REGINA JAYPRAKASH, MUMBAI V. ITO 22(2)-4, MUMBAI

ITA 3121/MUM/2011

• Counselvise Citation: 312119914 RSA 2011
• Duration Of Justice: 2 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 20-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AJAY R SINGH
• Keywords: Salary income; Opportunity of being heard; Principle of natural justice; Bonafide belief; Retrospective amendment; Additional evidence; Question of law
• Section: 194C; 201(1); 139

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D , MUMBAI [ , [ , BEFORE SHRI RAJENDRA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDI CIAL MEMBER ./ ITA NO. 3121/M/2011 ( [ [ / ASSESSMENT YEAR :2007 - 08 ) MRS. REGINA JAYPRAKASH, 78/2312, KINARA CHS LTD. PANT NAGAR, GHATKOPAR (E), MUMBAI 400 075 PAN: ADLPR 4425Q / VS. ITO - 2 2 ( 2 )( 4 ), MUMBAI ( / AP PELLANT) ( / RESPONDENT) ASSESSEE BY : SHRI AJAY R. SINGH REVENUE BY : SHRI SANJEEV JAIN, D.R. / DATE OF HEARING : 25.02.2014 / DATE OF PRONOUNCEMENT : 9.4.2014 / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] DATED 10.01.10. THE ASSESSEE HAS TAKEN THE FOLLOWING REVISED GRO UNDS OF APPEAL: I . DISALLOWANCE OF FREIGHT EXPENSES U/S. 40(A)(IA) : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF FREIGHT PAID OF RS.1,73,49,873/ - U/S.4O(A)(IA) OF THE INCOME TAX ACT 1961 FOR NON ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 2 DEDUCTION OF TDS U/S. 194C OF THE ACT. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT ONLY AMOUNT 'PAYABLE' AND NOT AMOUNT 'PAID' COULD BE DISALLOWED U/S. 40(A)(IA) OF THE ACT. 3. THE LEARNED CIT(A ) ALSO FAILED TO APPRECIATE THAT THE PAYEE ARE ASSESSED TO TAX AND ALREADY PAID TAXES ON THE SAID AMOUNT AND THEREFORE THERE SHOULD NOT BE ANY DISALLOWANCE, THE AFOR ESA ID VIEW IS ALSO SU PP ORTED BY THE SUB SEQU ENT AMENDMENT M ADE BY THE FINANCE ACT 2012 INSERTING PR OVISO TO SECTION 40(A)(IA) OF THE ACT WHICH IS CLARIFICATORY IN NATURE AND INSERTED WITH A VIEW TO RATIONALIZE THE P ROV ISIONS OF DISALLOWANCE. II . DISALLOWANCE OF OUT OF POCKET EXPENSES 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) WHILE ALL OWING THE GROUN D 2 RELATING TO REIMBURSEMENT OF OUT OF POCKET EXPENSES WRONGLY REFERRED THE FIGURE OF RS . 7,42,554/ - INSTEAD OF RS. 20,64,401 / - . III. DISALLOWANCE OF RENT EXPENSES 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEA RN ED CIT(A) E RRED IN UPH OLDING DISALLOWANCE OF RS. 1,22,286/ - AS RENT EXPENSES WITHOUT APPRECIATING THE FINDINGS OF REMAND REPORT. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OR ALL THE ABOVE GROUNDS OF APPEAL. APART FROM THAT THE ASSESSEE HAS T AKEN THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL : I. DISALLOWANCE OF FREIGHT EXPENSES U/S. 40(A)(IA): 1. THE LEARNED CIT(A) ALSO FAILED TO APPRECIATE THAT THE PAYEE ARE ASSESSED TO TAX AND ALREADY PAID TAXES ON THE SAID AMOUNT AND THEREFORE THERE SHOU LD NOT BE ANY DISALLOWANCE, THE AFORESAID VIEW IS ALSO SUPPORTED BY THE SUBSEQUENT AMENDMENT MADE BY THE FINANCE ACT 2012 INSERTING PROVISO TO SECTION 40(A)(IA) OF THE ACT WHICH IS CLARIFICATORY IN NATURE AND INSERTED WITH A VIEW TO RATIONALIZE THE PROVISI ONS OF DISALLOWANCE, THEREFORE THE AMENDMENT SHOULD BE APPLICABLE WITH RETROSPECTIVE EFFECT. ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 3 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OR ALL THE ABOVE GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE AN I NDIVIDUAL HAS BEEN ENGAGED IN THE BUSINESS OF PROVIDING CLEARING AND FORWARDING SERVICES UNDER THE NAME OF M/S SHREE GANESH SHIPPING. SHE ALSO DERIVES INCOME FROM SALARY AND FROM O THER SOURCES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE AO THAT THE ASSES SEE HAD RECEIVED FREIGHT & FORWARD RECEIPTS OF RS.2,03,19,580/ - AND AGENCY & SERVI CES CHARGES OF RS. 17,86,986/ - DURING THE F.Y 2006 - 07. ACCORDINGLY THE DIFFERENT PARTIES HAD DEDUCTED TAX AT SOURCE AS PER THE PROVISION OF SEC 194C OF TH E IT ACT AND ISSUED CERTIFICATES TO THE PARTIES. THE ASSESSEE IN TURN HA D PAID FREIGHT & FORWARDING CHARGES OF RS.1,85,45,692/ - AND AGENCY & SERVICES CHARGES OF RS. 4,60,050/ - DURING THE F.Y 2006 - 07 DETAILED AS UNDER: SI.NO NAME OF PARTIES AMOUNT 1. BITOBA TRANSPORT CO. 760100 2. D N INTERNATIONAL 61000 3. DRAFT CARGOWAYS MUMBAI PVT. LTD. 14170978 4. EVERQREEN INDIA PVT LTD. 22830 5. AQURIUS LO G ISTICS PVT LTD. 25009 6. LIRI N ROADWAYS PVT LTD. 323416 7. RELIANCE FREIG HT FOR WARDERS PVT LTD. 150500 8. SHERIFF EXPRESS TRAVELS & CARG O PVT LTD. 2909967 9. SHREE GANESH PELLETISIN G & ALLIED SERVICES 57428 10. SILVERLINE LOG ISTICS PVT. LTD. 25500 11 . WSA SHIPPIN G BOMBAY PVT. LTD. 38964 12 CHUNNILAL CLEARING & FOR WARDING PVT.LTD. 455050* TOTAL 1 90,00 742 . * APART FROM THIS M/S. CHUN NILAL CLEARING & FORWARDING PVT. LTD. HA D BEEN PAID RS.L,84,853 / - F OR D OCUMENTATION EXPENSES. THE AO NOTICED THAT THE ASSESSEE HA D DEDUCTED TAX AT SOURCE ON THE PA Y MENT S MADE T O BITOBA TRANSPORT AN D CHUN N ILAL CLEARING & FORWARDING PVT. LTD. BEFORE FEB . 2007, HOWEVER PAID THE SAME AFTER MARCH, 2007. ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 4 AS THE ASSESSEE HA D MADE THE PAYMENTS TO THESE PARTIES BEFORE FEB 2007, THEREFORE, THE TAX WAS DEDUCTIBLE AS PER THE PROVISIO NS OF SEC 194C OF THE IT ACT ON THESE PAYMENTS AND SHOULD HAVE BEEN PAID ON OR BEFORE 3 1.03.2007 WHICH THE ASSESSEE HAD FAILED TO DO. AS REGARDS TO THE OTHER PAYMENTS, THE PAYMENTS MADE WERE IN NATURE OF SUB CONTRACT, THE ASSESSEE WAS LIABLE TO DEDUCT TAX ON THE AMOUNTS PAID ON ACCOUNT OF FREIGHT & FORWARDING CHARGES. THEREFORE, THE ASSESSEE WAS ASKED BY THE AO TO EXPLAIN WHY THE TAX HAD NOT BEEN DEDUCTED AT SOURCE AS PER THE PROVISIONS OF SEC 194C OF THE I. T. ACT. 3. IN REPLY, THE ASSESSEE RELIED UPON T HE CIRCULAR NO . 723, DATED 19.9.1995 AND ALSO SUBMITTED AS UNDER; 'WE ARE THE SHIPPING COMPANY DO ING BUSINESS OF SHIPPED TO EXPORTS THE GOODS AND WE WOULD LIKE TO SAY THAT TDS IS NOT APPLICABLE ON FREIGHT FOR EXPORTS OF GOODS ON OCEAN FREIGHT. OCEAN FREIG HT IS BEING PAID TO FOREIGN COMPANIES THIS FREIGHT EXPENSES FOR FOREIGN VOYAGE HENCE TDS IS NOT APPLICABLE ON OCEAN FREIGHT. ' THE ASSESSEE WAS ASKED BY THE AO TO SUBSTANTIATE WITH EVIDENCE THAT M/S. DRAFT CARGOWAYS MUMBAI PVT. LTD. AND M/S. SHERIFF EXPR ESS TRAVELS & CARGO P. LTD. WERE AGENT OF FOREIGN SHIP OWNER. IN SUPPORT, THE ASSESSEE SUBMITTED A LETTER /SELF DECLARATION FROM DRAFT CARGOWAYS , WHICH IS REPRODUCED HEREUNDER: TO WHOMSOEVER IT MAY CONCERN WE ARE THE SHIPPING COMPANY DOING BUSINESS OF SHI PPED TO EXPORTS THE GOODS AND WE WOULD LIKE TO SAY THAT TDS IS NOT APPLICABLE ON FREIGHT FOR EXPORTS OF GOODS ON OCEAN FREIGHT. OCEAN FREIGHT IS BEING PAID TO FOREIGN COMPANIES THIS FREIGHT EXPENSES FOR FOREIGN VOYAGE. HENCE TDS IS NOT APPLICABLE ON OCEAN FREIGHT' HOWEVER, THE AO OBSERVED THAT THE LETTER D ID NOT PROVE THAT THE COMPANY WAS AN AGENT OF FOREIGN SHIP. THEREFORE, TH E PROVISIONS OF SEC 172 OF THE I. T. ACT ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 5 AND CIRCULAR 723 WERE NOT APPLICABLE IN THE ABOVE CASE AND FURTHER THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AS PER THE PROVISION OF SEC 194C OF THE I.T. ACT, WHICH THE ASSESSEE HAD F A IL E D TO DO. HE FURTHER OBSERVED THAT THE OTH ER CHARGES SUCH AS HANDING CHARG ES, DOCUMENTATION CHARGES ETC. WERE ALSO IN THE N ATURE OF CONTRACTUAL PAYMENTS, H EN CE THE PROVISION S OF SEC 194C OF THE I. T. ACT WERE APPLICABLE AND THEREFORE, T HE ASSESSEE WAS L I ABLE TO DEDUCT TAX AT SOURCE ON THE PAYMENTS SO MADE . THEREAFTER HE CONCLUDED THAT TH E ASSESSEE HA D PAID RS. 14170978/ - TO DRAFT CARGOWAYS MUMBAI PVT. LTD. AND RS. 2909967/ - TO SHERIFF EXPRESS TRAVELS & CARGO EP) LTD. DURING THE F.Y 2006 - 07. THE PAYMENT MADE TO DRAFT CARGOWAYS MUMBAI P LTD. WAS TOWARDS HANDLING AS WELL AS FREIGHT CHARGES , WHERE AS PAYMENT MADE TO M/S . SHERIFF EXPRESS TRAVELS AND C ARGO P LTD. W AS ONLY ON ACCOUNT OF FREIGHT CHAR GES. THERE WAS NO EVIDENCE TO PROVE T HAT M/S. SHERIFF EXPRESS TRAVELS & CAR G O P. L TD . WAS AN A G ENT OF FOREIGN SH IP OWNER AND AS THE ASSESSEE HAD NEITHER DEDUCTED TA X AT SOURCE ON THESE PAYMENTS NO R PROVED THAT TDS WAS NOT DEDUCTIBLE ON THE PAYMENT MADE, THE A MOUNT CLA IMED WAS NOT ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 40(A) (IA). AS R E GARDS TO THE PAYMENTS MADE TO OTHER PARTIES MENTIONED IN THE TABLE ABOVE, NO DETAILS OF TDS AND PAYMENT THEREOF WAS PRODUCED . H ENCE, HE ADDED THE AMOUNT CLAIMED AS FREIGHT & FORWARD PAYMENTS , CLEARING CHARGES AND DOCUMENTATION EXPENSES OF RS. 1,91,85,595/ - TO THE TOTAL IN COME. ADDITION SO MADE WORK ED OUT AT RS. 1,91,85,595/ - . 4 . IN THE FIRST APPEAL , IT WAS SUBMITTED BEFORE THE LD. CIT (A) BY THE ASSESSEE THAT THE PARTIES TO WHOM THE PAYMENT WAS MADE WITHOUT DEDUCTING TDS HAVE FILED THE RETURN OF INCOME. IT WAS ALSO PLEADED THAT THE SAID PARTIES WERE AGENTS OF FOREIGN SHIPPING NATIONALS AND HENCE COVERED BY CBDT CIRCULAR NO.723 DATED 19 .9.95 ACCORDING TO WHICH TO THE PAYMENT MADE TO SHIPPING AGENTS OF ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 6 NON RESIDENT SHIP OWNERS SECTION S 194C AND 195C WERE NOT APPLICABLE AND PROVISIONS OF SECTION 172 ONLY WERE APPLICABLE. THE CIT(A) CALLED FOR A REMAND REPORT FROM THE AO REGARDING THE AB OVE SUBMISSIONS OF THE ASSESSEE. AFTER GOING THROUGH THE REMAND REPORT OF THE AO , THE LD. CIT(A) OBSERVED THAT T HE AO HAD GIVEN FINDING THAT IN THE CASES OF EVERGREEN INDIA P. LTD. (RS.22,830/ - ). AQUR IU S LO GISTICS P. LTD. (RS.25,009/ - ). SILVERLINE LOGIST ICS P. LTD. (RS.25,500/ - ) AND WSA SHIPPING BOMBAY P. LTD. (RS.38,964/ - ) , THE PAYMENTS WE RE BELOW THE PRESCRIBED LIMIT FOR DEDUCTI ON O F TDS THEREFORE THE PR OVISIONS OF SEC.4 0 (A)(IA) WERE NOT ATTRACTED IN RESPECT OF THOSE FOUR PARTIES. ACC O RDINGLY, AMOUNT PAID TO THOSE PARTIES WAS ALLOWED BEING NOT COVERED U /S. 194C. HE FURTHER OBSERVED THAT IN THE CASES OF BIROBA TRANSPORT CO., LIRIN ROADWAYS P.LTD. AND CHUNNILAL CLEARING & FORWARDING P. LTD. FOR TOTAL AMOUNT OF RS.15,38,566/ - THE P AYMENTS WERE MADE IN JUN E 2007 AND A S PER THE AMENDED PROVISION OF SEC.40( A) (IA) FOR A.Y. 2007 - 0 8 , THIS AMOUNT WAS ALLOWABLE FOR DEDUCTION AND A CCORDINGLY HE DIRECTED THE A SSESSING OFFICER TO GIVE BENEFIT FOR DEDUCTION OF AMOUNT R S. 15,38,566/ - PAID TO TH ESE P ARTIES IN A . Y. 2007 - 08 ONLY , IF SAME HAVE N O T BEEN ALLOWED IN A.Y. 2008 - 0 9 O N PAID BASIS. HOWEVER F O R THE BALANCE AMOUNT OF R S. 1,73,49,873/ - HE OBSERVED THAT THOUGH THE ASSESSING OFFICER HA D OBSERVED THAT IN THE CASE OF DRAFT CARGOWAYS MUMBAI PVT. LTD. THAT THE PARTY WAS AN AGENT OF FOREIGN SHIPPING NATIONAL BUT THE ASSESSEE HA D NOT BEEN ABLE TO PRODUCE THE REQUIRED CERTIFICATE OR NECESSARY EVIDENCE IN THIS REGARD . HE THEREFORE HELD THAT SEC.194C WAS VERY MUCH APPLICABLE IN THE CASE OF PAYMENTS MADE BY THE ASSESSEE TO DRA FT CARGOWAYS MUMBAI P. LTD. AND SO DISALLOWANCES MADE FOR THE AMOUNT RS.1,41,70,978/ - WAS CONFIRMED BY HIM. AS REGARDS RELIANCE FREIGHT FORWARDERS P. LTD. , THE PARTY WAS FOUND NOT TRACEABLE AT THE GIVEN ADDRESS AND T H US THE ASSESSING OFFICER HA D COMMENTE D ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 7 IN REMAND REPORT THAT PAYMENT MADE T O THE P ARTY COULD NOT BE VERIFIED. IN VIEW OF THE SAME , THE DISALLOWANCE ON ACCOUNT OF PAYMENT MADE TO RELIANCE FREIGHT FORWARDERS P.LTD. OF RS. 1,5 0 ,500/ - WAS ALSO UPHELD BY HIM. FURTHER IN THE CASES OF SHREE GANESH PELLE TI SI N G & ALLIED SERVICES AND SHERIFF EXPRESS TRAVELS & CARGO P . LTD. , HE OBSERVED THAT THE DECISION OF THE SUPREME COURT IN THE CASE OF HI N D U STAN COCACOLA , RELIED UPON BY THE ASSESSEE, WAS NOT APPLICABLE AS IT WAS NOT A CASE OF REFUND OF TAXES. T HE D ECISION G I VEN BY HON'BLE SUPREME COURT WAS REGARDING IMPOSITION OF PENALTY U/S. 20 1 AND 210( 1 A) OF THE INCOME TAX ACT 1961. HE OBSERVED THAT SEC.201 AND 201(1A ) DEAL WITH CONSEQUENCE OF FAILURE TO DEDUCT OR PAY WHEREAS S EC.40(A)(IA) DEALS W ITH DISALL OWANCE OF EXPENSE S IN CASE OF NON DEDUCTION OF TAX OR NON PAYMENT OF DEDUCTED TAX. HE THEREFORE HELD THAT THE SAID DECISION WAS NOT APPLICABLE TO THE DISALLOWANCE MADE U/S 40(A)(IA). HE THEREFORE UPHELD THE DISALLOWANCE MADE BY THE AO IN THE CASES OF DN INTERNATIONAL [ R S,61,000 ], SHERIFF EXPRESS TRAVELS & CARGO P,LTD. [RS.2909967/ - ] AND SHREE GAN E SH P ELLETISING & ALLIED SERVICES [RS.5 7,428 / - ]. BEING AGGRIEVED FROM THE ORDER OF THE CIT(A), THE ASSESSEE HAS COME INTO APPEAL BEFORE US. NOW, WE TAKE UP THE DIFFERENT GROUNDS OF APPEAL TAKEN BY THE ASSESSEE IN HER APPEAL. GROUND NO.I & ADDITIONAL GROUNDS OF APPEAL: 5 . GROUND NO.I AND THE ADDITIONAL GROUNDS OF APPEAL ARE IDENTICAL IN NATURE AND HENCE THE SAME ARE TAKEN TOGETHER FOR ADJUDICATION. GROUND N O.I AS REPRODUCED ABOVE RELATES TO DISALLOWANCE OF FREIGHT PAID UNDER SECTION 40(A)(IA) FOR NON DEDUCTION OF TDS. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, HAS SOUGHT TO RAISE A NEW PLEA THAT THE FREIGHT PAID WAS JUST THE ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 8 REIMBURSEMENT OF THE EXPEN DITURE AND AS SUCH TDS WAS NOT DEDUCTIBLE. HE HAS FURTHER SOUGHT TO PRODUCE CERTAIN ADDITIONAL EVIDENCES TO STRESS THIS FACTUAL PLEA. IT MAY BE OBSERVED THAT SUCH A PLEA WAS RAISED BY THE ASSESSEE NEITHER BEFORE THE AO NOR BEFORE THE FIRST APPELLATE AUTH ORITY. EVEN SUCH A FACTUAL PLEA HAS NOT BEEN RAISED IN THE GROUNDS O F APPEAL BEFORE US. NOW AT THE ARGUMENT STAGE OF THE SECOND APPEAL , A NEW FACTUAL PLEA CANNOT BE ALLOWED TO BE RAISED. MOREOVER, THE ASSESSEE HAD ALREADY DEDUCTED THE TDS IN RESPECT OF CERTAIN OTHER PARTIES BUT HAD FAILED TO DEDUCT TDS IN RESPECT OF TWO PARTIES. EVEN THE TDS WAS DEDUCTED BY THE RESPECTIVE PARTIES FROM WHOM THE ASSESSEE HAD RECEIVED THE PAYMENT IN QUESTION. UNDER SUCH CIRCUMSTANCES THIS NEW FACTUAL PLEA OF THE ASSESSEE OTHERWISE DOES NOT SEEM TO BE PLAUSIBLE AND THE SAME THEREFORE REJECTED. 6 . THE NEXT CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE HAS BEEN THAT IN VIEW OF THE LAW LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERLYN SHIPPING & TRANSPO RTS V. ACIT ( ITA NO.477/VIZ./2008 DATED 29.03.2013 ) THE DISALLOWANCE FOR NON DEDUCTION OF TDS SHOULD HAVE BEEN MADE ON THE SUM WHICH WAS PAYABLE AS ON 31ST MARCH OF THE RELEVANT FINANCIAL YEAR AND NOT ON THE SUMS WHICH HAD ALREADY BEEN PAID BY THE ASSESSE E AS ON 31ST MARCH OF THE SAID FINANCIAL YEAR. IT MAY BE OBSERVED THAT THIS ISSUE HAS ALREADY BEEN CONSIDERED AND DECIDED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF STCI COMMODITIES LTD. VS. ACIT [2013] 40 TAXMANN.COM 154 (MUMBAI - TRIB.) (ON E OF US BEIN G THE AUTHOR OF THE SAID ORDER). T HE CO - ORDINATE BENCH OF THE TRIBUNAL WHILE DEALING WITH THE SAID ISSUE HAS MADE THE FOLLOWING OBSERVATIONS: 8. THE NEXT CONTENTION OF THE LD. AR HAS BEEN THAT THE DISALLOWANCE FOR NON - DEDUCTION OF TDS SHOULD H AVE BEEN MADE ON THE SUM WHICH WAS PAYABLE AS ON 31ST MARCH OF THE RELEVANT FINANCIAL YEAR. NO DISALLOWANCE COULD HAVE BEEN ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 9 MADE ON THE SUMS WHICH WERE ALREADY PAID BY THE ASSESSEE AS ON 31ST MARCH OF THE SAID FINANCIAL YEAR. IN THIS REGARD HE HAS RELIED U PON THE SPECIAL BENCH VERDICT OF ITAT IN THE CASE OF MERLYN SHIPPING AND TRANSPORTS IN ITA NO.477/VIZ./2008 DATED 29.03.2013, WHEREIN IT HAS BEEN SO HELD BY THE SPECIAL BENCH OF THE ITAT. HE HAS FURTHER RELIED UPON AN AUTHORITY OF THE HON'BLE ALLAHABAD HIG H COURT STYLED AS CIT VS. M/S. VECTOR SHIPPING SERVICES (P) LTD. MUZAFFARNAGAR (ITA NO.122 OF 2013 DECIDED ON 9.7.13) 9. WE HAVE GONE THROUGH THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF M/S. VECTOR SHIPPING SERVICES )P) LTD. MUZAFFARNAGAR ( SUPRA). THE QUESTION OF LAW FRAMED BY THE HON'BLE HIGH COURT FOR ADJUDICATION IN THE SAID APPEAL WAS AS UNDER : - 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON'BLE ITAT HAS RIGHTLY CONFIRMED THE ORDER OF THE CIT(A) AND THEREBY DELETING THE DISALLOWANCE OF RS.1,17,68,621/ - MADE BY AO UNDER SECTION 40(A)(IA) OF THE I.T. ACT, 1961 BY IGNORING THE FACT THAT THE COMPANY M/S. MERCATOR LINES LTD. HAD PERFORMED SHIP MANAGEMENT WORK ON BEHALF OF ASSESSEE. M/S. VECTOR SHIPPING SERVICES (P) LTD. A ND THERE WAS A MEMORANDUM OF UNDERSTANDING SIGNED BETWEEN THE COMPANIES AND AS PER THE DEFINITION OF MEMORANDUM OF UNDERSTANDING, IT INCLUDED CONTRACT ALSO.' 9.1 WHILE ANSWERING THE SAID QUESTION THE HON'BLE ALLAHABAD HIGH COURT IN THE CONCLUDING PARAS OF THE JUDGMENT HAS OBSERVED AS UNDER : - 'WE DO NOT FIND THAT THE REVENUE CAN TAKE ANY BENEFIT FROM THE OBSERVATIONS MADE BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD. (136 ITD 23) (SB) QUOTED AS ABOVE TO THE EFFECT S ECTION 40(A) (IA) WAS INTRODUCED IN THE ACT BY THE FINANCE ACT, 2004 WITH EFFECT FROM 1.4.2005 WITH A VIEW TO AUGMENT THE REVENUE THROUGH THE MECHANISM OF TAX DEDUCTION AT SOURCE. THIS PROVISION WAS BROUGHT ON STATUTE TO DISALLOW THE ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 10 CLAIM OF EVEN GENUINE AND ADMISSIBLE EXPENSES OF THE ASSESSEE UNDER THE HEAD 'INCOME FROM BUSINESS AND PROFESSION' IN CASE THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES. THE DEFAULT IN DEDUCTION OF TDS WOULD RESULT IN DISALLOWANCE OF EXPENDITURE ON WHICH SUCH TDS WAS DEDUCT IBLE. IN THE PRESENT CASE TAX WAS DEDUCTED AS TDS FROM THE SALARIES OF THE EMPLOYEES PAID BY M/S MERCATOR LINES LTD., AND THE CIRCUMSTANCES IN WHICH SUCH SALARIES WERE PAID BY M/S MERCATOR LINES LTD., FOR M/S VECTOR SHIPPING SERVICES, THE ASSESSEE WERE SUF FICIENTLY EXPLAINED. IT IS TO BE NOTED THAT FOR DISALLOWING EXPENSES FROM BUSINESS AND PROFESSION ON THE GROUND THAT TDS HAS NOT BEEN DEDUCTED, THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAID BY THE END OF THE YEAR. WE DO NOT FIND THAT THE TRIBUNA L HAS COMMITTED ANY ERROR IN RECORDING THE FINDING ON THE FACTS, WHICH WERE NOT CONTROVERTED BY THE DEPARTMENT AND THUS THE QUESTION OF LAW AS FRAMED DOES NOT ARISE FOR CONSIDERATION IN THE APPEAL.' 10. A PERUSAL OF THE ABOVE OBSERVATIONS MADE BY THE HON'B LE ALLAHABAD HIGH COURT REVEALS THAT NEITHER THE HON'BLE HIGH COURT IN THE SAID JUDGMENT FRAMED THE QUESTION OF LAW AS TO WHETHER THE TDS IS TO BE DEDUCTED ONLY ON THE SUMS WHICH REMAIN 'PAYABLE' ON THE CLOSING OF THE FINANCIAL YEAR OR THE SAME IS DEDUCTIB LE ON THE PAYMENT WHICH WERE PAYABLE OR PAID DURING THE ENTIRE FINANCIAL YEAR, NOR ANY DETAILED DISCUSSION WAS MADE ON THE SAID ISSUE. THE HON'BLE HIGH COURT HAS MADE JUST A PASSING REFERENCE THAT THE DISALLOWANCE CAN BE MADE ON THE AMOUNTS WHICH SHOULD BE PAYABLE AND NOT WHICH HAD BEEN PAID BY THE END OF THE YEAR. THE HON'BLE HIGH COURT HAS FURTHER HELD THAT QUESTION OF LAW AS FRAMED IN THE SAID JUDGEMENT (AS REPRODUCED ABOVE) DOES NOT ARISE FOR CONSIDERATION IN THE APPEAL. HENCE THE HON'BLE ALLAHABAD HIGH COURT IN THE SAID CASE DID NOT ANSWER ANY QUESTION OF LAW RATHER THE FINDINGS OF THE TRIBUNAL WERE UPHELD BEING FACTUAL AND NOT LEGAL. 11. ON THE OTHER HAND THIS ISSUE HAS BEEN DISCUSSED IN DETAIL AND SPECIFICALLY ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 11 ADJUDICATED BY THE HON'BLE HIGH COURT OF CALCUTTA AS WELL AS THE HON'BLE HIGH COURT OF GUJARAT. THIS QUESTION CAME FOR CONSIDERATION BEFORE THE HON'BLE CALCUTTA HIGH COURT IN COMMISSIONER OF INCOME TAX, KOLKATA - XI VERSUS CRESCENT EXPORT SYNDICATE (APPEAL NO. - ITAT 20 OF 2013, GA 190 OF 2013) WHER IN THE HONBLE HIGH COURT HAS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961, ARE APPLICABLE NOT ONLY TO THE AMOUNT WHICH IS SHOWN AS PAYABLE ON THE DATE OF BALANCE - SHEET, BUT IT IS APPLICABLE TO SUCH EXPENDITURE, WHICH BECOME PA YABLE AT ANY TIME DURING THE RELEVANT PREVIOUS YEAR AND WAS ACTUALLY PAID WITHIN THE PREVIOUS YEAR. THE HON'BLE HIGH COURT FURTHER OBSERVED THAT THE SPECIAL BENCH VERDICT OF THE ITAT IN MERILYN SHIPPING IS NOT GOOD LAW. THE HON'BLE CALCUTTA HIGH COURT AFTE R MAKING DETAILED DISCUSSION ON THE ISSUE AND RELYING UPON VARIOUS CASE LAWS RELATING TO THE INTERPRETATION OF THE STATUTE HAS FINALLY OBSERVED THAT THE KEY WORDS USED IN SECTION 40(A)(IA) ARE: 'ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B'. IF THE QUESTION IS: 'WHICH EXPENSES ARE SOUGHT TO BE DISALLOWED?' THE ANSWER IS BOUND TO BE: 'THOSE EXPENSES ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B.' ONCE THIS IS REALIZED NOTHING TURNS ON THE BASIS OF THE FACT THAT THE LEGISLATURE USED THE WORD 'PAYABLE' AND NOT 'PAID OR CREDITED'. UNLESS ANY AMOUNT IS PAYABLE, IT CAN NEITHER BE PAID NOR CREDITED. IF AN AMOUNT HAS NEITHER BEEN PAID NOR CREDITED, THERE CAN BE NO OCCASION FOR CLAIMING ANY DEDUCTION. THE HON'BLE HIGH COURT FURTHER OBSERVED THAT THERE CAN BE NO DENIAL THAT THE PROVISION IN QUESTION IS HARSH. BUT THAT IS NO GROUND TO READ THE SAME IN A MANNER WHICH WAS NOT INTENDED BY THE LEGISLATURE. THE LAW WAS DELIBERATELY MADE HARSH TO SECURE COMPLIANCE OF THE PROVISIONS REQUIRING DEDUCTI ONS OF TAX AT SOURCE. IT WAS NOT THE CASE OF AN INADVERTENT ERROR. THE HON'BLE HIGH COURT FURTHER OBSERVED THAT THE MAJORITY VIEW EXPRESSED IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) WAS NOT ACCEPTABLE. ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 12 12. THIS ISSUE AGAIN CAME FOR CONSIDERATION BEFORE THE HONBLE HIGH COURT OF GUJARAT IN 'COMMISSIONER OF INCOME TAX VERSUS SIKANDARKHAN N TUNVAR', (TAX APPEAL NO. 905 OF 2012 ) WHERE IN THE HON'BLE GUJRAT HIGH COURT HAS ALSO HELD THAT SPECIAL BENCH VERDICT OF THE ITAT IN 'MERILYN SHIPPING' (SUPRA) I S NOT GOOD LAW, OBSERVING THAT IN THAT CASE THE MAJORITY HELD THAT AS THE FINANCE BILL PROPOSED THE WORDS 'AMOUNT CREDITED OR PAID' AND AS THE FINANCE ACT USED THE WORDS 'AMOUNTS PAYABLE', SEC. 40(A)(IA) COULD ONLY APPLY TO AMOUNTS THAT ARE OUTSTANDING AS OF 31ST MARCH AND NOT TO AMOUNTS ALREADY PAID DURING THE YEAR. IT WAS OBSERVED THAT THIS VIEW WAS NOT CORRECT FOR TWO REASONS. FIRSTLY, A STRICT READING OF S. 40(A)(IA) SHOWS THAT ALL THAT IT REQUIRES IS THAT THERE SHOULD BE AN AMOUNT PAYABLE OF THE NATURE DESCRIBED, WHICH IS SUCH ON WHICH TAX IS DEDUCTIBLE AT SOURCE BUT SUCH TAX HAS NOT BEEN DEDUCTED OR IF DEDUCTED NOT PAID BEFORE THE DUE DATE. THE PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE MUST REMAIN SO PAYABLE THROUGHOUT DURING THE YEAR . THE HONBLE GUJARAT HIGH COURT FURTHER OBSERVED THAT IF THE ASSESSEE'S INTERPRETATION IS ACCEPTED, IT WOULD LEAD TO A SITUATION WHERE THE ASSESSEE WHO THOUGH WAS REQUIRED TO DEDUCT THE TAX AT SOURCE BUT NO SUCH DEDUCTION WAS MADE OR MORE FLAGRANTLY DEDUCT ION THOUGH MADE IS NOT PAID TO THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONLY BECAUSE THE AMOUNT WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOTHER ASSESSEE WHO WOULD OTHERWISE BE IN SIMILAR SITUATION BUT IN WHOSE CASE THE AMOUNT RE MAINED PAYABLE TILL THE END OF THE YEAR. THERE IS NO LOGIC WHY THE LEGISLATURE WOULD HAVE DESIRED TO BRING ABOUT SUCH IRRECONCILABLE AND DIVERSE CONSEQUENCES. SECONDLY, THE PRINCIPLE OF DELIBERATE OR CONSCIOUS OMISSION IS APPLIED MAINLY WHEN AN EXISTING PR OVISION IS AMENDED AND A CHANGE IS BROUGHT ABOUT. THE SPECIAL BENCH WAS WRONG IN COMPARING THE LANGUAGE USED IN THE DRAFT BILL TO THAT USED IN THE FINAL ENACTMENT TO ASSIGN A PARTICULAR MEANING TO S. 40(A)(IA). THE HON'BLE GUJARAT HIGH COURT THUS HELD THAT ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 13 'MERILYN SHIPPING' (SUPRA) DOES NOT LAY DOWN CORRECT LAW. THE CORRECT LAW IS THAT S. 40(A)(IA) COVERS NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31TH MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. 13. IN VIEW OF TH E LAW LAID DOWN BY THE HON'BLE CALCUTTA HIGH COURT AND FURTHER BY THE HON'BLE HIGH COURT OF GUJARAT AS DISCUSSED ABOVE, THERE IS NO MERIT IN THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE ON THIS ISSUE ALSO . . 7 . SO IN VIEW OF THE ABOVE FINDINGS OF THE TRIBUNAL, THIS PLEA OF THE ASSESSEE IS ALSO NOT TENABLE AND HENCE THE SAME IS REJECTED. 8 . THE NEXT CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE HAS BEEN THAT SINCE THE ASSESSMENT YEAR IN QUESTION WAS THE FIRST YEAR OF DISALLOWANCE AND THE ASSESS EE WAS UNDER BONAFIDE BELIEF THAT IT WAS NOT LIABLE TO DEDUCT THE TDS IN RELATION TO THE TRANSACTIONS IN QUESTION, HENCE IN VIEW OF THE PROPOSITION OF LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF KOTAK SECURITIES LTD. ( 2012) 340 ITR 333 (BOM) , THE ADDITIONS ARE REQUIRED TO BE DELETED. HE HAS FURTHER RELIED UPON THE THREE OTHER DECISIONS OF THE CO - ORDINATE BENCHES OF THE TRIBUNAL IN THIS RESPECT I.E. IN THE CASE OF ANANT INVESTMENTS IN ITA NO.6428/M/2010 DECIDED ON 06. 06.12, JAVERI FISCAL SERVICES LTD. IN ITA NO.478/M/2011 DECIDED ON 07.06.13 AND IN THE CASE OF INDSEC SECURITIES & FINANCE LTD. IN ITA NO.916/M/2011 DECIDED ON 08.05.13. ON THE OTHER HAND, THE LD. D.R. HAS CONTENDED THAT THE CONTENTION OF THE LD. COU NSEL OF THE ASSESSEE IS WRONG. THE ASSESSEE WAS AWARE OF THE PROVISIONS AND SHE EVEN HAD DEDUCTED THE TDS IN RESPECT OF OTHER PARTIES EXCEPT THE TWO PARTIES IN QUESTION. ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 14 9 . WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. I N OUR VIEW, THIS CONTENTION OF THE ASSESSEE IS NOT GENUINE. THE ASSESSEE WAS WELL AWARE OF THE RELEVANT PR OVISIONS AND THAT IS WHY SHE HAD DEDUCTED THE TDS IN RESPECT OF OTHER PARTIES . MORE OVER THE PAYMENTS WERE RECEIVED BY THE ASSESSEE AFTER DEDUCTION O F TDS BY THE RESPECTIVE PAYERS OF THE ASSESSEE. UNDER SUCH CIRCUMSTANCES IT CANNOT BE SAID THAT THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT THE TDS WAS NOT DEDUCTIBLE FOR THE YEAR UNDER CONSIDERATION. HENCE, THIS PLEA OF THE ASSESSEE IS ALSO REJECTED. 10 . THE NEXT CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE HAS BEEN THAT A NEW PROVISO HAS BEEN INSERTED IN SECTION 40(A)(IA) VIDE FINANCE ACT, 2012 W.E.F. 01.04.13 WHEREIN IT HAS BEEN PROVIDED THAT IF THE ASSESSEE FAILS TO DEDUCT TDS IN RESPECT OF ANY P AYMENT TO WHICH THE TDS PROVISIONS APPLY BUT HE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201 OF THE ACT , WHICH PROVIDES THAT IF THE PAYEE OF THE SUCH AMOUNT COMPUTED THE SAME INTO HIS INCOME TAX RETURN AND HAS PAID THE DUE TAXES, THEN SUCH AN ASSESSEE WILL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT. THE RELEVANT PROVISIONS OF SECTION 40 (A)(IA) INCLUDING THE NEW LY INSERTED PROVISO , FOR THE SAKE OF CONVENIENCE ARE REPRODUCED AS UNDER: AMOUNTS NOT DEDUCTIBLE : 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 64, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', (A) ........... ..... (IA) ANY INTEREST, COMMISSION OR BROKERAGE, 67[RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB - CONTRACTOR, BEING RESIDENT, FOR CARRYING ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 15 OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, 68[HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139 :] 69[PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HA S BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SU CH TAX HAS BEEN PAID :] 70[PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII - B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO T O SUB - SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB - CLAUSE, 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 BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO.] ..................... ------------------------------------------------------------------------------------------ 70. INSERTED BY THE FINANCE ACT, 2012, W.E.F. 1 - 4 - 2013. SECTION 201 OF THE ACT BEING ALSO RELEVANT IS REPRODUCED AS UNDER: CONSEQUENCES OF FAILURE TO DEDUCT OR PAY : 201. (1) WHERE ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, (A) WHO IS REQUIRED TO DEDUCT ANY SUM IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT; OR (B) REFERRED TO IN SUB - SECTION (1A) OF SECTION 192, BEING AN E MPLOYER, DOES NOT DEDUCT, OR DOES NOT PAY, OR AFTER SO DEDUCTING FAILS TO PAY, THE WHOLE OR ANY PART OF THE TAX, AS REQUIRED BY OR UNDER THIS ACT, THEN, SUCH PERSON, SHALL, ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 16 WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE MAY INCUR, BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX: 21[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 O N 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 SECTION 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 BY HIM IN SUCH RETURN OF INCOME, AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED]........................... ------ --------------------------------------------------------------------------------------- 21. INSERTED BY THE FINANCE ACT, 2012, W.E.F. 1 - 7 - 2012 ---------------------------------------------------------------------------------------------- 11 . THE LD. COU NSEL FOR THE ASSESSEE HAS RELIED UPON VARIOUS CASE LAWS OF THE HONBLE SUPREME COURT AND OF THE HONBLE HIGH COURTS TO PRESS THE POINT THAT THE NEWLY INSERTED PROVISO TO SECTION 40(A)(IA) IS IN FACT CLARIFICATORY IN NATURE AND SHOULD BE APPLIED/RETROSPECTI VELY. ON THE OTHER HAND, THE LD. D.R. HAS ALSO RELIED UPON VARIOUS JUDGMENTS OF THE HONBLE SUPREME COURT AS WELL THAT OF THE HONBLE HIGH COURTS OF THE COUNTRY TO PRESS THE POINT THAT IT HAS BEEN SPECIFICALLY PROVIDED IN THE ACT THAT THE SAID PROVISO CO MES INTO OPERATION W.E.F. 01.04.13 AND THAT WHERE THE LANGUAGE OF THE SECTION AS WELL AS THE DATE OF OPERATION OF SUCH PROVISIONS HAS BEEN MENTIONED SPECIFICALLY THE COURTS CANNOT SUPPLY WORDS TO THE PROVISIONS OR ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 17 AMEND THE PROVISIONS TO GIVE IT A DIFFEREN T MEANING AND FURTHER THAT THE NEWLY INSERTED PROVISO UNDER SUCH CIRCUMSTANCES IS PROSPECTIVE IN NATURE I.E. W.E.F. 01.04.13 AND CANNOT BE APPLIED RETROSPECTIVELY. 12 . AT THIS STAGE, LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THE ISSUE REL ATING TO THE OPERATION OF THE NEWLY INSERTED PROVISO , WHETHER PROSPECTIVE OR RETROSPECTIVE IN NATURE , HAS ALREADY BEEN RAISED BEFORE THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. M/S. GAURIMAL MAHAJAN & SONS ITA NO.1852/PN/2012 DECIDED ON 06.01.1 4, AS WELL AS BEFORE THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF ANTONY D. MUNDACKAL VS. ACIT ITA NO.38/COCH/2013 DECIDED ON 29.11. 13 , WHICH DEC I SION ALSO FINDS REFERENCE OF THE ORDER OF TH E PUNE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. GAURIMAL MA HAJAN & SONS (SUPRA) ON THIS ISSUE . HE HAS FURTHER SUBMITTED THAT AFTER CONSIDERATION OF THE MATTER, BOTH THE ABOVE CO - ORDINATE BENCHES OF THE TRIBUNAL HAVE RESTORED THIS ISSUE TO THE FILE OF THE AO TO EXAMINE THE CONTENTION OF THE ASSESSEE IN THIS RESPE CT AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW. 13 . WE HAVE PERUSED THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. GAURIMAL MAHAJAN & SONS (SUPRA). THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE SAID CASE ARE REPRODUCED AS U NDER: 8.1 HOWEVER, THE ASSESSEE HAS MADE A NEW LEGAL ARGUMENT THAT THE FINANCE ACT, 2010 HAS AMENDED THE FIRST PROVISO TO SECTION 40(A)(IA) W.E.F. 01 - 04 - 2010 AND IT HAS BEEN HELD BY VARIOUS JUDICIAL AUTHORITIES THAT SUCH AMENDMENT IS RETROSPECTIVE IN NA TURE. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SECOND PROVISO TO SECTION 40(A)(IA) WAS INSERTED BY THE FINANCE ACT, 2012 W.E.F. 01 - 04 - 2013 WHEREIN IT IS STATED THAT DISALLOWANCE U/S.40(A)(IA) OF THE ACT NEED NOT BE MADE IF THE ASSE SSEE IS NOT DEEMED TO BE AN ASSESSEE IN ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 18 DEFAULT UNDER THE FIRST PROVISO TO SECTION 201(1) OF THE I.T. ACT., THEREFORE, THIS SHOULD ALSO BE HELD AS RETROSPECTIVE SINCE IT HAS BEEN INTRODUCED TO ELIMINATE UNINTENDED CONSEQUENCES WHICH MAY CAUSE UNDUE HARDSHI P TO THE TAX PAYERS. 8.2 WE FIND SOME FORCE IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF ANTONY D. MUNDACKAL (SUPRA) RELIED ON BY LD. COUNSEL FOR THE ASSESSEE, HAD AN OCCASION TO DECIDE AN ISSUE IN THE LIGHT OF THE ABOVE ARGUMENT AND HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 7 OF THE ORDER READ AS UNDER: 7. WE HAVE HEARD THE RIVAL CONTENTIONS A ND CAREFULLY PERUSED THE RECORD. ACCORDING TO THE ASSESSEE, THERE IS NO WRITTEN CONTRACT BETWEEN HIM AND THE PERSONS DOING POLISHING WORKS. ACCORDINGLY, THE ASSESSEE HAS CONTENDED BEFORE US THAT THE PROVISIONS OF SEC. 194C SHALL NOT APPLY TO THE POLISHING CHARGES. HOWEVER, WE NOTICE THAT THE ASSESSING OFFICER HAS GIVEN A CLEAR FINDING THAT ESSENTIAL INGREDIENTS OF A CONTRACT ARE VERY MUCH AVAILABLE IN THE POLISHING WORKS ENTRUSTED BY THE ASSESSEE. FURTHER WE NOTICE THAT THE CBDT, VIDE CIRCULAR NO.433 DATED 25 - 09 - 1985 (1986)(157 ITR ST. 27) HAS CLARIFIED THAT THE PROVISIONS OF SEC. 194C ARE WIDE ENOUGH TO COVER ORAL CONTRACTS ALSO. A CONTRACT IS NORMALLY REDUCED IN WRITING IN ORDER TO MAKE CLEAR THE TERMS AND CONDITIONS, OBLIGATIONS OF THE PARTIES TO THE CONT RACT ETC. IF THE CONDITIONS OF CONTRACT ARE OTHERWISE UNDERSTOOD BY THE PARTIES, IN VIEW OF THE REPEATED TRANSACTIONS, IN OUR VIEW, THE ABSENCE OF A WRITTEN CONTRACT WOULD NOT MAKE ANY DIFFERENCE. IN THE INSTANT CASE, THE ASSESSEE IS REPEATEDLY GIVEN WORKS TO THE POLISHING PEOPLE AND HENCE THE TERMS AND CONDITIONS OF THE WORK WOULD BE CLEARLY UNDERSTOOD BY BOTH THE PARTIES. ACCORDINGLY, WE REJECT THIS CONTENTION OF THE ASSESSEE AND HOLD THAT THE PROVISIONS OF SEC. 194C SHALL APPLY TO THE POLISHING WORKS GIV EN BY THE ASSESSEE. ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 19 7.1 ACCORDING TO LD A.R, THE ASSESSEE HAS ACTED AS A CONDUIT PIPE IN CONNECTION WITH THE POLISHING WORKS BETWEEN THE CUSTOMERS AND THE PERSON DOING POLISHING JOB. ACCORDINGLY, IT WAS SUBMITTED THAT THERE IS NO PROFIT ELEMENT IN THE SAI D TRANSACTIONS. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS INCLUDED THE COST OF POLISHING WORKS IN THE SALE VALUE OF ALUMINIUM EXTRUSIONS, WITHOUT KNOWING TAX IMPLICATIONS. HOWEVER, WE NOTICE THAT THE ASSESSEE DID NOT FURNISH ANY PROOF TO SUBSTANTI ATE THE ABOVE SAID CLAIMS. THE ASSESSEE, BEING A DEALER IN ALUMINIUM EXTRUSIONS, HAS ONLY SUPPLIED THE PRODUCTS AFTER CARRYING OUT THE POLISHING WORKS ACCORDING TO THE TASTE AND REQUIREMENT OF CUSTOMERS. IT IS ONLY ONE OF THE MANY BUSINESS TECHNIQUES NORMA LLY ADOPTED BY A BUSINESS MAN TO IMPROVE HIS SALES, SINCE IT WILL BE VERY DIFFICULT FOR CUSTOMERS TO IDENTIFY THE POLISHING PEOPLE AND GET THE WORK DONE BY THEMSELVES. HENCE, WE ARE OF THE VIEW THAT IT MAY NOT BE CORRECT TO ARGUE THAT THE CONTRACT EXISTED BETWEEN THE CUSTOMERS AND THE POLISHING PEOPLE. IN FACT, THE CUSTOMER MAY NOT HAVE ANY CONTACT WITH THE POLISHING PEOPLE IN THIS TYPE OF TRANSACTIONS. HENCE, IT IS HARD TO BELIEVE THE CLAIM OF THE ASSESSEE THAT HE HAS ACTED AS MERE CONDUIT PIPE BETWEEN THE CUSTOMERS AND POLISHING PEOPLE, ACCORDINGLY, THE CLAIM THAT THE ASSESSEE STANDS IN A FIDUCIARY CAPACITY IS ALSO LIABLE TO BE REJECTED. IN THIS KIND OF FACTUAL SITUATION, IN OUR VIEW, THE EXISTENCE OR ABSENCE OF PROFIT ELEMENT IN THE POLISHING WORKS DOES N OT MAKE ANY DIFFERENCE. 7.2 THE LD COUNSEL, BY PLACING RELIANCE ON THE DECISION OF SPECIAL BENCH IN THE CASE OF MERYLINE SHIPPING AND TRANSPORTS (SUPRA) CONTENDED THAT THE PROVISIONS OF SEC. 40(A)(IA) SHALL APPLY ONLY TO AMOUNT PAYABLE AND NOT TO THE AMO UNT PAID. HOWEVER, THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIKANDAR KHAN N TUNVAR (357 ITR 312) AND THE HON'BLE CALCUTTA HIGH COURT ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 20 IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE (ITAT 20 OF 2013) HAVE HELD THAT THE DECISION RENDERED BY THE SPECIAL BENCH IN THE CASE OF MERYLINE SHIPPING & TRANSPORTS IS NOT A GOOD LAW. THE LD A.R, HOWEVER, PLACED RELIANCE ON THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES (357 ITR 642). ON A CAREFUL PERUSAL OF THE DECISION GIVEN BY HON'BLE ALLAHABAD HIGH COURT, WE NOTICE THAT THE HIGH COURT HAS DECIDED THE ISSUE REFERRED TO IT ON A DIFFERENT FOOTING AND HAS MADE A PASSING COMMENT ABOUT THE DECISION RENDERED BY THE SPECIAL BENCH. THUS, THE RATIO OF THE SAID DECISION IS DIFFE RENT FROM THAT RENDERED IN THE CASE OF MERYLINE SHIPPING AND TRANSPORTS BY THE SPECIAL BENCH. HENCE, WE ARE INCLINED TO REJECT THE CONTENTIONS OF THE ASSESSEE ON THIS POINT ALSO. 7.3 THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF HINDUSTAN COCO - COLA BEVERAGES LTD(SUPRA) IN ORDER TO CONTEND THAT THE REVENUE IS NOT ENTITLED TO RECOVER TAXES, IF THE RECIPIENT HAS DECLARED THE PAYMENTS IN HIS RETURN OF INCOME. WE NOTICE THAT THE ABOVE SAID DECISION WAS RENDERED IN THE CON TEXT OF THE PROVISIONS OF SEC. 201(1) AND HENCE, WE ARE OF THE VIEW THAT THE RATIO OF THE SAID DECISION CANNOT BE APPLIED TO THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT, 7.4 THE LAST CONTENTION OF THE ASSESSEE IS THAT THE SECOND PROVISO TO SEC, 40(A)(I A) OF THE ACT, INSERTED BY THE FINANCE ACT, 2012 WITH EFFECT FROM 1.4.2013 IS CLARIFICATORY IN NATURE AND HENCE THE BENEFIT OF THE SAME SHOULD BE APPLIED RETROSPECTIVELY. HOWEVER, THE CORRECTNESS OF THIS CONTENTION HAS NOT BEEN EXAMINED BY THE TAX AUTHORIT IES. HENCE, IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THIS CONTENTION OF THE ASSESSEE REQUIRES EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE MODIFY THE ORDER OF THE LD.CIT(A) AND SET ASIDE THIS GROUND TO THE FILE OF THE ASSESSING OFFICER WITH THE ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 21 DIRECTION TO EXAMINE THE ABOVE SAID CONTENTION OF THE ASSESSEE AND DECIDE THE SAME IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. WE MAKE IT CLEAR THAT WE HAVE, IN EFFECT, REJECTED ALL THE CONTENTI ONS OF THE ASSESSEE EXCEPT THE GROUND RELATING TO APPLICABILITY OF THE SECOND PROVISO TO SEC.40(A)(IA) OF THE ACT TO THE YEAR UNDER CONSIDERATION. 8.3 SINCE THE ABOVE ARGUMENTS ARE BEING ADVANCED BEFORE THE TRIBUNAL FOR THE FIRST TIME AND THE CORRECTNESS OF THE CONTENTION HAS NOT BEEN EXAMINED BY THE TAX AUTHORITIES, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COCHIN BENCH OF THE TRIBUNAL CITED (SUPRA) AND IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WIT H A DIRECTION TO EXAMINE THE ABOVE CONTENTION OF THE ASSESSEE AND DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 14 . S INCE IN THIS CASE ALSO THE ABOVE ARGUMENTS WERE RAISED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE TRIBUNAL AND THE CONTENTION OF THE ASSESSEE HAS NOT BEEN EXAMINED BY THE LOWER AUTHORITIES, HENCE, RESPECTFULLY FOLLOWING THE DECISION S OF THE CO - ORDINATE BENCHES OF THE TRIBUNAL I.E. OF COCHIN BENCH AS WELL AS OF PUNE BENCH, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE ABOVE RAISED CONTENTION OF THE ASSESSEE AND DECIDE THE ISSUE AFRESH , ON THIS CONTENTION ONLY, IN ACCORDANCE WITH LAW. I T IS MADE CLEAR THAT WE HAVE REJECTED ALL OTHER CONTENTIONS OF THE ASSESSEE ON THIS ISSUE EXCEPT THE PLEA RELATING TO APPLICABILITY OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. GROUND NO.II: 15 . VIDE GROUND NO.II, AS REPRODUCED ABOVE, THE ASSESSEE HAS PLEADED THAT ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 22 THOUGH THE DISALLOWANCE MADE BY THE AO IN RELATION TO OUT OF POCKET EXPENSES HAS BEEN DELETED BUT THERE IS A CLERICAL ERROR IN RECORDING THE FIGURE OF THE AMOUNT. THE LD. D.R. HA S ALSO FAIRLY ADMITTED THAT THERE IS A CLERICAL ERROR IN RECORDING THE FIGURE. 16 . WE HAVE ALSO PERUSED THE ORDER OF THE LD. CIT(A). IT APPEARS THAT THE LD. CIT(A) WHILE ALLOWING THE GROUND NO.II IN RELATION TO REIMBURSEMENT OF OUT OF POCKET EXPENSES HAS WRONGLY MENTIONED THE FIGURE OF RS.7,42,554/ - INSTEAD OF RS.20,64,401/ - . IN VIEW OF THE ABOVE, THIS GROUND OF THE APPEAL IS ALLOWED AND THE AMOUNT OF DISALLOWANCE DELETED BY THE LD. CIT(A) IS ORDERED TO BE READ AS RS.20,64,401/ - INSTEAD OF RS.7,42,554 / - . GROUND NO.III: 17. VIDE GROUND NO.III, THE ASSESSEE HAS AGITATED THE DISALLOWANCE OF RS.1,22,286/ - AS RENT EXPENSES. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE LD. CIT(A) WHILE DECIDING THIS ISSUE HAS FAILED TO TAKE INTO CONSIDERAT ION THE REMAND REPORT OF THE AO IN THIS RESPECT. 18. WE HAVE PERUSED THE REMAND REPORT IN QUESTION , WHEREIN HE HAS REPORTED THAT THE ASSESSEE HAD INCURRED THE RENT EXPENSES IN QUESTION FOR BUSINESS PURPOSE BUT HAS WRONGLY DEBITED THE EXPENSES OF RS.23,682/ - PERTAINING TO SOCIETY CHARGES OF RESIDENTIAL HOUSE AND OTHER PERSONAL EXPENSES OF R S.8,606/ - UNDER THE SAME HEAD. WE HAVE ALREADY RESTORED THE ISSUE RELATING TO APPLICABILITY OF NEWLY INSERTED PROVISO TO SECTION 40(A )(IA) RAISED BY THE ASSESSEE WHILE DEAL ING WITH GROUND NO.I OF THE APPEAL. UNDER SUCH CIRCUMSTANCES, IT WILL BE APPROPRIATE TO RESTORE THIS ISSUE ALSO TO THE FILE OF THE ITA NO.3121/M/2011 MRS. RE GINA JAYPRAKASH 23 AO TO DECIDE IT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THIS RESPECT. IT IS ORDERED ACCORDINGLY. 19. IN THE R ESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9.4 .201 4 . SD SD ( / RAJENDRA ) ( [ / SANJAY GARG) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI ; / DATED 9.4. 2014 * KISHORE / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI