ITO, Madurai V. A.Krishnaveni Constructions, Madurai

ITA 35/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4600 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 06-01-2017
• Court: TRIBUNAL
• Department Lawyers: SURPIYO PAL
• Keywords: Retrospective amendment
• Section: 201(1); 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ ITA NO. 35/MDS/2017 / ASSESSMENT YEARS: 2007-08 THE INCOME TAX OFFICER, NON CORPORATE WARD 1(1), MADURAI V. M/S. A. KRISHNAVENI CONSTRUCTIONS, 1/354-2, RAMASAMY NAGAR, THIRUMALPURAM, MADURAI 625014. PAN : AAJFA1965D ( /APPELLANT) ( /RESPONDENT) /APPELLANT BY : SHRI SURPIYO PAL, JCIT /RESPONDENT BY : NONE / DATE OF HEARING : 10.04.2017 / DATE OF PRONOUNCEMENT : 05.05.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-2, MADURAI DATED 06.10.2016 PERTAINING TO ASSESSMENT YEAR 2007-08. 2 I.T.A. NO.35/MDS/2017 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS WITH REGARD TO DELETION OF ADDITION U/S.40(A)(IA) OF THE ACT. 3. THE FACTS OF THE ISSUE ARE THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD FAI LED TO REMIT THE TDS WITHIN TIME ALLOWED U/S.194C(2) R.W.S. 200(1) OF TH E ACT AND RULE 30(1)(B)(I)(2) OF THE INCOME TAX RULES, 1962. THE SUBCONTRACT PAYMENT EXPENDITURE OF ` 1,30,65,000/-WAS DISALLOWED BY THE LD. ASSESSING OF FICER BY INVOKING THE PROVISIONS OF THE SECTION 40(A)(IA) OF THE ACT ON THE REASON THAT THE ASSESSEE MADE SUB-CONTRACT PAYMENT BEFORE 1 ST MARCH 2007 AND THEREFORE, THE ASSESSEE SHOULD HAVE REMITT ED THE TDS INTO GOVERNMENT ACCOUNT BEFORE 31.03.2007. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 3.1. ON APPEAL, THE LD.CIT(A) OBSERVED THAT SINCE THE ASSESSEE HAS DEDUCTED THE TAX AND THE SAME WAS PAID WITHIN THE D ATE OF FILING THE RETURN OF INCOME U/S.139(1) OF THE ACT AND THAT COU LD NOT BE ANY DISALLOWANCE U/S.40(A)(IA) OF THE ACT. AGAINST THIS , THE REVENUE IS IN APPEAL BEFORE US. 4. NONE APPEARED ON BEHALF OF THE ASSESSEE. THE B ENCH WAS OF THE VIEW THAT THE APPEAL CAN BE DISPOSED OF WITHOUT THE ASSISTANCE OF THE ASSESSEE AND THEREFORE, THE APPEAL WAS HEARD EX-PAR TE QUA THE RESPONDENT-ASSESSEE AND DISPOSED OF BY CONSIDERING THE MATERIALS AVAILABLE ON RECORD AFTER HEARING THE LD.D.R. 3 I.T.A. NO.35/MDS/2017 5. AFTER HEARING THE LD.D.R, WE ARE OF THE OPINION THAT THE JUDGEMNET OF DELHI HIGH COURT IN THE CASE OF ANSAL LANDMARK TOWNSHIP IN 377 ITR 635(DEL.) IS APPLICABLE TO THE FACTS OF THE CASE IN HAND 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 PE RSON FAILS TO DEDUCT TAX AT SOURCE ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SUCH PERSON S HALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF S UCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME UNDER S ECTION 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 INTENTION OF THE LEGISLATURE IS NOT TO TREAT THE ASSESSEE 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 SEC OND 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 ASSES SEE AS A PERSON NOT IN DEFAULT OF DEDUCTING 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 I S APIL) 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 T AX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERS ON IN DEFAULT. AS FAR AS THE PRESENT CASE IS CONCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT THE PAYEE HAS F ILED RETURNS AND OFFERED THE SUM RECEIVED TO TAX. 4 I.T.A. NO.35/MDS/2017 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 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 CO MPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING T AKEN INTO ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HAN DS OF THE RECIPI ENTS OF THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUC TION RESTRICTIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSES SEE IS ABLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVISE NOT DEDUCTING TAX AT SOURCE, WHE N SUCH TAX DEDUC TIONS ARE DUE BUT SO FAR AS THE LEGAL FRAMEWORK 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 THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNO TATIONS. WHEN WE APPRECIATE THE OB JECT OF SCHEME OF SECTION 40(A)(IA), AS ON THE STATUTE, AND TO EXA MINE WHETHER OR NOT, ON A 'FAIR, JUST AND EQUITABLE' INTERPRETATION OF LAWAS IS THE GUIDANCE FROM THE HON'BLE DELHI HIGH COURT ON INTER PRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT CO ULD NOT BE AN 'INTENDED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NON- DEDUCTION OF TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESPONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPI ENT. THE SCHEME OF SECTION 40(A)(IA), AS WE SEE IT, IS AIMED AT ENSURI NG THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN T HE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH 5 I.T.A. NO.35/MDS/2017 EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOL DING LAPSES BY THE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A P ENALTY 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 SEP A RATELY PROVIDED FOR IN SECTION 271C, AND, SECTION 40(A)(IA) DOES NO T ADD TO THE SAME. THE PROVISIONS OF SECTION 40(A)(IA), AS THEY EXISTE D PRIOR TO INSERTION OF SECOND PROVISO THERETO, WENT MUCH BEYOND THE OBV IOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN I N CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. NOW, THAT THE LEGISLATURE HAS BEE N 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 R ETROSPECTIVE IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY , THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT F ROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVISION WAS INTRO DUC ED. IN VIEW OF THESE DISCUSSIONS, AS ALSO FOR THE DETAILED REASONS 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 TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE S ECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND P RO VISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM APRIL 1, 2005, BEING THE DATE FROM WHIC H 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 REGAR DS THE RATIONALE BEHIND THE INSERTION OF THE SECOND PROVISO TO SECTI ON 40(A)(IA) OF THE 6 I.T.A. NO.35/MDS/2017 ACT AND ITS CONCLUSION THAT THE SAID PROVISO IS DEC LARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFECT FROM APRIL 1, 2005, MERITS ACCEPTANCE. BEING SO, TO THE EXTENT TDS REMITTED BY THE ASSESSE E TO THE GOVERNMENT ACCOUNT BEFORE FILING OF RETURN OF INCOM E U/S.139(1) OF THE ACT FOR RELEVANT TO ASSESSMENT YEAR TO BE CONSI DERED AS DUE PAYMENT OF TAX, AND PROVISIONS SECTION 40(A)(IA) OF THE ACT CANNOT BE APPLIED PROVIDED THE TAX DEDUCTED WAS PAID BEFOR E THE FILING OF RETURN U/S.139(1) OF THE ACT. WE REMIT THIS ISSUE TO THE FILE OF LD. ASSESSING OFFICER AND DECIDE AFRESH. THE GROUND RA ISED BY THE ASSESSEE U/S.40(A)(IA) OF THE ACT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 05 TH MAY, 2017 AT CHENNAI ( . ) ( ) (G. PAVAN KUMAR) (CHANDRA POOJARI) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, /DATED, THE 05 TH MAY, 2017. K S SUNDARAM. /COPY TO: 1. /APPELLANT 2. !' /RESPONDENT 3. ' ' # ( ) /CIT(A) 4. ' ' # /CIT 5. $%' &' /DR 6. %() * /GF.