NRC LTD, MUMBAI V. ITO (OSD) (TDS) RG 2, MUMBAI

ITA 4917/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3562 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 25-07-2014
• Court: TRIBUNAL
• Department Lawyers: B D NAIK
• Keywords: Opportunity of being heard; Retrospective amendment
• Section: 139

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NOS.4916 TO 4918/MUM/2014 ASSESSMENT YEAR: 2008-09 TO 2010-11 NRC LIMITED, 67, SURAJMAL BLDG. GR. FLOOR, 75, NAKHODA STREET, PYDHONIE, MUMBAI-400003 / VS. INCOME TAX OFFICER(OSD)(TDS) RANGE-2, K.G. MITTAL BLDG. CHARNI ROAD, MUMBAI ( ! ' /ASSESSEE) ( # / REVENUE) PAN. NO . AAACN1616J ! ' / ASSESSEE BY SHRI VIJAY MEHTA & SHRI ANUJ KISNADWALA # / REVENUE BY SHRI B.D. NAIK - DR $ #% & ' ' / DATE OF HEARING : 25/08/2016 & ' ' / DATE OF ORDER: 06/09/2016 ITA NO.4916 TO 4918/MUM/2014 NRC LIMITED 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THIS BUNCH OF THREE APPEALS ARE BY THE ASSESSEE, AGGRIEVED BY THE BY THE IMPUGNED ORDERS DATED 20/05/2014,AND 27/05/2014 OF THE LD. FIRST APPELLAT E AUTHORITY, MUMBAI. THE COMMON GROUND RAISED BY THE ASSESSEE PERTAINS TO DEFAULT U/S 201/201(1A) R.W.S. 40(A)(IA) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSE E, SHRI VIJAY MEHTA ALONG WITH SHRI ANUJ KISNADWALA, CONTENDED THAT THE LD. COMMISSIONER OF INCOME TAX ( APPEAL) DID NOT CONSIDER THE SUBMISSIONS OF THE ASSESSEE AN D NO DISCUSSION HAS BEEN MADE ON THE PLEA OF FINANCIAL D IFFICULTIES FACED BY THE ASSESSEE. IT WAS ALSO PLEADED THAT PAY EES HAS PAID THE TAXES SO IT MAY BE SENT TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE FACTUAL MATRIX. HOWEVER, TH E LD. DR, SHRI B.D. NAIK, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BUT HAD NO OBJECTION IF THE APPEALS MAY BE REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE WHETHER THE PAYEES HAS PAID THE TAXES. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE COMPANY WAS INCORPORATED UNDE R THE COMPANIES ACT, ENGAGED IN THE BUSINESS OF MANUFACTU RING OF MANMADE FIBRES VISCOSE FILAMENT YARN, NYLON TYRE CO RD, ITA NO.4916 TO 4918/MUM/2014 NRC LIMITED 3 CHEMICAL AND GENERATION OF POWER, ETC. THE ASSESSEE MADE VARIOUS PAYMENTS FOR VARIOUS EXPENSES FROM TIME TO TIME AND/OR INCURRED VARIOUS EXPENDITURE. AS PER THE ASS ESSEE, ALL SUCH PAYMENTS AND EXPENDITURE WERE DULY ACCOUNT ED IN THE BOOKS OF ACCOUNTS AND REFLECTED IN THE ANNUAL A CCOUNTS. THE EXPENDITURE WERE CLAIMED TO BE EITHER INCURRED AT REGISTERED OFFICE AT MUMBAI OR AT FACTORY AT MOHANE . AS PER THE ASSESSEE, TAX WAS DEDUCTED AT SOURCE AT THE APP LICABLE RATES AT THE RESPECTIVE LOCATIONS. IT WAS EXPLAINE D THAT THE ASSESSEE HAS DISCONTINUED MANUFACTURING ACTIVITIES SINCE LAST SEVERAL YEARS AND FACING FINANCIAL CRUNCH, BUR DENED WITH HEAVY ACCUMULATED LOSSES/ACUTE LIQUIDITY CRUNC H AND THUS FILED REFERENCE TO BIFT IN DECEMBER, 2008, WHE REIN, THE ASSESSEE WAS DECLARED A SICK INDUSTRIAL UNIT. THE LD. COUNSEL EXPLAINED THAT AT THE FAG AND OF THE TIME B ARRING, SHOW CAUSE NOTICES WERE ISSUED TO THE ASSESSEE COMP ANY AND THUS THE ASSESSEE WAS TREATED AS ASSESSEE IN DE FAULT U/S 201/201(1A) OF THE ACT. CONSIDERING THE FACTS, SO FAR AS, NO DISCUSSION WAS MADE ON THE FINANCIAL DIFFICULTIE S, FACED BY THE ASSESSEE, AS CLAIMED BY THE ASSESSEE, IS CON CERNED, WE ARE NOT CONVINCED WITH THIS ARGUMENT AND SINCE T HE ASSESSEE HAS EITHER DID NOT DEDUCT THE TAX AT SOURC E AND, IF DEDUCTED, DID NOT DEPOSIT IN THE STATE EX-CHEQUER, THEN THE ASSESSEE COMMITTED THE DEFAULT. HOWEVER, SO FAR AS, THE SECOND CLAIM THAT THE PAYEE S HAVE DEPOSITED THE TAXES, IS CONCERNED, WE ARE GUID ED BY THE DECISION IN CIT VS ANSAL LAND MARK TOWNSHIP (P.) LT D. 377 ITA NO.4916 TO 4918/MUM/2014 NRC LIMITED 4 ITR 635 (DEL.). THE RELEVANT PORTION FROM THE ORDER IS REPRODUCED HEREUNDER FOR READY REFERENCE:- (I) THE SECOND PROVISO TO SECTION 40(A) (IA) WAS INSERTED BY THE FINANCE ACT 2012 WITH EFFECT FROM 1ST APRIL 2013. THE EFFECT OF THE SAID PROVISO IS TO INTRODUCE A LEGAL FICTION WHERE AN ASSESSEE FAILS TO DEDUCT TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII B. WHERE SUCH ASSESSEE I S DEEMED NOT TO BE AN ASSESSEE IN DEFAULT IN TERMS OF THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201 OF THE AC T, THEN, IN SUCH EVENT, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISH ING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAI D PROVISO . THE FIRST PROVISO TO SECTION 210 (1) OF THE ACT HAS BEE N 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 SU CH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEF AULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139 OF THE ACT. NO DOUBT, T HERE IS A MANDATORY REQUIREMENT UNDER SECTION 201 TO DEDUCT T AX AT SOURCE UNDER CERTAIN CONTINGENCIES, BUT THE INTENTI ON OF THE LEGISLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSO N IN DEFAULT SUBJECT TO THE FULFILMENT 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 RE QUIRES TO BE VIEWED IN THE SAME MANNER. THIS AGAIN IS A PROVI SO INTENDED TO BENEFIT 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 UNDER CER TAIN CONTINGENCIES. (II) 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 FIL ED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS A LSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAULT. AS FAR AS THE PRESENT CASE IS CONCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT T HE PAYEE HAS FILED RETURNS AND OFFERED THE SUM RECEIVED TO T AX. ITA NO.4916 TO 4918/MUM/2014 NRC LIMITED 5 (III) TURNING TO THE DECISION OF THE AGRA BENCH OF ITAT IN RAJIV KUMAR AGARWAL V. ACIT (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 WHI CH READS AS UNDER: ON A CONCEPTUAL NOTE, PRIMARY JUSTIFICATION FOR SUC H A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN TH E HANDS OF THE RECIPIENTS OF THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THERE IS NO ACTU AL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS TH E 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. DEINCENTI VIZING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNOT ATIONS. 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 EQUITABLE INTERPRETATION OF LAW- AS IS THE GUIDANC E FROM HONBLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PR OVISION, IN OUR HUMBLE UNDERSTANDING, IT COULD NOT BE AN INTENDED CONSEQUENCE TO DISALLOW THE EXPENDITURE, DUE TO NON DEDUCTION O F TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESPONDING INCOME I S BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE SCHEME OF SE CTION 40(A)(IA), AS WE SEE IT, IS AIMED AT ENSURING THAT AN EXPENDIT URE SHOULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAS RE MAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESS EE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN I NCOME 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 40(A)(IA), AS THEY EXISTED PRIOR TO INSE RTION OF SECOND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOUS INTEN TIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEES TAX WITHHOLDING LAPSES DID NOT RESUL T IN ANY LOSS TO THE EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN CO MPASSIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNINTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF ITA NO.4916 TO 4918/MUM/2014 NRC LIMITED 6 THE WELL SETTLED LEGAL POSITION TO THE EFFECT THAT A CURATIVE AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSPECTIVE IN NATURE EVEN THOUGH IT MAY NOT STAT E SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIME WHEN TH E RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSI ONS, AS ALSO FOR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUB SCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN INTENDED CONSEQUEN CE TO PUNISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING 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. A CCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTIO N 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETRO SPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) A CT, 2004. 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASONI NG OF THE AGRA BENCH OF ITAT AS REGARDS THE RATIONALE BEHIND THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A) (I A) OF THE ACT AND ITS CONCLUSION THAT THE SAID PROVISO IS DEC LARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFECT FROM 1ST APRIL 2005, MERITS ACCEPTANCE. IN THAT VIEW OF THE MATTER , THE COURT IS UNABLE TO FIND ANY LEGAL INFIRMITY IN THE IMPUGNED ORDER OF THE ITAT IN ADOPTING THE RATIO OF THE DECI SION OF THE AGRA BENCH, ITAT IN ( RAJIV KUMAR AGARWAL V. ACIT ). IDENTICAL RATIO WAS LAID DOWN IN COMMISSIONER OF INCOME-TAX VS HINDUSTAN COCA COLA BEVERAGES (P) LTD . 293 ITR 163 (DEL.). IN THE LIGHT OF THE FOREGOING DISCU SSION AND THE JUDICIAL PRONOUNCEMENT, WE DIRECT THE LD. ASSES SING OFFICER TO EXAMINE THE FACTUAL MATRIX AND DECIDE IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION HERE THAT THE ASSESSEE SHOULD BE GIVEN OPPORTUNITY OF BEING HEARD TO SUBSTANTIATE ITS CLAIM, THEREFORE, ALL THESE THREE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES ONLY. ITA NO.4916 TO 4918/MUM/2014 NRC LIMITED 7 FINALLY, ALL THESE THREE APPEALS OF THE ASSESSEE AR E ALLOWED FOR STATISTICAL PURPOSES THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN TH E PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF HEARING ON 25/08/2016. SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER $ % MUMBAI; ) DATED : 06/09/2016 F{X~{T? P.S / # %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 $ 1' ( *+ ) / THE CIT (TDS), MUMBAI. 4. 0 0 $ 1' / CIT(A)-14, MUMBAI 5. 3#4 .' , 0 *+' * 5 , $ % / DR, ITAT, MUMBAI 6. 6 7% / GUARD FILE. / BY ORDER, /3+' .' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ % / ITAT, MUMBAI