Shri Rajkumar Agrwal, CHHINDWARA V. Addl.C.I.T, CHHINDWARA

ITA 37/JAB/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82714 (ITAT-JABALPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 18-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHISHEK SHUKLA
• Assessee Lawyers: A P SHRIVASTAVA
• Keywords: Retrospective amendment; Non-deduction of tax
• Section: 143(3); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BENCH, JABALPUR BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.37/JAB/2013 ASSESSMENT YEAR: 2008-09 RAJKUMAR AGARWAL, VS. ADDL. COMMISSIONER OF INCOM E TAX, PROP. M/S BHAGWANDAS GIRDHARILAL RANGE CHHINDWARA (M.P.). AGARWAL, GANDHIGANJ, CHHINDWARA (M.P.) (PAN: ADIPA 9300 J). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.P. SHRIVASTAVA & SHRI SAPAN USRETHE, RESPONDENT BY : SHRI ABHISHEK SHUKLA DATE OF HEARING : 23.09.2014 DATE OF PRONOUNCEMENT : 26.09.2014 ORDER PER PRAMOD KUMAR, ACCOUNTANT MEMBER: THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGA INST THE ORDER DATED 29 TH MARCH, 2012, PASSED BY THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE IN COME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2008-09. 2. ALTHOUGH ASSESSEE HAS RAISED AS MANY AS NINETEEN GROUNDS OF APPEAL, THE ONLY GRIEVANCES PRESSED BEFORE US ARE (A) AGAINST COMMISSIONER OF INCOME TAX 2 ITA NO.37/JAB/2013 A.Y. 2008-09 (APPEALS) CONFIRMING THE DISALLOWANCE OF RS.1,38,80 ,552/- UNDER SECTION 40(A)(IA) EVEN THOUGH RECIPIENTS HAVE INCLUDED THE RELATED PA YMENT IN COMPUTATION OF THEIR INCOME IN RESPECT OF WHICH INCOME TAX RETURN IS DUL Y FILED UNDER SECTION 139; AND (B) AGAINST COMMISSIONER OF INCOME TAX (APPEALS) CO NFIRMING THE DISALLOWANCE OF RS.1,16,400/- UNDER SECTION 40(A)(IA) EVEN THOUGH T HE PAYMENT MADE WERE LESS THAN RS.2,500/- EACH, AND, ACCORDINGLY, THE TAX WIT HHOLDING REQUIREMENTS UNDER SECTION 194H DID NOT COME INTO PLAY. NO OTHER GRIE VANCE WAS PRESSED BEFORE US. 3. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN BUSINESS OF, INTER ALIA, DISTRIBUTING AND SELLING BSNL PRODU CTS AND SERVICES SUCH AS SIM CARDS, RECHARGE VOUCHERS AND ITC CARDS ETC. THE AS SESSEE ENGAGES SERVICES OF SUB- FRANCHISEES AND RETAILERS, IN THE COURSE OF HIS SO CARRYING ON THE BUSINESS. IT WAS IN THIS BACKDROP, AND HAVING NOTED THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE FROM PAYMENTS SO MADE IN RESPECT OF COMMISSION PAID TO SUB-FRANCHISEES AND RETAILERS, ON RECHARGE VOUCHERS, AGGREGATING TO RS. 1,38,80,552/-, AND OTHER COMMISSION PAID TO RETAILERS AMOUNTING TO RS.1,16,4 00/-, THAT THE ASSESSING OFFICER DISALLOWED THESE AMOUNTS UNDER SECTION 40(A)(IA). AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) BUT WITHOUT ANY 3 ITA NO.37/JAB/2013 A.Y. 2008-09 SUCCESS. LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCE. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE U S. 4. WE HAVE HEAD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO T HE APPLICABLE LEGAL POSITION. 5. LD. COUNSEL SUBMITS THAT IN VIEW OF INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA), AS LONG AS RECIPIENT HAS INCLUDED THE PA YMENTS IN COMPUTATION OF HIS TAXABLE INCOME, AND DULY FILED HIS INCOME TAX RETUR N UNDER SECTION 139, THE DISALLOWANCE UNDER SECTION 40(A)(IA) DOES NOT COME INTO PLAY. HE ALSO POINTS OUT THAT EVEN THOUGH THE PROVISO IS STATED TO BE EFFECT IVE FROM 1 ST APRIL, 2013, IT SEEKS TO REMOVE AN UNDUE HARDSHIP CAUSED DUE TO INTRODUCT ION OF SECTION 40(A)(IA) AND, THEREFORE, IT SHOULD BE CONSTRUED AS EFFECTIVE FROM THE DATE ON WHICH THIS PROVISION WAS INTRODUCED. IN SUPPORT OF THIS PROPOSITION, HE RELIED UPON THE DECISION OF A CO- ORDINATE BENCH IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ACIT (149 ITD 363). HE, HOWEVER, FAIRLY ACCEPTS THAT SINCE THIS ASPECT WAS NOT RAISED OR EXAMINED BY THE AUTHORITIES BELOW, THE MATTER WILL HAVE TO GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR FACTUAL VERIFICATION. LD. COUNSEL ALS O SUBMITS THAT SO FAR AS PAYMENTS OF RS.1,16,400/- ARE CONCERNED, ALL THE PAYMENTS AR E LESS THAN RS.2,500/- EACH, AND, 4 ITA NO.37/JAB/2013 A.Y. 2008-09 ACCORDINGLY, PROVISIONS OF SECTION 194H DO NOT COME INTO PLAY AT ALL. HE SUBMITS THAT THIS ISSUE CAN ALSO BE REMITTED, FOR EXAMINATI ON OF RELATED FACTS, TO THE ASSESSING OFFICER. 6. LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HA ND, RELIES UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITS THAT THESE ARE NEW PLEAS BEING RAISED BEFORE US WHICH NEED NOT BE ENTERTAINED. IN ANY EVENT, FACTS EMBEDDED IN THESE PLEAS NEED TO BE EXAMINED. HE SUBMITS THAT THE PROVISIONS UNDER SECTION 194H HAS BEEN VIOLATED BY NON-DEDUCTION OF TAX AT SOURCE, AND, ACCORDINGLY , DISALLOWANCE UNDER SECTION 40(A)(IA) IS FULLY JUSTIFIED. 7. WE FIND THAT A CO-ORDINATE BENCH OF THIS TRIBUNA L IN THE CASE OF RAJEEV KUMAR AGARWAL (SUPRA) HAS INTER ALIA OBSERVED AS FO LLOWS :- 8. ........... IN VIEW OF LEGISLATIVE AMENDMENTS M ADE FROM TIME TO TIME, WHICH THROW LIGHT ON WHAT WAS ACTUALLY SOUGHT TO BE ACHIEVED BY THIS LEGAL PROVISION, AND IN THE LIGHT OF THE ABOVE ANALYSIS OF THE SCHEME OF THE LAW, WE ARE OF THE CONSIDERED VIEW TH AT SECTION 40(A)(IA) CANNOT BE SEEN AS INTENDED TO BE A PENAL PROVISION TO PUNISH THE LAPSES OF NON DEDUCTION OF TAX AT SOURCE FROM P AYMENTS FOR EXPENDITURE- PARTICULARLY WHEN THE RECIPIENTS HAVE TAKEN INTO ACCOUNT INCOME EMBEDDED IN THESE PAYMENTS, PAID DUE TAXES T HEREON AND FILED INCOME TAX RETURNS IN ACCORDANCE WITH THE LAW. AS A COROLLARY TO THIS PROPOSITION, IN OUR CONSIDERED VIEW, DECLINING DEDU CTION IN RESPECT OF EXPENDITURE RELATING TO THE PAYMENTS OF THIS NATURE CANNOT BE TREATED AS AN 'INTENDED CONSEQUENCE' OF SECTION 40(A)(IA). IF IT IS NOT AN 5 ITA NO.37/JAB/2013 A.Y. 2008-09 INTENDED CONSEQUENCE I.E. IF IT IS AN UNINTENDED CO NSEQUENCE, EVEN GOING BY BHARTI SHIPYARD DECISION (SUPRA), 'REMOVIN G UNINTENDED CONSEQUENCES TO MAKE THE PROVISIONS WORKABLE HAS TO BE TREATED AS RETROSPECTIVE NOTWITHSTANDING THE FACT THAT THE AME NDMENT HAS BEEN GIVEN EFFECT PROSPECTIVELY'. REVENUE, THUS, DOES NO T DERIVE ANY ADVANTAGE FROM SPECIAL BENCH DECISION IN THE CASE B HARTI SHIPYARD (SUPRA). 9. ON A CONCEPTUAL NOTE, PRIMARY JUSTIFICATION FOR SUCH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INT O ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE R ECIPIENTS OF THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRIC TIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS A BLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISAL LOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUC H TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEWORK IS CONC ERNED, THIS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE PENAL PROVISIO NS TO THAT EFFECT. DEINCENTIVIZING A LAPSE AND PUNISHING A LAPSE ARE T WO DIFFERENT THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUAL LY EXCLUSIVE, CONNOTATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHE ME OF SECTION 40(A)(IA), AS ON THE STATUTE, AND TO EXAMINE WHETHE R OR NOT, ON A 'FAIR, JUST AND EQUITABLE' INTERPRETATION OF LAW- A S IS THE GUIDANCE FROM HONBLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT COULD NO T BE AN 'INTENDED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NO N DEDUCTION OF TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESPONDI NG INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE S CHEME OF SECTION 40(A)(IA), AS WE SEE IT, IS AIMED AT ENSURING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDIT URE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY T HE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX WITH HOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY F OR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C, AND, SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PROVISIONS OF SECTION 6 ITA NO.37/JAB/2013 A.Y. 2008-09 40(A)(IA), AS THEY EXISTED PRIOR TO INSERTION OF SE COND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEES TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO TH E EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNI NTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL SETTL ED LEGAL POSITION TO THE EFFECT THAT A CURATIVE AMENDMENT TO AVOID UN INTENDED CONSEQUENCES IS TO BE TREATED AS RETROSPECTIVE IN N ATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIM E WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DI SCUSSIONS, AS ALSO FOR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN 'INTENDED CONSEQUEN CE' TO PUNISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DEC LINING THE DEDUCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. THAT W ILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORD INGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA ) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004. 10. IN VIEW OF THE ABOVE DISCUSSIONS, WE DEEM IT FI T AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFIC ER FOR FRESH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS AND AFTER CARRYING OUT NECESSARY VERIFICATIONS REGARDING RELATED PAYME NTS HAVING BEEN TAKEN INTO ACCOUNT BY THE RECIPIENTS IN COMPUTATION OF THEIR INCOME, REGARDING PAYMENT OF TAXES IN RESPECT OF SUCH INCOM E AND REGARDING FILING OF THE RELATED INCOME TAX RETURNS BY THE REC IPIENTS. WHILE GIVING EFFECT TO THESE DIRECTIONS, THE ASSESSING OF FICER SHALL GIVE DUE AND FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE , DECIDE THE MATTER IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. WE ORDER SO. 8. RESPECTFULLY FOLLOWING THIS JUDICIAL PRECEDENT, WE CONSIDER IT APPROPRIATE TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFIC ER FOR FRESH EXAMINATION, ON THE 7 ITA NO.37/JAB/2013 A.Y. 2008-09 SAME LINES AND IN THE LIGHT OF THE ABOVE LEGAL POSI TION. THE ASSESSEE IS DIRECTED TO FURNISH ALL THE RELEVANT INFORMATION AND CO-OPERATE IN EXPEDITIOUS DISPOSAL OF REMANDED PROCEEDINGS. 9. AS REGARDS THE PAYMENTS AGGREGATING TO RS.1,16,4 00/- WHICH CONSIST OF AMOUNTS LESS THAN THE THRESHOLD LIMIT FOR INVOKING SECTION 40(A)(IA), THIS ASPECT OF THE MATTER IS ESSENTIALLY A FACTUAL ASPECT WHICH NE EDS TO BE EXAMINED BY THE ASSESSING OFFICER. WE DIRECT HIM TO DO SO, AND IN CASE IT IS ACTUALLY FOUND THAT THE PROVISIONS OF SECTION COULD NOT HAVE BEEN INVOKED O N THESE AMOUNT, THE VERY FOUNDATION OF DISALLOWANCE UNDER SECTION 40(A)(IA) WILL CEASE TO HOLD GOOD IN LAW. LET THIS ASPECT ALSO BE EXAMINED AFRESH IN THE ABOV E LIGHT. 10. NO OTHER GRIEVANCE WAS PRESSED BEFORE US. 11. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TOD AY ON 26 TH DAY OF SEPTEMBER, 2014. SD/- SD/- (C.M. GARG) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 26 TH SEPTEMBER, 2014 PBN/* 8 ITA NO.37/JAB/2013 A.Y. 2008-09 COPY OF THE ORDER FORWARDED TO :- 1) APPELLANT 2) RESPONDENT 3) CIT (APPEALS) CONCERNED 4) CIT CONCERNED 5) D.R., ITAT, JABALPUR BENCH, JABALPUR 6) GUARD FILE. BY ORDER, ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, JABALPUR