Sri. Satish Rajapur, Hospet V. DCIT, Bellary

ITA 425/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95262 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 25-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWALA JT
• Assessee Lawyers: GURUNATHAN
• Keywords: Business income; Depreciation; Rule of consistency; Additional depreciation
• Section: 43B; 194C; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER , ITA NO.425/BANG/2014 ASSESSMENT YEAR : 2008-09 SRI SATISH RAJAPUR, PROP: RAJAPUR MINERALS, III FLOOR, RAJAPUR INN, BELLARY ROAD, J.P. NAGAR, HOSPET. PAN : AEZPR 1636Q VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, BELLARY. APPELLANT RESPONDENT APPELLANT BY : SHRI GURUNATHAN, ADVOCATE RESPONDENT BY : SHRI SUNIL KUMAR AGARWALA, JT.CIT(DR) DATE OF HEARING : 14.09.2015 DATE OF PRONOUNCEMENT : 24.09.2015 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 30.1.2014 OF THE CIT(APPEALS), HUBLI FOR THE ASSESS MENT YEAR 2008-09. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- ITA NO.425/BANG/2014 PAGE 2 OF 18 1. THE CIT (APPEALS) ERRED IN PASSING THE ORDER IN THE MANNER IN WHICH HE DID. 2. THE LEARNED CIT (APPEALS) ERRED IN DISALLOWING A SUM OF RS.90,55,120/- TOWARDS ADDITIONAL DEPRECIATION WITH OUT APPRECIATING THE SUBMISSION OF THE APPELLANT THAT T HE APPELLANT BEING ENGAGED IN THE BUSINESS OF MANUFACTURE IS ENT ITLED TO ADDITIONAL DEPRECIATION AS PROVIDED UNDER SECTION 3 2(1)(IIA) OF THE ACT. 3. THE LEARNED CIT (APPEALS) FURTHER ERRED IN UPHO LDING THE DISALLOWANCE WITH REGARD TO FINANCE CHARGES WITHOUT APPRECIATING THE EXPLANATION OF THE APPELLANT. 4. THE LEARNED CIT (APPEALS) FURTHER FAILED TO APP RECIATE THAT FINANCE CHARGES ARE NOT INTEREST PAYMENT FALLING WI THIN THE PROVISIONS OF SECTION 2(28A) OF THE ACT AND HENCE C ANNOT BE DISALLOWED UNDER SECTION 40A(IA) OF THE ACT. 5. WITHOUT PREJUDICE, EVEN IF FINANCE CHARGE IS TO BE HELD AS INTEREST, THEN, THE PAYMENT TO THE PARTIES MENTIONE D HAVE BEEN PAID WITHIN 3L MARCH OF THE RELEVANT FINANCIAL YEAR AND THUS THE DISALLOWANCE UNDER SECTION 40A(IA) OF THE ACT IS UN CALLED FOR. 6. THE LEARNED CIT (APPEALS) OUGHT TO HAVE ALLOWED THE CLAIM WITH REGARD TO FINANCE CHARGE BY RELYING ON T HE DECISION OF THE SPECIAL BENCH OF ITAT, VISAKHAPATNAM IN THE CAS E OF MERILYN SHIPPING CORPORATION & TRANSPORTS VS. ACIT REPORTED IN (2012) 16 ITR (TRI) 1. 7. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE APPEA L MAY BE ALLOWED. 3. GROUND NO.1 IS GENERAL IN NATURE AND CALLS FOR N O SPECIFIC ADJUDICATION. 4. GROUND NO.2 IS REGARDING DISALLOWANCE OF ADDITIO NAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT. ITA NO.425/BANG/2014 PAGE 3 OF 18 5. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADI NG IN IRON ORE AND ALSO CARRYING OUT MINING ACTIVITIES AS REGARDS EXCA VATION, CRUSHING, SCREENING AND RELATED ACTIVITIES. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED ADDITIONAL DE PRECIATION ON PLANT & MACHINERY AGGREGATING TO RS.90,55,120. THE AO FOU ND THAT THE ASSESSEE IS ENGAGED IN THE PURCHASE AND SALE OF IRON ORE AND IN THE NATURE OF CONTRACT WORK OF EXCAVATION, CRUSHING, SCREENING, TRANSPORT, LOADING AND HIRING OF MACHINERIES. THUS, THE AO ASKED THE ASSE SSEE AS TO WHY THE CLAIM FOR ADDITIONAL DEPRECIATION SHOULD NOT BE DIS ALLOWED. THE ASSESSEE FILED ITS REPLY AND SUBMITTED THAT FOR THE PURPOSE OF CLAIMING DEPRECIATION U/S. 32(1)(IIA), OWNERSHIP OF MINE CANNOT BE A CRIT ERION. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HELD THAT ASSESSEE IS ENGAGED IN THE ACTIVITY OF CARRYING OUT THE WORK ON CONTRAC T BASIS AND MERELY BECAUSE IT IS USING MACHINERY IN THE CONTRACT WORK TAKEN FROM A PERSON WHO IS IN THE BUSINESS OF MANUFACTURE, THE ASSESSEE CAN NOT BE SAID TO BE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTIO N OF ARTICLES. ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF ASSESSE E. ON APPEAL, THE CIT(APPEALS) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO ON THIS ACCOUNT. 7. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSEE PURCHASED THE MACHINERY WHICH IS USED FOR MINING WORK AS WELL ITA NO.425/BANG/2014 PAGE 4 OF 18 AS CRUSHING AND SCREENING WORK. THE LD. AR OF THE ASSESSEE HAS REFERRED TO THE DETAILS OF REVENUE EARNED BY THE ASSESSEE FR OM THE ACTIVITY OF CRUSHING, SCREENING AS WELL AS TRADING IN IRON ORE. THUS, HE HAS SUBMITTED THAT WHEN THE ASSESSEE IS ENGAGED IN THE ACTIVITY O F MINING, CRUSHING AND SCREENING, THE SAME FALLS WITHIN THE AMBIT OF THE T ERM MANUFACTURE AND THEREFORE THE ASSESSEE IS ENTITLED FOR ADDITIONAL D EPRECIATION UNDER THE PROVISIONS OF SECTION 32(1)(IIA) OF THE ACT. IN S UPPORT OF THIS CONTENTION, HE RELIED ON THE DECISION DATED 20.9.2013 OF THIS TRIB UNAL IN THE CASE OF ACIT V. R. PRABHU, ITA NO.758/BANG/2012 AND SUBMITTED THAT THIS TRIBUNAL HAD DECIDED AN IDENTICAL ISSUE AND HAS HELD THAT THE AC TIVITY OF EXCAVATION, CRUSHING AND SCREENING OF IRON ORE FALLS UNDER THE DEFINITION OF MANUFACTURE OF GOODS AND THEREFORE THE ASSESSEE SATISFIES THE CONDITIONS AS PROVIDED U/S. 32(1)(IIA) OF THE ACT FOR CLAIMING ADDITIONAL DEPRECIATION. 8. ON THE OTHER HAND, THE LD. DR HAS RELIED ON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE AO HAS GIVEN A FACTUAL FINDING IN THE CASE OF THE ASSESSEE THAT IT IS NOT ENGAGED IN THE BUSINESS OF MANUFACTURE AND PRODUCTS OF ARTICLES OR GOODS, AS REQUIRED UNDER TH E PROVISIONS OF SECTION 32(1)(IIA) OF THE ACT. HE HAS FURTHER SUBMITTED TH AT IT IS ALSO NOT CLEAR FROM THE RECORD AS TO WHETHER ANY NEW PLANT & MACHINERY PURCHASED BY THE ASSESSEE IS USED FOR THE PURPOSE OF CARRYING OUT TH E ACTIVITIES OF EXCAVATION, CRUSHING, SCREENING OR BY HIRING OUT TH E SAME, BECAUSE THE ASSESSEE IS HAVING DIVERSIFIED ACTIVITIES AND EARNE D REVENUE FROM VARIOUS SOURCES INCLUDING HIRING OUT THE MACHINERIES. THUS , THE LD. DR HAS ITA NO.425/BANG/2014 PAGE 5 OF 18 SUBMITTED THAT WHEN THE AO HAS GIVEN A FACTUAL FIND ING THAT THE ASSESSEE IS NOT IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF GOODS OR ARTICLES, THE DECISION RELIED UPON BY THE ASSESSEE WILL NOT HELP THE CASE OF THE ASSESSEE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE CLAIM OF ASSESSEE IN RESPE CT OF ADDITIONAL DEPRECIATION HAS BEEN DENIED BY THE AO ON THE GROUN D THAT THE ASSESSEE IS NOT IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF GOODS OR ARTICLES. THOUGH THE AO HAS RECORDED THIS FACT THAT THE ASSES SEE IS IN THE ACTIVITY OF EXCAVATION, CRUSHING AND SCREENING OF IRON ORE, BUT SUCH ACTIVITY HAS BEEN CARRIED OUT BY THE ASSESSEE ON BEHALF OF THE MINE O WNERS. THUS, THE AO WAS OF THE VIEW THAT ASSESSEE IS NOT ENTITLED FOR A DDITIONAL DEPRECIATION. APART FROM THIS FINDING, THE AO HAS NOT EXAMINED TH E SOURCE OF REVENUE EARNED BY THE ASSESSEE FROM VARIOUS ACTIVITIES AND WHETHER THE ASSESSEE IS DOING THIS ACTIVITY OF EXCAVATION, CRUSHING AND SCREENING OF IRON ORE BY PURCHASING THE IRON ORE AND THEN SELLING THE SAME, OR IT WAS ON CONTRACT BASIS ON BEHALF OF OTHER PARTIES. EVEN OTHERWISE, AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THIS TRI BUNAL IN THE CASE OF R. PRABHU (SUPRA) IN PARA 7 AS UNDER:- 7. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THEIR RIVAL CONTENTIONS, WE FIND THAT CLAUSE - (2A) OF SU B SEC. 1 OF SEC. 32, PROVIDES THAN AN ASSESSEE IS ELIGIBLE FOR ADDIT IONAL DEPRECIATION IF IT HAS ACQUIRED ANY NEW PLANT OR MA CHINERY AND INSTALLED THE SAME AFTER 31 ST DAY OF MARCH 2005 AND IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY AR TICLE OR THING. ITA NO.425/BANG/2014 PAGE 6 OF 18 THE ASSESSEE HEREIN IS CLAIMING TO BE IN THE BUSINE SS OF MINING I.E PRODUCTION OF THE IRON ORE. AS SEEN FROM THE WORK O RDERS PLACED AND AGREEMENTS BETWEEN THE ASSESSEE AND OWNER/LESSE ES OF THE MINES, THE ASSESSEE HAS BEEN ENGAGED TO CARRY OUT E XCAVATION, MATERIAL SHIFTING, CRUSHING AND SCREENING OF IRON O RE AND THE RATES FIXED FOR EACH OF SUCH WORK IS ALSO DIFFERENT. TO A PPLY THE PROVISIONS OF SEC. 32(1)(IIA) OF THE ACT, IT IS NEC ESSARY THAT THE ASSESSEE HAS TO CARRY ON THE WORK OF MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING AND WORK OF EXCAVATION, PROCESS ING AND TRANSPORTATION CARRIED ON BY THE ASSESSEE IS EVIDEN T FROM THE AGREEMENTS WITH EACH OF THE CONTRACTORS THAT HE HAS ENTERED INTO AND IT WOULD BE SUFFICIENT AND WOULD SATISFY THE CO NDITION U/S 32(1)(IIA) OF THE INCOME-TAX ACT IF THE ASSESSEE HA S PURCHASED THE MACHINERY AND HAS INSTALLED AND USED THE SAME DURIN G THE RELEVANT FINANCIAL YEAR. AS SEEN FROM THE BILLS RAI SED BY THE ASSESSEE, THE ASSESSEE HAS CHARGED THE LESSEES ON T ONNAGE BASIS FOR IRON ORE PRODUCTION, WASTE PRODUCTION AND ROCK BREAKER TONNAGE AS IS EVIDENT FROM BILL NO.3 DATED 9/3/2008 RAISED BY THE ASSESSEE OF B.M.M.P.L, WHICH IS PLACED AT PAGE 12 O F THE PAPER BOOK. THEREFORE, WE ARE SATISFIED THAT THE ASSESSEE WAS NOT JUST GIVING HIS VEHICLE ON HIRE FOR CARRYING OUT THE WOR K OF MINING BUT HE IS IN FACT ENGAGED IN THE MINING BUSINESS AND IS ELIGIBLE FOR CLAIMING ADDITIONAL DEPRECIATION U/S 32(1)(IIA)OF T HE INCOME-TAX ACT. THUS, ASSESSEES APPEAL IS ALLOWED. 10. THE RELEVANT FACTS HAVE NOT BEEN EXAMINED BY TH E AO AS TO THE SOURCE OF REVENUE EARNED BY THE ASSESSEE AND FOR EA RNING INCOME FROM THE ACTIVITY OF EXCAVATION, CRUSHING AND SCREENING, WHE THER THE ASSESSEE HAS USED NEWLY ACQUIRED MACHINERY ON WHICH THE CLAIM FO R ADDITIONAL DEPRECIATION HAS BEEN MADE BY THE ASSESSEE. ACCORD INGLY, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES A PROPER VERIFICATION AND EXAMINATION OF RELEVANT FACTS AT THE LEVEL OF THE ASSESSING OFFICE R AND THEN, ADJUDICATION AS PER LAW BY CONSIDERING THE DECISION OF THE COORDINA TE BENCH IN THE CASE OF ACIT V. R. PRABHU (SUPRA) . HENCE THIS ISSUE IS SET ASIDE TO THE RECORD OF ITA NO.425/BANG/2014 PAGE 7 OF 18 THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH, AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. 11. GROUND NOS. 3 TO 6 ARE REGARDING DISALLOWANCE U /S. 40(A)(IA) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS PAID INTEREST/FINANCIAL CHARGES OF RS. 1,04,09,238 WITHOUT DEDUCTION OF TAX AS REQUIRED U/S. 194C OF THE ACT. SINCE THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE, THE AO INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND DISALLOWED THE SAID SUM OF RS.1,04,09,238. ON APPEAL, THE CIT(APPEALS) HAS CONFIRMED THE DISALLOW ANCE MADE BY THE AO IN THIS RESPECT. 12. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMI TTED THAT THE ASSESSEE HAS PAID INTEREST/FINANCIAL CHARGES TO 3 C OMPANIES VIZ., SREI INFRASTRUCTURE FINANCE LTD., SUNDARAM FINANCE LTD. AND TATA MOTOR FINANCE LTD. HE HAS POINTED OUT THAT AS REGARDS TH E PAYMENT OF INTEREST TO SUNDARAM FINANCE LTD. OF RS.24,972, THE CERTIFICATE U/S. 197(1) OF THE ACT HAS BEEN ISSUED BY THE DEPARTMENT EXEMPTING FROM DE DUCTION OF TAX. HE REFERRED TO THE CERTIFICATE DATED 18.04.2007 AT PAG E 14 OF THE PB III AND SUBMITTED THAT ONCE THE SAID COMPANY HAS BEEN GRANT ED THE CERTIFICATION OF EXEMPTION, THEN THE ASSESSEE WAS NOT REQUIRED TO DE DUCT TAX AT SOURCE WHILE MAKING PAYMENT OF INTEREST TO SUNDARAM FINANC E LTD. 13. IN RESPECT OF THE OTHER TWO PAYMENTS TO SREI IN FRASTRUCTURE FINANCE LTD. AND TATA MOTOR FINANCE LTD., THE LD. AR OF THE ASSESSEE HAS SUBMITTED ITA NO.425/BANG/2014 PAGE 8 OF 18 THAT PAYMENT WAS NOT OUTSTANDING AND ALREADY PAID B EFORE THE END OF FINANCIAL YEAR AS ON 31.3.2008 AND THEREFORE IN VIE W OF THE DECISION OF THE VISHAKAPATNAM SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING CORPORATION & TRANSPORTS VS. ACIT, 136 ITD 23 , NO DISALLOWANCE CAN BE MADE U/S. 40(A)(IA) OF THE ACT, WHEN THE AMOUNT HAS ALREADY B EEN PAID AND IT IS NOT PAYABLE. HE HAS ALSO RELIED ON THE DECISION OF COO RDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CIT V. ANANDA MARAKALA, 48 TAXMAN.COM 402 AND SUBMITTED THAT BY FOLLOWING THE DECISION OF THE SPE CIAL BENCH IN THE CASE OF MERILYN SHIPPING CORPORATION & TRANSPORTS (SUPRA) , THE COORDINATE BENCH HAS TAKEN A SIMILAR VIEW THAT NO DISALLOWANCE U/S. 40(A)(IA) CAN BE MADE, WHEN THE PAYMENT HAS ALREADY BEEN MADE. THUS THE L D. AR HAS SUBMITTED THAT DISALLOWANCE MADE BY THE AO U/S. 40(A)(IA) OF THE ACT IS NOT WARRANTED AND THE SAME MAY BE DELETED. 14. ON THE OTHER HAND, THE LD. DR HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 15. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE AO HAS DISALLOWED THE P AYMENT OF INTEREST/FINANCIAL CHARGES U/S. 40(A)(IA), THE DETA ILS OF WHICH ARE RECORDED BY THE AO IN PARA 4 PAGE 7 OF THE ASSESSMENT ORDER AS UNDER:- 4. THE ASSESSEE HAS PAID THE FOLLOWING INTEREST/FI NANCE CHARGES WITHOUT DEDUCTION OF TAX AS REQUIRED U/S. 1 94C OF THE ACT: ITA NO.425/BANG/2014 PAGE 9 OF 18 1. SREI INFRASTRUCTURE LTD. RS.69,82,902 2. SUNDARAM FINANCE LTD. RS. 24,972 3. TATA MOTOR FINANCE LTD. RS.34,01,364 ----------------- RS.1,04,09,238 16. AS REGARDS THE PAYMENT TO SUNDARAM FINANCE LTD. OF RS.24,972, WE FIND THAT THE DEPARTMENT HAS GRANTED EXEMPTION VIDE CERTIFICATE DATED 18.4.2007 U/S. 197(1) OF THE ACT TO THE SAID COMPAN Y. THEREFORE THE ASSESSEE WAS NOT REQUIRED TO DEDUCT ANY TAX AT SOUR CE IN RESPECT OF PAYMENT MADE TO THE SAID COMPANY. IN VIEW OF THE F ACT THAT THE DEPARTMENT HAS ALREADY GRANTED EXEMPTION TO THE SAI D COMPANY, THEREFORE, DISALLOWANCE MADE BY THE AO U/S. 40(A)(IA) OF THE A CT FOR WANT OF TAX DEDUCTION AT SOURCE IS NOT WARRANTED. ACCORDINGLY, THE SAME IS DELETED. 17. FOR THE REMAINING TWO PAYMENTS, THE LD. AR HAS RELIED ON DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING CORPORATION & TRANSPORTS (SUPRA) . WE FURTHER NOTE THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ANANDA MARAKALA (SUPRA) , WHILE DEALING WITH AN IDENTICAL ISSUE, HAD IN PARAS 25 TO 30 HELD AS UNDER:- 25. THE QUESTION IS AS TO WHETHER THE AMENDMENT MAD E AS ABOVE IS PROSPECTIVE OR RETROSPECTIVE W.E.F. 1.4.20 05 WHEN THE PROVISIONS OF SEC.40(A)(IA) WERE INTRODUCED. KEEPIN G IN VIEW THE PURPOSE BEHIND THE PROVISO INSERTED BY THE FINANCE ACT, 2012 IN SECTION 40(A)(IA) OF THE ACT, IT CAN BE SAID TO BE DECLARATORY AND CURATIVE IN NATURE AND THEREFORE, SHOULD BE GIVEN R ETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WH ICH SUB-CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE ( NO. 2) ACT, 2004. IN CIT VS. ALOM EXTRUSIONS LTD. 319 ITR 306 (SC) , THE HONBLE SUPREME COURT HAD TO DEAL WITH THE QUESTION , WHETHER ITA NO.425/BANG/2014 PAGE 10 OF 18 OMISSION (DELETION) OF THE SECOND PROVISO TO S. 43B OF THE IT ACT, 1961, BY THE FINANCE ACT, 2003, OPERATED W.E.F. 1ST APRIL, 2004, OR WHETHER IT OPERATED RETROSPECTIVELY W.E.F. 1ST A PRIL, 1988? PRIOR TO FINANCE ACT, 2003, THE SECOND PROVISO TO S . 43B OF THE IT ACT, 1961 (FOR SHORT, 'THE ACT') RESTRICTED THE DED UCTION IN RESPECT OF ANY SUM PAYABLE BY AN EMPLOYER BY WAY OF CONTRIB UTION TO PROVIDENT FUND/SUPERANNUATION FUND OR ANY OTHER FUN D FOR THE WELFARE OF EMPLOYEES, UNLESS IT STOOD PAID WITHIN T HE SPECIFIED DUE DATE. ACCORDING TO THE SECOND PROVISO, THE PAYM ENT MADE BY THE EMPLOYER TOWARDS CONTRIBUTION TO PROVIDENT FUND OR ANY OTHER WELFARE FUND WAS ALLOWABLE AS DEDUCTION, IF PAID BE FORE THE DATE FOR FILING THE RETURN OF INCOME AND NECESSARY EVIDE NCE OF SUCH PAYMENT WAS ENCLOSED WITH THE RETURN OF INCOME. IN OTHER WORDS, IF CONTRIBUTION STOOD PAID AFTER THE DATE FOR FILIN G OF THE RETURN, IT STOOD DISALLOWED. THIS RESULTED IN GREAT HARDSHIP T O THE EMPLOYERS. THEY REPRESENTED TO THE GOVERNMENT ABOUT THEIR HARDSHIP AND, CONSEQUENTLY, PURSUANT TO THE REPORT OF THE KELKAR COMMITTEE, THE GOVERNMENT INTRODUCED FINANCE ACT, 2 003, BY WHICH THE SECOND PROVISO STOOD DELETED W.E.F. 1ST A PRIL, 2004, AND CERTAIN CHANGES WERE ALSO MADE IN THE FIRST PRO VISO BY WHICH UNIFORMITY WAS BROUGHT ABOUT BETWEEN PAYMENT OF FEE S, TAXES, CESS, ETC., ON ONE HAND AND CONTRIBUTION MADE TO EM PLOYEES' PROVIDENT FUND, ETC., ON THE OTHER. ACCORDING TO THE DEPARTMENT, THE OMISSION OF THE SECOND PROVISO GIVING RELIEF TO THE ASSESSEE(S) [EMPLOYER(S)] OPERATED ONLY W.E.F. 1ST APRIL, 2004, WHEREAS, ACCORDING TO THE ASSESSEE(S)-EMPLOYER(S), THE SAID FINANCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, OPERATED W.E.F . 