Girish Bhattad , Chennai V. Income Tax Officer , Chennai

ITA 2280/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5763 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 18-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN JCIT D R
• Assessee Lawyers: MEENAKSHI SUNDARAM ITP
• Keywords: Retrospective amendment; Non-deduction of tax
• Section: 201(1); 139

Judgement Text

, C/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL C/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.2280 /MDS./2017 ( ASSESSMENT YEAR : 2013-14 ) SHRI GIRISH BHATTAD , 25,GODOWN STREET, GEORGE TOWN, CHENNAI-600 001. VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 11(4), CHENNAI. PAN AGBPB 3823 H ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.MEENAKSHI SUNDARAM, ITP / RESPONDENT BY : MR.B.SAGADEVAN, JCIT, D.R ! ' / DATE OF HEARING : 30.11.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 07.12.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-13, CHENN AI DATED 11.07.2017 PERTAINING TO ASSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS F OR ADJUDICATION. ITA NO. 2280/MDS/2017 2 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAD FILED FO RM 15G FROM THE CREDITORS AND HENCE THERE WAS NO NECESSITY TO DEDUC T TAX ON PAYMENT OF INTEREST. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT ALL THE RECIPIENTS OF INT EREST WERE INCOME TAX ASSESSES AND THEY HAD ADMITTED THE INTEREST IN THEI R INDIVIDUAL INCOME TAX RETURNS. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT AS PER THE SECOND PROVISO TO SECTION 40 (A) (IA) INTRODUCED BY THE FINANCE ACT, 2012 EFFECTIVE FROM 2013-14 THAT WHERE THE RECIPIENTS HAVE PAID THE TAX ON THE INTEREST RECEIV ED, AND WHERE THE ASSESSEE HAS BEEN TREATED AS AN ASSESSEE IN DEFAULT U/S 201(1) SECTION 40 (A) (IA) IS NOT FURTHER ATTRACTED. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE AUTHORISED REPRESENTA TIVE DURING THE APPEAL PROCEEDINGS PRODUCED THE PROOF (VIDE LATER DATED 07 .04.2013) ADDRESSED TO TDS RANGE CHENNAI ON SUBMISSION OF FORM NO. I5G FROM M/S. G.G.PLASTICS, PROPRIETOR OF GIRISH BHATTAD AND ON T HAT BASIS ONLY NO TAX WAS DEDUCTED. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE SAID LETTER HAD ACKNOWLEDGEMENT STAMP OF DATED 10.04.2013 ONLY AND THAT SINCE ACKNOWLEDGEMENT RECEIPT NUMBER WAS NOT T HERE FORMS I5G LACKED CREDIBILITY AND ON THAT GROUND CONFIRMED THE ORDER OF THE ASSESSING OFFICER. ITA NO. 2280/MDS/2017 3 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAD DISCHARG ED HIS INITIAL ONUS WITH RESPECT TO SUBMISSION OF FORM 15G IN THE MANNE R UNDER LAW AND HENCE THERE WAS NO OBLIGATION ON THE PART OF THE AS SESSEE TO DEDUCT ANY TAX UNDER SECTION 40(A)(IA). 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE VERIFIED THE RECORDS OF THE DEPARTMENT WITH REGARD TO SUBMIS SION OF FORM 15G AND DISMISSAL OF APPEAL WITHOUT MAKING SUCH VERIFICATIO N IS NOT IN ACCORDANCE WITH LAW. 8. THE ASSESSEE UNDER THESE CIRCUMSTANCES SUBMITS T HAT THERE IS NO VIOLATION U/S 40 (A) IA AND THE ADDITION OF RS. 3,6 0,009/-DESERVES TO BE DELETED BY THE HONOURABLE ITAT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE FILED RETURN OF INCOME FOR ASSESSMENT YEAR 2013-14 DECLARING TOTAL INCOME AT ` 5,70,820/-. THE CASE WAS SELECTED FOR SCRUTINY THRO UGH CASS. THE AO NOTICED THAT ASSESSEE HAS DEBITED IN THE P&L A/C A SUM OF ` 4,58,889/- TOWARDS INTEREST PAYMENT WHEN DETAILS AR E CALLED FOR, ASSESSEE CLAIMED, IT IS INTEREST PAYMENT FROM UNSEC URED LOANS. AS TDS WERE NOT DEDUCTED ON THIS PAYMENT, DISALLOWANCE U/S 40(A)(IA) ITA NO. 2280/MDS/2017 4 OF THE ACT WAS MADE BY THE AO FOR ` 3,60,009/-. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A ). 3.1 BEFORE THE LD.CIT(A), THE ASSESSEE MADE WRITT EN SUBMISSIONS AND PRODUCED EVIDENCES FOR CLAIM: THE INTEREST HAS BEEN PAID TO THE FOLLOWING PERSONS WHO ARE ALL INCOME TAX ASSESSES. NAME AMOUNT PAN 1. JASODADEVIBHATTAD RS. 14,303 AHIPB6381J 2. MADHU DEVI BHATTAD RS. 1,96,750 AACPB1O68P 3. CHETA,NBHATTAD RS. 22,956 CMFPB19J5E 4. MAHESH SORNANI RS. 1,26,000 ATKPS2O66F TOTAL RS. 3,60,009 FURTHER, THE ASSESSEE SUBMITTED THAT ALL THE ABOVE CREDITORS HAD FILED FORM 15G WITH THE ASSESSEE AND HENCE THERE WAS NO D EDUCTION OF TAX UNDER SECTION 194(A). ALL THE RECIPIENTS OF INTERES T ARE INCOME TAX ASSESSES AND THEY HAD ADMITTED THE INTEREST IN THEI R INDIVIDUAL INCOME TAX RETURNS. THEREFORE, THE ASSESSEE PLEADED THE LD .CIT(A) THAT THE ADDITION OF ` 3,60,009 UNDER SECTION 40(A)(IA) MAY BE DELETED. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION MADE B Y THE LD. ASSESSING OFFICER FOR THE REASON THAT THE DECLARAT ION GIVEN BY THE ASSESSEE IN FORM 15G DID NOT BEAR ANY SERIAL NUMBER OF THE ITA NO. 2280/MDS/2017 5 ACKNOWLEDGEMENT STAMP OF DATED 10.04.2013. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD.A.R IS THAT T HE RECIPIENT OF THE PAYMENTS HAD OFFERED THE INCOME FOR TAXATION, AS SU CH THERE IS NO NECESSITY TO DEDUCT TAX ON PAYMENT OF INTEREST. IT IS NOTICED THAT THIS ISSUE IS SQUARELY COVERED BY THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF ANSAL LANDMARK TOWNSHIP IN 377 ITR 635(DEL.) WHEREIN HELD THAT:- THE FIRST PROVISO TO SECTION 201(1) OF THE ACT HAS BEEN INSERTED TO BENEFIT THE ASSESSEE. IT ALSO STATES THAT WHERE A PERSON FA ILS TO DEDUCT TAX AT SOURCE ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITE D TO THE ACCOUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEMED TO BE AN A SSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139 OF THE ACT. NO DOUBT, THERE IS A MANDAT ORY REQUIREMENT UNDER SECTION 201 TO DEDUCT TAX AT SOURCE UNDER CERTAIN C ONTINGENCIES BUT THE INTENTION OF THE LEGISLATURE IS NOT TO TREAT THE AS SESSEE AS A PERSON IN DEFAULT SUBJECT TO THE FULFILMENT OF THE CONDITIONS AS STIP ULATED IN THE FIRST PROVISO TO SECTION 201(1). THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) ALSO REQUIRES TO BE VIEWED IN THE SAME MANNER. THIS AGAI N IS A PROVISO INTENDED TO BENEFIT THE ASSESSEE. THE EFFECT OF THE LEGAL FI CTION CREATED THEREBY IS TO TREAT THE ASSESSEE AS A PERSON NOT IN DEFAULT OF DE DUCTING TAX AT SOURCE UNDER CERTAIN CONTINGENCIES. 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 ITA NO. 2280/MDS/2017 6 PAYEE/RESIDENT (WHICH IN THIS CASE IS APIL) HAS FIL ED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS ALSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAULT. AS FAR AS THE PRESE NT CASE IS CONCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT THE PAYEE HAS F ILED RETURNS AND OFFERED THE SUM RECEIVED TO TAX. 13. TURNING TO THE DECISION OF THE AGRA BENCH OF TH E INCOME-TAX APPELLATE TRIBUNAL IN RAJEEV KUMAR AGARWAL V. ASST. CIT (SUPR A ), THE COURT FINDS THAT IT HAS UNDERTAKEN A THOROUGH ANALYSIS OF THE SECOND PR OVISO TO SECTION 40(A)(IA) OF THE ACT AND ALSO SOUGHT TO EXPLAIN THE RATIONALE BEHIND ITS INSERTION. IN PARTICULAR, THE COURT WOULD LIKE TO R EFER TO PARAGRAPH 9 OF THE SAID ORDER WHICH READS AS UNDER (PAGE 485 OF 34 ITR (TRIB)) : 'ON A CONCEPTUAL NOTE, THE PRIMARY JUSTIFICATION FO R SUCH A DISAL LOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FO R THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUNT I N COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPI ENTS OF THE PAYME NTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THERE IS NO A CTUAL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVISE NOT DEDUCTING TAX A T SOURCE, WHEN SUCH TAX DEDUC TIONS ARE DUE BUT SO FAR AS THE LEGAL FRAMEWO RK IS CONCERNED, THIS PRO VISION IS NOT FOR THE PURPOSE OF PENALISING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEIN CENTIVISING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THING S AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNO TATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHEME OF SECTION 40(A)(IA ), AS ON THE STATUTE, AND TO EXAMINE WHETHER OR NOT, ON A 'FAIR, JUST AND EQU ITABLE' INTERPRETATION OF LAWAS IS THE GUIDANCE FROM THE HON'BLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDIN G, IT COULD NOT BE AN 'INTENDED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NON-DEDUCTION OF TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESP ONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE SCHEME OF SECTION 40(A)(IA), AS WE ITA NO. 2280/MDS/2017 7 SEE IT, IS AIMED AT ENSURING THAT AN EXPENDITURE SH OULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATIO N IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED D UE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT IS NOT, IN OUR CONSIDERE D VIEW, A PENALTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITH HOLDING LAPSE. THE PENALTY FOR TAX WITHHOLDING LAPSE PER SE IS SEPA RATELY PROVIDED FO R IN SECTION 271C, AND, SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PRO VISIONS OF SECTION 40(A)(IA), AS THEY EXISTED PRIOR TO INSERTION OF SE COND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. NOW, THAT THE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNINTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL-SETTLED LEGAL POSITION TO THE EFFECT THAT A CU R ATIVE AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSP ECTIVE IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERT ION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIM E WHEN THE RELATED LEGAL PROVISION WAS INTRO DUCED. IN VIEW OF THESE DISCUSS IONS, AS ALSO FOR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUBSCRI BE TO THE VIEW THAT IT COULD HAVE BEEN AN 'INTENDED CONSEQUENCE' TO PUNISH THE A SSESSEES FOR NON- DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTI ON IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DUL Y BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PRO VISO TO SE CTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETRO SPECTIVE EFFECT FROM APRIL 1, 2005, BEING THE DATE FROM WHICH SUB-CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004.' 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASONI NG OF THE AGRA BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL AS REGARDS THE RA TIONALE BEHIND THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA ) OF THE ACT AND ITS ITA NO. 2280/MDS/2017 8 CONCLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFECT FROM APRIL 1, 2005, MERITS ACC EPTANCE. 5. IN VIEW OF THE ABOVE JUDGEMENT, I AM INCLINED T O REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONS IDERATION IN THE LIGHT OF ABOVE JUDGMENT. THE GROUND RAISED BY THE ASSESSE E U/S.40(A)(IA) OF THE ACT IS PARTLY ALLOWED FOR STATISTICAL PURPOS ES. AT THIS STAGE, I REFRAIN FROM GOING INTO OTHER GROUNDS OF APPEAL RAI SED BY ASSESSEE AS THE APPLICABILITY OF SECOND PROVISO TO SECTION 40(A (IA) OF THE ACT IS NOT AT ALL EXAMINED BY LD. ASSESSING OFFICER. 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 07 TH DECEMBER, 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 07 TH DECEMBER, 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