SHRI MAHESH CHATURBHUJ BHATTAD, Buldhana V. INCOME TAX OFFICER, Khamgaon

ITA 368/NAG/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4505 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 23-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 23-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AGNES P THOMAS
• Assessee Lawyers: S C THAKAR; C J THAKAR
• Keywords: Business income; Retrospective amendment; Reasonable cause
• Section: 143(3); 80IB; 201(1); 6; 139

Judgement Text

1 ITA NO. 368/NAG/2014. IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 368/NAG/2014 ASSESSMENT YEAR : 2007 - 08. SHRI MAHESH CHATURBHUJ BHATTAD, THE INCOME - TAX OFFICER, SHEGAON. VS. KHAMGAON. PAN AGKPB 4825A. APPELLANT. RESPONDENT. APPELLANT BY : SHRI C.J. THAKAR & SHRI S.C. THAKAR. RESPONDENT BY : SMT. AGNES P. THOMAS. DATE OF HEARING : 20 - 09 - 2016 DATE OF PRONOUNCEMENT : 7 TH OCT., 2016 O R D E R. THIS APPEAL BY THE ASSESSEE IS DIRECTED AG A INST THE ORDER OF LEARNED CIT(APPEALS ) - I, NAGPUR DATED 12 - 06 - 2014 AND PERTAINS TO ASSESSMENT YEAR 2007 - 08. THE GROUNDS OF APPEAL READ AS UNDER : 1. LEARNED C.I.T.(A) ERRED IN NOT ALLOWING THE CLAIM U/S 80IB(3)(II) OF I.T. ACT AMOUNTING TO RS.2,55,690/ - . 2. LEARNED C.I.T.(A) ERRED IN DISALLOWING THE INTEREST AMOUNTING TO RS.3,86,368/ - . 3. LEARNED C.I.T.(A) ERRED IN NOT PROPERLY CONSIDERING APPELLANTS SUBMISSION AND VARIOUS DECISION CITED BY APPELLANT. 2. APROPOS GROUND NO. 1 CLAIM OF DEDUCTION U/S 80IB. IN THIS CASE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND TRADING ACTIVITY OF COTTON SEED OIL AND C.S. CAKE ETC. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007 - 08 WAS FILED ON 21 - 02 - 2008. THE ASSESSEE HAS CLAIMED 2 ITA NO. 368/NAG/2014. 100% DEDUCTION U/S 80IB(3) OF RS.2,55,690/ - . THE AO NOTED THAT A S PER THE PROVISIONS OF SECT ION 80AC, DEDUCTION U/S 80IB SHALL NOT BE ALLOWED UNLESS THE ASSESSEE FURNISHES THE RETURN OF INCOME FOR SUCH ASSESSMENT YEAR ON OR BEFORE THE DUE DATE SPECIFIED U/S 139(1). AS THE DUE DATE OF FILING OF RETURN OF INCOME U/S 139(1) FOR THE ASSESSMENT YEAR 2 007 - 08 WAS 31 - 10 - 2007, AND AS THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 21 - 02 - 2008, DEDUCTION U/S 80IB(3) WAS DISALLOWED APPLYING THE PROVISION OF SECTION 80AC. 3. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) AFFIRMED THE AOS ACTION. 4. AGAINST T HIS ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 5. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE REC ORDS. ON THIS ISSUE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE IS AS UNDER : AUDIT REPORT IN FORM 3CB AND 3CD AND 10CCB WAS FILED ON 31 - 10 - 2 007. THIS WAS IN TIME. HOWEVER , THE RETURN WAS FILED ON 21 - 02 - 2008. SMALL DELAY WAS BECAUSE BESIDES INCOME FROM INDUSTRIAL UNIT THE ASSESSE HAD INDIVIDUAL INCOME AND THE BOOKS OF INDIVIDUAL COULD NOT BE FINALIZED IN TIME. HENCE THERE WAS SOME DELAY IN FIL ING RETURN. THERE WAS A REASONABLE CAUSE FOR THE DELAY. CONTENTION OF A.O. THAT THE REQUIREMENT 80AC IS FILING OF RETURN WITHIN DUE DATE SPECIFIED IN SECTION 139(1) AND NOTHING ELSE. MERE FILING OF AUDIT REPORT U/S 80IB IN FORM 10 CCB ON 27 - 10 - 2007 WILL NOT HELP. SINCE TE R MS OF SECTION 80AC ARE NOT FULLY COMPLIED THE ASSESSEE IS NO ENTITLED TO DEDUCTION U/S 80IB. THE ABOVE ISSUE IS DIRECTLY COVERED BY FOLLOWING TWO DECISIONS: (I) HANSA DALAKOTA VS. ASSTT. COMMISSIONER OF INCOME TAX. I.T.A. NO. 3352 (DELHI) OF 2011 DT. 25 - 01 - 2012 OF DELHI TRIBUNAL. (II) I.T.O. VS. VENKATAIAH, HYDERABAD TRIBUNAL (2012) 22 TAXMAN.CO, 2 (HYD.TRIB.) 3 ITA NO. 368/NAG/2014. 6. PER CONTRA LEARNED D.R. SUBMITTED THAT THE ASSESSEE HAS NOT FILED THE RETURN OF INCOME WITHIN THE DUE DATE SPECIFIED U/S 139(1). HENCE SHE SUBMITTED THAT IN VIEW OF THE SPECIFIC PROVISION OF SECTION 80AC THE ASSESSEE WILL NOT BE ENTITLED FOR DEDUCTION CLAIMED. IN THIS REGARD LEARNED D.R. REFERRED TO THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SHELCON PROPERTIES P. LTD. 44 TAXMANN.COM. 7. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. I FIND THAT SECTION 80AC OF THE I.T. ACT PROVIDES AS UNDER : WHERE IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL, 2006 OR ANY SUBSEQUENT ASSESSMENT YEAR, ANY DEDUCTION IS ADMISSIBLE UNDER SECTION 80 - IA OR 80IAB OR SECTION 80 - IB OR SECTION 80 - IC [OR SECTION 80 - ID OR SECTION 80 - IE], NO SUCH DEDUCTION SHALL BE ALLOWED TO HIM UNLESS HE FURNISHES A RETURN OF HIS INCOME FOR SUCH ASSESSMENT YEAR ON OR BEFORE THE DUE DATE SPECIFIED UNDER SUB - SECTION (1) OF SECTION 139. 8. THE ABOVE PROVISION OF LAW SPECIFIES THAT THE ASSESSEE SHALL NOT BE GRANTED DEDUCTION U/S 80I A OR SECTION 80IB OR SECTION 80IC OR SECTION 80ID OR SECTION 80IE UNLESS HE FURNISHES THE RETURN OF INCOME FOR SUCH ASSESSMENT YEAR ON OR BEFORE THE DUE DATE SPECIFIED UNDER SUB - SECTION (1) OF SECTION 139. IN THIS CASE THE DUE DATE FOR FILING THE R ETURN WAS 31 - 10 - 2007. HOWEVER, THE RETURN WAS FILED ON 21 - 02 - 2008. 9. NOW IN THE ABOVE FACTS OF THE CASE THERE ARE TWO DECISIONS OF THE TRIBUNAL REFERRED BY THE LEARNED COUNSEL OF THE ASSESSEE WHERE DEDUCTION CLAIMED HAS BEEN ALLOWED EVEN ON LATE FILING OF RETURN BEYOND THE DUE DATE SPECIFIED U/S 139(1) OF THE I.T. ACT. AS AG A INST THE ABOVE THERE IS HONBLE CALCUTTA HIGH COURT DECISION IN SHELCON PROPERTIES P. LD. (SUPRA) . IN THIS CASE THE FACTS AND QUESTION REFERRED ARE AS UNDER : THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF HOUSING PROJECTS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 ON FEBRUARY 11 , 2010, SHOWING THE GROSS INCOME OF 4 ITA NO. 368/NAG/2014. RS. 1 , 47,06,878. THE ASSESSEE CLAIMED DEDUCTION OF RS . 94,67 , 987 UNDER SECTION 80 - IB(10) OF THE INCOME - TAX ACT . THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE INCOME - TAX ACT WITHOUT ALLOWING THE DEDUCTION CLAIMED BY THE ASSESSEE. THE ASSESSEE PREFERRED AN APPEAL WHICH WAS DISMISSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) . UNDER SECTION 80 - IB(10) OF THE INCOME - TAX ACT, THE AMOUNT OF DEDUCTION IN THE CASE OF AN UNDERTAKING ENGAGED IN DEVELOPING AND BUILDING HOUS I NG PROJECTS , APPROVED BEFORE MARCH 31, 2008, BY A LOCAL AUTHORITY , SH ALL BE 100 PER CENT . OF THE PROFITS DERIVED IN THE PREVIOUS YEAR. THE ALLOWABILITY OF THE AFORESAID DEDUCTION IS , H OWEVER, SUBJECT TO THE FOLLOWING IMPORTANT PRECONDITIONS: 'WHERE IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE OF THE PREVIOUS YEAR 2006 OR A NY SUBSEQUENT ASSESSMENT YEAR, ANY DEDUCTION I S ADMISSIBLE UNDER SECTION 80 - IA OR SECTION 80 - IAB OR SECTION 80 - IB OR SECTION 80 - IC (OR SECTION 80 - 10 OR SECTION 80 - IE) , NO SUCH DEDUCTION SHALL BE ALLOWED TO HIM UNLESS HE FURNISHES A RETURN OF HIS INCOME FOR SUCH ASSESSMENT YEAR ON OR BEFORE THE DUE DATE SPECIFIED UNDER SUBSECTION (1) OF SECTION 139 . ' DUE DATE HAS BEEN SPECIFIED UNDER SECTION 139(1) EXPLANATION 2 OF THE INCOME - TAX ACT WH I CH PROVIDES THAT IN THE CASE WHERE A COMPANY IS AN ASSESSEE, THE L AST DATE OF FIL IN G THE RETURN I S 30 T H DAY OF SEPTEMBER OF T H E ASSESSMENT YEAR. ADMITTEDLY , I N TH I S CASE THE RETURN WAS F I LED ON FEBRUARY 1 1, 2010, FOR THE ASSESSMENT YEAR 2009 - 10 . THEREFORE, THE QUESTIONS OF LAW WHICH ARISE IN THIS CASE ARE: '(A) WHETHER THE DEDUCTION UNDER SECTION 80 - IB(10) OF THE INCOMETAX ACT CAN BE ALLOWED WHEN THE RETURN WAS NOT FILED ON OR BEFORE THE DUE DATE SPECIFIED UNDER SECTION 139(1) OF THE INCOME - TAX ACT? (B) WHETHER SECTION 80AC OF THE INCOME - TAX ACT CAN BE SAID TO HAVE LEFT ANY ROOM FOR DISCRETION IN THE CASE OF DELAYED FILING OF RETURNS? 10. AFTER VERY ELABORATELY CONSIDERING THE ISSUE THE HONBLE HIGH COURT CONCLUDED AS UNDER : MR. KHAITAN SUBMITTED THAT THE PROVISION REGARDING FILING OF THE RETURN ON OR B EFORE THE PRESCRIBED DAY IS DIRECTORY IN NATURE. WE ARE 5 ITA NO. 368/NAG/2014. UNABLE TO CONCUR WITH HIM. THE BENEFIT, IN THE PRESENT CASE, CAN ONLY BE CLAIMED OF FULFILMENT OF THE PRE - CONDITIONS LAID DOWN UNDER SECTION 80AC OF THE INCOME - TAX ACT. WHEN THE PRE - CONDITIONS HAVE NO T BEEN FULFILLED, THE BENEFIT CANNOT BE CLAIMED. THERE IS, AS SUCH, NO REASON TO FIND OUT WHETHER THE DIRECTION IS DIRECTORY OR MANDATORY. IN ANY EVENT, WHEN THE PROVISION IS THAT THE BENEFIT CANNOT B E CLAIMED IF THE RETURN HAS NOT BEEN FILED ON OR BEFOR E THE PRESCRIBED DAY, IN OUR VIEW, IT IS A MANDATORY DIRECTION WHICH PRESCRIBES THE CONSEQUENCE OF OMISSION TO FILE THE RETURN IN TIME. THE COURTS REWRITE THE LAW DO DO WHAT IS JUST ACCORDING TO THEM AS RIGHTLY POINTED OUT BY MRS. BHARGAVA. ALL THE JUDGMEN T S CITED BY MR. KHAITAN HAVE THUS BEEN DEALT WITH. IT WAS ALSO SUBMISSION OF MR. KHAITAN THAT NEITHER OF THESE JUDGMENTS IS ON POINT WHICH HAS ARISEN IN THIS CASE. WE ARE INCLINED TO THINK THAT THE BENEFIT CAN ONLY BE AVAILED OF BY THE ASSESSEE IF HE HAS FILED HIS RETURN ON TIME. IF HE HAS NOT FILED HIS RETURN ON TIME, THE BENEFITS CANNOT BE CLAIMED . FOR THE AFORESAID REASONS, BOTH THE QUESTIONS FRAMED ABOVE ARE ANSWERED IN FAVOUR OF THE REVENUE. THE APPEAL THUS SUCCEEDS AND IS ALLOWED. THE ORDER UNDER CHALLENGE IS SET ASIDE. 11. WHEN THIS DECISION OF HONBLE CALCUTTA HIGH COURT WAS REFERRED BY THE LEARNED D.R., LEARNED C OUNSEL OF THE ASSESSEE IN REBUTTAL SUBMITTED THAT THE FACTS ARE DIFFERENT INASMUCH AS IN HIS APPEAL THE ASSESSEE HAS SUBMITTED THE AUDIT REPORT IN FORM NO. 3CB AND 3CD AND 10CC B WITHIN TIME ON 31 - 10 - 2007. HOWEVER, THE RETURN WAS FILE D LATE ON 21 - 02 - 2008 . HENCE THE LEARNED COUNSEL PRAYED THAT THE DECISION OF HONBLE CALCUTTA HIGH COURT WILL NOT APPLY. 12. UPON CAREFUL CONSIDERATION I FIND THAT IT IS SETTLED LAW OF JUDICIAL PRECEDENCE AS UPHELD BY HONBLE JURISDICTIONAL HIGH COURT THAT THE HONBLE HIGH COURT DECISION TAKES PRECEDENCE OVER TRIBUNALS DECISION. HENCE IN THE PRESENT CASE RELIAN C E UPON TRIBUNALS DECISION CANNOT FRUTIFY THE ASSESSEES CASE. THE DECISION FROM HONBLE CALCUTTA HIGH COURT WILL TAKE PRECEDENCE AND WILL APPLY. IN THE SAID CASE ALSO THE ASSESSEE HAS NOT FILED THE RETURN OF INCOME WITHIN THE DUE DATE SPECIFIED U/S 139(1) AND IN SUCH SCENARIO THE HONBLE HIGH COURT HAD HELD THAT THE ASSESSEE WILL NOT BE ENTITLE D TO DEDUCTION U/S 80IB IN 6 ITA NO. 368/NAG/2014. VIEW OF THE PROVISIONS CONTAIN ED U/S 80AC. IN THE PRESENT CASE ALSO THE ASSESSEE HAD FILED THE RETURN AFTER THE DUE DATE ON 21 - 02 - 2008. THE SMALL DISTINCTION REFERR E D BY THE LEARNED COUNSEL OF THE ASSESSEE THAT THE AUDIT REPO R T S WERE FILED WITHIN TIME ON 31 - 10 - 2007 CANNOT LEAD TO IN APPLICA TION OF HONBLE CALCUTTA HIGH COURT DECISION IN THIS CASE. HENCE THE UNDISPUTED FACT REMAINS THAT THE ASSESSEE HAS NOT FIL E D THE RETURN WITHIN THE DUE DATE SPECIFIED U/S 139(1) AND HENCE THE PROVISIONS OF SECTION 80AC COMES INTO PLAY AND THE ASSESSEE SHALL NOT BE ALLOWED DEDUCTION U/S 80IB. IN THESE CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE HONBLE CALCUTTA HIGH COURT DECISION, I AFFIRM THE ORDERS OF THE AUTHORITIES BELOW. 13. SINCE THE ASSESSEES CLAIM IS NOT VALID AB INITIO ADJUDICATION ON THE MERITS OF THE CASE QUA THE DEDUCTION CLAIMED ON JOB WORK BASIS IS ONLY ACADEMIC IN NATURE. HENCE THE SAME IS NOT BEING ENGAGED INTO. 14. APROPOS GROUND NO.2 DISALLOWANCE OF INTEREST AMOUNTING TO RS.3,86,368/ - . ON THIS ISSUE THE AO NOTED AND OBS ERVED AS UNDER : 7. DURING THE EXAMINATION OF BOOKS OF ACCOUNTS, IN INDIVIDUAL CAPACITY OF THE ASSESSEE, IT IS SEEN THAT THE ASSESSEE HAS DEBITED INTEREST OF RS.3,79,983/ - TO THE P&L ACCOUNT, THE ASSESSEE WAS REQUESTED TO EXPLAIN AS WHY THE INTEREST H AS BEEN DEBITED FROM THE PROFIT EARNED FROM THE BUSINESS OF THE ASSESSEE AND ITS NEXUS WITH THE BUSINESS INCOME. THE ASSESSEE FILED WRITTEN SUBMISSION WHICH IS AS FOLLOWS : - ' ALLOWABILITY OF INTEREST OF RS.379983/ - : - THE ASSESSEE OWNS AN OIL MILL STYLED AS T - T/S MAHESH OIL PRODUCTS AT SAVARNA TAH SHEGAON DIST.BULDHANA WHICH WAS STARTED ON 08 - 11 - 2000 I.E.A. Y.OL - 02. FOR THE BUSINESS OF OIL MILL THE ASSESSEE HAS KEPT SEPARATE SET OF BOOKS OF ACCOUNTS AND PROFIT FROM THOSE BOOKS ARE TRANSFERRED TO PERSONAL BOOKS OF ACCOUNTS OF THE ASSESSEE WHEREIN HIS INCOME FROM OTHER SOURCES LIKE DIVIDEND, BANK INTEREST AND PROFIT FROM R.F. SILRI GAJANAN COTSPIN AND AGRICULTURAL ARE RECORDED. THE ASSESSEE IS CLAIMED DEDUCTION OF RS.3799831 - IN THE PERSONAL BOOKS OF ACCOUNTS IN ADDITION TO INTEREST OF RS.126412/ - IN THE BOOKS OF ACCOUNTS OF THE OIL MILL. THE INTEREST IN , THE BOOKS OF THE OIL MILL IS PAID 1'0 THE BANK WHILE INTEREST IN THE PERSONAL BOOKS OF ACCOUNTS IS PAID AS UNDER: SHRI MAHESH MAHESH C. BHATTAD, SHEGAON ORDER U/S 143(3) A.Y. 2007 - 08. 1. LIC 115 2. G.N.BHATTAD 103435 3. C.N.BHATTAD, HUF 120000 4. BHAGWATI C. BHATTAD. 70000 5. RAJKUMAR G. BHATTAD. 61000 6. M. RATHI. 11170 7 ITA NO. 368/NAG/2014. 7. LALIT CHANDAK. 08200 8. PAWAN CHANDAK. 02770 9. KAPIL CHANDAK. 03400 TOTAL 380090 LESS RECEIVED FROM HDFC AKOLA. 107 TOTA L 379983 THE A SSESSEE HAS CLAIMED THE SAID INTEREST AS DEDUCTION BECAUSE THE MONEY BORROWED FROM THE ABOVE REFERRED PARTNERS WERE UTILIZED FOR EARNING HIS BUSINESS INCOME CONSISTING OF INCOME FROM OIL MILL, SHARE OF PROFIT FROM R.F. SHRI GAJANAN COTSPIN, DIVIDEND ETC. T HE PERSONAL BOOKS AS WELL AS THE OIL MILLS BOOKS ARE INTERLINKED FINANCIALLY AND THE ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS OF THE OIL MILL AS PER REQUIREMENT OF DISTRICT INDUSTRIAL CENTRE FOR CALCULATION OF SUBSIDIES AND SALES TAX EXEMPTIONS. IT IS THEREFORE THAT THE DEDUCTION OF INTEREST OF RS.379983/ - MAY KINDLY BE ALLOWED U/S 36(1)(III) OF THE I.T. ACT, 1961. THE SUBMISSION OF THE ASSESSEE HAS BEEN PERUSED CAREFULLY AND SAME IS NOT ACCEPTABLE. FOREMOSTLY, THE ASSESSEE HAS NOT PROVED ANY NEXUS WITH THE BUSINESS INCOME OF THE ASSESSEE OUT OF WHICH INTEREST WAS DEBITED. SECONDLY, THE ASSESSEE HAS NOT MADE ANY T.D.S. ON THE AMOUNT SO PAID TO VARIOUS PARTIES. ASSESSEE HAS EARNED INCOME FROM VARIOUS SOURCES INTER ALIA BUSINESS INCOME. CONSIDER ING ALL FACTS, THE INTEREST PAID AT RS.3,79,983/ - IS DISALLOWED. 15 UPON ASSESSEES APPEAL LEARNED CIT(APPEALS) CONSIDERED THE ISSUE AND AND HELD AS UNDER : I HAVE CAREFULLY CONSIDERED THE ISSUE BEFORE ME. THE DECISION RELIED UPON BY THE APPELLANT REPORTED IN 293 ITR 226 IS NOT RELEVANT TO THE FACTS OF THE CASE AND THE ISSUE OF DISALLOWANCE U/S 40A(IA). THE SAID DECISION IS ONLY CONCERNED WITH THE PROVISION OF THE SEC. 201 WHICH DEAL WITH THE FAILURE OF A DEDUCTOR TO DEDUCT TAX AT SOURCE. IN THE SAID DECISION IT HAS BEEN HELD THAT ONCE TAX HAS BEEN PAID BY THE DEDUCTEE THERE IS NO DEFAULT U/S 201. THE PROVISIONS OF SEC. 40A(IA) EXPRESSLY PROVIDE THAT WHEN THERE IS DEFAULT IN TERMS OF THE PROVISIONS XIV B AN ITEM OF EXPENDITURE SHALL NOT BE ALLOWED AS A DEDUCTION FOR COMPUTING PROFITS AND GAINS OF A BUSINESS OR PROFESSION. IN A RECENT DECISION REPORTED IN THE CASE OF MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LTD. VS. ACIT 2011 - TIOL - 722 ITAT MUMBAI, IT HAS BEEN HELD THAT PAYMENT OF T AX DUE BY PAYEE WOULD EXONERATE THE ASSESSEE FROM BEING TREATED AS ASSESSEE IN DEFAULT U/S 201 BUT WOULD NOT OBLITERATE THE OTHER STATUTORY CONSEQUENCES FOR NON DEDUCTION OF TAX AT SOURCE INCLUDING THIS ALLOWANCE U/S 40A(IA). IT HAS BEEN CLEARLY HELD THA T THE PROVISIONS OF SECTION 40A(IA) ARE ATTRACTED WHEN THE ASSESSEE FAILS TO DEDUCT TAX AT SOURCE UNDER CHAPTER XIV B OF PAY SUCH TAX TO THE EXCHEQUER WITHIN THE STIPULATED PERIOD. CONSIDERING THE FACTS AND THE LEGAL PROPOSITION DISCUSSED ABOVE THE DISALLOWANCE IS SUSTAINED. THIS GROUND IS DISMISSED. 16. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 17. IN THIS REGARD LEARNED COUNSEL OF THE ASSESSEES SUBMISS IONS ARE AS UNDER : ABOVE ISSUE IS SQUARELY COVERED IN THE ASSESSEES SISTER CONCERN VIZ. BRIJGOPAL MADHUSUDAN BHATTAD VY HON. NAGPUR TRIBUNAL. 8 ITA NO. 368/NAG/2014. ALL THE PARTIES TO WHOM INTEREST IS PAID HAVE INCLUDED THE SAID INTEREST INCOME IN THEIR RESPECTIVE RETUR NS AND PAID TAXES. COPIES OF THEIR RETURNS ETC. ARE FILED IN THIS CASE. A.O. HAS DISALLOWED RS.6,385/ - OUT OF INTEREST CLAIM ON THE GROUND THAT THERE IS E XCESS PAYMENT. TO A FEW PARTIES INTEREST IS PAID AT 20% WHICH TO OTHERS IT IS PAID AT 15%. THE DIFFER ENCE OF 5% AGAINST THOSE PARTIES COME TO RS.6,385/ - . THE SAME IS ALREADY COVERED IN RS.3,79,983/ - . HOWEVER, A.O. DISALLOWED RS.6,385/ - OVER AND ABOVE RS.3,79,983/ - WHICH IS ERRONEOUS. 18. PER CONTRA LEARNED D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. SHE ALSO REFERRED TO A DECISION OF KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT VS. CIT 63 TAXMANN.COM 99 FOR THE PROPOSITION THAT SECOND PROVISO TO SECTION 40 ( A ) (IA) INTRODUCED WITH EFFECT FROM 01 - 04 - 2013 IS ONLY PROSPECTIVE. 19. UPO N CAREFUL CONSIDERATION I FIND THAT THE LEARNED CIT(APPEALS) IN THIS CASE HAS UPHELD THE AOS ACTION ONLY ON THE GROUND THAT SINCE TDS HAS NOT BEEN DEDUCTED U/S 40(A)(IA) THE AMOUNT OF EXPENDITURE CANNOT BE ALLOWED. HOWEVER, I FIND THAT THIS PROPOSITION IS NOT CORRECT IN VIEW OF HONBLE DELHI HIGH COURT DECISION IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP P. LTD. 377 ITR 635. IN THIS CASE THE HONBLE HIGH COURT HAS DECIDED AS UNDER : SECTION 40(A)(IA) OF THE INCOME - TAX ACT, 1961, IS AIMED AT ENSURING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN 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 A PENALTY FOR TAX WITHHOLDING LAPSE S BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM APRIL 1, 2005, BEING THE DATE FROM WHICH SUB - CLAUSE (IA) OF SECTION 40(A) 9 ITA NO. 368/NAG/2014. WAS INSERTED BY THE FINANCE (NO.2) ACT, 2004. THE FIRST PROVISO TO SECTION 201(1) OF THE ACT HAS BEEN INSERTED TO BENEFIT THE ASSESSEE. IT ALSO STATES THAT WHERE A PERSON 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 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 130. WHAT IS COMMON TO BOTH PROVISOS TO SECTION 40(A)(IA) AND 201(1) OF THE ACT IS THAT AS LONG AS THE PAYEE OR RESIDENT 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 PERSON IN DEFAULT. HELD, DISMISSING THE APPEAL, THAT THE PAYEES HAD FILED RETURNS AND OFFERED THE SUMS RECEIVED TO TAX. NO DISALLOWANCE COULD BE MADE UNDER SECTION 40(A)(IA). 20. I FIND THAT IN VIEW OF THE ABOVE DELHI HIGH COURT DECISION, THE DECISIO N OF HONBLE KERALA HIGH COURT REFERRED BY THE LEARNED D.R., WOULD NOT APPLY IN ASSESSEES CASE AS THERE IS NO JURISDICTIONAL HIGH COURT DECISION. IT IS SETTLED LAW FROM HONBLE APEX COURT IN THE CASE OF VEGETABLE PRODUCTS 88 ITR 192 THAT WHEN TWO CONSTRUCTIONS ARE POSSIBLE, THE ONE IN FAVOUR OF THE ASSESSEE SHOULD BE APPLIED. ACCORDINGLY IN VIEW OF THE ABOVE PRECEDENT, I AM OF THE CONSIDERED OPINION THAT THE ASSESSEE DESERVES BENEFIT IF THE P AYEES OF THE INTEREST HAVE FILED THEIR RETURNS AND PAID TAXES THEREON. SINCE THIS ASPECT NEED FACTUAL VERIFICATION, I REMIT THIS ISSUE TO THE FILE OF THE AO TO CONSIDER THE ISSUE AFRESH IN ACCORDANCE WITH THE HONBLE DELHI HIGH COURT DECISION CITED ABOVE. 21. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF OCT., 2016. SD/ - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. NAGPUR, DATED: 7 TH OCT. , 2016. 10 ITA NO. 368/NAG/2014. COPY FORWARDED TO : 1. SHRI MAHESH CHA TURBHUJ BHATTAD, C/O MAHESH OIL PRODUCTS, NEAR BUS STAND, SHEGAON, DIST. BULDHANA. 2. I.T.O., KHAMGAON. 3. C.I.T. - I , NAGPUR. 4. CIT(APPEALS), - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGIS TRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. WAKODE.