M/s Gagan Goods Carrier Pvt. Ltd, Amritsar. V. The Addl. Commissioner of Income-tax, Amritsar.

ITA 648/ASR/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5586 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-02-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 29-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K R JAIN
• Keywords: Retrospective amendment
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER ITA NO. 648/(ASR)/2014 ASSESSMENT YEAR: 2006-07 PAN: AAACG5809Q M/S GAGAN GOODS CARRIER PVT. LTD. KT. JAIMAL SINGH, AMRITSAR. VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE -1, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. K. R. JAIN (ADV.) RESPONDENT BY: SH. RAHUL DHAWAN (D.R.) DATE OF HEARING: 04.05.2017 DATE OF PRONOUNCEMENT:14.07.2017 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT (A), AMRITSAR, DATED 12.09.2014 FOR ASST. YEAR: 2006-07. 2. THE GROUNDS OF APPEAL TAKEN BY ASSESSEE ARE REPR ODUCED BELOW: 1. THAT THE ORDER OF THE LEARNED ADDL. COMMISSIONER OF INCOME TAX, RANGE -1, AMRITSAR IS WRONG, ILLEGAL AND WITHOUT JUSTIFIC ATION AND LIKEWISE LD. CIT(A) HAS ERRED IN LAW & ON FACTS WHILE CONFIRMING THE SAME. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN LAW AND ON FACTS WHILE CONFIRMING THAT SH. K. MUTHU SAMY AND SH. M. K. PALANIAPPAN ARE SUB-CONTRACTORS. HE HAS NOT APPRECI ATED THE SUBMISSIONS MADE BEFORE HIM. 3. THAT THE LEARNED CIT(A) HAS NOT APPRECIATED THE FACTS OF THE CASE, EXPLANATION OFFERED, WRITTEN SUBMISSIONS FILED & PR OCEEDED TO CONFIRM THE ORDER OF LD. ACIT ARBITRARILY. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS NOT APPRECIATED THAT THE TANKERS WERE SOLD ALONG WITH C ONTRACT RIGHTS AND OBLIGATIONS WITH M/S BHARAT PETROLEUM CORPORATION L TD. TO SH. K. ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 2 MUTHUSAMY AND SH. M. K. PALANIAPPAN AND THEY WERE T O PERFORM THE CONTRACTS. 5. THAT LD. ACIT HAS FURTHER ERRED IN LAW AND ON FA CTS WHILE INVOKING THE PROVISIONS OF SECTION 40(A) (IA) AND WHILE MAKING A N ADDITION OF RS. 33,47,351/-. 6. THAT THE LEARNED CIT(A) HAS NOT APPRECIATED THE FACT THAT SH. K. MUTHUSAMY AND SH. M. K. PALANIAPPAN ARE EXISTING IN COME TAX ASSESSEES & THEIR PARTICULARS AS REQUIRED UNDER TH E LAW WERE SUBMITTED BEFORE THE INCOME TAX AUTHORITIES AND AS SUCH ADDIT ION MADE IS NOT JUSTIFIED. 7. THAT CASE HAS NOT BEEN FIXED IN ACCORDANCE WITH BOARD CIRCULARS. 8. THAT WITHOUT PREJUDICE TO THE ABOVE THE LD. CIT( A) HAS NOT APPRECIATED IN A PROPER AND JUDICIAL MANNER THAT AMENDMENT CARRIED OUT BY FINANCE ACT (NO. 2) 2014 HAS ALSO BEEN MADE TO COVER UNDUE HARD SHIPS TO TAXPAYERS AND AS SUCH REASONING & FINDINGS OF HON'BLE DELHI H IGH COURT ARE EQUALLY APPLICABLE TO AMENDMENT MADE BY FINANCE ACT (NO. 2) 2014 AND ACCORDINGLY THE DISALLOWANCES U/S 40 A (IA), IF ANY , HAS TO BE 30% OF THE AMOUNT INVOLVED. IN ANY CASE ADDITION MADE IS ARBIT RARY, HARSH AND UNCONSTITUTIONAL. 3. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT ASSESSEE IS IN THE BUSINESS OF TRANSPORTATION OF LPG THROUGH TANKERS. DURING ASSESSMENT PROCEEDINGS, THE ASSESSI NG OFFICER OBSERVED THAT THE ASSESSEE HAD RECEIVED FREIGHT OF RS.34,51, 519/- FROM M/S BHARAT PETROLEUM CORPORATION LTD. ON ENQUIRY BY ASS ESSING OFFICER, THE ASSESSEE EXPLAINED THAT OUT OF THIS AMOUNT, AN AMOU NT OF RS.34,51,519/- HAS BEEN PAID TO SH. K. MUTHUSAMY A ND SH. M. K. PALANIAPPAN AS THE TANKERS WERE SOLD TO THEM ALONGW ITH CONTRACT RIGHTS WITH BPCL, AND THEREFORE, IT HAD INCLUDED THE NET I NCOME OF RS.1,04,168/- ONLY. IN VIEW OF THE ABOVE FACTS, THE ASSESSEE WAS REQUIR ED TO GIVE THE DETAILS OF TDS DEDUCTED ON THESE PAYMENTS. IN THIS REGARD THE ASSESSEE ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 3 EXPLAINED THAT THE COMPANY HAD NOT MADE ANY PAYMENT S DURING THE YEAR WHICH ATTRACTED TDS PROVISIONS HOWEVER, ASSESSING O FFICER WAS OF THE OPINION THAT ASSESSEE HAD MADE FREIGHT PAYMENTS OF RS.3347351/- TO SUB-CONTRACTORS AND THEREFORE IT WAS REQUIRED TO DE DUCT TDS U/S 194-C OF IT ACT AND THEREFORE ASSESSEE WAS REQUIRED TO EX PLAIN AS TO WHY THE FREIGHT PAID WITHOUT DEDUCTION OF TDS BE NOT DISALL OWED U/S 40(A)(IA) OF IT ACT. IN RESPONSE TO ABOVE SHOW CAUSE NOTICE, IT WAS EXPL AINED BY THE ASSESSEE THAT IT WAS OPERATING THREE LPG TANKERS AN D COMPANY HAD ENTERED INTO A CONTRACT WITH M/S BHARAT PETROLEUM C ORPORATION LTD. FOR THE TRANSPORTATION OF LPG. IT WAS FURTHER SUBMITTED THAT ASSESSEE VIDE AGREEMENTS BETWEEN THE ASSESSEE AND SH. K. MUTHUSAM Y & M K. PALANIAPPAN HAS SOLD THESE THREE TRANSPORTATION TAN KERS AND IT WAS AGREED THAT THE SAID CONTRACT WITH M/S BPCL WILL CO NTINUE AND THE PURCHASERS WILL CARRY OUT THE WORK OF TRANSPORTATIO N FROM BPCL. IT WAS FURTHER AGREED THAT THE PAYMENT RECEIVED FROM M/S B PCL WILL BE TRANSFERRED NET OF TAX TO THE PURCHASERS AND ASSESS EE WILL CHARGE 2% COMMISSION FROM THE PURCHASERS AND IN THIS RESPECT THE RELEVANT CLAUSES OF SUCH AGREEMENT WERE ALSO BROUGHT TO THE NOTICE O F THE ASSESSING OFFICER. THE ASSESSING OFFICER HOWEVER WAS NOT CONV INCED WITH THE ARGUMENTS OF ASSESSEE AND THEREFORE HE HELD THAT AS SESSEE HAD MADE PAYMENT TO THESE PERSONS AS SUB-CONTRACTORS AND THE REFORE ASSESSEE WAS REQUIRED TO DEDUCT TDS AND IN VIEW OF THE ABOVE DIS ALLOWANCE WAS MADE ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 4 U/S 40(A)(IA) OF THE ACT. THE CIT(A) ALSO UPHELD HI S DISALLOWANCE MADE BY ASSESSING OFFICER. 4. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. AR, AT THE OUTSET INVITED OUR ATTENTION TO THE FACTS OF THE CASE AND SUBMITTED THAT ASSESSEE HAD SOLD THE TANKE RS TO THE PURCHASERS MENTIONED IN THE ASSESSMENT ORDER AND THE TANKERS W ERE SOLD ALONG WITH RIGHT OF CONTRACT WITH BPCL, IT WAS FURTHER SUBMITT ED THAT BPCL CONTINUED TO MAKE PAYMENTS TO THE ASSESSEE AND ASSE SSEE AFTER RETAINING 2% IN THE FORM OF TDS DEDUCTED BY BPCL CREDITED THE SE PERSONS AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO COPY OF A CCOUNT OF THE SAID PERSONS AS PLACED IN PAPER BOOK PAGE 152 TO 153. TH E LD. AR ALSO INVITED OUR ATTENTION TO CLAUSE-3 OF AGREEMENT TO SELL PLAC ED AT PAPER BOOK PAGE 22 AND SUBMITTED THAT SALE OF THE VEHICLE ALSO INCL UDED TRANSFER OF CONTRACT RIGHTS WITH THE BPCL FOR THE REMAINING CON TRACT PERIOD AND THEREFORE ASSESSEE WAS ONLY ACTING AS A FACILITATOR AND WAS NOT MAKING ANY PAYMENT AS CONTRACTOR TO SUB-CONTRACTORS. THE LD. AR, IN THIS RESPECT RELIED ON THE DECISION OF ITAT DELHI BENCH D, NEW DELHI IN ITA NO. 1815/DEL/2014 IN TH E CASE OF JAGUAR ENTERPRISES VS. DCIT. THE LD. AR SUBMITTED THAT THE HON'BLE ITAT HAD FOLLOWED THE DECISION OF HON'BLE DELHI HIGH COURT I N THE CASE OF CIT VS. CARGO LINKERS (2009) 179 TAXMANN 151 (DELHI) AND CI T VS. HARDARSHAN SINGH (2013) 350 ITR 427 (DELHI). THEREFORE, IT WAS ARGUED THAT THE DISALLOWANCE WAS NOT SUSTAINABLE. ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 5 WITHOUT PREJUDICE THE LD. AR SUBMITTED THAT PROVISI ONS 40(A)(IA), HAS BEEN AMENDED BY FINANCE ACT 2014 IN AS MUCH AS DISALLOWANCE HAS BEEN RESTRICTED TO 30% OF SUCH PAYMENT INSTEAD OF 1 00% AS PER EXISTING PROVISIONS. THE LD. AR SUBMITTED THAT THIS AMENDMEN T SHOULD BE TREATED AS RETROSPECTIVE AMENDMENT IN VIEW OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NARESH KUMAR (ITA NO. 24 OF 2013) AND TALBROS P. LTD. (ITA NO. 218 OF 2013) REPORTED IN 3 62 ITR 256. THE LD. AR SUBMITTED THAT IT WAS HELD THAT AMENDMENT MADE TO S EC. 40(A)(IA) OF THE ACT BY THE FINANCE ACT 2010 BE GIVEN RETROSPECTIVE EFFECT AND THEREFORE SIMILARLY THE AMENDMENT MADE BY FINANCE ACT 2014 SH OULD BE GIVEN RETROSPECTIVE EFFECT. 6. THE LD. DR ON THE OTHER HAND SUBMITTED THAT ASSE SSING OFFICER HAD NOTED THAT THE ASSESSEE HAD CLAIMED PAYMENT MAD E TO THESE PERSONS AS TRUCK EXPENSES AND FURTHER ARGUED THAT THE CASE LAWS RELIED UPON BY LD. AR ARE NOT APPLICABLE. AS REGARDS THE ARGUMENT OF LD. AR THAT THE DEDUCTION SHOULD BE RESTRICTED TO 30%, THE LD. DR S UBMITTED THAT THE AMENDMENT MADE BY FINANCE ACT, 2014 CANNOT BE SAID TO BE RETROSPECTIVE. 7. THE LD. AR IN HIS REJOINDER INVITED OUR ATTENTIO N TO PAPER BOOK PAGE 128 AND SUBMITTED THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAD NOT CLAIMED ANY EXPENSES FOR PAYMENTS MADE TO T HESE PERSONS AND ALSO INVITED OUR ATTENTION TO PAPER BOOK PAGE 132 W HERE SCHEDULE I DECLARING GROSS FREIGHT INCOME AND NET FREIGHT INCO ME WAS PLACED. THE ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 6 LD. AR WAS ASKED AS TO WHETHER ASSESSEE CAN SUBMIT THE INCOME TAX PARTICULARS OF THE PERSONS TO WHOM PAYMENTS WERE MA DE AND TO THIS LD. AR REPLIED IN NEGATIVE. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GON E THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IN SCHEDULE I OF P ROFIT AND LOSS ACCOUNT PLACED IN PAPER BOOK PAGE 132, THE ASSESSEE HAD DEC LARED GROSS RECEIPTS OF FREIGHT AND HAD REDUCED AN AMOUNT OF RS. 3347351 /- AS FREIGHT PAID AND HAD DIRECTLY CREDITED TO THE PROFIT AND LOSS AC COUNT NET FREIGHT INCOME OF RS. 6738002/-. THOUGH ASSESSEE HAD NOT DI RECTLY CREDITED THE GROSS AMOUNT OF FREIGHT IN ITS PROFIT AND LOSS ACCO UNT AND HAD NOT DIRECTLY DEBITED THE EXPENSES PAID TO PURCHASERS OF TANKERS YET BY JUST TAKING NET FRIGHT INCOME IN ITS PROFIT AND LOSS ACCOUNT, THE A SSESSEE CANNOT CLAIM THAT IT HAD NOT MADE ANY PAYMENTS TO THE PURCHASERS OF TANKERS. DURING THE HEARING, THE LD. AR WAS ASKED TO FILE THE INCOM E-TAX PARTICULARS OF THE PURCHASERS OF TANKERS FOR WHICH HE HAD SHOWN HI S INABILITY WHEREAS THE ASSESSEE SHOULD HAVE NO PROBLEM IN GIVING THE P ARTICULARS OF INCOME TAX DETAILS OF THE PURCHASERS OF TANKERS AS THE ASS ESSEE HAD BEEN MAINTAINING LEDGER ACCOUNT FOR MAKING PAYMENTS TO A BOVE SAID PERSONS AND AT THE CLOSING OF THE YEAR THE PAYMENT OUTSTAND ING TOWARDS THESE PERSONS WAS TO THE TUNE OF ABOUT RS. 4.26 LACS AS I S APPARENT FROM COPY OF LEDGER ACCOUNT PLACED AT PAPER BOOK PAGE 152 AND 153. THEREFORE, THE ARGUMENTS OF LD. AR THAT ASSESSEE HAD BEEN WORKING ONLY AS A FACILITATOR DO NOT HAVE MUCH FORCE AND THEREFORE GROUNDS NO. 1, 2, 5 ARE DISMISSED. ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 7 THE LD. AR HAD NOT PRESSED GROUNDS NO. 6 & 7 AND TH EREFORE THESE ARE ALSO DISMISSED. NOW COMING TO GROUND NO. 8, THE LD. AR HAD ARGUED THAT THE AMENDMENT TO THE FINANCE ACT (NO. 2) OF 2014 SH OULD BE HELD AS APPLICABLE RETROSPECTIVELY AS THE AMENDMENT IN FINA NCE ACT 2010 RELATING TO AMENDMENT TO SAME SECTION 40(A)(IA) WAS ALSO HELD TO BE APPLICABLE RETROSPECTIVELY. THE LD. AR HAD IN THIS RESPECT RELIED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NARESH KUMAR (ITA NO. 24 OF 2013) AND TALBROS P. LTD. (ITA NO. 2 18 OF 2013) REPORTED IN (2014) 362 ITR 256 DELHI WHEREIN THE HON'BLE HIGH C OURT HAD HELD THAT AMENDMENT MADE TO SEC.40(A)(IA) OF THE ACT BY FINAN CE ACT 2010 SHOULD BE GIVEN RETROSPECTIVE EFFECT. THE RELEVANT FINDING S OF THE HON'BLE COURT ARE REPRODUCED BELOW: 17. THERE ARE DECISIONS, WHICH HOLD THAT PROCESS O F LITIGATION 0R ENFORCEMENT OF LAW IS PROCEDURAL. SIMILARLY, MACHIN ERY PROVISION FOR COLLECTION OF TAX RATHER THAN TAX ITSELF IS PROCEDU RAL. READ IN THIS CONTEXT, IT CAN BE STRONGLY ARGUED THAT SECTION 40(A)(IA) AT LE AST TO THE EXTENT OF THE AMENDMENT IS PROCEDURAL AS BY ENACTING SECTION 40(A )(IA) THE LEGISLATURE DID NOT WANT TO IMPOSE A NEW TAX BUT WANTED TO ENSU RE COLLECTION OF TDS AND THE AMENDMENTS MADE STREAMLINE AND REMEDY THE A NOMALIES ANOMALIES NOTICED IN THE SAID PROCEDURE BY ALLOWING DEDUCTION IN THE YEAR WHEN THE EXPENDITURE IS INCURRED PROVIDED TDS IS PA ID BEFORE THE DUE DATE FOR FILING, OF THE RETURN. REMEDIAL STATUTES ARE NO RMALLY NOT RETROSPECTIVE, ON THE GROUND THAT THEY MAY AFFECT VESTED RIGHTS. B UT THESE STATUTES ARE CONSTRUED LIBERALLY WHEN JUSTIFIED AND RULE AGAINST RETROSPECTIVITY MAY BE APPLIED WITH LESS RESISTANCE (SEE BHARAT SINGH V. M ANAGEMENT OF NEW DELHI TUBERCLOSIS CENTREI [1986] 2 (SC) 614 AND WOR KMEN OF FIRESTONE TYRE AND RUBBER CO. OF INDIA P. LTD. V. MANAGEMENT [1973 ] AIR 1973 SC 1227. 18. IT IS INTERESTING TO NOTE THAT THE EARLIER ENGL ISH DECISIONS HAVE HELD THAT AN ENACTMENT FIXING A PENALTY OR MAXIMUM PENAL TY FOR OFFENCE IS MERELY PROCEDURAL FOR THE PURPOSE OF DETERMINING RE TROSPECTIVITY (SEE DPP V. LAMB [1941] 2 KB 89 AND R V. OLIVER [1944] 29 CR. A PP. 137). THIS VIEW, HOWEVER, HAS BEEN CRITICIZED IN ATHLUMNEY, RE, EX P ARTE WILSON [1898] 2 QB 547 ON THE GROUND THAT HIGHER OR GREATER PUNISHM ENT IMPAIRS EXISTING RIGHTS OR OBLIGATION: ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 8 'NO RULE OF CONSTRUCTION IS MORE FIRMLY ESTABLISHED THAN THIS THAT A RETROSPECTIVE OPERATION IS NOT TO BE GIVEN TO A STA TUTE SO AS TO IMPAIR AN EXISTING RIGHT OR OBLIGATION, OTHERWISE THAN AS REG ARDS MATTERS OF PROCEDURE, UNLESS THAT EFFECT CANNOT BE AVOIDED WIT HOUT DOING VIOLENCE TO THE LANGUAGE OF THE ENACTMENT. IF THE ENACTMENT IS EXPRESSED IN LANGUAGE WHICH IS FAIRLY CAPABLE OF EITHER INTERPRETATION, I T OUGHT TO BE CONSTRUED AS PROSPECTIVE ONLY. 19. THE WORD 'FAIRLY USED IN THE AFORESAID QUOTAT ION IS IMPORTANT AND RELEVANT, BUT FOR APPLICATION OF ANOTHER RULE OF IN TERPRETATION. G. P. SING IN PRINCIPLES OF STATUTORY INTERPRETATION, 13TH EDITIO N, 2012 AT PAGE 538 UNDER SUB HEADING 'RECENT STATEMENTS OF THE RULE AG AINST RETROSPECTIVITY' HAS GREATLY EMPHASIZED THE PRINCIPLE OF FAIRNESS AN D OBSERVED THAT CLASSIFICATION OF STATUTE EITHER SUBSTANTIVE OR PRO CEDURAL DOES NOT NECESSARILY DETERMINE WHETHER THE ENACTMENT OR AMEN DMENT HAS RETROSPECTIVE OPERATION, E.G., LAW OF LIMITATION I S PROCEDURAL BUT ITS APPLICATION TO PAST CAUSE OF ACTION MAY RESULT IN R EVIVING IN EXTINGUISHING A RIGHT, AND SUCH OPERATION CANNOT BE SAID TO BE PROC EDURAL. SIMILARLY, WHEN REQUISITES OF AN ACTION UNDER NEW STATUTE, DRAWS FR OM A TIME INCIDENT TO ITS PASSING, RULE AGAINST RETROSPECTIVITY MAY NOT BE AP PLICABLE. IN THE SAID TEXT, REFERENCE HAS BEEN MADE TO FORMUL ATION BY DIXON C. J. 20 IN MAXWELL V. MURPHY [1957] 96 CLR 261 HOLDIN G: 'THE GENERAL RULE OF THE COMMON LAW IS THAT A STATU TE CHANGING THE LAW OUGHT NOT, UNLESS THE INTENTION APPEARS WITH RE ASONABLE CERTAINTY TO BE UNDERSTOOD AS APPLYING TO FACTS OR EVENTS THAT HAVE ALREADY OCCURRED IN SUCH A WAY AS TO CONFER OR IMPO SE OR OTHERWISE AFFECT THE RIGHTS OR LIABILITIES WHICH THE LAW HAD DEFINED BE REFERENCE TO THE PAST EVENTS. BUT GIVEN THE RIGHTS AND LIABIL ITIES FIXED BY REFERENCE TO THE PAST FACTS, MATTERS OR EVENTS, THE LAW APPOINTING OR REGULATING THE MANNER IN WHICH THEY ARE TO BE ENFOR CED OR THEIR ENJOYMENT IS TO BE SECURED BY JUDICIAL REMEDY IS NO T WITHIN THE APPLICATION OF SUCH A PRESUMPTION.' IDENTICALLY, IN SECRETARY OF STATE FOR SOCIAL SECU RITY V. TUNNICLIFFE [1991] 21 2 ALL ER 712, STAUGHTON L. J. HAS EXPRESSED THE SAI D PRINCIPLE IN THE FOLLOWING- WORDS: 'THE TRUE PRINCIPLE IS THAT PARLIAMENT IS PRESUMED NOT TO HAVE INTENDED TO ALTER THE LAW APPLICABLE TO PAST EVENTS AND TRANSACTIONS IN A MANNER WHICH IS UNFAIR TO THOSE CONCERNED IN THEM U NLESS A CONTRARY INTENTION APPEARS. IT IS NOT SIMPLY A QUESTION OF C LASSIFYING AN ENACTMENT AS RETROSPECTIVE OR NOT RETROSPECTIVE. RATHER IT MA Y WELL BE A MATTER OF DEGREETHE GREATER THE UNFAIRNESS, THE MORE IT IS T O BE EXPECTED THAT PARLIAMENT WILL MAKE IT CLEAR IF THAT IS INTENDED.' 'THE HOUSE OF LORDS IN L'OFFICE CHERIFIEN DES PHOSP HATES V. YAMASHITA 22 SHINNIHON STEAMSHIP CO. LTD. [1994] 1 ALL ER 20 HAS SAID THE QUESTION OF FAIRNESS HAS TO BE ANSWERED BY TAKI NG INTO ACCOUNT VARIOUS ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 9 FACTORS, VIZ., VALUE OF THE RIGHTS WHICH THE STATUT E AFFECTS ; EXTENT TO WHICH THAT VALUE IS DIMINISHED OR EXTINGUISHED BY THE SUG GESTED RETROSPECTIVE EFFECT OF THE STATUTE; UNFAIRNESS OF ADVERSELY AFFE CTING THE RIGHTS; CLARITY OF THE LANGUAGE USED BY PARLIAMENT AND THE CIRCUMSTANC ES IN WHICH THE LEGISLATION WAS CRE-AIRED. THESE FACTORS HAVE TO BE WEIGHED TOGETHER TO PROVIDE AN ANSWER WHETHER THE CONSEQUENCES OF READI NG THE STATUTE WITH SUGGESTED DEGREE OF RETROSPECTIVITY IS UNFAIR; THAT THE WORDS USED BY PARLIAMENT COULD NOT HAVE BEEN INTENDED TO MEAN WHA T THEY MIGHT APPEAR TO SAY. THIS PRINCIPLE WAS APPLIED WHILE INTERPRETI NG A NEW PROVISION IN THE ARBITRATION ACT IN THIS CASE OBSERVING THAT THE DEL AY ATTRIBUTABLE TO THE CLAIMANT IN PURSUING A CLAIM BEFORE ENACTMENT OF TH E NEW PROVISION COULD BE TAKEN INTO CONSIDERATION FOR DISMISSAL. , 23. PRINCIPLE OF 'FAIRNESS' HAS NOT LEFT US UNTOUCH ED AND WAS APPLIED BY THE SUPREME COURT IN VIJAY V. STATE OF MAHARASHTRA [2006] 6 SCC 289 IN THE FOLLOWING WORDS: 'THE NEGOTIATION IS NOT A RIGID RULE AND VARIES WIT H THE INTENTION AND PURPORT OF THE LEGISLATION BUT TO APPLY IT IN SUCH A CASE IS A DOCTRINE OF FAIRNESS. WHEN A NEW LAW IS ENACTED FOR THE BENE FIT OF THE COMMUNITY AS A WHOLE, EVEN IN THE ABSENCE OF A PROV ISION THE STATUTE MAY BE HELD TO BE RETROSPECTIVE IN NATURE.' 24. IN ALLIED MOTORS P. LTD. V. C/T [1997] 224 ITR 677 (SC), IT WAS HELD THAT THE NEW PROVISO TO SECTION 43B SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM THE INCEPTION ON THE GROUND THAT THE PROVISO W AS ADDED TO REMEDY UNINTENDED CONSEQUENCES AND SUPPLY AN OBVIOUS OMISS ION. THE PROVISO ENSURED REASONABLE INTERPRETATION AND RETROSPECTIVE EFFECT WOULD SERVE THE OBJECT BEHIND THE ENACTMENT. 25. IN STATE THROUGH CBI V. GIAN SINGH [1999] AIR 1 999 SC 3450 THE EXTREME PENALTY OF DEATH WAS DILUTED TO ALTERNATIVE OPTION OF IMPRISONMENT FOR LIFE RECORDING THAT THE LEGISLATIVE BENEVOLENCE COULD BE EXTENDED TO AN ACCUSED, WHO AWAITS JUDICIAL VERDICTS AGAINST HIS S ENTENCE. EARLIER IN RATAN LAL V. STATE OF PUNJAB [1965] AIR 1965 SC 444 REFERENCE WAS MADE TO SECTION 6 OF THE PROBATION OF OFFENDERS ACT, 195 8, AND IT WAS OBSERVED THAT THE ACT WAS NOT GIVEN RETROSPECTIVE OPERATION, IT WOULD LEAD TO ANOMALIES AND THUS COULD NOT BE THE INTENTION OF TH E LEGISLATURE. 26. PRINCIPLE OF MATCHING WHICH IS DISTURBED BY SE CTION 40(A) (IA) OF THE ACT MAY NOT MATERIALLY BE OF CONSEQUENCE TO THE REV ENUE WHEN THE TAX RATES ARE STABLE AND UNIFORM OR IN CASES OF BIG ASS ESSEES HAVING SUBSTANTIAL TURNOVER AND EQUALLY HUGE EXPENSES AS T HEY HAVE NECESSARY CUSHION TO ABSORB THE EFFECT. HOWEVER, MARGINAL AND MEDIUM TAXPAYERS, WHO WORK AT LOW G. P. RATE AND WHEN EXPENDITURE WHI CH BECOMES A SUBJECT MATTER OF AN ORDER UNDER SECTION 40(A) (IA) IS SUBSTANTIAL, CAN SUFFER SEVERE ADVERSE CONSEQUENCES AS IS APPARENT FROM THE CASE OF NARESH KUMAR. TRANSFERRING A SHIFTING EXPENSE TO A SUBSEQU ENT YEAR, IN SUCH CASES, WILL NOT WIPE OFF THE ADVERSE EFFECT AND THE FINANCIAL STRESS. ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 10 NEVERTHELESS SECTION 40(A) (IA) HAS TO BE GIVEN FUL L PLAY KEEPING IN MIND THE OBJECT AND PURPOSE BEHIND THE SECTION. AT THE SAME TIME, THE PROVISION CAN BE AND SHOULD BE INTERPRETED LIBERALLY AND EQUITABL E SO THAT AN ASSESSEE SHOULD NOT SUFFER UNINTENDED AND DELETERIOUS CONSEQ UENCES BEYOND WHAT THE OBJECT AND PURPOSE OF THE PROVISION MANDATES. T HE CASE OF NARESH KUMAR IS NOT ONE OF RARE CASES, BUT ONE OF SEVERAL CASES AS WE FIND THAT SECTION 40(A) (IA) IS INVOKED IN LARGE NUMBER OF CA SES. ONE IMPORTANT CONSIDERATION IN CONSTRUING A MACHINE RY SECTION IS THAT IT MUST BE SO CONSTRUED SO AS TO EFFECTUATE TH E LIABILITY IMPOSED BY THE CHARGING SECTION AND TO MAKE THE MACHINERY WORKABLE . HOWEVER, WHEN THE MACHINERY SECTION RESULTS IN UNINTENDED OR HARSH CO NSEQUENCES WHICH WERE NOT INTENDED, THE REMEDIAL OR CORRECTION ACTIO N TAKEN IS NOT TO BE DISREGARDED BUT GIVEN DUE REGARD. IT IS, IN THIS CONTEXT, THAT WE HAD IN RAJINDER KUM AR'S CASE (SUPRA) OBSERVED AS UNDER (PAGE 252 OF 362 ITR) : NOW, WE REFER TO THE AMENDMENTS WHICH HAVE BEEN MAD E BY THE FINANCE ACT, 2010, AND THE EFFECT THEREOF. WE H AVE ALREADY QUOTED THE DECISION OF THE CALCUTTA HIGH COURT IN V IRGIN CREATIONS (SUPRA). THE SAID DECISION REFERS TO THE EARLIER DE CISION OF THE SUPREME COURT IN THE CASE OF ALLIED MOTORS (P.) LT D. (SUPRA) AND CIT V. ALOM EXTRUSIONS L LTD. [2009] 319 ITR 306 (SQ. I N THE CASE OF ALLIED MOTORS (P.) LTD. (SUPRA), THE SUPREME COURT WAS EXAMINING THE FIRST PROVISO TO SECTION 43B AND WHETHER IT WAS RET ROSPECTIVE. SECTION 43B WAS INSERTED IN THE ACT WITH EFFECT FRO M APRIL 1, 1984, FOR CURBING CLAIMS OF TAXPAYERS WHO DID NOT DISCHAR GE OR PAY STATUTORY LIABILITIES BUT CLAIMED DEDUCTIONS ON THE GROUND THAT THE STATUTORY LIABILITY HAD ACCRUED. SECTION 43B STATES THAT THE STATUTORY LIABILITY WOULD BE ALLOWED AS A DEDUCTION OR AS AN EXPENSE IN THE YEAR IN WHICH THE PAYMENT WAS MADE AND WOULD NOT BE ALLOWED, EVEN IN CASES OF MERCANTILE SYSTEM OF ACCOUNTANCY, IN THE YEAR OF ACCRUAL. IT WAS NOTICED THAT IN SOME CASES HARDSHIP WOULD BE CAUSED TO ASSESSEES, WHO PAID THE STATUTORY DUES WI THIN THE PRESCRIBED PERIOD THOUGH THE PAYMENTS SO MADE WOULD NOT FALL WITHIN THE RELEVANT PREVIOUS YEAR. ACCORDINGLY, A P ROVISO WAS ADDED BY THE FINANCE ACT, 1987, APPLICABLE WITH EFFECT FR OM APRIL 1, 1988. THE PROVISO STIPULATED THAT WHEN STATUTORY DUES COV ERED BY SECTION 43B WERE PAID ON OR BEFORE THE DUE DATE FOR FURNISH ING OF THE RETURN UNDER SECTION 139(1), THE DEDUCTION/EXPENSE, EQUAL TO THE AMOUNT PAID WOULD BE ALLOWED. THE SUPREME COURT NOTICED TH E PURPOSE BEHIND THE PROVISO AND THE REMEDIAL NATURE OF THE I NSERTION MADE. OF COURSE, THE SUPREME COURT ALSO REFERRED TO EXPLA NATION 2 WHICH WAS INSERTED BY THE FINANCE ACT, 1989, WHICH WAS MA DE RETROSPECTIVE AND WAS TO TAKE EFFECT FROM APRIL 1, 1984. HIGHLIGHTING THE OBJECT BEHIND SECTION 43B IT WAS OBSERVED THAT THE PROVISO MAKES THE PROVISION WORKABLE, GIVES IT A REASONABLE INTERPRETATION. IT WAS ELUCIDATED (PAGE 686 OF 224 ITR): ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 11 IN THE CASE OF GOODYEAR INDIA LTD. V. STATE OF HARY ANA [1991] 188 ITR 402 (SC), THIS COURT SAID THAT THE RULE OF REAS ONABLE CONSTRUCTION MUST BE APPLIED WHILE CONSTRUING A STATUTE. LITERAL CONS TRUCTION SHOULD BE AVOIDED IF IT DEFEATS THE MANIFEST OBJECT AND PURPO SE OF THE ACT. THEREFORE, IN THE WELL-KNOWN WORDS OF JUDGE LEARNED HAND, ONE CANNOT MAKE A FORTRESS OUT OF THE DICTIONARY; AND S HOULD REMEMBER THAT STATUTES HAVE SOME PURPOSE AND OBJECT TO ACCOMPLISH WHOSE SYMPATHETIC AND IMAGINATIVE DISCOVERY IS THE SUREST GUIDE TO TH EIR MEANING. IN THE CASE OF R. B. JODHAMAL KUTHIALA V. CIT [1971] 82 ITR 570 (SC), THIS COURT SAID THAT ONE SHOULD APPLY THE RULE OF REASONABLE INTERP RETATION. A PROVISO WHICH IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE PROVISION WORKABLE, A PROVISO WHICH SUPPLIES AN OBV IOUS OMISSION IN THE SECTION AND IS REQUIRED TO BE READ INTO THE SECTION TO GIVE THE SECTION A REASONABLE INTERPRETATION, REQUIRES TO BE TREATED A S RETROSPECTIVE IN OPERATION SO THAT A REASON ABLE INTERPRETATION CAN BE GIVEN TO THE SECTION AS A WHOLE. THIS VIEW HAS BEEN ACCEPTED BY A NUMBER OF HIGH COU RTS. IN THE CASE OF CIT V. CHANDULAL VENICHAND [1994] 209 ITR 7 (GUJ), THE GUJARAT HIGH COURT HAS HELD THAT THE FIRST PROVISO TO SECTI ON 43B IS RETROSPECTIVE AND SALES TAX FOR THE LAST QUARTER PAID BEFORE THE FILING OF THE RETURN FOR THE ASSESSMENT YEAR IS DEDUCTIBLE. THIS DECISION DEALS WITH THE ASSESSMENT YEAR 1984-85. THE CALCUTTA HIGH COURT IN THE CASE O F CIT V. SRI JAGANNATH STEEL CORPN. [1991] 191 ITR 676 (CAL) HAS TAKEN A S IMILAR VIEW HOLDING THAT THE STATUTORY LIABILITY FOR SALES TAX ACTUALLY DISCHARGED AFTER THE EXPIRY OF THE ACCOUNTING YEAR IN COMPLIANCE WITH THE RELEV ANT STATUTE IS ENTITLED TO DEDUCTION UNDER SECTION 43B. THE HIGH COURT HAS HEL D THE AMENDMENT TO BE CLARIFICATORY AND, THEREFORE, RETROSPECTIVE. THE GUJARAT HIGH COURT IN THE ABOVE CASE HELD THE AMENDMENT TO BE CURATIVE AND EX PLANATORY AND HENCE RETROSPECTIVE. THE PATNA HIGH COURT HAS ALSO HELD T HE AMENDMENT INSERTING THE FIRST PROVISO TO BE EXPLANATORY IN TH E CASE OF JAMSHEDPUR MOTOR ACCESSORIES STORES V. UNION OF INDIA [1991] 1 89 ITR 70 (PATNA). THE SPECIAL LEAVE PETITION FROM THIS DECISION OF THE PA TNA HIGH COURT WAS DISMISSED. THE VIEW OF THE DELHI HIGH COURT, THEREF ORE, THAT THE FIRST PROVISO TO SECTION 43B WILL BE AVAILABLE ONLY PROSP ECTIVELY DOES NOT APPEAR TO BE CORRECT. AS OBSERVED BY G. P. SINGH IN HIS PR INCIPLE OF STATUTORY INTERPRETATION, 4 TH EDN. AT PAGE 291 : IT IS WELL-SETTLED THAT IF A S TATUTE IS CURATIVE OR MERELY DECLARATORY OF THE PREVIOUS LAW RETROSPECTIVE OPERATION IS GENERALLY INTENDED. IN FACT THE AMENDMENT WOULD NOT SERVE ITS OBJECT IN SUCH A SITUATION UNLESS IT IS CONSTRUED AS RETROSPE CTIVE. THE VIEW, THEREFORE, TAKEN BY THE DELHI HIGH COURT CANNOT BE SUSTAINED. SECTION 43B DEALS WITH STATUTORY DUES AND STIPULATE S THAT THE YEAR IN WHICH THE PAYMENT IS MADE THE SAME WOULD BE ALLO WED AS A DEDUCTION EVEN IF THE ASSESSEE IS FOLLOWING THE MERCANTILE SY STEM OF ACCOUNTANCY. THE PROVISO, HOWEVER, STIPULATES THAT DEDUCTION WOU LD BE ALLOWED WHERE THE STATUTORY DUES COVERED BY SECTION 43B STAND PAI D ON OR BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. SECTION 40(A)(I A) IS APPLICABLE TO CASES WHERE AN ASSESSEE IS REQUIRED TO DEDUCT TAX AT SOUR CE AND FAILS TO DEDUCT ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 12 OR DOES NOT MAKE PAYMENT OF THE TDS BEFORE THE DUE DATE, IN SUCH CASES, NOTWITHSTANDING SECTIONS 30 TO 38 OF THE ACT, DEDUC TION IS TO BE ALLOWED AS AN EXPENDITURE IN THE YEAR OF PAYMENT UNLESS A CASE IS COVERED UNDER THE EXCEPTIONS CARVED OUT. THE AMENDED PROVISO AS INSER TED BY THE FINANCE ACT, 2010, STAGES WHERE AN ASSESSEE HAS MADE PAYMEN T OF THE TDS ON OR BEFORE THE DUE DATE OF FILING OF THE RETURN UNDER S ECTION 139(1), THE SUM SHALL BE ALLOWED AS AN EXPENSE IN COMPUTING THE INC OME OF THE PREVIOUS YEAR. THE TWO PROVISIONS ARE AKIN AND THE PROVISOS TO SECTIONS 40(A)(IA) AND 43B ARE TO THE SAME EFFECT AND FOR THE SAME PUR POSE. THE HON'BLE COURT IN THE ABOVE SAID CASES HAS ELABO RATELY DEALT WITH THE ISSUE AS TO WHETHER AMENDMENT TO SECTION 4 0(A)(IA) BY THE FINANCE ACT, 2010 CAN BE SAID TO BE APPLICABLE RETR OSPECTIVELY AND HAS HELD TO BE APPLICABLE RETROSPECTIVELY. THE HON'BLE. COURT IN THIS RESPECT HAS RELIED ON JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF ALLIED MOTORS (P) LTD. SECTION 40(A)(IA) WAS AMENDED IN 2008 AND AGAIN B Y FINANCE ACT 2010 AND THESE AMENDMENT HAVE BEEN HELD TO BE RETRO SPECTIVE AS THOSE AMENDMENTS WERE CURATIVE AMENDMENTS AS THE EXISTING PROVISIONS WERE CAUSING AND CREATING UNINTENDED AND EXCESSIVE HARDS HIPS TO CITIZENS AND SUBJECTS AND HAVE RESULTED IN GREAT INCONVENIENCE. AMENDMENT CARRIED OUT BY FINANCE ACT 2014 HAS ALSO BEEN MADE TO COVER UNDUE HARDSHIPS TO TAXPAYERS AND AS SUCH R EASONING & FINDINGS OF HON'BLE DELHI HIGH COURT ARE EQUALLY APPLICABLE TO AMENDMENT MADE BY FINANCE ACT 2014. BY THE AMENDMENT TO SECTION 40 (A)(IA) BY THE FINANCE ACT 2014, THE DISALLOWANCE HAS BEEN RESTRIC TED TO 30% OF SUCH PAYMENT INSTEAD OF 100% AS PER EXISTING PROVISIONS. IN THIS CONTEXT, PARA 207 OF BUDGET SPEECH OF 10 TH JULY, 2014 IS THE QUITE RELEVANT. ITA NO. 648 (ASR)/2014 ASST. YEAR: 2006-07 13 CURRENTLY, WHERE AN ASSESSEE FAILS TO DEDUCT AND P AY TAX ON SPECIFIED PAYMENTS TO RESIDENTS, 100 PERCENT OF SUCH PAYMENTS ARE NOT ALLOWED AS DEDUCTION WHILE COMPUTING HIS INCOME. THIS HAS CAUS ED UNDUE HARDSHIP TO TAXPAYERS, PARTICULARLY WHERE THE RATE OF TAX IS ON LY 1 TO 10%. HENCE, I PROPOSE TO PROVIDE THAT INSTEAD OF 100 PERCENT, ONL Y 30% OF SUCH PAYMENTS WITH BE DISALLOWED. THEREFORE, IN VIEW OF THE ABOVE JUDICIAL PRECEDENTS , WE HOLD THAT THE AMENDMENT CARRIED BY FINANCE ACT, 2014 HAS BEEN CAR RIED OUT TO REMOVE UNINTENDED AND EXCESSIVE HARDSHIPS AND THEREFORE, W E HOLD THAT THIS AMENDMENT TO BE RETROSPECTIVE IN NATURE. IN VIEW OF THE ABOVE, WE DIRECT THE ASSESSING OFFI CER TO RESTRICT THE DISALLOWANCE TO 30% OF THE AMOUNT INVOLVED. IN VIEW OF THE ABOVE, GROUND NO. 8 IS ALLOWED. 10. IN NUTSHELL, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.07.2017. SD/- SD/- (N.K. CHOUDHRY) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTA NT MEMBER DATED: 14/07/2017 GP/SR.PS/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: 2. THE 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER