UNINTENDE D CONSEQUENCES IS TO BE TREATED AS RETROSPECTIVE IN N ATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERT ION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSIONS, AS ALSO FOR THE DETAILED REASONS SET O UT 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 TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND P ROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING T HE DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004. 10. IN VIEW OF THE ABOVE DISCUSSIONS, WE DEEM IT FI T AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OF FICER FOR FRESH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS AND AFTER CARRYING OUT NECESSARY VERIFICATIONS REGARDING RELA TED PAYMENTS HAVING BEEN TAKEN INTO ACCOUNT BY THE RECIPIENTS IN COMPUTATION OF THEIR INCOME, REGARDING PAYMENT OF TAXES IN RESP ECT OF SUCH INCOME AND REGARDING FILING OF THE RELATED INCOME T AX RETURNS BY THE RECIPIENTS. WHILE GIVING EFFECT TO THESE DIRECT IONS, THE ASSESSING OFFICER SHALL GIVE DUE AND FAIR OPPORTUNI TY OF HEARING TO THE ASSESSEE, DECIDE THE MATTER IN ACCORDANCE WI TH THE LAW AND BY WAY OF A SPEAKING ORDER. WE ORDER SO. 5. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US IN THE CASE OF RAJEEV KUMAR AGARWAL (SUPRA). RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE IN PRINCIPLE, AND UPON NE CESSARY ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 15 VERIFICATIONS, CONSIDER DELETION OF IMPUGNED DISALL OWANCE OF RS 7,26,585. THE ASSESSEE GETS THE RELIEF ACCORDINGLY, IF ADMISSIBLE. 13. IF WE ANALYSE THE FACTS AND CIRCUMSTANCES OF TH E PRESENT CASE, IN THE LIGHT OF RATIO LAID DOWN BY ITAT AGRA IN ORDER DATED 29.5 .2014 (SUPRA), WE OBSERVE THAT THE CIT(A) AGREED THAT THE CORRECT RATE OF TDS APPLICABLE ON THE INTEREST PAYMENT WAS 22.66% AND NOT 10% AS APPLIED BY THE AO , THEREFORE, THE IMPUGNED AMOUNT OF INTEREST PAYMENT OF WHICH TDS OF RS.3,70,021 WAS REQUIRED TO BE MADE COMES TO RS.16,32,925. HOWEVER , WE FURTHER OBSERVE THAT THE CIT(A) DECLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT SINCE THE SAID INTEREST HAD BEEN ACCOUNTED FOR BY THE PAYEE J.C. I NDIA LTD. IN THE INCOME TAX RETURN FOR AY 2009-10, THEREFORE NO ADDITION WAS RE QUIRED TO BE MADE U/S 40(A)(IA) OF THE ACT. LD. CIT(A) PROCEEDED TO CONF IRM THE ADDITION WITH THIS LEGAL PROPOSITION THAT SECTION 40(A)(IA) OF THE ACT PROVIDES THAT WHERE TDS WAS DEDUCTIBLE AND THE SAME HAS NOT BEEN DEDUCTED BY TH E PAYER, THE AMOUNT OF INTEREST EXPENSE IS TO BE DISALLOWED UNDER THIS PRO VISION. THE CIT(A) FURTHER NOTED THAT IT IS NOT MATERIAL WHETHER THE PERSON TO WHOM TDS HAS BEEN PAID ACCOUNTED FOR IT IN ITS BOOKS OF ACCOUNTS OR NOT. 14. WHILE WE CONSIDER THE RATIO LAID DOWN BY ITAT A GRA IN ITS ORDER DATED 29.5.2014 (SUPRA), WE FIND OURSELVES IN AGREEMENT W ITH THE CONCLUSION THAT THE PROVISIONS OF SECTION 40A(IA) OF THE ACT AS IT EXIS TED PRIOR TO INSERTION OF SECOND PROVISO WENT MUCH BEYOND THE OBVIOUS INTENTION OF T HE LEGISLATURE AND CREATED ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 16 UNDUE HARDSHIP EVEN IN THE CASES IN WHICH ASESSEES TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. SUBSEQUEN TLY, THE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNINTENDED HARDSHIPS, SUCH AS AMENDMENT IN LAW. IN VIEW OF THE WELL-SETTLED LEGAL POSITION TO THE EFFECT THAT A CURATIVE AMENDM ENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSPECTIVE IN N ATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERTION OF SECOND PROV ISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEGA L PROVISION WAS INTRODUCED. IN THIS SITUATION, AGREEING TO THE SAID LEGAL PROPOSIT ION OF ITAT, AGRA, 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 1.4.20 05. HENCE, RESPECTFULLY FOLLOWING THE LEGAL PROPOSITION ADVANCED BY ITAT, A GRA, WE DO NOT SEE ANY REASON TO TAKE A DIFFERENT VIEW ON THE ISSUE THAN T HE VIEW TAKEN BY ITAT AGRA IN THE CASE OF SHRI RAJEEV KUMAR AGARWAL VS JCIT (SUPR A). RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE PRINCIPALLY AND DIRECT THAT THE AO SHALL GIVE DUE AND FAIR OPPORTUN ITY OF HEARING TO THE ASSESSEE AND DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW BY WAY OF A SPEAKING ORDER AFTER CARRYING OUT NECESSARY VERIFICATION REGARDING IMPUGNED PAYMENTS HAVING BEEN TAKEN INTO ACCOUNT BY THE RECIPIENTS IN THE CO MPUTATION OF THEIR RESPECTIVE INCOME, REGARDING PAYMENT OF TAXES IN RESPECT OF SU CH INCOME AND REGARDING FILING OF RELATED INCOME TAX RETURN BY THE RECIPIEN TS. ACCORDINGLY, SOLE CROSS ITA NO. 2098/D/2013 & CO NO. 177/D/13 AY: 2009-10 17 OBJECTION OF THE ASSESSEE IS ALLOWED IN PRINCIPLE A ND DEEMED TO BE ALLOWED FOR VERIFICATION BY THE AO IN THE MANNER AS INDICATED A BOVE. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND SOLE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29.07.2015. SD/- SD/- (N.K. SAINI) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 29TH JULY, 2015 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT.REGISTRAR