M/s. Varad Engineering, Aurangabad V. Income-tax Officer,

ITA 401/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0584 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Assessee Lawyers: ANKIT JAISWAL
• Keywords: Opportunity of being heard; Retrospective amendment

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , , ' # BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.401/PN/2014 '% % / ASSESSMENT YEAR : 2009-10 M/S. VARAD ENGINEERING, GUT NO.30, NEAR K-74, RANJANGAON, SHERPUNJI, MIDC,WALUJ, AURANGABAD PAN NO.AAFFV2880E . / APPELLANT V/S ITO, WARD-2(1), AURANGABAD . / RESPONDENT / ASSESSEE BY : SHRI ANKIT JAISWAL / DEPARTMENT BY : SHRI HITENDRA NINAWE / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30-12-2013 OF THE CIT(A), AURANGABAD RELATING TO A SSESSMENT YEAR 2009-10. 2. IN GROUNDS OF APPEAL NO.1 TO 5 THE ASSESSEE HAS CHA LLENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ORDER OF THE AO O N ACCOUNT OF ADDITION OF RS.3,91,487/- FOR NON DEDUCTION OF TDS. / DATE OF HEARING :30.12.2015 / DATE OF PRONOUNCEMENT:30.12.2015 2 ITA NO.401/PN/2014 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING O F AUTOMOBILE AND AUTO PARTS. IT FILED ITS RETURN OF INCOME ON 27-09- 2009 DECLARING TOTAL INCOME OF RS.19,190/-. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSE E HAS PAID INTEREST OF RS.3,35,470/- TO ELECTRONICA FINANCE AND RS.56,01 7/- TO MR. SACHIN JOSHI AGGREGATING TO RS.3,91,487/-. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THESE PAYMENTS SHOULD NO T BE DISALLOWED SINCE THE ASSESSEE HAS NOT DEDUCTED TAX AT S OURCE FROM THE PAYMENT SO MADE. IT WAS EXPLAINED BY THE ASSESSEE THAT BY MISTAKE TDS WAS NOT DEDUCTED. IT WAS ALSO EXPLAINED BEF ORE THE AO THAT THE EXPENDITURE SHOULD NOT BE DISALLOWED DUE TO NON DEDUCTION OF TDS ON INTEREST AS ELECTRONICA FINANCE AND M R. SACHIN JOSHI HAVE FILED THEIR INCOME TAX RETURNS AND PAID T HE TAXES ACCORDINGLY AND THERE IS NO LOSS OF REVENUE TO THE GOVERNMENT. 4. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO THE AO THE FILING OF RETURN OF INCOME BY DEDUCTEE DOES NOT MAKE SECTION 40(A)(IA) REDUNDANT. SINCE THE ASSESSEE HAS NOT DEDUCTED TAX FROM THE INTEREST EXPEN DITURE AND PAID THE SAME TO THE CREDIT OF THE CENTRAL GOVERNMENT, T HEREFORE, THE AO, APPLYING THE PROVISIONS OF SECTION 40(A)(IA) DISALLOWED T HE AMOUNT OF RS.3,91,487/-, (I.E. RS.3,35,470 + RS.56,017/-). 5. BEFORE CIT(A) IT WAS SUBMITTED THAT AS PER THE PROVISO TO SECTION 40(A)(IA) INSERTED BY THE FINANCE ACT 2012 W.E.F. 01-04 -2013 IF THE ASSESSEE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAU LT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201, THEN FOR TH E PURPOSE OF THE SAID CLAUSE IT SHALL BE DEEMED THAT THE ASSESSEE H AS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING 3 ITA NO.401/PN/2014 THE RETURN OF INCOME BY THE RECIPIENT PAYEE REFERRED TO IN THE SAID PROVISO. REFERRING TO THE FIRST PROVISO TO SECTION 201 WHIC H HAS BEEN INTRODUCED BY THE FINANCE ACT 2012 W.E.F. 01-04-2013 IT WAS CLAIMED THAT SINCE THE PAYEES OF THE INTEREST HAVE ALREAD Y FILED THEIR RETURN OF INCOME U/S.139 AND HAVE PAID THE TAX ON THE S AID INTEREST INCOME PAID TO THEM BY THE ASSESSEE, THEREFORE, NO DISALLOW ANCE IS CALLED FOR. 6. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH THE EXPLANAT ION GIVEN BY THE ASSESSEE. ACCORDING TO HIM, THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON INTEREST PAYMENT MADE BY HIM IN VIEW OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ACCORDING TO HIM, INTRODUCTION OF FIRST PROVISO TO SECTION 40(A)(IA) BY THE FINANC E ACT 2012 W.E.F. 01-04-2013 AND THE PROVISO TO SECTION 201 INTR ODUCED BY THE FINANCE ACT 2012 W.E.F. 01-07-2012 ARE NOT RETROS PECTIVE AND ARE PROSPECTIVE IN NATURE. HE ACCORDINGLY UPHELD TH E ACTION OF THE AO IN MAKING ADDITION OF RS.3,93,992/-. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET REFER RING TO THE DECISION OF AGRA BENCH OF THE TRIBUNAL IN THE CASE OF RAJE EV KUMAR AGARWAL VS. ACIT VIDE ITA NO.337/AGRA/2012 ORDER DATED 29-05- 2013 FOR A.Y. 2006-07 SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT INSERTION OF SECOND PROVISO TO SECT ION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 01-04-2005 BEING THE DATE FROM WHICH SAID CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE NO.2 ACT 2004. HE ACCORDINGLY SUBMITTED THAT THIS BEING A COVER ED MATTER IN 4 ITA NO.401/PN/2014 FAVOUR OF THE ASSESSEE THE DISALLOWANCE MADE BY THE AO A ND UPHELD BY THE CIT(A) SHOULD BE SET-ASIDE. 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDE RED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE THE AO MADE ADDITION OF RS.3,93,992/- U/S.40(A)(IA) FOR NON DEDUCTION OF TAX AT SOURCE FROM THE PAYMENT OF INTEREST OF RS.3,35,4 70/- PAID TO ELECTRONICA FINANCE AND RS.56,017/- PAID TO ONE MR. SA CHIN JOSHI. WE FIND THE LD.CIT(A) UPHELD THE ACTION OF THE AO AND REJECTED THE CONTENTION OF THE ASSESSEE THAT THE FIRST PROVISO TO SECTION 40(A)(IA) INTRODUCED BY THE FINANCE ACT 2012 W.E.F. 01-04-2013 IS RETROSPECTIVE IN NATURE. IT IS THE SUBMISS ION OF THE LD. COUNSEL FOR THE ASSESSEE THAT BOTH THE PAYEES HAVE ALREADY DECLARED SUCH INCOME IN THEIR RESPECTIVE RETURN OF INCOME AND HAVE PAID THE TAX AND THE INSERTION OF SECOND PROVISO TO SECT ION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSP ECTIVE EFFECT FROM 01-04-2005. 11. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE AGRA BENCH OF THE TRIBUNAL WHEREIN IT HAS BEEN HELD THAT THE IN SERTION OF SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURAT IVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 01-04-2005. HOWEVER, THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO CARRY OUT NECESSARY VERIFICATION REGARDING TH E RELATED PAYMENTS HAVING BEEN TAKEN INTO ACCOUNT BY THE RECIPIEN TS IN 5 ITA NO.401/PN/2014 COMPUTATION OF THEIR INCOME, REGARDING PAYMENT OF TAXES IN RESPECT OF SUCH INCOME AND REGARDING FILING OF THEIR RELATED INCOME TA X RETURN BY THE RECIPIENTS. THE RELEVANT OBSERVATION OF T HE TRIBUNAL FROM PARA 3 TO 10 OF THE ORDER READ AS UNDER : 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 4. LET US FIRST TAKE A LOOK AT THE LEGISLATIVE AMENDM ENT OF SECTION 40(A)(IA), VIDE FINANCE ACT 2012, AND TRY TO APPREC IATE THE SCHEME OF THINGS AS EVIDENT IN THE AMENDED SECTION. SECOND PROVI SO TO SECTION 40(A)(IA), INTRODUCED WITH EFFECT FROM 1 ST APRIL 20 13, PROVIDES, THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PAR T OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII-B ON A NY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIR ST PROVISO TO SUB-SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE O F THIS SUBCLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAI D THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. IN OTHER WORD S, AS LONG AS THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT, THE DI SALLOWANCE UNDER SECTION 40(A)(IA) CANNOT COME INTO PLAY EITHER . TO UNDERSTAND THE EFFECT OF THIS PROVISO, IT IS USEFUL TO REFER TO F IRST PROVISO TO SECTION 201(1), WHICH IS ALSO INTRODUCED BY THE FINANCE ACT 2012AND EFFECTIVE1ST JULY 2012, AND WHICH PROVIDES THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, WHO FAILS TO DED UCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE A CCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAUL T 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 C OMPUTING INCOME IN SUCH RETURN OF INCOME; AND(III) HAS PAID TH E TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME, AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNT ANT IN SUCH FORM AS MAY BE PRESCRIBED. THE UNAMBIGUOUS UNDERLYING PRINCI PLE SEEMS TO BE THAT IN THE SITUATIONS IN WHICH THE ASSESSEES TAX WITH HOLDING LAPSE HAVE NOT RESULTED IN ANY LOSS TO THE EXCHEQUER, AND TH IS FACT CAN BE REASONABLY DEMONSTRATED, THE ASSESSEE CANNOT BE TREATED A S AN ASSESSEE IN DEFAULT. THE NET EFFECT OF THESE AMENDMENTS I S THAT THE DISALLOWANCE UNDER SECTION 40(A)(IA) SHALL NOT BE ATT RACTED IN THE SITUATIONS IN WHICH EVEN IF THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE FROM THE RELATED PAYMENTS FOR EXPENDITURE BUT THE RE CIPIENT OF THE MONIES HAS TAKEN INTO ACCOUNT THESE RECEIPTS IN COMPUTA TION OF HIS INCOME, PAID DUE TAXES, IF ANY, ON THE INCOME SO COMP UTED AND HAS FILED HIS INCOME TAX RETURN UNDER SECTION 139(1). THERE IS A LSO A PROCEDURAL REQUIREMENT OF ISSUANCE OF A CERTIFICATE, IN THE PRESC RIBED FORMAT, EVIDENCING COMPLIANCE OF THESE CONDITIONS BY THE RECI PIENTS OF INCOME, BUT THAT IS ESSENTIALLY A PROCEDURAL ASPECT OF THE MATT ER. THE LEGISLATIVE AMENDMENT SO BROUGHT ABOUT BY THE FINANCE ACT, 2012, SO FAR AS THE SCHEME OF DISALLOWANCE UNDER SECTION 40(A)(IA) IS CONCE RNED, SUBSTANTIALLY MITIGATES THE RIGOUR OF, WHAT OTHERWISE SE EMED TO BE, A RATHER HARSH DISALLOWANCE PROVISION. 6 ITA NO.401/PN/2014 5. AS FOR THE QUESTION AS TO WHETHER THIS AMENDMENT C AN BE TREATED AS RETROSPECTIVE IN NATURE, EVEN IN THE CASE O F BHARTI SHIPYARD (SUPRA) A SPECIAL BENCH DECISION VEHEMENTLY RELIED UP ON IN SUPPORT OF REVENUES CASE,THE SPECIAL BENCH, ON PRINCIPLES, SUMMED UP THE SETTLED LEGAL POSITION TO THE EFFECT THAT ANY AMENDMENT OF THE SUBSTANTIVE PROVISION WHICH IS AIMED AT (INTER ALIA) REMOVING UNINTENDED CONSEQUENCES TO MAKE THE PROVISIONS WORKABLE HAS TO BE T REATED AS RETROSPECTIVE NOTWITHSTANDING THE FACT THAT THE AMEND MENT HAS BEEN GIVEN EFFECT PROSPECTIVELY. IT WAS HELD THAT IF THE CONSEQUENCES SOUGHT TO BE REMEDIED BY THE SUBSEQUENT AMENDMENTS WERE TO BE TREATED AS INTENDED CONSEQUENCES, THE AMENDMENT COULD NOT BE T REATED AS RETROSPECTIVE IN EFFECT. THE SPECIAL BENCH THEN PROCE EDED TO DRAW A LINE OF DEMARCATION BETWEEN INTENDED CONSEQUENCES AND UNINTENDED CONSEQUENCES, AND FINALLY THE RETROSPECTIVITY OF FIRST PROVISO WAS DECIDED AGAINST THE ASSESSEE ON THE GROUND THAT THIS SPE CIAL BENCH WAS OF THE CONSIDERED VIEW THAT THE OBJECTIVE SOUGHT TO BE ACHIEVED BY BRINGING OUT SECTION 40(A)(IA) IS THE AUGMENTATION OF TDS PROVISIONS AND WENT ON TO ADD THAT IF, IN ATTAINING THIS MAIN OBJECTIVE OF AUGMENTATION OF SUCH PROVISIONS, THE ASSESSEE SUFFERS DISALL OWANCE OF ANY AMOUNT IN THE YEAR OF DEFAULT, WHICH IS OTHERWISE DEDUCTIBLE, THE LEGISLATURE ALLOWED IT TO CONTINUE. IT WAS FURTHER O BSERVED THAT THIS IS THE COST WHICH PARLIAMENT HAS AWARDED TO THOSE ASSESSEES W HO FAIL TO COMPLY WITH THE RELEVANT PROVISIONS BY CONSIDERING OVE RALL OBJECTIVE OF BOOSTING TDS COMPLIANCE(EMPHASIS BY UNDERLINING SUPPL IED BY US). IN OTHER WORDS, THE AMENDMENT WAS HELD TO BE PROSPECTIVE BECAUSE, IN THE WISDOM OF THE SPECIAL BENCH, THE 2010 AMENDMENT T O SECTION 40(A)(IA) BY INSERTING FIRST PROVISO THERETO, WHICH IS WHAT THE SPECIAL BENCH WAS DEALING WITH, WAS AN INTENDED CONSEQUENCE OF THE PROVISION OF SECTION 40(A)(IA). 6. HOWEVER, THE STAND SO TAKEN BY THE SPECIAL BENCH W AS DISAPPROVED BY HONBLE DELHI HIGH COURT IN THE CASE O F CIT VS RAJINDER KUMAR (362 ITR 241). WHILE DOING SO, THEIR LORDSHIPS O BSERVED THAT, THE OBJECT OF INTRODUCTION OF SECTION 40(A)(IA) IS TO ENSURE THAT TDS PROVISIONS ARE SCRUPULOUSLY IMPLEMENTED WITHOUT DEFAULT IN ORDER TO AUGMENT RECOVERIES..FAILURE TO DEDUCT TDS OR DEPOSI T TDS RESULTS IN LOSS OF REVENUE AND MAY DEPRIVE THE GOVERNMENT OF THE TAX DUE AND PAYABLE (EMPHASIS BY UNDERLINING SUPPLIED BY US). HAV ING NOTED THE UNDERLYING OBJECTIVES, THEIR LORDSHIPS ALSO PUT IN A WO RD OF CAUTION BY OBSERVING THAT, THE PROVISION SHOULD BE INTERPRETED I N A FAIR, JUST AND EQUITABLE MANNER. THEIR LORDSHIPS THUS RECOGNIZED THE BIGGER PICTURE OF REALIZATION OF LEGITIMATE TAX DUES, AS OBJECT OF S ECTION 40(A)(IA), AND THE NEED OF ITS FAIR, JUST AND EQUITABLE INTERPRETATI ON. THIS APPROACH IS QUALITATIVELY DIFFERENT FROM PERCEIVING THE OBJECT OF SECTION 40(A)(IA) AS AWARDING OF COSTS ON THE ASSESSEES WHO FAIL TO COMPLY W ITH THE RELEVANT PROVISIONS BY CONSIDERING OVERALL OBJECTIVE O F BOOSTING TDS COMPLIANCE. NOT ONLY THE CONCLUSIONS ARRIVED AT BY T HE SPECIAL BENCH WERE DISAPPROVED BUT THE VERY FUNDAMENTAL ASSUMPTION U NDERLYING ITS APPROACH, I.E. ON THE ISSUE OF THE OBJEC T OF SECTION 40(A)(IA), WAS REJECTED TOO. IN ANY EVENT, EVEN GOING BY BHARTI SH IPYARD DECISION (SUPRA), WHAT WE HAVE TO REALLY EXAMINE IS WHETHER 2 012 AMENDMENT, INSERTING SECOND PROVISO TO SECTION 40(A)(IA), DEALS WI TH AN INTENDED CONSEQUENCE OR WITH AN UNINTENDED CONSEQUENCE. 7. WHEN WE LOOK AT THE OVERALL SCHEME OF THE SECTION AS IT EXISTS NOW AND THE BIGGER PICTURE AS IT EMERGES AFTER INSERT ION OF SECOND PROVISO TO SECTION 40(A)(IA), IT IS BEYOND DOUBT THAT THE UNDERLYING OBJECTIVE OF SECTION 40(A)(IA) WAS TO DISALLOW DEDUCT ION IN RESPECT OF 7 ITA NO.401/PN/2014 EXPENDITURE IN A SITUATION IN WHICH THE INCOME EMBED DED IN RELATED PAYMENTS REMAINS UNTAXED DUE TO NON DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE. IN OTHER WORDS, DEDUCTIBILITY OF EXPENDITU RE IS MADE CONTINGENT UPON THE INCOME, IF ANY, EMBEDDED IN SUCH EXPENDITURE BEING BROUGHT TO