Varisham Healthcare (P) Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2871/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8102 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 04-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R.SRINIVASAN
• Keywords: Retrospective amendment; Non-deduction of tax
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 40(a)(ia); 201(1); 201; 48

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.2871/MDS./2016 / ASSESSMENT YEAR : 2012-13 M/S.VARISHAM HEALTHCARE (P) LTD., FORMERLY NAVA YUGHA PHARMA (P) LTD., 13/6,37 TH STREET, NANGANALLUR, CHENNAI 600 061. VS. THE DCIT, CORPORATE CIRCLE 4(2), CHENNAI-34. [PAN AACCN 3357 L] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI R.SRINIVASAN,ADVOCATE /RESPONDENT BY : SHRI SHIVA SRINIVAS, JCIT D.R / DATE OF HEARING : 26 - 12 - 2016 / DATE OF PRONOUNCEMENT : 25 - 01 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-8,CHENNAI DATED 08.08.2016 PERTAINING TO ASSESSMENT YEAR 2012-13. 2. THE MAIN GRIEVANCE OF THE ASSESSEE IN THIS APPE AL IS WITH REGARD TO DISALLOWANCE OF INTEREST EXPENDITURE AMOU NTING TO ` 15,30,497/- U/S.40(A)(IA) OF THE ACT. ITA NO.2871/16 :- 2 -: 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY REGISTERED UNDER COMPANIES ACT AND FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 27.09.2012 AD MITTING INCOME OF ` 50,22,518/-. SUBSEQUENTLY, THE CASE WAS SELECTED F OR SCRUTINY AND THE ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 20.03.2015 AFTER DISALLOWING THE INTEREST EXPENDITURE OF TOTAL AMOUNTING TO ` 15,30,497/- U/S.40(A)(IA) OF THE ACT. AGGRIEVED, T HE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION OF LD. ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, LD.A.R SUBMITTED THAT THE PAYMENTS H AVE ALREADY BEEN MADE AND WAS NOT OUTSTANDING AT THE END OF THE CLOSE OF THE FINANCIALLY YEAR RELEVANT TO ASSESSMENT YEAR AND H E RELIED THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ME RILYN SHIPPING AND TRANSPORTS V. ADDL. CIT [2012] 16 ITR (TRIB) 1 (VIS AKHAPATNAM) [SB], ALSO THE JUDGEMENT OF THE GUJARAT HIGH COURT IN THE CASE OF CIT V. VECTOR SHIPPING SERVICES (P.) LTD. IN I. T. A. NOS. 122 OF 2013 DATED JULY 9, 2013 [2013] 357 ITR 642 (ALL) HELD THAT SECTION 40( A)(IA) IS NOT APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE OF THE YEAR RELEVANT TO THE ASSESSMENT YEAR I N RESPECT OF THESE PAYMENTS WHEREIN HELD THAT WHEN THE EXPENSES I S NOT OUTSTANDING AT THE END OF THE CLOSE OF THE FINANCIAL YEAR, PROV ISIONS OF THE SECTION ITA NO.2871/16 :- 3 -: 40(A)(IA) OF THE ACT CANNOT BE APPLIED. FURTHER, HE SUBMITTED THAT THE AMENDMENT BROUGHT IN BY WAY OF INSERTION OF PROVISO BELOW THE SECTION 40(A)(IA) OF THE ACT TO BE CONSIDERED AS A RETROSPECTIVE, AS SUCH WHEN THE RECIPIENT PAID THE TAXES WITH PAYMENT S ISSUED BY THEM, PROVISIONS OF THE SECTION 40(A)(IA) OF THE ACT IS N OT APPLICABLE. FOR THIS PURPOSE, HE RELIED ON THE JUDGEMENT OF JURISDICTION AL HIGH COURT IN THE CASE OF CIT VS.ANSAL LAND MARK TOWNSHIP P. LTD. 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 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 THE LEGI SLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJECT TO THE FULFILMENT OF THE CONDITIONS AS STIPULATED IN THE FIRST PROVISO TO SE CTION 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 ITA NO.2871/16 :- 4 -: 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 (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 DISAL LOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INT O ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE R ECIPI ENTS OF THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRIC TIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS A BLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWAN CE DOES DEINCENTIVISE NOT DEDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUC TI ONS ARE DUE BUT SO FAR AS THE LEGAL FRAMEWORK IS CONCERNED, THIS PRO V ISION IS NOT FOR THE PURPOSE OF PENALISING FOR THE TAX DEDUCTION AT SOUR CE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEIN CENT IVISING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNO TATIONS. WH EN WE APPRECIATE THE OBJECT OF SCHEME OF SECTION 40(A)(IA), AS ON TH E STATUTE, AND TO EXAMINE WHETHER OR NOT, ON A 'FAIR, JUST AND EQUITA BLE' INTERPRETATION OF LAWAS IS THE GUIDANCE FROM THE HON'BLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMB LE UNDERSTANDING, IT COULD NOT BE AN 'INTENDED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NON-DEDUCTION OF TAX AT SOURCE, EVEN IN A SITUAT ION IN WHICH CORRESPONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE SCHEME OF SECTION 40(A)(IA), AS WE SEE IT, IS A IMED AT ENSURING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION I N THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX W ITHHOLDING LAPSE BUT IT ITA NO.2871/16 :- 5 -: 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 FOR IN SECTION 271C, 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 PROVIS O 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, T HAT THE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCOMING S OF PROVISION, AND THUS OBVIATE THE UNINTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL-SETTLED LEGAL POSITION TO THE E FFECT THAT A CUR ATIVE 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 INTRO DUCED. 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- 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 SECTI ON 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 RATIONALE BEHIND THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA ) OF THE ACT AND ITS CONCLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFECT FROM APRIL 1, 2005, MERITS ACC EPTANCE. IN VIEW OF INSERTION OF SECOND PROVISO TO SEC.40(A)(IA) OF THE ACT IS RETROSPECTIVE AND WILL APPLY FROM 01.04.2005. ONCE IT IS HELD THAT THE ITA NO.2871/16 :- 6 -: ASSESSEE IS ENTITLED TO THE BENEFIT OF SECOND PROVI SO TO SEC. 40(A)(IA) OF THE ACT, THE LD.CIT(A) OUGHT TO HAVE DIRECTED TH E AO TO VERIFY WHETHER THE RECEIPIENTS HAVE INCLUDED THE RECEIPTS PAID BY THE ASSESSEE IN THE RESPECTIVE RETURNS OF THE INCOME AN D ALSO PAID TAXES ON THE SAME. TO THE EXTENT, THE RECEIPIETS FROM THE ASSESSEE, BEING SO INCLUDED THE SUM IN THEIR RETURNS OF INCOME AND FIL ED THE SAME, NO DISALLOWANCE U/S.40(A)(IA) OF THE ACT OUGHT TO HAV E BEEN SUSTAINED BY THE LD.CIT(A). FURTHER, HE RELIED ON THE ORDER OF T RIBUNAL OF KOLKATA BENCH IN THE CASE OF SANJAY KUMAR AGARWAL VS. ITO I NITA NO.1261/KOL./2016 IN 48 CCH 0034 KOLTRIB FOR THE SA ME PURPOSE. 5. ON THE OTHER HAND, LD.D.R SUBMITTED THAT SINCE THE ASSESSEE NOT DEDUCTED THE TAX ON THE PAYMENT OF ` 15,30,497/- TO VARIOUS PARTIES, THE PROVISIONS OF THE SECTION 40(A)(IA) OF THE ACT IS APPLICABLE. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD.A.R IS THAT N OTHING IS PAYABLE AT THE END OF THE CLOSE OF THE FINANCIAL YEAR, AS SUCH THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE SPECIAL BENCH OF THE T RIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V. ADDL. CIT [20 12] 16 ITR (TRIB) 1 (VISAKHAPATNAM) [SB]. IN OUR OPINION, THERE IS A F ORCE IN THE ARGUMENT OF THE LD.A.R AND THE SPECIAL BENCH CITED SUPRA CONSIDERED THIS ISSUE AND DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE. FURTHER, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF S HRI N.PALANIVELU VS. ITA NO.2871/16 :- 7 -: ITO REPORTED IN [2015] 40 ITR (TRIB) 325 [CHENNAI] VIDE ORDER DATED 29.04.2015 WHEREIN HELD THAT:- 4. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERI AL ON RECORD. WE FIND THAT THE SPECIAL BENCH OF THE TRIBU NAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V. ADDL. CI T [2012] 16 ITR (TRIB) 1 (VISAKHAPATNAM) [SB] AND JUDGMENT O F THE GUJARAT HIGH COURT IN THE CASE OF CIT V. VECTOR SHI PPING SERVICES (P.) LTD. IN I. T. A. NOS. 122 OF 2013 DAT ED JULY 9, 2013 [2013] 357 ITR 642 (ALL) HELD THAT SECTION 40( A)(IA) IS NOT APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE OF THE YEAR RELEVANT TO THE ASSESS MENT YEAR IN RESPECT OF THESE PAYMENTS. HOWEVER, THE ASSESSEE HAS NOT BROUGHT ON RECORD, THE DETAILS OF OUTSTANDING EXPEN SES OR SCHEDULE OF SUNDRY CREDITORS SHOWING WHETHER THE IM PUGNED AMOUNT IS OUTSTANDING AT THE END OF THE CLOSE OF TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR EITHER IN THE NAME OF THE PARTY OR OUTSTANDING EXPENSES. HENCE, IN THE IN TEREST OF JUSTICE, WE ARE REMITTING THE ISSUE BACK TO THE FIL E OF THE ASSESSING OFFICER WITH DIRECTION TO VERIFY THE CLAI M OF THE ASSESSEE AND THE ASSESSEE SHALL PLACE NECESSARY EVI DENCE IN SUPPORT OF HIS CLAIM. 5. FURTHER, WE MAKE IT CLEAR THAT IF THE IMPUGNED A MOUNT IS NOT OUTSTANDING AT THE END OF THE CLOSE OF THE ASSE SSMENT YEAR IN RESPECT OF THE EXPENSES EITHER AS OUTSTANDI NG EXPENSES OR AS SUNDRY CREDITORS, THIS AMOUNT CANNOT BE DISALLOWED. THIS GROUND IS REMITTED BACK TO THE ASS ESSING OFFICER FOR FRESH CONSIDERATION. ITA NO.2871/16 :- 8 -: IN VIEW OF THE ORDER OF THE TRIBUNAL, WE ARE INCLIN ED TO REMIT THIS ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER WITH SIMIL AR DIRECTION. THESE GROUNDS RAISED BY THE ASSESSEE U/S.40(A)(IA) OF THE ACT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 25 TH JANUARY, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 25 TH JANUARY, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF