RBL Bank Ltd., Kolhapur V. Assistant Commissioner of Income-tax,

ITA 650/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3201 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-08-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 12-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Business expenditure; Retrospective amendment; Non-deduction of tax
• Section: 201(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . .. . / ITA NO.650/PUN/2016 / ASSESSMENT YEAR : 2012-13 RBL BANK LIMITED (FORMERLY KNOWN AS (THE RATNAKAR BANK LIMITED), SHAHU MARKET YARD, KOLHAPUR 416 001, MAHARASHTRA PAN : AABCT3335M ....... / APPELLANT / V/S. ACIT, CIRCLE-1, KOLHAPUR / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI PANKAJ GARG / DATE OF HEARING : 02.08.2018 / DATE OF PRONOUNCEMENT : 14.08.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-I, KOLHAPUR DATED 22.02 .2016 FOR THE A.Y. 2012-13. 2. GROUNDS RAISED BY THE ASSESSEE ARE EXTRACTED HERE AS UNDE R : 1. THE LD.CIT(A), KOLHAPUR ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.4,65,78,157/- PAID TO THE CO-OPERATI VE CREDIT SOCIETIES U/S.40(A)(IA) ON THE GROUND THAT TAX WAS REQUIRED T O BE DEDUCTED AT SOURCE AND TAX WAS NOT DEDUCTED AT SOURCE BY THE APPELLANT FROM THE INTEREST PAID TO THESE CO-OPERATIVE CREDIT SOCIETIES. 2. THE LD.CIT(A) ERRED IN DISREGARDING THE PROVISIO NS OF SECTION 194(A)(3)(III)(A) WHEREBY NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE IN RESPECT OF ANY INTEREST CREDITED OR PAID TO ANY BANKING COM PANY TO WHICH THE 2 ITA NO.650 /PUN/2016 RBL BANK LIMITED BANKING REGULATION ACT, 1949 (10 OF 1949) APPLIES O R ANY CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INC LUDING A CO-OPERATIVE LAND MORTGAGE BANK). 3. THE LD.CIT(A) ERRED IN HOLDING THAT THE CO-OPERA TIVE CREDIT SOCIETIES DO NOT CARRY ANY BANKING BUSINESS BECAUSE THEY ARE ENG AGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS ONLY. T HE LD.CIT(A) FAILED TO APPRECIATE THAT MERELY BECAUSE ANYBODY FROM GENERAL PUBLIC, WHO DESIRES TO DEAL WITH THE CO-OPERATIVE CREDIT SOCIETY IS REQUIR ED TO BECOME AT LEAST A NOMINAL MEMBER, WILL NOT CEASE TO BE PART OF PUBLIC UPON HE BECOMING A MEMBER OF THE SOCIETY. 4. THE LD.CIT(A) FAILED TO APPRECIATE THAT THE CO-O PERATIVE CREDIT SOCIETIES DO CARRY BUSINESS OF BANKING AS DEFINED U NDER THE BANKING REGULATION ACT, 1949. 5. THE DISALLOWANCE OF RS.4,65,78,157/- MADE BY THE AO AND CONFIRMED BY CIT(A) BY NOT CONSIDERING THE EXEMPTION U/S.194A (3)(III)(A) OF THE INCOME TAX ACT, 1961 BE DELETED. 3. ASSESSEE ALSO RAISED AN ADDITIONAL GROUND AND THE SAM E READS AS UNDER : 1. THE ASSESSEE SUBMITS THAT THE SECOND PROVISO TO SECTION 40(A)(IA) IS RETROSPECTIVE IN NATURE AND HENCE, IT IS APPLICABLE TO THE CASE OF THE ASSESSEE AND THEREFORE, NO DISALLOWANCE IS WARRANTED U/S. 40 (A)(IA) ON ACCOUNT OF NON- DEDUCTION OF TAX ON THE INTEREST PAID TO THE CO-OPE RATIVE CREDIT SOCIETIES. 4. BRIEFLY STATED RELEVANT FACTS OF THE CASE INCLUDE THAT ASSESSEE IS A BANK AND FILED THE RETURN OF INCOME DECLARING TOTAL INCOME O F RS.99,07,77,520/-. DURING THE YEAR UNDER CONSIDERATION, AO NOTICED THAT ASSESSEE DEBITED INTEREST PAID TO VARIOUS DEPOSITORS AMO UNTING TO RS.245.83 CRORES WITHOUT DEDUCTING TDS. AO OPINED THAT THE ASSESSEE VIOLATED THE PROVISIONS OF SECTION 194A OF THE ACT BY NOT DEDUCTING THE TDS ON THE SAID INTEREST PAYMENT. REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE, THE AO MADE ADDITION OF RS.4,65,78,157/- . IN THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) UPHELD THE ADDITION MADE BY THE AO. 5. AGGRIEVED WITH THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE ABOVE-MENTIONED GROUNDS/ADDITIONAL GROUN D. 3 ITA NO.650 /PUN/2016 RBL BANK LIMITED 6. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSE SSEE IS AGGRIEVED WITH INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF T HE ACT IN RESPECT OF THE PAYMENTS MADE TO THE CREDIT CO-OPERATIV E SOCIETIES THAT THE AMOUNTS WERE PAID WITHOUT MAKING TDS. FURTHER, LD. COUNS EL MENTIONED THAT SIMILAR ISSUE WAS ADJUDICATED BY THE TRIBUNAL IN ASSE SSEES OWN CASE FOR THE A.YRS. 2010-11 AND 2011-12 VIDE ITA NOS. 501 AND 502/PUN/2015, DECIDED ON 31-05-2018. LD. COUNSEL FILED THE COPY OF THE SAID ORDER AND DREW OUR ATTENTION TO CONTENTS OF PARA NOS. 4 TO 7 AND SUBMITTED THAT THE ISSUE STANDS REMITTED BACK TO THE FILE OF AO ALONG WITH THE ADDITIONAL GROUND RAISED IN THE SAID APPEALS GIVING THE BENEFIT OF SECO ND PROVISO TO SECTION 40(A)(IA) OF THE ACT. IT IS THE PRAYER OF THE LD. COU NSEL THAT THIS ISSUE MAY ALSO BE REMANDED WITH IDENTICAL DIRECTIONS ADMITT ING THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. 7. LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 8. WE HEARD BOTH THE SIDES AND PERUSED THE SAID ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.YRS. 2010-11 AND 2 011-12 (SUPRA) AND FIND IT RELEVANT TO EXTRACT THE FINDING GIVEN BY THE TRIBUNA L. THE OPERATIONAL PARAS OF THE ORDER OF TRIBUNAL ARE REPRODUCED HERE AS UNDER : 4.1 IN RESPECT OF GROUND NO. 1 RELATING TO DISALLO WANCE MADE U/S. 40(A)(IA) OF THE ACT THE LD. DR SUBMITTED THAT SECOND PROVISO TO SECTION 40(A)(IA) WAS INTRODUCED W.E.F. 01-04-2013 AND HAS PROSPECTIVE AP PLICATION ONLY. THE ASSESSMENT YEAR UNDER APPEAL IS PRIOR TO THE DATE O F INSERTION OF SECOND PROVISO, THEREFORE, THE BENEFIT OF SECOND PROVISO C ANNOT BE EXTENDED TO THE ASSESSEE. IN SUPPORT OF HIS SUBMISSIONS, THE LD. D R PLACED RELIANCE ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE O F THOMAS GEORGE MUTHOOT VS. COMMISSIONER OF INCOME TAX REPORTED AS 287 CTR 101. 5. CONTROVERTING THE SUBMISSIONS OF DR, THE LD. AR OF ASSESSEE SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CO MMISSIONER OF INCOME TAX VS. ANSAL LAND MARK TOWNSHIP (P) LTD. (SUPRA) HAS H ELD THAT SECOND PROVISO TO SECTION 40(A)(IA) IS CLARIFICATORY IN NATURE AND IS APPLICABLE RETROSPECTIVELY. 4 ITA NO.650 /PUN/2016 RBL BANK LIMITED THE LD. AR FURTHER CONTENDED THAT THE CO-ORDINATE B ENCH OF THE TRIBUNAL IN THE CASE OF YAMAZAKI MAZAK INDIA PVT. LTD. VS. PR. COMMISSIONER OF INCOME TAX IN ITA NO. 153/PN/2016 FOR ASSESSMENT YEAR 2010 -11 DECIDED ON 28-10- 2016 HAS CONSIDERED THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT VS. COMMISSIONER OF INCOME TA X (SUPRA) AND THEREAFTER ALLOWED THE BENEFIT OF SECOND PROVISO TO THE ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTA TIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH BOTH THE SIDES HAVE PLACED R ELIANCE. THE FIRST ISSUE IN APPEAL FOR ASSESSMENT YEAR 2010-11 IS WITH RESPECT TO DISALLOWANCE OF INTEREST PAID TO CO-OPERATIVE CREDIT SOCIETIES WITH OUT DEDUCTION OF TAX AT SOURCE. THE ASSESSEE WAS UNDER OBLIGATION TO DEDUC T TAX U/S. 194A ON THE PAYMENT OF INTEREST TO THE CO-OPERATIVE CREDIT SOCI ETIES. SINCE, THE ASSESSEE FAILED TO COMPLY WITH THE TDS PROVISIONS, DISALLOWA NCE WAS MADE U/S. 40(A)(IA) OF THE ACT. THE ASSESSEE HAS NOW RAISED AN ADDITIONAL GROUND SE EKING BENEFIT OF SECOND PROVISO TO SECTION 40(A)(IA) INSERTED BY THE FINANCE ACT, 2012 W.E.F. 01-04-2013. THE LD. AR SUBMITTED THAT THE ASSESSEE WOULD FURNISH NECESSARY DOCUMENTS TO SHOW THAT THE RECIPIENTS OF INTEREST HAVE OFFERED INTEREST INCOME TO TAX IN THEIR RESPECTIVE RETURNS. THE DEPARTMENT HAS VEHEMENTLY OPPOSED THE ADDITIONAL GROUND RAISED BY ASSESSEE ON THE GROUND THAT SECOND PROVISO TO SECTION 40(A)(IA) DOES NOT A PPLY RETROSPECTIVELY. WE FIND THAT IDENTICAL ISSUE HAD COME UP BEFORE THE TR IBUNAL IN THE CASE OF YAMAZAKI MAZAK INDIA PVT. LTD. VS. PR. COMMISSIONER OF INCOME TAX (SUPRA). THE CO-ORDINATE BENCH AFTER CONSIDERING THE DECISIO N OF HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANSAL LAND MARK TOWNSHIP (P) LTD. (SUPRA) AND THE DECISION OF HONB LE KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT VS. COMMISSIONER OF INCOME TAX (SUPRA) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE RELEV ANT EXTRACT OF THE FINDINGS OF TRIBUNAL ON THIS ISSUE ARE AS UNDER : 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRE SENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELO W. THE ONLY ISSUE IN THE PRESENT APPEAL ARISING FROM THE ARGUMENTS MADE ON BEHALF OF BOTH THE SIDES IS; WHETHER THE SECOND PROVISO TO SECTION 40(A)(IA) INSERTED BY FIN ANCE ACT, 2012, IS APPLICABLE RETROSPECTIVELY OR W.E.F. 01-04-2013. BEFORE WE PR OCEED WITH THE ISSUE IT WOULD BE RELEVANT TO FIRST REFER TO THE AMENDMENT BROUGHT IN BY THE FINANCE ACT, 2012 TO SECTION 40(A)(IA) BY WAY OF INSERTION OF PROVISO. 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION S 30 TO [38], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION, (A) IN THE CASE OF ANY ASSESSEE XXXXXXXXXX XXXXXXXXXX (IA) [ANY INTEREST, COMMISSION OR BROKERAGE,[RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR F OR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, [HAS NOT BEE N PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 13 9;] PROVIDED THAT XXXXXXXXXX 5 ITA NO.650 /PUN/2016 RBL BANK LIMITED PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEF AULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201, THEN, FO R THE PURPOSE OF THIS SUB- CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DE DUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. WITH THE INTRODUCTION OF SECOND PROVISO IT WOULD BE IMPERATIVE THAT BEFORE DISALLOWING ANY AMOUNT FOR NON-DEDUCTION OF TAX AT SOURCE IT WOULD BE NECESSARY TO ASCERTAIN WHETHER THE RECIPIENT OF THE AMOUNT IN QUESTION HAD PAID TAXES ON SUCH AMOUNT. IF THE ANSWER IS IN AFF IRMATIVE NO DISALLOWANCE U/S. 40(A)(IA) IS WARRANTED ON SUCH PAYMENT. THE M EMORANDUM EXPLAINING THE INSERTION OF NEW PROVISO READS AS UNDER : A RELATED ISSUE TO THE ABOVE IS THE DISALLOWANCE U NDER SECTION 40(A)(IA) OF CERTAIN BUSINESS EXPENDITURE LIKE INTEREST, COMMISS ION, BROKERAGE, PROFESSIONAL FEE, ETC. DUE TO NON-DEDUCTION OF TAX. IT HAS BEEN PROVIDED THAT IN CASE THE TAX IS DEDUCTED IN SUBSEQUENT PREVIOUS YEAR, THE EXPENDITURE SHALL BE ALLOWED IN THAT SUBSEQUENT PREVIOUS YEAR O F DEDUCTION. IN ORDER TO RATIONALISE THE PROVISIONS OF DISALLOWA NCE ON ACCOUNT OF NON- DEDUCTION OF TAX FROM THE PAYMENTS MADE TO A RESIDE NT PAYEE, IT IS PROPOSED TO AMEND SECTION 40(A)(IA) TO PROVIDE THAT WHERE AN ASSESSEE MAKES PAYMENT OF THE NATURE SPECIFIED IN THE SAID SECTION TO A RESIDENT PAYEE WITHOUT DEDUCTION OF TAX AND IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201(1) ON ACCOUNT OF PAYMENT OF TAXES BY THE PAYEE, THEN, FOR THE PURPOSE OF ALLOWING DEDUCTION OF SUCH SUM, IT S HALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYE E. THESE BENEFICIAL PROVISIONS ARE PROPOSED TO BE APPL ICABLE ONLY IN THE CASE OF RESIDENT PAYEE. THESE AMENDMENTS WILL TAKE EFFECT FROM 1ST APRIL, 2 013 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2013-14 AN D SUBSEQUENT ASSESSMENT YEARS. 7. IN THE PRESENT CASE IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS MADE PAYMENT OF RENT TO THE TUNE OF `1,15,90,000/- TO M/ S. ELPRO INTERNATIONAL LTD. NO TAX HAS BEEN DEDUCTED ON THE AFORESAID PAYMENT BY THE A SSESSEE. THE ASSESSEE WAS SUPPOSED TO DEDUCT TAX AT SOURCE @ 0.75%, IN ACCORD ANCE WITH THE LOW RATE TAX CERTIFICATE ISSUED BY THE DEPARTMENT. THE ASSESSIN G OFFICER DURING THE SCRUTINY ASSESSMENT PROCEEDINGS FAILED TO TAKE INTO CONSIDER ATION THE RENT PAID BY THE ASSESSEE WITHOUT DEDUCTION OF TAX AT SOURCE. THE P R. COMMISSIONER OF INCOME TAX INVOKED THE PROVISIONS OF SECTION 263 AND DIRECTED THE ASSESSING OFFICER TO MAKE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. WHILE ISSU ING AFORESAID DIRECTIONS THE PR. COMMISSIONER OF INCOME TAX HELD THAT THE ASSESSEE I S NOT ELIGIBLE TO CLAIM THE BENEFIT OF THE SECOND PROVISO TO SECTION 40(A)(IA) INSERTED BY FINANCE ACT, 2012 AS THE AMENDMENT IS EFFECTIVE FROM 01-04-2013. THE PR . COMMISSIONER OF INCOME TAX HAS FURTHER PLACED RELIANCE ON THE DECISION OF HON' BLE KERALA HIGH COURT IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPORTS VS. INCOME T AX OFFICER (SUPRA) TO FORTIFY HIS VIEW. THE CONTENTION OF THE ASSESSEE IS THAT THE A MENDMENT TO SECTION 40(A)(IA) BY WAY OF INSERTION OF THE SECOND PROVISO IS APPLICABL E WITH RETROSPECTIVE EFFECT. TO STRENGTHEN THIS CONTENTION SUPPORT HAS BEEN DRAWN F ROM THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INC OME TAX VS. ANSAL LAND MARK TOWNSHIP (P) LTD. (SUPRA). THE QUESTION BEFORE HON 'BLE HIGH COURT FOR DETERMINATION WAS : 6 ITA NO.650 /PUN/2016 RBL BANK LIMITED 5. THE OTHER ISSUE URGED BY THE REVENUE DURING THE COURSE OF ARGUMENTS PERTAINS TO THE RETROSPECTIVITY OF THE SECOND PROVI SO TO SECTION 40(A) (IA) OF ACT. THE HON'BLE HIGH COURT ANSWERED THE QUESTION BY HOL DING THE AMENDMENT TO BE RETROSPECTIVE. THE RELEVANT EXTRACT OF THE JUDG MENT IS REPRODUCED AS UNDER : 12. RELEVANT TO THE CASE IN HAND, WHAT IS COMMON T O 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 ALSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAULT. AS FAR AS THE PR ESENT CASE IS CONCERNED, IT IS NOT DISPUTED BY THE REVENUE THAT THE PAYEE HAS F ILED RETURNS AND OFFERED THE SUM RECEIVED TO TAX. 13. TURNING TO THE DECISION OF THE AGRA BENCH OF IT AT 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 INSERTIO N. 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 SU CH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FO R THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INT O ACCOUNT IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE R ECIPIENTS OF THE PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRIC TIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS A BLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISAL LOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUC H TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEWORK IS CONC ERNED, THIS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTIVIZING A LAPSE AND PUNISHING A LAPSE ARE T WO DIFFERENT THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUAL LY EXCLUSIVE, CONNOTATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHE ME OF SECTION 40(A)(IA), AS ON THE STATUTE, AND TO EXAMINE WHETHE R OR NOT, ON A 'FAIR, JUST AND EQUITABLE' INTERPRETATION OF LAW- AS IS TH E GUIDANCE FROM HON'BLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT COULD NOT BE AN 'INTEN DED CONSEQUENCE' TO DISALLOW THE EXPENDITURE, DUE TO NO N DEDUCTION OF TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESP ONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE S CHEME OF SECTION 40(A)(IA), AS WE SEE IT, IS AIMED AT ENSURING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDIT URE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY T HE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENALTY FOR TAX W ITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY F OR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C, AND, SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PROVISIONS OF SECTION 40(A)(IA), AS THEY EXISTED PRIOR TO INSERTION OF SE COND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWM AKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO TH E EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNI NTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL SETTLED 7 ITA NO.650 /PUN/2016 RBL BANK LIMITED LEGAL POSITION TO THE EFFECT THAT A CURATIVE AMENDM ENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSP ECTIVE IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE I NSERTION OF SECOND PROVISO MUST BE GIVEN 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 O UT EARLIER, WE CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEE N AN 'INTENDED CONSEQUENCE' TO PUNISH THE ASSESSEES FOR NON DEDUCT ION OF TAX AT SOURCE BY DECLINING THE DEDUCTION IN RESPECT OF REL ATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE S ECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND P ROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE 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.' 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) (IA) OF THE ACT AND ITS CONCLUSION THAT THE SAID P ROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFE CT FROM 1ST APRIL 2005, MERITS ACCEPTANCE. 15. 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 RATI O OF THE DECISION OF THE AGRA BENCH, ITAT IN ( RAJIV KUMAR AGARWAL V. ACIT ). 8. SIMILAR VIEW HAS BEEN TAKEN BY THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF NEW ALIGNMENT VS. INCOME TAX OFFICER (SUPRA ) AND MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RELIANCE COMMUNICATIONS LTD . VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA). IN BOTH THE ABOVE SAID CASE S, THE TRIBUNAL HAS FOLLOWED THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ANSAL LAND MARK TOWNSHIP (P) LTD. (SUPRA). 9. ONE OF THE CONTENTIONS OF THE LD. DR IS THAT IN THE CASES CITED ON BEHALF OF THE ASSESSEE, THE DECISION RENDERED BY HON'BLE KERA LA HIGH COURT HAS NOT BEEN CONSIDERED. WE FIND THAT RAIPUR BENCH OF THE TRIBU NAL IN THE CASE OF R K P COMPANY VS. INCOME TAX OFFICER (SUPRA) HAS CONSIDER ED THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTH OOT VS. CIT (SUPRA), IN WHICH THE JUDGMENT RENDERED IN THE CASE OF PRUDENTIAL LOG ISTICS AND TRANSPORTS VS. INCOME TAX OFFICER (SUPRA) WAS CONSIDERED. THE RAI PUR BENCH BY FOLLOWING THE JUDGMENT OF HON'BLE DELHI HIGH COURT HELD THAT THE AMENDMENT IS RETROSPECTIVE IN NATURE. THE RELEVANT EXTRACT OF THE FINDINGS OF RA IPUR BENCH OF THE TRIBUNAL ARE REPRODUCED HERE-IN-BELOW : 4. WE FIND THAT HONBLE DELHI HIGH COURT HAS SPECI FICALLY APPROVED THE STAND TAKEN BY A COORDINATE BENCH OF THIS TRIBUNAL, IN TH E CASE OF RAJEEV KUMAR AGARWAL VS ACIT [(2014) 149 ITD 363 (AGRA)], AND UP HELD THE ACTION OF THE TRIBUNAL IN FOLLOWING THE SAME. 9. . 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 THE E FFECT 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 RETRO SPECTIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVI SION WAS INTRODUCED. IN VIEW OF THESE DISCUSSIONS, AS ALSO F OR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN INTENDED CONSEQUENCE TO PUNISH THE A SSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DED UCTION IN RESPECT 8 ITA NO.650 /PUN/2016 RBL BANK LIMITED OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING IN COME IS DULY BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSER TION OF SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CUR ATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, B EING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004. 10. IN VIEW OF THE ABOVE DISCUSSIONS, WE DEEM IT FI T AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFIC ER FOR FRESH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS AND AFTER CARRYING OUT NECESSARY VERIFICATIONS REGARDING RELATED PAYME NTS HAVING BEEN TAKEN INTO ACCOUNT BY THE RECIPIENTS IN COMPUTATION OF THEIR INCOME, REGARDING PAYMENT OF TAXES IN RESPECT OF SUCH INCOM E AND REGARDING FILING OF THE RELATED INCOME TAX RETURNS BY THE REC IPIENTS. WHILE GIVING EFFECT TO THESE DIRECTIONS, THE ASSESSING OFFICER S HALL GIVE DUE AND FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE, DECIDE THE MATTER IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING OR DER. WE ORDER SO 5. IN EFFECT THUS, THEIR LORDSHIPS HAVE APPROVED TH E ACTION OF THE TRIBUNAL IN REMITTING THE MATTER TO THE FILE OF THE ASSESSING O FFICER WITH A DIRECTION TO ASCERTAIN WHETHER THE RECIPIENT HAS TAKEN INTO ACCO UNT RELATED PAYMENTS INTO COMPUTATION OF HIS INCOME AND OFFERING THE SAME TO TAX, AND, IF SO, DELETE THE DISALLOWANCE UNDER SECTION 40(A)(IA) IN RESPECT OF THE SAME. 6. WHEN, HOWEVER, WE ASKED THE LEARNED DEPARTMENTAL REPRESENTATIVE AS TO WHY WE SHOULD ALSO NOT REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER, WITH THE SAME DIRECTIONS, HE, ALONGWITH HIS SENIOR COLLEAGUE SHRI DARHAN SINGH, WHO HAPPENS TO BE THE CIT(A) AUTHORING THE I MPUGNED ORDER AND WHO WAS ON DUTY AS CIT(DR) BEFORE US, HAD THREE POINTS TO MAKE- FIRST, THAT THERE ARE DECISIONS IN SUPPORT OF THE STAND OF THE ASSESS ING OFFICERS STAND, BY WAY OF HONBLE KERALA HIGH COURTS DECISION IN THE CASE OF THOMAS GEORGE MUTHOOT VS CIT [(2015) 63 TAXMANN.COM 99 (KERALA)]; SECOND, THAT EVEN IF INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) CA N BE CONSTRUED AS RETROSPECTIVE IN EFFECT, THE CORRESPONDING RULE IN THE INCOME TAX RULES 1962 IS NOT, AND HAS NOT BEEN HELD TO BE, RETROSPECTIVE, AND THE SECOND PROVISO TO SECTION 40(A)(IA) CANNOT, THEREFORE, BE GIVE RETROS PECTIVE EFFECT; AND, THIRD, THAT THERE IS NO DECISION ON THIS ISSUE BY HONBLE JURISDICTIONAL HIGH COURT AND, AS SUCH, THE STAND OF THE ASSESSING OFFICER CA NNOT BE FAULTED. 7. AS FOR HONBLE KERALA HIGH COURTS DECISION IN T HE CASE OF THOMAS GEORGE MUTHOOT (SUPRA), UNDOUBTEDLY, OUTSIDE THE JU RISDICTION OF HONBLE KERALA HIGH COURT AND OUTSIDE THE JURISDICTION OF H ONBLE DELHI HIGH COURT- WHICH HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE, THERE ARE CONFLICTING DECISIONS ON THE ISSUE OF RESTROSPECTIVITY OF SECON D PROVISO TO SECTION 40(A)(IA). IT IS THUS EVIDENT THAT VIEWS OF THESE T WO HIGH COURTS ARE IN DIRECT CONFLICT WITH EACH OTHER. CLEARLY, THEREFORE, THERE IS NO MEETING GROUND BETWEEN THESE TWO JUDGMENTS. THE DIFFICULTY ARISES AS TO WHICH OF THE HONBLE NON JURISDICTIONAL HIGH COURT IS TO BE FOLL OWED BY US IN THE PRESENT SITUATION. IT WILL BE WHOLLY INAPPROPRIATE FOR US T O CHOOSE VIEWS OF ONE OF THE HIGH COURTS BASED ON OUR PERCEPTIONS ABOUT REASONAB LENESS OF THE RESPECTIVE VIEWPOINTS, AS SUCH AN EXERCISE WILL DE FACTO AMOUNT TO SITTING IN JUDGMENT OVER THE VIEWS OF THE HIGH COURTS SOMETHIN G DIAMETRICALLY OPPOSED TO THE VERY BASIC PRINCIPLES OF HIERARCHICA L JUDICIAL SYSTEM. WE HAVE TO, WITH OUR HIGHEST RESPECT OF BOTH THE HONBLE HI GH COURTS, ADOPT AN OBJECTIVE CRITERION FOR DECIDING AS TO WHICH OF THE HONBLE HIGH COURT SHOULD BE FOLLOWED BY US. WE FIND GUIDANCE FROM THE JUDGME NT OF HONBLE SUPREME 9 ITA NO.650 /PUN/2016 RBL BANK LIMITED COURT IN THE MATTER OF CIT VS. VEGETABLE PRODUCTS L TD. [(1972) 88 ITR 192 (SC)]. HONBLE SUPREME COURT HAS LAID DOWN A PRINCI PLE THAT 'IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED'. THIS PRINCIPLE HAS BEEN CONSISTENTLY FOLLOWED BY THE VARIOUS AUTHO RITIES AS ALSO BY THE HONBLE SUPREME COURT ITSELF. IN ANOTHER SUPREME CO URT JUDGMENT, PETRON ENGG. CONSTRUCTION (P) LTD. & ANR. VS. CBDT & ORS. (1988) 75 CTR (SC) 20 : (1989) 175 ITR 523 (SC), IT HAS BEEN REITERATED T HAT THE ABOVE PRINCIPLE OF LAW IS WELL ESTABLISHED AND THERE IS NO DOUBT ABOUT THAT. HONBLE SUPREME COURT HAD, HOWEVER, SOME OCCASIONS TO DEVIATE FROM THIS GENERAL PRINCIPLE OF INTERPRETATION OF TAXING STATUTE WHICH CAN BE CONST RUED AS EXCEPTIONS TO THIS GENERAL RULE. IT HAS BEEN HELD THAT THE RULE OF RES OLVING AMBIGUITIES IN FAVOUR OF TAXPAYER DOES NOT APPLY TO DEDUCTIONS, EXEMPTION S AND EXCEPTIONS WHICH ARE ALLOWABLE ONLY WHEN PLAINLY AUTHORISED. THIS EX CEPTION, LAID DOWN IN LITTMAN VS. BARRON 1952(2) AIR 393 AND FOLLOWED BY APEX COURT IN MANGALORE CHEMICALS & FERTILIZERS LTD. VS. DY. COMM R. OF CT (1992) SUPPL. (1) SCC 21 AND NOVOPAN INDIA LTD. VS. CCE & C 1994 (73) ELT 769 (SC), HAS BEEN SUMMED UP IN THE WORDS OF LORD LOHEN, 'IN CASE OF AMBIGUITY, A TAXING STATUTE SHOULD BE CONSTRUED IN FAVOUR OF A T AX-PAYER DOES NOT APPLY TO A PROVISION GIVING TAX-PAYER RELIEF IN CERTAIN CASE S FROM A SECTION CLEARLY IMPOSING LIABILITY'. THIS EXCEPTION, IN THE PRESENT CASE, HAS NO APPLICATION. THE RULE OF RESOLVING AMBIGUITY IN FAVOUR OF THE AS SESSEE DOES NOT ALSO APPLY WHERE THE INTERPRETATION IN FAVOUR OF ASSESSEE WILL HAVE TO TREAT THE PROVISIONS UNCONSTITUTIONAL, AS HELD IN THE MATTER OF STATE OF M.P. VS. DADABHOYS NEW CHIRMIRY PONRI HILL COLLIERY CO. LTD . AIR 1972 (SC) 614. THEREFORE, WHAT FOLLOWS IS THAT IN THE PECULIAR CIR CUMSTANCES OF THE CASE AND LOOKING TO THE NATURE OF THE PROVISIONS WITH WHICH WE ARE PRESENTLY CONCERNED, THE VIEW EXPRESSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ANSAL LANDMARK (SUPRA), WHICH IS IN FAVOUR OF AS SESSEE, IS REQUIRED TO BE FOLLOWED BY US. REVENUE DOES NOT, THEREFORE, DERIVE ANY ADVANTAGE FROM HONBLE KERALA HIGH COURTS DECISION IN THE CASE OF THOMAS GEORGE MUTHOOT (SUPRA). 10. IT IS A WELL SETTLED LAW THAT WHERE TWO DIVERGE NT VIEWS ARE POSSIBLE AND BOTH THE VIEWS ARE EQUALLY CONVINCING, THE VIEW IN FAVOU R OF THE ASSESSEE MUST BE ADOPTED. THUS, APPLYING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. (SUP RA) WE ACCEPT THE CONTENTIONS OF THE ASSESSEE AND HOLD THAT THE SECOND PROVISO TO SE CTION 40(A)(IA) INSERTED BY FINANCE ACT, 2012 IS APPLICABLE RETROSPECTIVELY W.E .F. 01-04-2005 . 7. THUS, IN LIGHT OF THE ABOVE ORDER OF CO-ORDINATE BENCH, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR DE-NOVO CONSIDERATION. THE ASSESSEE SHALL FURN ISH NECESSARY DOCUMENTS TO SHOW THAT THE RECIPIENTS OF INTEREST H AVE DISCLOSED THE INTEREST INCOME IN THEIR RESPECTIVE RETURNS. THE ASSESSING OFFICER AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING SHALL D ECIDE THIS ISSUE AFRESH, IN ACCORDANCE WITH LAW. ACCORDINGLY, THE GROUND NO. 1 RAISED IN THE APPEAL FOR ASSESSMENT YEAR 2010-11 IS ALLOWED FOR STATISTICAL PURPOSE. FROM THE ABOVE, WE FIND THE ADDITIONAL GROUND RAISED BY TH E ASSESSEE IN THE ABOVE APPEALS IS ALSO IDENTICAL. FURTHER, IT IS EVIDEN T THAT THE TRIBUNAL RELYING ON VARIOUS DECISIONS BEFORE REMANDING THE ISSUE TO THE FILE OF AO AND THE DETAILS ARE DISCUSSED IN PARA NO.6. THEREFO RE, WE ADMIT THE 10 ITA NO.650 /PUN/2016 RBL BANK LIMITED ADDITIONAL GROUND RAISED BY THE ASSESSEE AND REMAND THE ISSUE BACK TO THE FILE OF AO FOR FRESH ADJUDICATION WITH IDENTICAL DIRECTIONS AS GIV EN IN THE ORDER OF TRIBUNAL (SUPRA) FOR EARLIER ASSESSMENT YEARS. ACC ORDINGLY, THE GROUNDS/ADDITIONAL GROUND RAISED BY THE ASSESSEE ARE ALLOWED FOR ST ATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 14 TH DAY OF AUGUST, 2018. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER / PUNE; / DATED : 14 TH AUGUST, 2018. SATISH # # # # / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEAL)-1, KOLHAPUR 4. THE CIT-1, KOLHAPUR , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.