TAX, IF APPLICABLE. IN EFFECT, THU S, A DEDUCTION FOR EXPENDITURE IS NOT ALLOWED TO THE ASSESSEES, IN CASES WHERE ASSESSEES HAD TAX WITHHOLDING OBLIGATIONS FROM THE RELATED PAY MENTS, WITHOUT CORRESPONDING INCOME INCLUSION BY THE RECIPIENT.THAT IS THE CLEARLY DISCERNABLE BIGGER PICTURE, AND, UNMISTAKABLY, A VERY PRAGMATIC AND FAIR POLICY APPROACH TO THE ISSUE HOWSOEVER BELATED THE REALIZATION OF UNINTENDED AND UNDUE HARDSHIPS TO THE TAXPAYERS MAY HA VE BEEN. IT SEEMS TO PROCEED ON THE BASIS, AND RIGHTLY SO, THAT SEEKI NG TAX DEDUCTION AT SOURCE COMPLIANCE IS NOT AN END IN ITSELF , SO FAR AS THE SCHEME OF THIS LEGAL PROVISION IS CONCERNED, BUT IS ONL Y A MEAN OF RECOVERING DUE TAXES ON INCOME EMBEDDED IN THE PAYME NTS MADE BY THE ASSESSEE. THATS HOW, AS WE HAVE SEEN A SHORT WHILE AG O, HONBLE DELHI HIGH COURT HAS VISUALIZED THE SCHEME OF THINGS AS EVIDENT FROM THEIR LORDSHIPS REFERENCE TO AUGMENTATION OF RECOVER IES IN THE CONTEXT OF LOSS OF REVENUE AND DEPRIVING THE GOVER NMENT OF THE TAX DUE AND PAYABLE. 8. WITH THE BENEFIT OF THIS GUIDANCE FROM HONBLE D ELHI HIGH COURT, IN VIEW OF LEGISLATIVE AMENDMENTS MADE FROM TIME TO T IME, WHICH THROW LIGHT ON WHAT WAS ACTUALLY SOUGHT TO BE ACHIEVE D BY THIS LEGAL PROVISION, AND IN THE LIGHT OF THE ABOVE ANALYSIS OF T HE SCHEME OF THE LAW, WE ARE OF THE CONSIDERED VIEW THAT 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 PAYMENTS FOR EXPENDIT URE- PARTICULARLY WHEN THE RECIPIENTS HAVE TAKEN INTO ACCOUNT INCOME E MBEDDED IN THESE PAYMENTS, PAID DUE TAXES THEREON AND FILED INCOM E TAX RETURNS IN ACCORDANCE WITH THE LAW. AS A COROLLARY TO THIS PROPO SITION, IN OUR CONSIDERED VIEW, DECLINING DEDUCTION IN RESPECT OF EX PENDITURE RELATING TO THE PAYMENTS OF THIS NATURE CANNOT BE TRE ATED AS AN INTENDED CONSEQUENCE OF SECTION 40(A)(IA). IF IT I S NOT AN INTENDED CONSEQUENCE I.E. IF IT IS AN UNINTENDED CONSEQUENCE, E VEN GOING BY BHARTI SHIPYARD DECISION (SUPRA), REMOVING UNINTENDE D CONSEQUENCES TO MAKE THE PROVISIONS WORKABLE HAS TO BE TREATED AS RE TROSPECTIVE NOTWITHSTANDING THE FACT THAT THE AMENDMENT HAS BEEN GIVEN EFFECT PROSPECTIVELY. REVENUE, THUS, DOES NOT DERIVE ANY ADV ANTAGE FROM SPECIAL BENCH DECISION IN THE CASE BHARTI SHIPYARD (SUP RA). 9. ON A CONCEPTUAL NOTE, PRIMARY JUSTIFICATION FOR SUCH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO C OMPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKE N INTO ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTI ONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE T O ESTABLISH THAT THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWANCE DO ES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEWORK IS CONCERNED, THIS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTIVIZ ING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THINGS AND HAVE DI STINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNOTATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHEME OF SECTION 40(A)(IA), AS ON THE STATUTE, AND TO EXAMINE WHETHER OR NOT, ON A FAIR, JUST AND EQUITAB LE INTERPRETATION OF LAW- AS IS THE GUIDANCE FROM HONBLE DELHI HIGH CO URT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT 8 ITA NO.401/PN/2014 COULD NOT BE AN INTENDED CONSEQUENCE TO DISALLOW TH E EXPENDITURE, DUE TO NON DEDUCTION OF TAX AT SOURCE, EVEN IN A SIT UATION IN WHICH CORRESPONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE SCHEME 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 EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX WIT HHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY FO R 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 S ECTION 40(A)(IA), AS THEY EXISTED PRIOR TO INSERTION OF SECOND PROVISO THE RETO, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CRE ATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEES TAX WITHHOLD ING LAPSES 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 AMEN DMENT IN LAW, IN VIEW OF THE WELL SETTLED LEGAL POSITION TO TH E EFFECT THAT A CURATIVE AMENDMENT TO AVOID UNINTENDED CONSEQUENCES I S TO BE TREATED AS RETROSPECTIVE IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE G IVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSIONS, AS ALSO FOR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUBSCRIBE T O THE VIEW THAT IT COULD HAVE BEEN AN INTENDED CONSEQUENCE TO PUNISH T HE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCO ME IS DULY BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSERTI ON OF SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURAT IVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING T HE 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 FIT AN D PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRE SH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS AND AFTER CARRYIN G OUT NECESSARY VERIFICATIONS REGARDING RELATED PAYMENTS HAVING BEEN TAKEN INTO ACCOUNT BY THE RECIPIENTS IN COMPUTATION OF THEIR IN COME, REGARDING PAYMENT OF TAXES IN RESPECT OF SUCH INCOME AND REGARDI NG FILING OF THE RELATED INCOME TAX RETURNS BY THE RECIPIENTS. WHILE GIVING EFFECT TO THESE DIRECTIONS, THE ASSESSING OFFICER SHALL GIVE DUE AND FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE, DECIDE THE MATT ER IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORD ER. WE ORDER SO. 12. RESPECTFULLY FOLLOWING THE DECISION OF THE AGRA BENCH OF THE TRIBUNAL CITED (SUPRA) AND IN ABSENCE OF ANY CONTRARY MATE RIAL BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESEN TATIVE, WE RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION T O DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF THE AGRA BENCH OF THE TRIBUNAL CITED (SUPRA) AND IN ACCORDANCE WITH LAW AFTER GIVING DUE 9 ITA NO.401/PN/2014 OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. GROUNDS OF APPEAL NO. 1 TO 5 BY THE ASSESS EE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND OF APPEAL NO.6 WAS NOT PRESSED BY THE LD. CO UNSEL FOR THE ASSESSEE FOR WHICH THE LD. DEPARTMENTAL REPRESEN TATIVE HAS NO OBJECTION. ACCORDINGLY, THE SAID GROUND IS DISMISSED AS NOT PRESSED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30-12-2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; # DATED : 30 TH DECEMBER, 2015. LRH'K ( )'+ , / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. CIT (A) , AURANGABAD 4. 5. 6. CIT, AURANGABAD ' *, *, IQ.KS / DR, ITAT, B PUNE; / GUARD FILE. / BY ORDER , // TRUE COPY // ' //TRUE COPY// / * / SR. PRIVATE SECRETARY *, IQ.KS / ITAT, PUNE