ITO Ward 3, Vellore V. Aziz Leather Exports, Ambur

ITA 2102/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5826 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 29-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN ACIT
• Assessee Lawyers: MRS MEERA SURESH CA
• Keywords: Retrospective amendment; Tax effect; Reason to believe; Reassessment proceedings
• Section: 201(1); 139

Judgement Text

, A/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL A/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.2102 /MDS./2017 ( ASSESSMENT YEAR : 2009-10 ) THE INCOME TAX OFFICER, WARD-3, VELLORE VS. M/S. AZIZ LEATHER EXPORTS , 54,V.A.KAREEM ROAD, AMBUR 635 802. PAN AAKFA 7791 G ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.N.MADHAVAN, ACIT, DR / RESPONDENT BY : MRS.MEERA SURESH, CA ! ' / DATE OF HEARING : 13.11.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 13.11.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE, AGGRIEVED B Y THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-13, CHENN AI DATED 01-06-2017 PERTAINING TO ASSESSMENT YEAR 2009-10. ITA NO. 2102/MDS/2017 2 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS FOR CO NSIDERATION. 1.THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO FA CTS AND CIRCUMSTANCES OF THE CASE. 2.THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOW ANCE OF ` 23,29,364/- MADE UNDER SEC.40(A)(IA) OF THE I.T. ACT, 1961. 3.THE LD CIT(A) FAILED TO APPRECIATE THAT THE ABOVE ISSUE ARISES VIDE RAP OBJECTION. AS PER CIRCULAR NO.21/2015 WHICH STATES AS UNDER:THE ABOVE ISSUES SHOULD BE CONTESTED ON MERITS NOTWITHSTANDIN G THAT THE TAX EFFECT ENTAILED IS LESS THAN THE MONETARY LIMIT SPECIFIED IN PARA 3 CIRCULAR NO.21/2015 OR THERE IS NO TAX EFFECT. PARA 8( C) WHERE RAP IN THE CASE HAS BEEN ACCEPTED BY THE DEPARTMENT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE A.O HA S REASON TO BELIEVE THAT PAYMENT OF JOB WORK CHARGES FOR ` 24,47,614/- HAD BEEN MADE WITHOUT MAKING TDS. THEREFORE, THE AO HAD RECO RDED REASONS IN WRITING AND ISSUED NOTICE U/S.148 TO THE ASSESSE E. DURING THE REASSESSMENT PROCEEDINGS, THE ASSESSEE WAS GIVEN DU E OPPORTUNITY TO CLARIFY ON THE ASPECT OF DEDUCTION OF TDS IN RES PECT OF PAYMENT OF JOB WORK CHARGES FOR ` 24,47,614/-. HOWEVER, THE ASSESSEE HAS NOT AVAILED SUCH OPPORTUNITY AND COULD NOT PRODUCE ANY EVIDENCE IN THIS ASPECT. THEREFORE, THE AO HAD TREATED THE PAYMENT O F ` 24,47,614/- MADE FOR JOB WORK CHARGES WITHOUT TDS AS DISALLOWAN CE U/S.40(A)(IA) OF THE ACT. AGGRIEVED BY THIS, THE ASSESSEE CARRIE D THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) PLACING RE LIANCE IN THE ITA NO. 2102/MDS/2017 3 JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS . ANSAL LAND MARK TOWNSHIP (P) LTD IN 377 ITR 635(DEL.), WHEREIN OBSERVED THAT WHEN THE RECIPIENT FILED ITS RETURN OF INCOME DISCL OSING THE PAYMENT RECEIVED FROM THE ASSESSEE AND IN WHICH THE INCOME EARNED BY IT WAS EMBEDDED AND HAD ALSO PAID ON SUCH INCOME, THE ASS ESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAULT. SINCE IN TH E PRESENT CASE THE PAYEE HAD FILED ITS RETURN AND OFFERED THE SUM RECE IVED TO TAX, LD.CIT(A) ALLOWED THE CLAIM OF ASSESSEE. AGAINST T HE ORDER OF LD.CIT(A), NOW THE REVENUE IS IN APPEAL BEFORE U S. 4. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE LD.CIT(A) RELIED ON THE JUDGEMENT OF D ELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P) LTD.(SUPRA) AND ALLOWED THE CLAIM OF ASSESSEE. HOWEVER, HE HAS NOT GOT IT V ERIFIED FROM THE LD. ASSESSING OFFICER WHETHER THE RECIPIENT HAS RECEIVE D THE INCOME FROM THE ASSESSEE AND PAID TAX THEREON. HENCE, IN MY OPI NION, IT IS APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF LD. A SSESSING OFFICER TO EXAMINE AFRESH IN THE LIGHT JUDGMENT OF DELHI HIGH COURT IN THE CASE ITA NO. 2102/MDS/2017 4 OF CIT VS. ANSAL LAND MARK TOWNSHIP (P) LTD.