1ST APRIL, 1988 (RETROSPECTIVELY). THE HONBLE SUPREME COURT H ELD THAT THE DELETION OF THE SECOND PROVISO WAS RETROSPECTIVE W. E.F.1.4.2004. THE COURT CONSIDERED THE SCHEME OF THE ACT AND THE HISTORICAL BACKGROUND AND THE OBJECT OF INTRODUCTION OF THE PR OVISIONS OF S. 43B. THE COURT ALSO REFERRED TO THE EARLIER AMENDME NTS MADE IN 1988 WITH INTRODUCTION OF THE FIRST AND SECOND PROV ISOS. THE COURT ALSO NOTED FURTHER AMENDMENT MADE IN 1989 IN THE SECOND PROVISO DEALING WITH THE ITEMS COVERED IN S. 43B(B) ( I.E., CONTRIBUTION TO EMPLOYEES WELFARE FUNDS). AFTER CON SIDERING THE SAME, THE COURT WAS OF THE VIEW THAT IT WAS CLEAR T HAT PRIOR TO THE AMENDMENT OF 2003, THE EMPLOYER WAS ENTITLED TO DED UCTION ONLY IF THE CONTRIBUTION STANDS CREDITED ON OR BEFORE TH E DUE DATE GIVEN IN THE PROVIDENT FUND ACT ON ACCOUNT OF SECOND PROV ISO TO S. 43B. THE SITUATION CREATED FURTHER DIFFICULTIES AND AS A RESULT OF REPRESENTATIONS MADE BY THE INDUSTRY, THE AMENDMENT OF 2003 ITA NO.425/BANG/2014 PAGE 11 OF 18 WAS CARRIED OUT WHICH DELETED THE SECOND PROVISO AN D ALSO MADE FIRST PROVISO APPLICABLE TO CONTRIBUTION TO EMPLOYE ES WELFARE FUNDS REFERRED TO IN S. 43B(B). 15. WE FIND NO MERIT IN THESE CIVIL APPEALS FILED BY THE DEPARTMENT FOR THE FOLLOWING REASONS : FIRSTLY, AS STATED ABOVE, S. 43B (MAIN SECTION), WHICH STOOD INSERTED BY FINANCE ACT, 1983, W.E.F. 1ST APRIL, 1984, EXPRESSL Y COMMENCES WITH A NON OBSTANTE CLAUSE, THE UNDERLYIN G OBJECT BEING TO DISALLOW DEDUCTIONS CLAIMED MERELY BY MAKING A BOOK ENTRY BASED ON MERCANTILE SYSTEM OF ACCOUNTING. AT THE SAME TIME, S. 43B (MAIN SECTION) MADE IT MANDATORY FOR THE DEPARTMENT TO GRANT DEDUCTION IN COMPUTING THE INCOME UNDER S. 28 IN THE YEAR IN WHI CH TAX, DUTY, CESS, ETC., IS ACTUALLY PAID. HOWEVER, P ARLIAMENT TOOK COGNIZANCE OF THE FACT THAT ACCOUNTING YEAR OF A COMPANY DID NOT ALWAYS TALLY WITH THE DUE DATES UND ER THE PROVIDENT FUND ACT, MUNICIPAL CORPORATION ACT (OCTR OI) AND OTHER TAX LAWS. THEREFORE, BY WAY OF FIRST PROV ISO, AN INCENTIVE/RELAXATION WAS SOUGHT TO BE GIVEN IN RESP ECT OF TAX, DUTY, CESS OR FEE BY EXPLICITLY STATING THAT I F SUCH TAX, DUTY, CESS OR FEE IS PAID BEFORE THE DATE OF FILING OF THE RETURN UNDER THE IT ACT (DUE DATE), THE ASSESSEE(S) THEN WOULD BE ENTITLED TO DEDUCTION. HOWEVER, THIS RELAXATION/INCENTIVE WAS RESTRICTED ONLY TO TAX, DU TY, CESS AND FEE. IT DID NOT APPLY TO CONTRIBUTIONS TO LABOU R WELFARE FUNDS. THE REASON APPEARS TO BE THAT THE EMPLOYER(S ) SHOULD NOT SIT ON THE COLLECTED CONTRIBUTIONS AND D EPRIVE THE WORKMEN OF THE RIGHTFUL BENEFITS UNDER SOCIAL W ELFARE LEGISLATIONS BY DELAYING PAYMENT OF CONTRIBUTIONS T O THE WELFARE FUNDS. HOWEVER, AS STATED ABOVE, THE SECOND PROVISO RESULTED IN IMPLEMENTATION PROBLEMS, WHICH HAVE BEEN MENTIONED HEREINABOVE, AND WHICH RESULTED IN T HE ENACTMENT OF FINANCE ACT, 2003, DELETING THE SECOND PROVISO AND BRINGING ABOUT UNIFORMITY IN THE FIRST PROVISO BY EQUATING TAX, DUTY, CESS AND FEE WITH CONTRIBUTI ONS TO WELFARE FUNDS. ONCE THIS UNIFORMITY IS BROUGHT ABOU T IN THE FIRST PROVISO, THEN, IN OUR VIEW, THE FINANCE A CT, 2003, WHICH IS MADE APPLICABLE BY THE PARLIAMENT ONLY W.E .F. 1ST APRIL, 2004, WOULD BECOME CURATIVE IN NATURE, HENCE , IT WOULD APPLY RETROSPECTIVELY W.E.F. 1ST APRIL, 1988. SECONDLY, IT MAY BE NOTED THAT, IN THE CASE OF ALLI ED MOTORS (P) LTD. ETC. VS. CIT (1997) 139 CTR (SC) 36 4 : (1997) 224 ITR 677 (SC), THE SCHEME OF S. 43B OF TH E ACT CAME TO BE EXAMINED. IN THAT CASE, THE QUESTION WHI CH AROSE FOR DETERMINATION WAS, WHETHER SALES-TAX COLL ECTED ITA NO.425/BANG/2014 PAGE 12 OF 18 BY THE ASSESSEE AND PAID AFTER THE END OF THE RELEV ANT PREVIOUS YEAR BUT WITHIN THE TIME ALLOWED UNDER THE RELEVANT SALES-TAX LAW SHOULD BE DISALLOWED UNDER S . 43B OF THE ACT WHILE COMPUTING THE BUSINESS INCOME OF T HE PREVIOUS YEAR ? THAT WAS A CASE WHICH RELATED TO AS ST. YR. 1984-85. THE RELEVANT ACCOUNTING PERIOD ENDED ON 30 TH JUNE, 1983. THE ITO DISALLOWED THE DEDUCTION CLAIME D BY THE ASSESSEE WHICH WAS ON ACCOUNT OF SALES-TAX COLL ECTED BY THE ASSESSEE FOR THE LAST QUARTER OF THE RELEVAN T ACCOUNTING YEAR. THE DEDUCTION WAS DISALLOWED UNDER S. 43B WHICH, AS STATED ABOVE, WAS INSERTED W.E.F. 1ST APRIL, 1984. IT IS ALSO RELEVANT TO NOTE THAT THE FIRST PR OVISO WHICH CAME INTO FORCE W.E.F. 1ST APRIL, 1988 WAS NOT ON T HE STATUTE BOOK WHEN THE ASSESSMENTS WERE MADE IN THE CASE OF ALLIED MOTORS (P) LTD. ETC. (SUPRA). HOWEVER, TH E ASSESSEE CONTENDED THAT EVEN THOUGH THE FIRST PROVI SO CAME TO BE INSERTED W.E.F. 1ST APRIL, 1988, IT WAS ENTITLED TO THE BENEFIT OF THAT PROVISO BECAUSE IT OPERATED RETROSPECTIVELY FROM 1ST APRIL, 1984, WHEN S. 43B S TOOD INSERTED. THIS IS HOW THE QUESTION OF RETROSPECTIVI TY AROSE IN ALLIED MOTORS (P) LTD. ETC. (SUPRA). THIS COURT, IN ALLIED MOTORS (P) LTD. ETC. (SUPRA) HELD THAT WHEN A PROVI SO IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO M AKE THE SECTION WORKABLE, A PROVISO WHICH SUPPLIES AN O BVIOUS OMISSION IN THE SECTION AND WHICH PROVISO IS REQUIR ED TO BE READ INTO THE SECTION TO GIVE THE SECTION A REAS ONABLE INTERPRETATION, IT COULD BE READ RETROSPECTIVE IN O PERATION, PARTICULARLY TO GIVE EFFECT TO THE SECTION AS A WHO LE. ACCORDINGLY, THIS COURT, IN ALLIED MOTORS (P) LTD. ETC. (SUPRA), HELD THAT THE FIRST PROVISO WAS CURATIVE I N NATURE, HENCE, RETROSPECTIVE IN OPERATION W.E.F. 1ST APRIL, 1988. IT IS IMPORTANT TO NOTE ONCE AGAIN THAT, BY FINANCE AC T, 2003, NOT ONLY THE SECOND PROVISO IS DELETED BUT EV EN THE FIRST PROVISO IS SOUGHT TO BE AMENDED BY BRINGING A BOUT AN UNIFORMITY IN TAX, DUTY, CESS AND FEE ON THE ONE HA ND VIS-A- VIS CONTRIBUTIONS TO WELFARE FUNDS OF EMPLOYEE(S) O N THE OTHER. THIS IS ONE MORE REASON WHY WE HOLD THAT THE FINANCE ACT, 2003, IS RETROSPECTIVE IN OPERATION. MOREOVER, THE JUDGMENT IN ALLIED MOTORS (P) LTD. ET C. (SUPRA) IS DELIVERED BY A BENCH OF THREE LEARNED JU DGES, WHICH IS BINDING ON US. ACCORDINGLY, WE HOLD THAT F INANCE ACT, 2003, WILL OPERATE RETROSPECTIVELY W.E.F. 1ST APRIL, 1988 (WHEN THE FIRST PROVISO STOOD INSERTED). LASTL Y, WE MAY POINT OUT THE HARDSHIP AND THE INVIDIOUS DISCRIMINATION WHICH WOULD BE CAUSED TO THE ASSESSE E(S) IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED THAT ITA NO.425/BANG/2014 PAGE 13 OF 18 FINANCE ACT, 2003, TO THE ABOVE EXTENT, OPERATED PROSPECTIVELY. TAKE AN EXAMPLEIN THE PRESENT CASE, THE RESPONDENTS HAVE DEPOSITED THE CONTRIBUTIONS WITH T HE R.P.F.C. AFTER 31ST MARCH (END OF ACCOUNTING YEAR) BUT BEFORE FILING OF THE RETURNS UNDER THE IT ACT AND T HE DATE OF PAYMENT FALLS AFTER THE DUE DATE UNDER THE EMPLO YEES' PROVIDENT FUND ACT, THEY WILL BE DENIED DEDUCTION F OR ALL TIMES. IN VIEW OF THE SECOND PROVISO, WHICH STOOD O N THE STATUTE BOOK AT THE RELEVANT TIME, EACH OF SUCH ASS ESSEE(S) WOULD NOT BE ENTITLED TO DEDUCTION UNDER S. 43B OF THE ACT FOR ALL TIMES. THEY WOULD LOSE THE BENEFIT OF DEDUC TION EVEN IN THE YEAR OF ACCOUNT IN WHICH THEY PAY THE CONTRIBUTIONS TO THE WELFARE FUNDS, WHEREAS A DEFAU LTER, WHO FAILS TO PAY THE CONTRIBUTION TO THE WELFARE FU ND RIGHT UPTO 1ST APRIL, 2004, AND WHO PAYS THE CONTRIBUTION AFTER 1ST APRIL, 2004, WOULD GET THE BENEFIT OF DEDUCTION UNDER S. 43B OF THE ACT. IN OUR VIEW, THEREFORE, FINANCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, SHOULD BE READ AS RETROSPECTIVE. IT WOULD, THEREFORE, OPERATE FROM 1S T APRIL, 1988, WHEN THE FIRST PROVISO WAS INTRODUCED. IT IS TRUE THAT THE PARLIAMENT HAS EXPLICITLY STATED THAT FINANCE A CT, 2003, WILL OPERATE W.E.F. 1ST APRIL, 2004. HOWEVER, THE MATTER BEFORE US INVOLVES THE PRINCIPLE OF CONSTRUC TION TO BE PLACED ON THE PROVISIONS OF FINANCE ACT, 2003. 16. BEFORE CONCLUDING, WE EXTRACT HEREINBELOW THE R ELEVANT OBSERVATIONS OF THIS COURT IN THE CASE OF CIT VS. J .H. GOTLA (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC), W HICH READS AS UNDER : 'WE SHOULD FIND OUT THE INTENTION FROM THE LANGUAGE USED BY THE LEGISLATURE AND IF STRICT LITERAL CONSTRUCTION LEADS TO AN ABSURD RESULT, I.E., A RES ULT NOT INTENDED TO BE SUBSERVED BY THE OBJECT OF THE LEGISLATION FOUND IN THE MANNER INDICATED BEFORE, THEN IF ANOTHER CONSTRUCTION IS POSSIBLE APART FROM STRICT LITERAL CONSTRUCTION, THEN THAT CONSTRUCTION SHOULD BE PREFERRED TO THE STRICT LITERAL CONSTRUCT ION. THOUGH EQUITY AND TAXATION ARE OFTEN STRANGERS, ATTEMPTS SHOULD BE MADE THAT THESE DO NOT REMAIN ALWAYS SO AND IF A CONSTRUCTION RESULTS IN EQUITY RATHER THAN IN INJUSTICE, THEN SUCH CONSTRUCTION SHOULD BE PREFERRED TO THE LITERAL CONSTRUCTION.' ITA NO.425/BANG/2014 PAGE 14 OF 18 17. FOR THE AFORESTATED REASONS, WE HOLD THAT FINANCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, I S CURATIVE IN NATURE, HENCE, IT IS RETROSPECTIVE AND IT WOULD OPERATE W.E.F. 1ST APRIL, 1988 (WHEN THE FIRST PROV ISO CAME TO BE INSERTED). FOR THE ABOVE REASONS, WE FIND NO MERIT IN THIS BATCH OF CIVIL APPEALS FILED BY THE DEPARTMENT WHICH ARE HEREBY DISMISSED WITH NO ORDER AS TO COSTS. 26. WE ARE OF THE VIEW THAT THE REASONING OF THE HO NBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD(SU PRA) WILL EQUALLY TO THE AMENDMENT TO SEC.40(A)(IA) OF THE AC T WHEREBY A SECOND PROVISO WAS INSERTED IN SUB-CLAUSE (IA) OF C LAUSE (A) OF SECTION 40 BY THE FINANCE ACT, 2012, W.E.F. 1-4-201 3. THE PROVISIONS ARE INTENDED TO REMOVE HARDSHIP. IT WAS ARGUED ON BEHALF OF THE REVENUE THAT THE EXISTING PROVISIONS ALLOW DEDUCTION IN THE YEAR OF PAYMENT AND TO THAT EXTENT THERE IS NO HARDSHIP. WE ARE OF THE VIEW THAT THE HARDSHIP IN SUCH AN EVENT WOULD BE TAXING AN ASSESSEE ON A HIGHER INCOME IN ONE YEAR AND TAXI NG HIM ON LOWER INCOME IN A SUBSEQUENT YEAR. TO THE EXTENT T HE ASSESSEE IS MADE TO PAY TAX ON A HIGHER INCOME IN ONE YEAR, THE RE WOULD STILL BE HARDSHIP. 27. AS FAR AS THE APPEAL OF THE REVENUE IS CONCERNE D, WE FIND THAT THE USE OF WORD PAYABLE, IN SECTION 40(A)(IA) OF THE ACT HAS CREATED CONTROVERSY AS TO WHETHER PAYABLE INCLU DES AMOUNTS PAID DURING THE YEAR. THERE WERE CONFLICTING DECISI ONS RENDERED BY THE TRIBUNAL. IN THE CASE OF DCIT VS. ASHIKA STOCK BROKING LTD. REPORTED IN 44 SOT 556 THE HONBLE KOLKATTA ITAT HA S DECIDED THE MATTER IN FAVOUR OF REVENUE AND AFTER FOLLOWING ITS DECISION DATED 15.01.2010 IN THE CASE OF PODDAR SONS EXL. P LTD VS. ITO IN ITA NO. 1418(KOL.)/09 HAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE APPLICABLE TO EVEN SUMS PA ID DURING THE YEAR. IN THE CASE OF TEJA CONSTRUCTION VS. ACIT REPORTED IN 39 SOT 13 THE HONBLE HYDERABAD ITAT HAS DECIDED THE ISSUE AGAINST THE REVENUE AND HAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT ITA NO.425/BANG/2014 PAGE 15 OF 18 APPLICABLE IN RESPECT OF SUMS/AMOUNT PAID DURING TH E YEAR AND WHICH ARE NOT PAYABLE AT END OF THE YEAR O N DATE OF BALANCE SHEET, AS IT IS APPLICABLE ONLY IN RESPECT OF PAYABLE AMOUNT SHOWN IN BALANCE SHEET AS OUTSTANDING EXPENSES ON WHICH TDS HAS NOT BEEN MADE . SIMILAR LAWS WERE LAID IN VARIOUS OTHER CASES. TO RESOLVE THE ABOVE ISSUE SPECIAL BENCH WAS CONSTITUTED AND THE HONBLE VISAKHAPATNAM SPECIAL BENCH OF ITAT IN THE CASE OF MERILYN SHIPPING & TRANSPORT VS. ADDL CIT REPORTED IN 20 TAXMANN.COM 244 HAS DECIDED THE ISSUE AGAINST THE REVENUE AND AFTER COMPARING THE PROPOSED AND ENACTED PROVISION WHICH IS INTENDED FROM THE REPLACEMENT OF THE WORDS IN THE PROPOSED AND ENACTED PROVISION FROM THE WORDS AMOUNT CREDITED OR PAID TO PAYABLE HAS HELD THAT IT HAS TO BE CONCLUDED THAT PROVISIONS OF SECTION 40(A )(IA) ARE APPLICABLE ONLY TO THE AMOUNTS OF EXPENDITURE W HICH ARE PAYABLE AS ON THE DATE 31ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW EXPENDITURE WHICH HAS BEEN ACTUALLY PAID DURING THE PREVIOUS YEAR, WITHOU T DEDUCTION OF TDS. 28. IN CIT VS. SIKANDARKHAN N.TUNVAR & OTHERS, TAX APPEAL NO. 905 OF 2012 & OTHERS DATED02/05/2013, TH E HONBLE GUJARAT HIGH COURT HELD THAT IN MERILYN SHI PPING 146 TTJ 1 (VIZ) (SB,) THE MAJORITY HELD THAT AS THE FIN ANCE BILL PROPOSED THE WORDS AMOUNT CREDITED OR PAID AND AS THE FINANCE ACT USED THE WORDS AMOUNTS PAYABLE, S. 40(A)(IA) COULD ONLY APPLY TO AMOUNTS THAT ARE OUTSTANDING AS OF 31ST MA RCH AND NOT TO AMOUNTS ALREADY PAID DURING THE YEAR. THIS VIEW IS NOT CORRECT FOR TWO REASONS. FIRSTLY, A STRICT READING OF S. 40(A)( IA) SHOWS THAT ALL THAT IT REQUIRES IS THAT THERE SHOULD BE AN AMOUNT PAYABLE OF THE NATURE DESCRIBED, WHICH IS SUCH ON WHICH TAX IS DED UCTIBLE AT SOURCE BUT SUCH TAX HAS NOT BEEN DEDUCTED OR IF DED UCTED NOT PAID BEFORE THE DUE DATE. THE PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE MUST REMAIN SO PAYABLE THRO UGHOUT DURING THE YEAR. IF THE ASSESSEES INTERPRETATION I S ACCEPTED, IT WOULD LEAD TO A SITUATION WHERE THE ASSESSEE WHO TH OUGH WAS REQUIRED TO DEDUCT THE TAX AT SOURCE BUT NO SUCH DE DUCTION WAS MADE OR MORE FLAGRANTLY DEDUCTION THOUGH MADE IS NO T PAID TO THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONLY BECAU SE THE ITA NO.425/BANG/2014 PAGE 16 OF 18 AMOUNT WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOTHER ASSESSEE WHO WOULD OTHERWISE BE IN SIMILAR SITUATION BUT IN WHOSE CASE THE AMOUNT REMAINED PAY ABLE TILL THE END OF THE YEAR. THERE IS NO LOGIC WHY THE LEGISLAT URE WOULD HAVE DESIRED TO BRING ABOUT SUCH IRRECONCILABLE AND DIVE RSE CONSEQUENCES. SECONDLY, THE PRINCIPLE OF DELIBERATE OR CONSCIOUS OMISSION IS APPLIED MAINLY WHEN AN EXISTING PROVISI ON IS AMENDED AND A CHANGE IS BROUGHT ABOUT. THE SPECIAL BENCH WAS WRONG IN COMPARING THE LANGUAGE USED IN THE DRAFT B ILL TO THAT USED IN THE FINAL ENACTMENT TO ASSIGN A PARTICULAR MEANING TO S. 40(A)(IA). ACCORDINGLY, MERILYN SHIPPING DOES NOT LAY DOWN CORRECT LAW. THE CORRECT LAW IS THAT S. 40(A)(IA) C OVERS NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. THE HONBLE KOLKATTA HIGH COURT IN CIT VS. MD.JAKIR HOS SAI MONDAL (SUPRA) DID NOT AGREE WITH THE VIEW OF THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING FOLLOWING ITS JUDGMENT ON 3RD APRIL, 2013 IN ITAT NO. 20 OF 2013, G.A. NO. 190 OF 2013 ( CIT, KOLKATA-XI VS. CRESCENT EXPORT SYNDICATES) HOLDING THAT THE VIEWS EXPRESSED IN THE CASE OF MERILYN SHIPPING & T RANSPORTS (ITA.477/VIZ./2008 DATED 20.3.2012) WERE NOT ACCEPT ABLE. 29. HOWEVER, WE FIND THAT THE HONBLE ALLAHABAD HI GH COURT HAS HOWEVER UPHELD THE VIEW TAKEN BY THE SPECIAL BE NCH ITAT IN THE CASE OF MERILYN SHIPPING (SUPRA) IN THE CASE OF M/S. VECTOR SHIPPING SERVICES PVT. LTD. (SUPRA). THE RELEVANT OBSERVATIONS OF THE HONBLE COURT WERE AS FOLLOWS:- WE DO NOT FIND THAT THE REVENUE CAN TAKE ANY BENEF IT FROM THE OBSERVATIONS MADE BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSP ORT LTD. (136 LTD 23) (SB) QUOTED AS ABOVE TO THE EFFEC T SECTION 40(A)(IA) WAS INTRODUCED IN THE ACT BY THE FINANCE ACT, 2004 WITH EFFECT FROM 1.4.2005 WITH A VIEW TO AUGMENT THE REVENUE THROUGH THE MECHANISM OF TAX DEDUCTION AT SOURCE. THIS PROVISION WAS BROUGHT ON STATUTE TO DISALLOW THE CLAIM OF EVEN GENUINE AND ADMISSIBLE EXPENSES OF THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION IN CASE THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES. THE DEFAULT IN DEDUCTION OF TDS WOULD RESULT IN DISALLO WANCE ITA NO.425/BANG/2014 PAGE 17 OF 18 OF EXPENDITURE ON WHICH SUCH TDS WAS DEDUCTIBLE. IN THE PRESENT CASE TAX WAS DEDUCTED AS TDS FROM THE SALAR IES OF THE EMPLOYEES PAID BY M/S MERCATOR LINES LTD., AND THE CIRCUMSTANCES IN WHICH SUCH SALARIES WERE PAID BY M /S MERCATOR LINES LTD., FOR M/S VECTOR SHIPPING SERVIC ES, THE ASSESSEE WERE SUFFICIENTLY EXPLAINED. IT IS TO BE NOTED THAT FOR DISALLOWING EXPENSES FRO M BUSINESS AND PROFESSION ON THE GROUND THAT TDS HAS NOT BEEN DEDUCTED, THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAID BY THE END OF THE YEAR. WE DO NOT FIND THAT THE TRIBUNAL HAS COMMITTED ANY ERROR IN RECORDING THE FINDING ON THE FACTS, WHICH WERE N OT CONTROVERTED BY THE DEPARTMENT AND THUS THE QUESTIO N OF LAW AS FRAMED DOES NOT ARISE FOR CONSIDERATION IN T HE APPEAL. THE INCOME TAX APPEAL IS DISMISSED. 30. THUS THERE ARE TWO VIEWS ON THE ISSUE, ONE IN F AVOUR OF THE ASSESSEE EXPRESSED BY THE HONBLE ALLAHABAD HIGH CO URT AND THE OTHER AGAINST THE ASSESSEE EXPRESSED BY THE HONBLE GUJARAT & CALCUTTA HIGH COURTS. ADMITTEDLY, THERE IS NO DECI SION RENDERED BY THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE GIVEN CIRCUMSTANCES, FOLLOWING THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF VEGETABLE PRODUCTS LTD. ( SUPRA ), WE HOLD THAT WHERE TWO VIEWS ARE POSSIBLE ON AN ISSUE, THE VIEW IN FAVOUR OF THE ASSESSEE HAS TO BE PREFERRED. FOLLOWING THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT, WE UPHOLD THE ORDER O F THE CIT(A). 18. TO MAINTAIN THE RULE OF CONSISTENCY, WE FOLLOW THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL CITED SUPRA AND ACCORDINGLY THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THE DISALLOWANC E MADE BY THE AO U/S. 40(A)(IA) OF THE ACT IS DELETED. ITA NO.425/BANG/2014 PAGE 18 OF 18 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF SEPTEMBER, 2015. SD/- SD/- ( JASON P. BOAZ ) ( VIJAY PAL RAO ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 24 TH SEPTEMBER, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.