M/s Hooghly Mills Projects Ltd., Kolkata V. DCIT, CC-VII, KOLKATA, Kolkata

ITA 361/KOL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4747 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 26-04-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 03-03-2014
• Court: TRIBUNAL
• Department Lawyers: DINABANDHU NASKAR
• Assessee Lawyers: S JHAJHARIA FCA LD
• Keywords: Retrospective amendment; Non-deduction of tax; Deemed dividend
• Section: 143(3); 201(1); 263; 139

Judgement Text

ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, K OLKATA BEFORE : SHRI WASEEM AHMED, ACCOUNTANT MEMBER, AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBE R I.T.A NO. 361/KOL/2014 A.Y. 2006-07 M/S. HOOGHLY MILLS PROJECTS LTD VS. D.C.I.T, C C-VII, KOLKATA PAN: AAACH 7668G (APPELLANT) (RESPO NDENT) FOR THE APPELLANT/ASSESSEE : SHRI S. JHAJHAR IA, FCA, LD.AR FOR THE RESPONDENT/DEPARTMENT: SHRI DINABANDHU NASKAR, JCIT, LD.DR DATE OF HEARING: 26-04-2016 DATE OF PRONOUNCEMENT: 31 -05-2 015 ORDER SHRI S.S.VISWANETHRA RAVI, JM THIS APPEAL OF THE ASESSEE ARISES OUT OF THE ORDER OF THE CIT(A)-CENTRAL-1, KOLKATA IN APPEAL NO. 91/CC-VII/CIT(A) C-I/11-12 D ATED 8 TH DECEMBER, 2013 FOR THE ASSESSMENT YEAR 2006-07 PASSED U/S. 263/251 /143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE APPELLANT ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN NOT ADJU DICATING THE GROUND NOS. 1 & 2 OF THE APPELLANT'S GROUNDS OF APP EAL OBJECTING TO THE ARBITRARY ORDER PASSED IN HASTE BY THE ASSESSIN G OFFICER (IN SHORT A.O) U/S 263/2511143(3) OF THE ACT DT. 01.08.2011 D URING THE PENDENCY OF THE APPELLANT'S APPEAL FILED BEFORE THE HON'BLE I.T.A.T, ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 2 KOLKATA, ON 07.04.2011 ( ITA NO.549/KOL/2011) AGAIN ST THE REVISIONARY ORDER U/S 263 OF THE ACT DT. 08.03.2011 . 2. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN CONFIRMI NG THE ARBITRARY ADDITION OF RS.4,1 0,00,000/- MADE IN ASSESSMENT AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT WITHOUT CONSIDERING AND APP RECIATING THE FACTS AND THE EXPLANATIONS FURNISHED BOTH AT THE ASSESSME NT AND APPELLATE STAGE. 3. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN CONFIRMI NG THE ARBITRARY DISALLOWANCE OF INTEREST OF RS. 6,30,000/- PAID TO A PARTY OWING TO THE ALLEGED FAILURE TO DEDUCT TAX AT SOURCE U/S 40( A)(IA) OF THE ACT WITHOUT CONSIDERING AND APPRECIATING THE FACTS THAT THE 2 ND PROVISO TO SECTION 40(A)(IA) ADDED BY THE F.A 2012 HAS RETR OSPECTIVE EFFECT AND HENCE IT IS CURATIVE IN NATURE APPLICABLE FOR T HIS YEAR UNDER APPEAL. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS.2,36,75,243/- U/S. 115 JB OF THE ACT ON 20-11-2006. THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT DETERMINING THE TOTAL INCOME OF AT RS.1,42,45,720/- ON 31-12-2008. THE A SSESSMENT WAS THEREAFTER SUBJECTED TO REVISION. THE CIT, CENTRAL-1, KOLKATA HAS SET ASIDE THE SAID ASSESSMENT BY AN ORDER DT: 08-03-2011 U/S. 263 OF T HE ACT, AGAINST WHICH THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNA L, INSPITE OF HAVING KNOWLEDGE OF APPEAL BEFORE THE TRIBUNAL PENDING, T HE A.O CONDUCTED THE ASSESSMENT AND MADE ADDITIONS THEREON. 4. FIRST GROUND RAISED BY THE ASSESSEE IS RELATING TO THE ISSUE DESPITE THE FACT THAT THE APPEAL FILED BEFORE THE TRIBUNAL (ITA NO.5 49/KOL/2011), WHICH IS STILL PENDING, THE AO PASSED THE IMPUGNED ASSESSMENT ORDE R ON 17-08-2011. ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 3 5. AS REGARDS, GROUND NO.1, WE MAY REFER TO THE REL EVANT PROVISION WHICH PRESCRIBES TIME LIMIT FOR ASSESSMENTS AND REASSESSM ENTS WHICH IS REPRODUCED AS BELOW: TIME LIMIT FOR COMPLETION OF ASSESSMENTS AND REASSE SSMENTS. 153. (1) : PROVIDED : PROVIDED FURTHER.. (I) ; OR (II) , [ PROVIDED ALSO .] (1A). (1B). (2): PROVIDED : PROVIDED FURTHER : PROVIDED ALSO (I) (II), [ PROVIDED ALSO .] (2A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT IONS (1), (1A), (1B) AND (2), IN RELATION TO THE ASSESSMENT YEAR CO MMENCING ON THE 1ST DAY OF APRIL, 1971, AND ANY SUBSEQUENT ASSESSME NT YEAR, AN ORDER OF FRESH ASSESSMENT IN PURSUANCE OF AN ORDER UNDER SECTION 250 OR SECTION 254 OR SECTION 263 OR SECTION 264, S ETTING ASIDE OR CANCELLING AN ASSESSMENT, MAY BE MADE AT ANY TIME B EFORE THE EXPIRY OF ONE YEAR FROM THE END OF THE FINANCIAL YEAR IN W HICH THE ORDER UNDER SECTION 250 OR SECTION 254 IS RECEIVED BY THE [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL C OMMISSIONER OR] COMMISSIONER OR, AS THE CASE MAY BE, THE ORDER UNDER SECTION 263 OR SECTION 264 IS PASSED BY THE [PRINCIPAL CHIE F COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL COMMISSIONER OR] COMMISSIONER: PROVIDED : ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 4 [ PROVIDED FURTHER THAT WHERE THE ORDER UNDER SECTION 254 IS RECEIVED BY THE 98 [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONE R OR [PRINCIPAL COMMISSIONER OR] COMMISSIONER OR, AS THE CASE MAY BE, THE ORDER UNDER SECTION 263 OR SECTION 264 IS PASSE D BY THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER ON OR AFTE R THE 1ST DAY OF APRIL, 2005 BUT BEFORE THE 1ST DAY OF APRIL, 2011, THE PROVISIONS OF THIS SUB-SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS ' ONE YEAR', THE WORDS 'NINE MONTHS' HAD BEEN SUBSTITUTED: 6. A PLAIN READING OF THE ABOVE PROVISION SUGGESTS THAT THE AO SHALL HAVE TO GIVE EFFECT TO THE ORDER PASSED BY CIT U/S. 263 OF THE ACT AS PER THE PROCEDURE CONTEMPLATED IN THE PROVISO ATTACHED THEREIN TO SUB -SECTION 2A OF SECTION 153 OF ACT IRRESPECTIVE OF FACT THAT THE APPEAL IS PENDING BEFORE THE TRIBUNAL. IN THIS CASE, THE AO DISCHARGED HIS DUTIES IN COMPLIANCE WI TH THE PROCEDURE AS PRESCRIBED IN THE ACT. IN OUR OPINION, THE ASSESSME NT MADE BY THE AO IN PURSUANCE OF THE ORDER PASSED BY THE CIT U/S. 263 OF THE ACT IS VALID, ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS DISMISSED. 7. BRIEF FACTS RELATING TO THE 2ND GROUND AS RECOR DED BY THE AO ARE THAT THE ASSESSEE ACCEPTED LOAN OF RS. 4,10,00,000/-, WHICH IS MORE THAN 10% OF PAID UP EQUITY SHARES FROM M/S. MEGA RESOURCES LTD DURING T HE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE WAS HOLDING 13,90,100 SHARES OUT OF 1,20,00,000/- EQUITY SHARES OF M/S. MEGA RESOURCES LTD. BEFORE TH E AO THE ASSESSEE SUBMITTED THAT IT HAS ONLY 1099300 OF SHARES IN M/ S. MEGA RESOURCES LTD AS PER REGISTER. THE AO FOUND THAT THE ASSESSEE WAS HOL DING 13,90,100 SHARES, WHICH IS MORE THAN 10% OUT OF 1,20,00,000 EQUITY SHARES O F M/S. MEGA RESOURCES LTD. THE AO ACCORDINGLY ADDED BACK THE AMOUNT OF RS.4, 10,00,000/- U/S. 2(22)(E) OF THE ACT TOWARDS DEEMED DIVIDEND TO THE TOTAL INC OME OF THE ASSESSEE. ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 5 8. THE CIT CONSIDERED THE ISSUE IN DETAIL AND FOLL OWING THE EARLIER DECISION IN ASSESSEES OWN CASE FOR THE A.Y 2005-06 CONFIRME D THE ADDITION MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF T HE ACT. 9. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE SAID ISSUE IS COVERED BY THE EARLIER ORDER OF THE TRIBUNAL IN A SSESSEES OWN CASE IN ITA NO. 1729/KOL/2011 FOR THE A.Y 2005-06. 10. ON THE CONTRARY, THE LD.DR HAS RELIED ON THE OR DERS OF THE LOWER AUTHORITIES. 11. HEARD THE RIVAL SUBMISSIONS AND PERUSED THE REL EVANT MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. COUNSEL FOR THE ASSESS EE HAS RIGHTLY SUBMITTED THAT THE ISSUE ON HAND IS COVERED BY THE ORDER OF THIS TRIBUNAL VIDE ORDER DATED 1-8- 2014 IN ASSESSEES OWN CASE, WHEREIN IT HAD DECIDED THE ISSUE BY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SPECIAL BENCH, ITAT MUMBAI BENCH IN THE CASE OF ACIT VS. BHAUMIK COLORS PVT. LTD REPORTED IN (2 009) 118 ITD 1(SP) ITAT MUMBAI. THE RELEVANT PORTION OF THE SAID ORDER AT P ARA 4 IS REPRODUCED HEREUNDER:- 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US ALSO ASSESSEE PRODUCED THE SHAREHOLDERS REGISTER FOR THE RELEVANT YEAR AND FIL ED COPY OF THE RELEVANT SHAREHOLDERS REGISTER OF HOOGHLY MILLS PRO JECT LTD. I.E. THE ASSESSEE AND ALSO PRODUCED COPY OF SHAREHOLDERS REG ISTER OF MEGA RESOURCES LTD., WHEREIN THE REGISTERED SHAREHOLDERS ARE TO THE EXTENT OF 10,99,300 SHARES ONLY AS REGISTERED SHAREHOLDERS AN D NOT THE SHAREHOLDERS TO THE EXTENT OF L3,99,100 AS ALLEGED BY THE LOWER AUTHORITIES. FOR THIS PROPOSITION, WE HAVE TO SEE O NLY THE REGISTERED SHAREHOLDERS AS HELD BY THE SPECIAL BENCH OF THIS I TA T, MUMBAI BENCH ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 6 IN THE CASE OF BHAUMIK COLOUR P. LTD., SUPRA WHEREI N IT IS HELD AS UNDER: 41. IN THE LIGHT OF THE ABOVE DISCUSSION, THE QUES TIONS REFERRED TO THE SPECIAL BENCH ARE ANSWERED AS FOLLOWS: ON THE FIRST QUESTION: DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN T HE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. ON THE SECOND QUESTION: THE EXPRESSION SHAREHOLDER REFERRED TO IN SECTION 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFIC IAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENE FICIAL SHAREHOLDER THAN THE PROVISIONS OF SECTION 2(22)(E) WILL NOT A PPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGIST ERED SHAREHOLDER THEN ALSO THE PROVISIONS OF SECTION 2(22)(E) WILL NOT AP PLY. FROM THE ABOVE FACTS AND CIRCUMSTANCES THE ISSUE I S VERY CLEAR THAT THE ASSESSEE IS HOLDING REGISTERED SHARES TO THE TUNE OF 10,99,300 IN MEGA RESOURCES LTD. AND NOT 13,99,100 AS ALLEGED BY THE REVENUE. NO DOUBT THE TOTAL SHAREHOLDING OF THE ASSESSEE IN MEGA RESO URCES LTD. IS TO THE TUNE OF 13,99,100 BUT REGISTERED SHAREHOLDERS ARE T O THE EXTENT OF 10,99,300. WE HAVE TO SEE ONLY THE REGISTERED SHARE HOLDING AND NOT THE BENEFICIAL SHAREHOLDER. FOR THIS, THE ASSESSEE HAS FILED EVIDENCE BEFORE THE LOWER AUTHORITIES AND EVEN BEFORE US NOW. IN S UCH CIRCUMSTANCES, THIS ISSUE BEING COVERED BY THE SPECIAL BENCH OF TH IS TRIBUNAL, MUMBAI BENCH IN THE CASE OF BHAUMIK COLOUR P. LTD. SUPRA, RESPECTFULLY FOLLOWING THE SAME, WE DELETE THE ADDITION AND REVE RSE THE ORDERS OF THE LOWER AUTHORITIES. 