Hanumant Construction Pvt.Ltd., Kolkatta V. The Dy.CIT.,Circle-1(2), Baroda

ITA 311/AHD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5914 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-11-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 31-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH HEARING CONCLUDED
• Keywords: Retrospective amendment; Non-deduction of tax; Corroborative evidences
• Section: 143(3); 201(1); 263; 63; 139

Judgement Text

ITA NO.311/AHD/2014 ASSESSMENT YEAR: 2008-09 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] ITA NO.311/AHD/2014 ASSESSMENT YEAR: 2008-09 HANUMANT CONSTRUCTION PVT. LTD. ..................APPELLANT ROOM NO.7, 1 ST FLOOR, RAJA BHAVAN-III, C.R. AVENUE, KOLKATTA 700 073. [PAN : AABCH 7062 D] VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2), BARODA . ............................RESPONDENT APPEARANCES BY SURENDRA MODIANI FOR THE APPELLANT MAHESH SHAH FOR THE RESPONDENT HEARING CONCLUDED ON: 26.12.2017 ORDER PRONOUNCED ON : 19.03.2018 O R D E R PER PRAMOD KUMAR, AM: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED REVISION ORDER DATED 19.12.2013, PASSED BY THE LEARNED CIT, IN EX ERCISE OF HIS POWERS UNDER SECTION 263 R.W.S. 143(3) OF THE INCOME TAX ACT 1961 (THE ACT HEREINAFTER), FOR THE ASSESSMENT YEAR 2008-09. 2. GRIEVANCES RAISED BY THE APPELLANT ARE AS FOLLOW S :- 1. THE ORDER OF THE LEARNED COMMISSIONER IS AGAINS T LAW AND FACTS. 2. THE LEARNED COMMISSIONER ERRED IN TAKING ACTION UNDER SECTION 263. YOUR APPELLANT SUBMITS THAT IN ABSENCE OF THE NECES SARY INGREDIENTS REQUIRED FOR EXERCISING POWERS UNDER SECTION 263, T HE ACTION UNDER SECTION 263 IS WITHOUT JURISDICTION. ITA NO.311/AHD/2014 ASSESSMENT YEAR: 2008-09 PAGE 2 OF 5 YOUR APPELLANT PRAYS THAT THE ORDER UNDER SECTION 2 63 BE HELD WITHOUT JURISDICTION AND BE ANNULLED. 3. WITHOUT PREJUDICE TO ABOVE, THE LEARNED COMMISSI ONER ERRED IN DIRECTING THE ASSESSING OFFICER TO DISALLOW RS.18,14,495/- UN DER SECTION 40(A)(IA). YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE IS NOT JUSTIFIED AND PRAYS FOR DIRECTION FOR NOT MAKING SUCH DISALLOWANCE. 3. TO ADJUDICATE UPON THIS APPEAL IT IS SUFFICIENT TO TAKE NOTE OF THE FACT THAT, IN THE IMPUGNED REVISION ORDER, LEARNED CIT HELD THE ASSES SMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE G ROUND THAT THE ASSESSEE DID NOT DEDUCT THE TAX AT SOURCE UNDER SECTION 194A, FROM I NTEREST PAID TO TWO NON-BANKING FINANCIAL COMPANIES NAMELY MAGMA FINANCE AND SREI FINANCE, EVEN THOUGH THESE NBFCS HAVE DULY DISCHARGED THEIR INCOME TAX LIABILI TY AFTER TAKING INTO ACCOUNT THE AMOUNTS SO PAID BY THE ASSESSEE. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 5. WE FIND THAT THERE IS NO DISPUTE THAT THE PERSON S TO WHOM RELATED INTEREST PAYMENTS ARE MADE HAVE DULY DISCHARGED THEIR TAX LI ABILITIES AFTER DULY TAKING INTO ACCOUNT INTEREST PAYMENTS, WHICH ARE NOW SOUGHT TO BE DISALLOWED, MADE BY THE ASSESSEE. THE SUPPORTING EVIDENCES ARE PLACED BEFO RE US IN THE PAPER BOOK AS WELL AND WE FIND THE SAME IN ORDER. THE CASE IS THUS CL EARLY COVERED BY SECOND PROVISO TO SECTION 40(A)(IA) WHICH IS NOW HELD TO HAVE RETROSP ECTIVE EFFECT IN THE LIGHT OF HONBLE DELHI HIGH COURTS JUDGEMENT IN THE CASE OF CIT VS. ANSAL LANDMARK TOWNSHIP LIMITED [(2015) 377 ITR 635] WHICH, INTER ALIA, OBSERVES AS FOLLOWS :- 9. IT IS SEEN THAT THE SECOND PROVISO TO SECTION 40(A) (IA) WAS INSERTED BY THE FINANCE ACT, 2012 WITH EFFECT FROM 1ST 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 XVII B. WHERE SUCH A SSESSEE IS DEEMED NOT TO BE AN ASSESSEE IN DEFAULT IN TERMS OF THE FIRST PROVIS O TO SUB-SECTION (1) OF SECTION 201 OF THE ACT, THEN, IN SUCH EVENT, 'IT SHALL BE D EEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE O F FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAI D PROVISO'. 10. IT IS POINTED OUT BY LEARNED COUNSEL FOR THE REVE NUE THAT THE FIRST PROVISO TO SECTION 201(1) OF THE ACT WAS INSERTED WITH EFFECT FROM 1ST JULY 2012. THE SAID PROVISO READS AS UNDER: ITA NO.311/AHD/2014 ASSESSMENT YEAR: 2008-09 PAGE 3 OF 5 '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 RES IDENT 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 RETURN OF INCOME UNDER SECTI ON 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 B Y HIM IN SUCH RETURN OF INCOME; AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFE CT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED.' 11. THE FIRST PROVISO TO SECTION 201(1) OF THE ACT HA S 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 CREDITED T O THE ACCOUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE I N DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF IN COME UNDER SECTION 139 OF THE ACT. NO DOUBT, THERE IS A MANDATORY REQUIREMENT UND ER SECTION 201 TO DEDUCT TAX AT SOURCE UNDER CERTAIN CONTINGENCIES, BUT THE INTE NTION OF THE LEGISLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJECT T O 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 T O 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 A SSESSEE AS A PERSON NOT IN DEFAULT OF DEDUCTING TAX AT SOURCE UNDER CERTAIN CO NTINGENCIES. 12. RELEVANT TO THE CASE IN HAND, WHAT IS COMMON TO B OTH 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 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 FILED RE TURNS AND OFFERED THE SUM RECEIVED TO TAX. 13. TURNING TO THE DECISION OF THE AGRA BENCH OF ITAT IN RAJIV KUMAR AGARWAL'S CASE ( SUPRA ), THE COURT FINDS THAT IT HAS UNDERTAKEN A THOROU GH ANALYSIS OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT AND ALSO SOUGHT TO EXPLAIN THE RATIONALE BEHIND ITS INSERTION. IN PART ICULAR, THE COURT WOULD LIKE TO REFER TO PARA 9 OF THE SAID ORDER WHICH READS AS UN DER: 'ON A CONCEPTUAL NOTE, PRIMARY JUSTIFICATION FOR SU CH 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 I N COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF THE PAYMEN TS. 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 DEINCENTIVIZE NOT DEDUCTING TAX A T SOURCE WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEW ORK IS CONCERNED, THIS ITA NO.311/AHD/2014 ASSESSMENT YEAR: 2008-09 PAGE 4 OF 5 PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTIVIZING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THING S AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNOT ATIONS. 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 EQUITA BLE' INTERPRETATION OF LAW AS IS THE GUIDANCE FROM HON'BLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT CO ULD NOT BE AN 'INTENDED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NO N-DEDUCTION OF TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESPONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE SCHEME OF SECTION 4 0(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 IN COME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOL DING LAPSES BY THE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENA LTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RE STRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PEN ALTY FOR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY 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 PROVISO T HERETO, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDING LA PSES 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 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 PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIME WHEN TH E RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSIONS, AS AL SO FOR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN 'INTENDED CONSEQUENCE' TO PUNISH THE ASSESS EES FOR NON-DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTION IN RESP ECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECT ION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTIO N 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFF ECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTIO N 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004.' 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASONING OF THE AGRA BENCH OF ITAT AS REGARDS THE RATIONALE BEHIND THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT AND ITS CONCLUSION THA T THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFECT FROM 1ST APRIL 2005, MERITS ACCEPTANCE. 6. IN THE LIGHT OF THE ABOVE LEGAL POSITION, THE IM PUGNED REVISION ORDER IS CLEARLY UNSUSTAINABLE IN LAW. THE STAND OF THE ASSESSING O FFICER CANNOT BE FAULTED ON THIS COUNT. WE, THEREFORE, VACATE THE IMPUGNED REVISION ORDER AND QUASH THE SAME. ITA NO.311/AHD/2014 ASSESSMENT YEAR: 2008-09 PAGE 5 OF 5 7. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCE D IN THE OPEN COURT ON THIS 19TH DAY OF MARCH, 2018. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEM BER) DATED: 19 TH MARCH, 2018 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD