Shri Vikrant Patidar, Khandwa V. THE ITO, Khandwa

ITA 216/IND/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6083 (ITAT-INDORE)
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: N D PATWA S
• Keywords: Business expenditure; Retrospective amendment; Non-deduction of tax
• Section: 143(3); 194C; 201(1); 263; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A.NO. 216/IND/2016 A.Y. : 2009-10 SHRI VIKRANT PATIDAR, ITO, KHANDWA KHANDWA VS APPELLANT RESPONDENT PAN NO. AOWPP1284M APPELLANTS BY : SHRI ASHISH GOYAL AND SHRI N. D. PATWA, ADVOCATES RESPONDENT BY : SHRI R. A. VERMA, DR O R D E R PER D.T.GARASIA, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)-22, NEW DELHI, CAMP OFFICE AT INDORE DATED 19.2.2016, FOR THE ASSESSMENT YEAR 2009-10. DATE OF HEARING : 04. 0 5 .2016 DATE OF PRONOUNCEMENT : 20 . 0 5 .2016 ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 2 2 2. THE BRIEF OF THE CASE ARE THAT THE ASSESSEE IS A N INDIVIDUAL RUNNING A PROPRIETORY CONCERN IN THE NAM E AND STYLE OF M/S. GLOBLEFX SOLUTIONS. THE ASSESSEE HAS BEEN FILING RETURNS FROM MANY YEARS DISCLOSING INCOME FROM COMM ISSION (FOR PROVIDING FINANCIAL SERVICES OF FOREX AS COMMI SSION AGENT), WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. THE ASSES SEE WAS SERVED WITH A NOTICE U/S. 263 WHEREIN, IT WAS PROPO SED BY THE LD. CIT TO TREAT THE INCOME FROM THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE AS A PROFESSION; AND THEREBY HOLD ING THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS ON COMMISSION PAYMENTS MADE BY HIM;(SINCE AS PER LD. CIT, THE ASS ESSEE BEING ENGAGED IN PROFESSION AND NOT BUSINESS, H IS TURNOVER IN THE PRECEDING YEAR EXCEEDED THE SPECIFIED LIMITS AND THUS HE WAS LIABLE FOR DEDUCTING TDS IN THIS YEAR. SINCE, AS PER LD. CIT, ASSESSEE WAS LIABLE TO DEDUCT TDS ON SUNDRY PAYMENT S, BUT NO TDS WAS DEDUCTED, HE WENT ON TO HOLD THAT THE FOL LOWING EXPENSES SHOULD HAVE BEEN DISALLOWED U/S. 40(A)(IA): - 1. COMMISSION EXPENSES (I) TO ARUN AGRAWAL, INDORE PAID BY CHEQUE NO. 0019 DATED 22.10.2008 RS. 1,50,000 (II) TO RAJIV AGRAWAL, INDORE PAID BY CHEQUE NO. 0019 DATED 22.10.2008 RS. 50,000 ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 3 3 2. FEES (PROFESSIONAL) EXPENSES (I) M/S. PRAMODSHRIVASTAVA& CO. (CA), 202, BLOCK MANGALSHRICOMPLES INDORE PAID ON DIFFERENT DATES RS. 7,50,000 (II) TO AVINASHKHANDELWAL (CA), INDORE PAID ON 01.10.2008 THROUGH BANK RS. 40,000 (III) TO M/S. NEHA MANAGEMENT SERVICES, INDORE PAID ON 06.10.2008 RS. 50,000 3. HIRE CHARGES PAID TO SMT. EKTA RAJKUMAR AGRAWAL, INDORE FOR HER VARIOUS BILLS AGGREGATING RS. 2,31,520 TOTAL RS. 12,71,520 LD AO COMPLETED THE ASSESSMENT U/S. 263/ 143(3) MAK ING THE ADDITION OF RS. 12,71,520 HOLDING THAT NO TDS WAS DE DUCTED. THIS ORDER HAS BEEN CONFIRMED BY THE LD CIT(A), AGA INST WHICH THE ASSESSEE IS IN APPEAL. AS PER THE AO, THE ASSES SEE IS LIABLE TO DEDUCT TDS ON SUNDRY PAYMENTS, BUT NO TDS WAS PAI D AND THE AO DID NOT ALLOW THE DEDUCTION OF RS. 12,71,520/ - HOLDING THAT NO TDS WAS DEDUCTED. THE LD.AUTHORIZED REPRESEN TATIVE FOR THE ASSESSEE SUBMITTED THAT THE DEDUCTEE HAVE A LREADY FILED THE RETURNS AND PAID THE TAXES PROPERLY, AS PER DET AILS GIVEN BELOW:- ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 4 4 S.N. PARTICULARS AMOUNT REFERENCE OF SYNOPSIS 1. COMMISSION EXPENSES (I) TO ARUN AGRAWAL, INDORE RS. 1,50,000 (A) RETURN OF INCOME. PG. 7-8. (B) BILL FOR COMMISSION. PG 9 (C) LEDGER ACCOUNT. PG. 10 (II) TO RAJIV AGRAWAL, INDORE RS. 50,000 (A) RETURN OF INCOME. PG. 11-13 (B) BILL FOR COMMISSION. PG. 14 (C) LEDGER ACCOUNT. PG. 15. 2. FEES (PROFESSIONAL) EXPENSES (I) M/S. PRAMOD SHRIVASTAVA& CO. (CA), RS. 7,50,000 (A) RETURN OF INCOME. PG. 16-18 (B) LEDGER ACCOUNT IN THEIR BOOKS. PG. 19. (C) BILL. PG. 21-26. (D) LEDGER ACCOUNT. PG. 27. (II) TO AVINASH KHANDELWAL (CA), INDORE RS. 40,000 (A) RETURN OF INCOME. PG. 29A- 29C. (A) BILL. PG. 28. (B) LEDGER ACCOUNT. PG. 29. (III) TO M/S. NEHA MANAGEMENT SERVICES, INDORE RS. 50,000 (A) RETURN OF INCOME. PG. 30-33. (B) RECEIPT VOUCHER. PG. 34. (C) BILL FOR COMMISSION. PG. 35 (D) LEDGER ACCOUNT. PG. 36. 3. HIRE CHARGES PAID TO SMT. EKTA RAJKUMAR AGRAWAL, INDORE RS. 2,31,520 (A) RETURN OF INCOME. PG. 37-39. (B) BILL. PG. 40-45. (C) LEDGER ACCOUNT. PG. 46 TOTAL RS. 12,71,520 3. AFTER CONSIDERING THE REPLY, THE AO AND LD. CIT(A) HAS CONFIRMED THE APPEAL. 4. THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF HIN DUSTAN COCA-COLA BAVERAGES PRIVATE LIMITED VS. CIT, 211 CT R 545 (S. C.) ALONGWITH CBDT CIRCULAR NO.272/201/95-IT(B) DATE D 29 TH ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 5 5 JANUARY, 1997. THUS, THERE WAS NO LOSS TO THE GOVERN MENT. THEREFORE, THE APPEAL SHOULD HAVE BEEN ALLOWED. TH E LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THERE WAS AMENDMENT IN FINANCE ACT, 2012, BEING INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA), WHICH WAS CLARIFICATORY AND RETROSPECTIVE IN OPERATION. THE ASSESSEE HAS ALREAD Y PROVIDED THE IN PRINCIPLE COMPLIANCE OF THE CONDITIONS MEN TIONED IN THAT SUB SECTION BEFORE THE AO IN THE ASSESSMENT PR OCEEDINGS AND THUS NO DISALLOWANCE U/S 40(A)(IA) SHOULD BE MAD E IN THIS CASE. THE SECOND PROVISO IS RETROSPECTIVE W.E.F. 1.4 .2013 AND NOT EARLIER. THEREFORE, NO PENALTY SHOULD BE LEVIED . THE LD.AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTH ER SUBMITTED THAT IN THIS CASE THE ASSESSEE HAS NOT DE DUCTED THE TAXES, BUT THE DEDUCTEE HAVE FILED THE RETURN AND P AID THE TAXES. IN THE CASE OF ARUN AGRAWAL, RETURN OF INCOME IS ON PAGE 7 & 8 AND IN THE CASE OF RAJIV AGARWAL, THE RETURN O F INCOME IS ON PAGES 11 TO 13. IN THE CASE OF M/S. PRAMOD SHRIV ASTAVA & CO., THE RETURN OF INCOME IS ON PAGES 16 TO 18. IN THE CASE OF AVINASH KHANDELWAL, THE RETURN OF INCOME IS ON PAGES 29A TO 29C; IN THE CASE OF M/S. NEHA MANAGEMENT SERVICES, INDORE, ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 6 6 RETURN OF INCOME IS ON PAGES 30-33 AND FOR HIRE CHA RGES PAID TO SMT. EKTA RAJKUMAR AGRAWAL, INDORE, RETURN OF INC OME IS ON PAGES 37 39. THE LD.AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE DEDUCTEE HAVE ALREADY P AID THE TAXES AND NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT. SINCE THE PAYEE HAD ALREADY PAID TAXES, TAX C OULD NOT ONCE AGAIN BE RECOVERED FROM THE PAYER I.E. ASSESSE E. THE RATIO OF DECISION OF HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA-COLA BEVERAGES PVT.LTD. VS. CIT, 211 CTR 545 ( S.C.) HELD THAT WHEN THE ASSESSEE IS IN DEFAULT FOR TDS, THE TA X ALREADY PAID BY RECIPIENT OF INCOME TAX PAYEE HAD ALREADY P AID THE TAXES DUE ON PAYMENT RECEIVED FROM IT FROM THE ASSE SSEE. THEREFORE, THE TAX COULD NOT BE RECOVERED ONCE AGAI N FROM THE DEDUCTOR ASSESSEE. THIS ISSUE ALREADY STANDS CLARIF IED BY CIRCULAR NO. 272/201/95-IT(B) DATED 29.1.1997. 2. IN THE INSTANT CASE, THE QUESTION ARISES WHETHER THE ASSESSEE CAN BE CONSIDERED AS IN DEFAULT FOR NOT DE DUCTING THE TDS, IF THE PAYEE EVEN THOUGH HAS SHOWN AMOUNT IN HI S RETURN ALSO. SECTION 40(A)(IA) OF THE INCOME-TAX A CT, 1961, HAS ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 7 7 BEEN AMENDED BY THE FINANCE ACT 2012 W.E.F. 1.4.2013 , WHICH READS AS UNDER :- THE INSERTION OF SECOND PROVISO WAS EXPLAINED BY MEMORANDUM EXPLAINING THE PROVISION IN FINANCE BILL , 2012, REPORTED IN 342 ITR (STATUTES) 234 AT 260 & 261, WHICH READS AS UNDER.- E.RATIONAUZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. DEEMED DATE OF PAYMENT OF TAX BY T HE RESIDENT PAYEE. UNDER THE EXISTING PROVISIONS OF CHAPTER XVII-B OF THE INCOME-TAX ACT, A PERSON IS REQUIRED TO DEDUCT T AX ON CERTAIN SPECIFIED PAYMENTS AT THE SPECIFIED RATES IF THE PAYMENT EXCEEDS SPECIFIED THRESHOLD. IN CASE OF NON - DEDUCTION OF TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER, HE IS DEEMED TO BE AN ASSESSEE IN DEF AULT UNDER SECTION 201(1) IN RESPECT OF THE AMOUNT OF SU CH ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 8 8 NON-DEDUCTION. HOWEVER, SECTION 191 OF THE ACT PROV IDES THAT A PERSON SHALL HE DEEMED TO BE ASSESSEE IN DEFAULT IN RESPECT OF NON/SHORT DEDUCTION OF TAX ON LY IN CASES WHERE THE PAYEE HAS ALSO FAILED TO PAY THE TA X DIRECTLY. THEREFORE, THE DEDUCTOR CANNOT BE TREATED AS ASSESSEE IN DEFAULT IN RESPECT OF NON/SHORT DEDUCTI ON OF TAX IF THE PAYEE HAS DISCHARGED HIS TAX LIABILITY. THE PAYER IS LIABLE TO PAY INTEREST UNDER SECTION 201(1A) ON THE AMOUNT OF NON/SHORT DEDUCTION OF TAX FROM TH E DALE ON WHICH SUCH TAX WAS DEDUCTIBLE TO THE DALE ON WHICH THE PAYEE HAS DISCHARGED HIS TAX LIABILITY DIRECTLY. AS THERE IS NO ONE-TO-ONE CORRELATION BETWEEN THE TAX TO BE DEDUCTED BY THE PAYER AND THE TAX PAID BY THE PAYEE, THERE IS LACK OF CLARITY AS TO WHEN IT CAN BE SAID THAT PAYER HAS PAID THE TAXES DIRECTLY. ALSO, THERE IS NO CLARITY ON THE ISSUE OF THE CUT-OFF DATE, I.E., THE DALE ON WHICH IT CAN BE SAID THAT THE PAYEE HAS DISCHARGED HIS TAX LIABILITY. ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 9 9 IN ORDER TO PROVIDE CLARITY REGARDING DISCHARGE OF LAX LIABILITY BY THE RESIDENT PAYEE ON PAYMENT OF ANY S UM RECEIVED BY HIM WITHOUT DEDUCTION OF TAX, IT PROPOS ED TO AMEND SECTION 201 TO PROVIDE THAT THE PAYER WHO FAI LS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX ON THE PAYMENT MADE TO A RESIDENT PAYEE SHALL NOT BE DEEME D TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TA X IF SUCH RESIDENT PAYEE- (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 1 39 ; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME ILL SUCH RETURN OF INCOME: AND (III) H AS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME; AND THE PAYER FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. THE DATE OF PAYMENT OF TAXES BY THE RESIDENT PAYEE ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 10 10 SHALL BE DEEMED TO BE THE DATE ON WHICH RETURN HAS BEEN FURNISHED BY THE PAYER. IT IS ALSO PROPOSED TO PROVIDE THAT WHERE THE PAYER FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX ON THE PAYMENT MADE TO A RESIDENT AND IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201(1) ON ACCOUNT OF PAYMENT OF TAXES BY THE SUCH RESIDENT, THE INTEREST UNDER SECTION 201(IA)(I) SHALL BE PAYABLE FROM THE DALE ON WHICH SUCH LAX WAS DEDUCTIBLE TO THE DATE OF FURNISHING OF RETURN OF INCOME BY SUCH RESIDENT PAYEE. AMENDMENTS, ON SIMILAR LINES ARE ALSO PROPOSED TO BE MADE IN THE PROVISIONS OF SECTION 206C RELATING TO TCS FOR CLARIFYING THE DEEMED DATE OF DISCHARGE OF LAX LIABILITY BY THE BUYER OR LICENSEE OR LESSEE. THESE AMENDMENTS WILL TAKE EFFECT FROM 1 ST JULY, 2012. II. DISALLOWANCE OF BUSINESS EXPENDITURE ON ACCOUNT OF NON-DEDUCTION OF TAX ON PAYMENT TO RESIDENT PAYEE. ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 11 11 A RELATED ISSUE TO THE ABOVE IS THE DISALLOWANCE UNDE R SECTION 40(A)(IA) OF CERTAIN BUSINESS EXPENDITURE LIKE INTEREST, COMMISSION, BROKERAGE, PROFESSIONAL FEE, ETC. DUE TO NON-DEDUCTION OF LAX. IT HAS BEEN PROVIDED THAT IN CASE THE TAX IS DEDUCTED IN SUBSEQUENT PREVIOUS YEA R, THE EXPENDITURE SHALL HE ALLOWED IN THAT SUBSEQUENT PREVIOUS YEAR OF DEDUCTION. IN ORDER TO RATIONALIZE THE PROVISIONS OF DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TAX FROM THE PAYMENTS MADE TO A RESIDENT PAYEE, IT IS PROPOSED TO AMEND SECTION 40(A)(IA) TO PROVIDE THAT WHERE AN ASSESSEE MAKES PAYMENT OF THE NATURE SPECIFIED IN THE SAID SECTION TO A RESIDENT PAYEE WITHOUT DEDUCTION OF TA X AND IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDE R SECTION 201(1) ON ACCOUNT OF PAYMENT OF TAXES BY TH E PAYEE, THE, FOR THE PURPOSE OF ALLOWING DEDUCTION O F SUCH SUM, IT SHALL BE DEEMED THAT THE ASSESSEE HAD DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE O F FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE. ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 12 12 THESE BENEFICIAL PROVISIONS ARE PROPOSED TO BE APPLICABLE ONLY IN THE CASE OF THE RESIDENT PAYEE. THESE AMENDMENTS WILL TAKE EFFECT FROM IST APRIL, 2013 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2013-14 AND SUBSEQUENT ASSESSMENT YEARS. ' 3. AS PER THE AMENDMENT IN SECTION 40(A)(IA) W.E.F. 1 ST JULY, 2013, IF THE ASSESSEE IS LIABLE TO, DEDUCT T AX AT SOURCE AND IF HE HAS NOT DEDUCTED THE TAX AT SOURCE BUT PA YEE HAS ALREADY DEDUCTED AND PAID THE TAX ON SUCH SUM AND F URNISHED THE RETURN, THE ASSESSEE CANNOT BE TREATED AS IN DE FAULT IN PAYING THE TDS AMOUNT. THIS AMENDMENT HAS RETROSPEC TIVE EFFECT FROM 1.4.2005 AS HELD BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P) LIM ITED, (2015) 61 TAXMANN.COM 45 (DEL), WHEREIN THE HON'BLE HIGH COURT HAS HELD THAT 9. IT IS SEEN THAT THE SECOND PROVISO TO SECTION 40(A)(IA) WAS INSERTED BY THE FINANCE ACT, 2012, ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 13 13 W.E.F. 1 ST APRIL, 2013. THE EFFECT OF THE SAID PROVISO IS TO INTRODUCE A LEGAL FICTION WHERE AN ASSESSEE FAIL S TO DEDUCT TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVIIB. WHERE SUCH ASSESSEE IS DEEMED NOT TO BE AN ASSESSEE IN DEFAULT IN TERMS OF THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201 OF THE AC T, THEN, IN SUCH EVEN, IT SHALL 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 . 10. IT IS POINTED OUT BY THE LD. COUNSEL FOR THE REVENUE THAT THE FIRST PROVISO TO SECTION 201(1) OF THE ACT WAS INSERTED W.E.F. 1 ST JULY, 2012. THE SAID PROVISO READS AS UNDER :- PROVIDED 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 THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 14 14 SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT - (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139 ;: (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME ILL SUCH RETURN OF INCOME: AND (III) H AS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME; AND THE PAYER FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. 11. THE FIRST PROVISO TO SECTION 201(1) OF THE ACT HAS BEEN INSERTED TO BENEFIT THE ASSESSEE. IT ALSO STATES THAT WHERE A PERSON FAILS TO DEDUCT TAX AT SOURCE ON THE SUM PAID TO A ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 15 15 RESIDENT OR ON THE 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 U/S 139 OF THE ACT. NO DOUBT, THERE IS A MANDATORY REQUIREMENT U/S 201 TO DEDUCT TAX AT SOURCE UNDER CERTAIN CONTINGENCIES, BUT THE INTENTION OF THE LEGISLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJECT TO THE FULFILLMENT OF THE CONDITION AS STIPULATED 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 AGAIN IS A PROVISO INTENDED TO BENEFIT THE ASSESSEE. THE EFFECT OF THE LEGAL FICTION CREATED THEREBY IS TO TREAT THE ASSESSEE AS A PERSON NOT IN DEFAULT OF DEDUCTING TAX AT SOURCE UNDER CERTAIN CONTINGENCIES. ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 16 16 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 AS LONG AS THE PAYEE/RESIDENT ( WHICH IN THIS CASE IS ALIP) HAS FILED 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 BE TREATED AS A PERSON IN DEFAULT. AS FAR AS THE PRESENT CASE IS CONCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT THE PAYEE HAS FILED RETURNS AND OFFERED THE SUM RECEIVED TO TAX. 13. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. DR SHRI R. A. VERMA HAS SUBMITTED THE DECISION OF HON' BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE, (2013) 33 TAXMANN.COM 250 (CAL) AND THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES (P) LIMITED, (2013) 357 ITR 642 ( ALL). ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 17 17 14. WE HAVE GONE THROUGH THE JUDGMENT OF HON'BLE CALCUTTA HIGH COURT, WHEREIN HON'BLE CALCUTTA HIGH COURT HAS REVERSED THE JUDGEMENT OF SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ADDL. CIT, (2012) 136 ITD 23, WHEREIN IT IS HELD THA T IF ALL THE AMOUNTS HAD BEEN PAID, THEN NO DISALLOWANCE COULD BE MADE U/S 40(1)(IA) AND IF ANY AMOUNT WAS FOUND TO BE PAYABLE AS ON THE YEAR END, THEN THE AO WOULD GIVE THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE HIS CASE AS TO WHY THE DISALLOWANCE, IF ANY, SHOULD NOT BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(1)(IA). THE HON'BLE CALCUTTA HIGH COURT HAS REVERSED THE JUDGEMENT OF SPECIAL BENCH AND THE JUDGMENT WAS IN FAVOUR OF THE DEPARTMENT. SIMILARLY, THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES (P) LIMITED, 357 ITR 642, HAS ALS O DECIDED THE ISSUE IN FAVOUR OF THE DEPARTMENT. WE HAVE ALSO GONE THROUGH THE JUDGEMENT OF HON'BLE ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 18 18 ALLAHABAD HIGH COURT, WHEREIN THE HON'BLE ALLAHABAD HIGH COURT HAS HELD AS UNDER :- IT WAS FOUND THAT CIT(A) HAD RECORDED FINDING THAT THE ALLOWANCE WAS CLAIMED FOR SALARIES ON WHICH TDS WAS DEDUCTED BY MERCATOR LINES LIMITED FOR THE ASSESSEE. THE CIT(A) HAD HELD THAT FIRSTLY, THE PROVISIONS OF SECTION 194C READ WITH SECTION 40(A)(IA) WERE NOT APPLICABLE TO THE CASE OF THE APPELLANT. SECONDLY, NATURE OF EXPENSES INCURRED BY THE ASSESSEE DO NOT FORM PART OF EXPENSES DISALLOWABLE U/S 40(A)(IA). THIRDLY, WHEN SUCH TYPE OF EXPENSES INCURRED BY THE APPELLANT WERE TOTALLY PAID AND NOT REMAINED PAYABLE AS AT THE END OF THE RELEVANT ACCOUNTING PERIOD, PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE. FURTHER, THE APPELLANT HAD CLARIFIED ALL THE FIVE QUESTIONS RAISED AS ABOVE AND ITS CLARIFICATIONS WERE FOUND SATISFACTORY AND CONVINCING. THUS, IT IS HELD THAT THE AO WAS ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 19 19 NOT JUSTIFIED IN MAKING ADDITION ON ACCOUNT OF DISALLOWANCE MADE U/S 40(A)(IA). 15. WE FIND THAT SPECIAL LEAVE PETITION HAS BEE N FILED AGAINST THE JUDGMENT OF VECTOR SHIPPING SERVICES BY SPECIAL LEAVE PETITION NO. 8068/2014 AND THE SPECIAL LEAVE PETITION WAS DISMISSED. RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT, WE ARE OF THE VIEW THAT THOUGH THE HON'BLE CALCUTTA HIGH COURT AND HON'BLE GUJARAT HIG H COURT HAVE DECIDED THIS ISSUE IN FAVOUR OF THE DEPARTMENT , BUT THE HON'BLE ALLAHABAD HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE CONFIRMING THE DECISION OF MERILYN SHIPPING & TRANSPORTS VS. ADDL. CIT, (2012) 136 ITD 23. AGAINS T THE JUDGMENT OF ALLAHABAD HIGH COURT, THE MATTER WENT T O HON'BLE SUPREME COURT, WHICH IS THE JUDGMENT AND IS ON PAGE 77 OF THE PAPER BOOK, WHEREIN THE HON'BLE SUPREME COURT HA S DISMISSED THE SPECIAL LEAVE APPLICATION BY OBSERVIN G AS UNDER :- ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 20 20 ORDER HEARD MR.MUKUL ROHATGI, LEARNED ATTORNEY GENERAL, F OR THE PETITIONER DELAY IN FILING AND REFILLING SPECIAL LEAVE PETITIO N IS CONDONED. SPECIAL LEAVE PETITION IS DISMISSED. DIGITALLY SIGNED BY RAJESH DHAM DATE :2014.07.02 16. FROM THIS, IT IS CLEAR THAT THE JUDGEMENT OF HON'B LE ALLAHABAD HIGH COURT IS CONFIRMED BY THE HON'BLE S UPREME COURT. 17. MOREOVER, WE FIND THAT WE ARE RELYING UPON THE INSER TION OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT, WHICH IS CURATIVE AND HAS RETROSPECTIVE EFFECT W.E.F. 1.4.200 5 BEING THE DATE FROM WHICH SECTION 40(1)(IA) OF THE ACT WAS INSE RTED BY THE FINANCE ACT, 2004. IN VIEW OF THIS, WE ARE OF THE VIEW THAT THE MATTER REQUIRES VERIFICATION WITH REGARD TO PAY MENTS TAKEN IN TO ACCOUNT BY RECIPIENT IN COMPUTATION OF ITS IN COME AND VERIFICATION OF PAYMENT OF TAX IN RESPECT OF SUCH I NCOME AND ACIT,2(1), BHOPAL VS. M/S.SHUBHALAY, BHOPAL I.T. A.NO. 118/IND/2015 A.Y. 2008-09 21 21 ALSO FILING THE INCOME TAX RETURN BY THE RECIPIENT. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF AO AND THE ASSESS EE WILL PROVIDE ALL THE DETAILS IN TERMS OF SECOND PROVISO TO SECTI ON 40(A)(IA) OF THE INCOME-TAX ACT, 1961. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 20 TH MAY, 2016. SD/- (B.C.MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 20 TH MAY, 2016. CPU*