12. A PERUSAL OF THE ORDER OF THE TRIBUNAL IN THE AFOREMENTIONED CASE, IT CLEARLY ESTABLISHES THAT THE ASSESSEE IS HOLDING RE GISTERED SHARES OF 10,99,300 IN M/S. MEGA RESOURCES LTD, BUT NOT 13,99,100 AS CONT ENDED BY THE REVENUE AND IT WAS EVIDENT FROM THE REGISTER OF SHAREHOLDERS AS PR ODUCED BY THE ASSESSEE AND, TO WHICH FACT THE TRIBUNAL EXAMINED AND NOTICED TH AT THE ASSESSEE HAS REGISTERED ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 7 SHARES ARE TO THE EXTENT OF 10,99,300 ONLY. THE QUE STION FORMULATED BY THE SPECIAL BENCH, ITAT MUMBAI SUPRA RELATING TO THE EXPRESSION SHAREHOLDER REFERRED IN SECTION 2(22)(E) OF THE ACT AND ANSWER ED THE SAME THAT IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHA REHOLDER THEN THE PROVISIONS OF SECTION 2(220(E) WILL NOT APPLY. FURTHER IT ALSO EX PRESSED THAT IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREH OLDER THEN ALSO THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WILL NOT APPLY. IN T HE PRESENT CASE, THE ASSESSEE IS HOLDING 10,99,300 SHARES IN M/S. MEGA RESOURCES LTD AS PER REGISTER PRODUCED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. THIS FACT WAS EXAMINED BY THE TRIBUNAL IN THE ABOVE CASE. WHEN THE ASSESSEE IS HO LDING THE SHARES AS INDICATED ABOVE, WHICH COMES TO LESS THAN 10% OF TOTAL EQUIT Y SHARES OF M/S. MEGA RESOURCES LTD., THE REASONING OF THE AO AS IT IS NO TICED FROM THE ASSESSMENT ORDER THAT BOTH THE ASSESSEE AND M/S. MEGA RESOURCE S LTD ARE CLOSELY HOLDING SHARES BELONGING TO SAME TO AVOID THE TAX. BUT, N O CONTRARY EVIDENCE BROUGHT ON RECORD AGAINST TO THE ASSESSEES CLAIM. IN THE L IGHT OF THE OBSERVATIONS MADE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1729/KOL/2011 FOR A.Y 2005-06 VIDE ITS ORDER DATED 01-08-2014 AND ALSO F OLLOWING THE PRINCIPLE LAID DOWN BY THE SPECIAL BENCH, ITAT, MUMBAI IN THE CASE OF BHAUMIK COLOR P.LTD (SUPRA), WE ARE OF THE VIEW THAT THE CIT WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE AO IN MAKING ADDITIONS. WE DELETE THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT ON THIS ISSUE. ACCORDINGL Y, GROUND-2 RAISED BY THE ASSESSEE IS ALLOWED. 13. THE 3 RD GROUND RAISED BY THE ASSESSEE IS RELATING TO THE ADDITION OF RS.6,30,000/- MADE U/S. 40(A)(IA) OF THE ACT ON ACC OUNT OF INTEREST PAID TO A PARTY WITHOUT DEDUCTING TDS. THIS WAS CONFIRMED BY THE C IT(A) IN THE IMPUGNED ORDER. ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 8 14. BRIEF FACTS OF THIS ISSUE ARE THAT THE AO FOUN D THAT THE ASSESSEE PAID INTEREST OF RS. 5,72,93,597/- ON UNSECURED LOAN AN D DEBITED THE SAME TO THE P & L ACCOUNT AND THE ASSESSEE DID NOT DEDUCT ANY TAX AT SOURCE ON PAYMENT OF INTEREST OF RS. 6,30,000/- TO M/S. METHONI TEA LTD. THUS, THE AO ADDED THE SUM OF RS.6,30,000/- U/S. 40(A)(IA) OF THE ACT. 15. IN APPEAL, THE CIT(A) CONFIRMED THE SAID ADDIT ION INSPITE OF HAVING SUBMISSIONS MADE BY THE ASSESSEE THAT THE PROVISION S OF SECTION 40(A)(IA) OF THE ACT WAS NOT APPLICABLE FOR THE ASSESSMENT YEAR UND ER CONSIDERATION IN VIEW OF THE SECOND PROVISO AS INSERTED BY THE FINANCE ACT 2 012, WHICH WAS RETROSPECTIVE IN NATURE. 16. HAVING AGGRIEVED BY ORDER OF CIT(A), LD. COUNS EL FOR THE ASSESSEE BEFORE US PRAYED TO RESTORE THE ISSUE ON HAND TO THE FI LE OF AO AND THE ISSUE UNDER CONSIDERATION IS COVERED BY THE 2 ND PROVISO OF SECTION 40(A)(IA) OF THE ACT WAS INSERTED BY THE FINANCE ACT 2012. ON THE CONTRARY, THE LD. DR HAS RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 17. HEARD RIVAL SUBMISSIONS AND PERUSED THE RELEVAN T MATERIAL ON RECORD. THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT-1 VS. ANSAL LAND MARK TOWNSHIP(P) LTD WHILE DEALING WITH THE CASE ON HAND, HAD AN OCCASION TO R EAD DOWN THE DECISION OF AGRA BENCH OF TRIBUNAL IN ITA 337/AGRA/2013 AS IT WAS RELIED ON, AND HELD AND AGREED WITH THE VIEW OF AGR A BENCH OF TRIBUNAL REASONING AND CONCLUSION TO THE INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT BY THE LEGISLATURE. THE RELEVANT PORTION FROM PARAS 11 TO 14 ARE REPRODUCED HERE IN BELOW: ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 9 11. THE FIRST PROVISO TO SECTION 210 (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 THE S UM CREDITED TO THE ACCOUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEM ED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT HAS FURNIS HED HIS RETURN OF INCOME UNDER SECTION 139 OF THE ACT . NO DOUBT, THERE IS A MANDATORY REQUIREMENT UNDER SECTION 201 TO DEDUCT TAX AT SOUR CE UNDER CERTAIN CONTINGENCIES, BUT THE INTENTION OF THE LEGISLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJECT TO THE FULF ILLMENT OF THE CONDITIONS AS STIPULATED 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 AGAIN IS A PROVISO INTENDED TO BE NEFIT THE ASSESSEE . THE EFFECT OF THE LEGAL FICTION CREATED THEREBY IS TO TREAT THE ASSESSEE AS A PERSON NOT IN DEFAULT OF DEDUCTING TAX AT SOURCE UN DER CERTAIN CONTINGENCIES. 12. RELEVANT TO THE CASE IN HAND, WHAT IS COMMON TO BOTH THE PROVISOS TO SECTION 40 (A) (IA) AND SECTION 210 (1) OF THE ACT IS THAT THE AS LONG AS THE PAYEE/RESIDENT (WHICH IN THIS CASE IS ALIP) 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 IS NOT DISPUTED BY TH E REVENUE THAT THE PAYEE HAS FILED RETURNS AND OFFERED THE SUM RECEIVE D TO TAX. 13. TURNING TO THE DECISION OF THE AGRA BENCH OF IT A T IN RAJIV KUMAR AGARWAL V. A CIT (SUPRA ) , THE COURT FINDS THAT IT HAS UNDERTAKEN A THOROUGH ANALYSIS OF THE SECOND PROVISO 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 REFER TO PARA 9 OF THE SAID ORDER WHICH READS AS UNDER: 'ON A CONCEPTUAL NOTE, PRIMARY JUSTIFICATION FOR SU CH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FO R THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUN T IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF TH E PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD, THE REFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THE RE IS NO ACTUAL LOSS OF ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 10 REVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT D EDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, SO F AR AS THE LEGAL FRAMEWORK IS CONCERNED, THIS PROVISION IS NOT FOR T HE 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 THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNOTATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHEME OF SECTION 40(A)(IA), AS ON THE ST ATUTE, AND TO EXAMINE WHETHER OR NOT, ON A 'FAIR, JUST AND EQUITABLE' INT ERPRETATION OF LAW- AS IS THE GUIDANCE FROM 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 THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDI TURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESS EE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX WITHHOLDING LAPS E BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GO ING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY FOR TAX WITHHOLD ING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C, AND, SECT ION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PROVISIONS OF SECTION 40 A)(IA 1 AS THEY' EXISTED PRIOR TO INSERTION OF SECOND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UND UE 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 AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERTION OF SEC OND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIME W HEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSI ONS, 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 ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DED UCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOM E IS DULY BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 11 SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NA TURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING TH E DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FI NANCE (NO. 2) ACT, 2004.' 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASONI NG OF THE AGRA BENCH OF IT AT AS REGARDS THE RATIONALE BEHIND THE INSER TION OF THE SECOND PROVISO TO SECTION 40(A) (IA) OF THE ACT AND ITS CO NCLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSP ECTIVE EFFECT FROM 1 ST APRIL 2005, MERITS ACCEPTANCE. 18. THE HONBLE HIGH COURT SUPRA FOUND THAT THERE IS A MANDATORY REQUIREMENT U/S. 201 TO DEDUCT AT SOURCE, BUT, HOW EVER, OPINED, THE ASSESSEE CANNOT BE VIEWED AS A PERSON IN DEFAULT IN VIEW OF THE FIRST PROVISO TO SECTION 201(1) OF THE ACT AND FURTHER THAT THE INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT WAS INTENDED TO BENEFIT THE A SSESSEE AND IT SHALL BE VIEWED AS IN THE SAME MANNER AS THAT OF FIRST PROVISO TO SECTION 201(1) OF THE ACT. 19. IN THE PRESENT CASE, THE CASE OF THE ASSESSEE W AS THAT THE INTEREST PAID TO M/S METHONI TEA LTD ON UNSECURED LOAN AND DEBITED T O THE P/L ACCOUNT AND DID NOT DEDUCT THE TAX U/SEC 194A OF THE ACT. THESE FAC TS ARE NOT DISPUTED BY THE EITHER OF THE LOWER AUTHORITIES AS IT CAN BE SEEN F ROM THE RECORD. THEREFORE, THE QUESTION BEFORE US WHETHER THE ASSESSEE COULD BE TR EATED AS DEFAULTER IN VIEW OF THE PRINCIPLE ENUNCIATED BY THE HONBLE HIGH COURT OF DELHI SUPRA , WE HOLD THAT THE ASSESSEE CANNOT BE A DEFAULTER IN VIEW OF TH E FIRST PROVISO TO SECTION 201(1) R/W SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT. AS OPINED BY THE HONBLE HIGH COURT OF DELHI SUPRA THAT THE SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE HAVING RETROSPEC TIVE EFFECT FROM 01-04-2005 AND THE CASE ON HAND BEING FOR A.Y 2005-06, IN OUR VIEW, THE MATTER SHALL GO BACK TO AO. THEREFORE, WE REMAND GROUND NO. 3 TO A O FOR EXAMINATION AND FOR ITA NO.361/KOL/2014-A-JM- M/S. HOOGHLY MILLS PROJECTS LTD 12 VERIFICATION OF THE REQUIRED DETAILS OF THE RESIDEN T I.E M/S METHONI TEA LTD AND DIRECT THE ASSESSEE TO COOPERATE IN COMPLETING THE ASSESSMENT. GROUND NO. 3 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 20. IN THE RESULT, THE APPEAL OF ASSESSEE IS PART LY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 31 /05 /2016 COPY OF THE ORDER FORWARDED TO: 1.. THE APPELLANT/ASSESSEE :M/S. HOOGHLY MILLS PRO JECTS LTD 10 CLIVE ROW, 3 RD FLOOR, KOLKATA 700 001. 2 THE RESPONDENT/DEPARTMENT- THE DCIT, CENTRAL CIR CLE-VII, AAYKAR BHAWAN POORVA, 110 SHANTI PALLY KOLKATA-107. 3 4.. /THE CIT, /THE CIT(A) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR ** PRADIP SPS SD/- WASEEM AHMED, ACCOUNTANT MEMBER SD/- S.S. VISWANETHRA RAVI, JUDICIAL MEMBER DATE 31/ 5 /2016