(SUPRA) 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 P ERSON FAILS TO DEDUCT TAX AT SOURCE ON THE SUM PAID TO A RESIDENT OR ON T HE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE 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 MANDATORY REQUIREMENT UNDER SECTION 201 TO DEDUCT T AX AT SOURCE UNDER CERTAIN CONTINGENCIES BUT THE INTENTION OF TH E LEGISLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJEC T TO THE FULFILMENT OF THE CONDITIONS AS STIPULATED IN THE FIRST PROVISO T O SECTION 201(1). THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA ) ALSO REQUIRES TO BE VIEWED IN THE SAME MANNER. THIS AGAIN IS A PROVISO INTENDED TO BENEFIT THE ASSESSEE. THE EFFECT OF THE LEGAL FICTION CREAT ED THEREBY IS TO TREAT THE ASSESSEE AS A PERSON NOT IN DEFAULT OF DEDUCTIN G TAX AT SOURCE UNDER CERTAIN CONTINGENCIES. 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 FILED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WH ICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS ALSO PAID TAX ON S UCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAUL T. AS FAR AS THE PRESENT CASE IS CONCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT THE PAYEE HAS F ILED RETURNS AND OFFERED THE SUM RECEIVED TO TAX. ITA NO. 2102/MDS/2017 5 13. TURNING TO THE DECISION OF THE AGRA BENCH OF TH E INCOME-TAX APPELLATE TRIBUNAL IN RAJEEV KUMAR AGARWAL V. ASST. CIT (SUPRA ), THE COURT FINDS THAT IT HAS UNDERTAKEN A THOROUGH ANALY SIS OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT AND ALSO SO UGHT TO EXPLAIN THE RATIONALE BEHIND ITS INSERTION. IN PARTICULAR, THE COURT WOULD LIKE TO REFER TO PARAGRAPH 9 OF THE SAID ORDER WHICH READS AS UND ER (PAGE 485 OF 34 ITR (TRIB)) : 'ON A CONCEPTUAL NOTE, THE PRIMARY JUSTIFICATION FO R SUCH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEI NG TAKEN INTO ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HAN DS 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 R EVENUE. THIS DISALLOWANCE DOES DEINCENTIVISE NOT DEDUCTING TAX A T SOURCE, WHEN SUCH TAX DEDUC TIONS ARE DUE BUT SO FAR AS THE LEGA L FRAMEWORK IS CONCERNED, THIS PRO VISION IS NOT FOR THE PURPOSE O F 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 THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNO TATIONS. WHEN WE APPRECIATE THE OB JECT OF SCHEME OF SECTION 40(A)(IA), AS ON THE STATUTE, AND TO EXAMIN E WHETHER OR NOT, ON A 'FAIR, JUST AND EQUITABLE' INTERPRETATION OF LAW AS IS THE GUIDANCE FROM THE HON'BLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT COULD NO T BE AN 'INTENDED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NO N-DEDUCTION OF TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESPONDI NG INCOME IS ITA NO. 2102/MDS/2017 6 BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE S CHEME 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 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 WITHH OLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271C, AND, SE CTION 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 THERET O, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDI NG 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 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 BEEN AN 'INTENDED CONSEQUENCE' TO PUNISH THE ASSESSEES FOR NON- DEDUC TION 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 PRO VISO TO SE CTION 40(A)(IA) IS ITA NO. 2102/MDS/2017 7 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 .' 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASONI NG OF THE AGRA BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL AS REGAR DS THE RATIONALE BEHIND THE INSERTION OF THE SECOND PROVISO TO SECTI ON 40(A)(IA) OF THE ACT AND ITS CONCLUSION THAT THE SAID PROVISO IS DEC LARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFECT FROM APRIL 1, 2005, ME RITS ACCEPTANCE. 5. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 13 TH NOVEMBER, 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBE R CHENNAI, DATED THE 13 TH NOVEMBER, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF