ACIT(i/c), (Circle-1(1), Tirupathi, Tirupathi V. V Dwarakanath Reddy, Chittoor, Chittoor

ITA 703/HYD/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98512 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 27-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 25-05-2015
• Court: TRIBUNAL
• Department Lawyers: Y SESHA SRINIVAS
• Assessee Lawyers: S RAMA RAO
• Keywords: Retrospective amendment; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NOS. 703 & 704/HYD/2015 ASSESSMENT YEARS: 2010-11 & 2011-12 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), TIRUPATI VS SRI V. DWARAKANATH REDDY, CHITTOOR [PAN: ABZPV2454M] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI Y. SESHA SRINIVAS, DR FOR ASSESSEE : SHRI S. RAMA RAO, AR DATE OF HEARING : 27-08-2015 DATE OF PRONOUNCEMENT : 11-09-2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE TWO ARE REVENUE APPEALS FOR THE AYS. 2010-11 AND 2011-12 AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (A PPEALS), TIRUPATI DATED 29-01-2015 AND 23-02-2015 IN RESPECTIVE ASSES SMENT YEARS. SINCE COMMON ISSUE IS INVOLVED IN THIS, WE HEARD TH ESE APPEALS TOGETHER AND DECIDED BY THIS COMMON ORDER. 2. AT THE OUTSET, THESE APPEALS ARE FILED WITH A DE LAY OF 16 DAYS AND ASSESSING OFFICER (AO) FILED AN APPLICATION FOR CON DONATION OF DELAY STATING THAT THE RECORDS COULD NOT BE TRACED AND TH E APPEALS WERE FILED WITH A DELAY OF 16 DAYS. CONSIDERING THE APPLICATI ON AND ARGUMENTS OF I.T.A. NOS. 703 & 704/HYD/2015 SRI V. DWARAKANATH REDDY :- 2 -: BOTH THE PARTIES, THE DELAY IN FILING THE APPEALS T HEREFORE IS CONDONED AND APPEALS ARE ADMITTED. 3. IN BOTH THE YEARS, THERE IS A COMMON ISSUE OF DI SALLOWANCE MADE U/S. 40(A)(IA) OF AN AMOUNT OF RS. 1,59,16,750/- AN D 1,59,03,231/- IN RESPECTIVE ASSESSMENT YEARS WHICH WAS DELETED BY TH E LD. CIT(A). THE FACTS OF THE ISSUE ARE THAT ASSESSEE, AN INDIVIDUAL IS ENGAGED IN THE BUSINESS AND ALSO A PARTNER IN M/S. B.V. REDDY & SO NS. HE HAS WITHDRAWN FUNDS FROM HIS CURRENT ACCOUNT WITH THE F IRM AND SHOWN TO HAVE PAID INTEREST OF RS. 1,59,16,750/- IN AY. 2010 -11 AND RS. 1,59,03,231/- IN AY. 2011-12 TO THE FIRM. AO NOTIC ED THAT THESE AMOUNTS WERE PAID TO THE FIRM WITHOUT DEDUCTING TDS AND SINCE ASSESSEE IS IN THE BUSINESS WHERE BOOKS OF ACCOUNTS ARE AUDITED, ASSESSEE WAS LIABLE TO DEDUCT TAX ON THE INTEREST P AID. AS ASSESSEE HAS FAILED IN COMPLYING WITH THE PROVISIONS OF SECTION 40(A)(IA), HE MADE DISALLOWANCE OF INTEREST CLAIM MADE BY ASSESSEE IN THE RETURN OF INCOME. IT WAS SUBMITTED THAT THERE WERE NO LIABILITY ON TH E INTEREST PAID BY FIRM TO THE PARTNER AND INTEREST PAID BY ASSESSEE WAS OF FERED AS INCOME BY THE FIRM AND TAXES PAID, THERE SHOULD BE NO FURTHER LIABILITY BY DISALLOWING THE AMOUNTS. IT WAS ALSO CONTENDED THA T THERE WILL BE DOUBLE TAXATION OF THE SAME AMOUNT AS FIRM AND PARTNERS AR E NOT SEPARATE ENTITIES LEGALLY, HENCE NO TDS WAS MADE. AO, HOWEV ER, DID NOT AGREE AND MADE DISALLOWANCE. 4. BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT THE SAID INTEREST PAYMENTS HAVE BEEN ACCOUNTED BY THE PAYEE IN THEIR BOOKS OF ACCOUNTS AND PAYEE HAS OFFERED AS PART OF THEIR COMPUTATION IN THE RETURN OF INCOME. SINCE NEWLY INSERTED SECOND PROVISO TO SEC TION 40(A)(IA) OF THE ACT WAS INSERTED BY THE FINANCE ACT, 2013 W.E.F. 01 -04-2013, ASSESSEE CLAIMED BENEFIT OF THE SAID PROVISO AND RELIED ON T HE FOLLOWING JUDICIAL DECISIONS: I.T.A. NOS. 703 & 704/HYD/2015 SRI V. DWARAKANATH REDDY :- 3 -: I. DCIT VS. ANANDA MARAKALA ITA NO. 1584/BANG/2012 AND CO NO. 58/BANG/2013 DATED 13-09-2013; II. S.M. ANAND VS. ACIT IN ITA NO. 1831/BANG/2013 DATED 21- 02-2014; III. INCOME TAX OFFICER VS. DR. JAIDEEP KUMAR SHARMA (20 14) 34 ITR (TRIB) 565 (DELHI); AND IV. G. SHANKAR VS. ACIT CIRCLE-I, BIJAPUR ITA NO. 1832 (BANG) 2013. 5. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND RELYING ON THE PRINCIPLES LAID DOWN BY VARIOUS DECI SIONS, ANALYSED THE ISSUE ELABORATELY AND CONCLUDED THAT THE SAID PROVI SIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE TO ASSESSEE AS THE PAY EE HAS OFFERED THE AMOUNT. HOWEVER, HE DIRECTED THE AO TO VERIFY WHETH ER THE AMOUNTS ARE PAID AND SUBJECT TO OUTCOME OF SUCH VERIFICATION, T HE GROUNDS ARE TREATED AS ALLOWED. HIS DETAILED ORDER IS AS UNDER: 5.3 GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, THE SUBMISSIONS OF THE APPELL ANT AND THE CASE LAWS RELIED UPON BY THE APPELLANT. BRIEFLY STA TED, THE FACTS OF THE CASE INDICATE THAT THE APPELLANT BEING A PARTNE R IN A FIRM BY NAME M/S.B.V.REDDY & SONS, HAS OVERDRAWN THE AMOUNT S FOR WHICH THE LIABILITY FOR PAYMENT OF INTEREST TO THE EXTENT OF RS.159,16,750/- HAS ARISEN DURING THE YEAR UNDER RE FERENCE AND SHOWN TO HAVE PAID THE AMOUNTS TO THE FIRM FOR WHIC H TDS WAS NOT MADE. THE ASSESSING OFFICER HAD APPLIED THE PROVISI ONS OF SECTION 40(A)(IA) FOR HIS FAILURE TO MAKE THE TDS AND DISAL LOWED THE CLAIM OF INTEREST EXPENSES OF RS.1,59,16,750/-. THE APPELLAN T INITIALLY HAD ARGUED THAT TDS PROVISIONS ARE NOT ATTRACTED FOR TH E PAYMENT OF INTEREST AS AN INDIVIDUAL PARTNER, TO THE FIRM. HOW EVER, SUCH ARGUMENT IS FOUND TO BE NOT APPLICABLE TO THE FACTS OF THE CASE WHERE THE ASSESSEE HIMSELF IS IN BUSINESS AND BOOKS OF AC COUNT WERE AUDITABLE AS PER THE PROVISIONS OF SECTION 44AB OF THE I.T.ACT FOR THE IMMEDIATELY PRECEDING YEAR TO THE ASSESSMENT YEAR U NDER REFERENCE. FURTHER AND ALTERNATELY, THE APPELLANT T OOK THE PLEA THAT DEDUCTION OF TAX IS ONLY ONE MODE OF RECOVERY OF TA X AND ONCE INCOME IS RECOVERED IN OTHER MODE, AND SUFFERED TAX IN THE HANDS OF PAYEE, TAXING THE SAME AMOUNT, AMOUNTS TO DOUBLE TA XATION. IN THIS CONTEXT, THE APPELLANT REFERRED TO THE NEWLY INSERT ED SECOND PROVISO TO SECTION 40(A)(IA) OF THE I.T. ACT W.E.F. 01.04.2 013 WHICH MANDATES I.T.A. NOS. 703 & 704/HYD/2015 SRI V. DWARAKANATH REDDY :- 4 -: THAT IF THE RECIPIENT HAS ACCOUNTED THE SAID AMOUNT S IN THEIR BOOKS OF ACCOUNT AND HAS OFFERED SUCH INCOME FOR TAX AND PAID TAXES THEREON, THERE CANNOT BE ANY DISALLOWANCE U/S 40(A) (IA) OF THE I.T. ACT. IN FURTHER SUPPORT OF THE ARGUMENT THAT THE SA ID AMENDMENT IS CONSIDERED AS DECLARATORY AND CURATIVE IN NATURE AN D, THEREFORE, SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM THE 1ST O F APRIL, 2005 BEING THE DATE FROM WHICH SUB-CLAUSE (IA) OF SECTION 40(A ) WAS INSERTED BY THE FINANCE ACT, 2004, THE APPELLANT RELIED UPON TH E DECISIONS OF ITAT, BANGALORE IN THE CASES OF DCIT VS. ANANDA MAR AKALA AND S.M.ANAND VS. ACIT AND DECISION OF ITAT, DELHI IN T HE CASE OF ITO VS. DR.JAIDEEP KUMAR SHARMA AS INDICATED IN THE SUB MISSIONS. THE APPELLANT HAS FURNISHED FORM NO.26A AS STIPULATED B Y THE SECOND PROVISO TO SECTION 40(A)(IA), WHEREIN, THE DETAILS OF THE INCOMES / RECEIPTS BY THE PAYEE ARE INDICATED WITH FURTHER IN DICATION OF OFFERING OF THE SAME FOR TAXES AND PAYMENT OF TAXES ON THE SAID INCOMES BY THE PAYEE. IN THIS CASE, THE PAYEE NAMEL Y M/S.B.V.REDDY & SONS WAS SHOWN TO HAVE RECEIVED THE AMOUNT ON 31.03.2010 AND INCLUDED SUCH INTEREST OF RS.1,59,16 ,750/- IN THEIR TOTAL INCOME WHILE FILING THE RETURN OF INCOME ON W HICH THE TAXES WERE SHOWN TO HAVE BEEN / DEEMED TO HAVE BEEN PAID, WERE INDICATED. HOWEVER, SINCE THIS PROCEDURE WAS NOT AP PLICABLE AT THE TIME OF THE ASSESSMENT WITH THE SAID INTERPRETATION NOT AVAILABLE FOR THE ASSESSEE ON THE RETROSPECTIVE APPLICATION OF TH E PROVISO, THE SAME COULD NOT BE FURNISHED BEFORE THE ASSESSING OF FICER. 5.4 COMING TO THE ISSUE OF THE PAYMENT OF INTEREST BY THE TO THE FIRM WHERE HE IS A PARTNER, WITHOUT MAKING TDS, ARE GOVERNED BY THE FACTS OF THE CASE LAWS RELIED UPON BY THE AS SESSEE / APPELLANT, WHEREIN, THE HON'BLE TRIBUNAL OF BANGALO RE AS WELL AS ITAT, DELHI HAVE CATEGORICALLY STATED THAT THE AMEN DED SECOND PROVISO TO SECTION 40(A)(IA), AS EFFECTIVE FROM 01. 04.2013 HELD TO BE GIVEN RETROSPECTIVE EFFECT. THE RELEVANT PORTION OF THE DECISION OF ITAT, BANGALORE IN THE CASE OF SHRI G.SHANKAR VS. A CIT (SUPRA) RUNS AS UNDER: 'EARLIER, WE HAVE HELD THAT SECOND PROVISO TO SECTI ON 40(A)(IA) OF THE ACT IS RETROSPECTIVE IN OPERATION W.E.F. 01.04.2005. AS PER THIS NEWLY INSERTED PROVISO, THE ASSESSEE IS REQUIRED TO FILE FORM NO.26A AS PER RULE 31ACB OF THE I. T. RULES, 1 962, SO AS TO NOT TO BE HELD AS AN ASSESSEE IN DEFAULT AS PER THE PROVISO TO SECTION 201 OF THE ACT. AS HELD IN THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF S.M. ANAND VS. ACIT(SUPRA), SI NCE THE ASSESSEE IN THE PERIOD UNDER CONSIDERATION I.E. A. Y. 2005-06 COULD NOT HAVE CONTEMPLATED THAT SUCH A COMPLIANCE WAS TO BE MADE, WE ALSO IN THE CASE ON HAND, REMIT THE MATTER TO TH E FILE OF THE A.O. ' I.T.A. NOS. 703 & 704/HYD/2015 SRI V. DWARAKANATH REDDY :- 5 -: SIMILAR WAS THE DECISION OF THE HON'BLE ITAT, BANGA LORE IN THE CASE OF S.M.ANAND VS. ACIT, AND THE RELEVANT PORTIO N OF THE DECISION OF THE HON'BLE ITAT IN THIS REGARD RUN AS UNDER: 'IN OUR CONSIDERED OPINION, SINCE THE PAYEES / RECI PIENTS I.E. G. RAMESH AND RAMESH KOTIAN HAVE ALREADY SHOWN THESE AMOUNTS IN THEIR RESPECTIVE BOOKS OF ACCOUNT AUDITE D UNDER SECTION 44AB OF THE ACT; DECLARED AND OFFERED THE S AME TO TAX IN THEIR RETURNS OF INCOME FOR THE RELEVANT PERIOD, TH US, BY VIRTUE OF THE AMENDMENT TO THE. PROVISIONS OF SECTION 40(A)(I A) OF THE ACT W.E.F. 01.04.2013, THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT WOULD NOT BE ATTRACTED TO THE PAYMENTS MADE BY THE ASSESSEE T.E. SRI G.SHANKAR OF RS.2,69,28,500/- AND TO SHRI RAMES H KOTIAN OF RS.1,54,75,000/-. THIS VIEW OF OUR, IS IN ACCORDANC E WITH THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ANANDA MARKALA (SUPRA) WHEREIN IT WAS HELD THAT THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT SHOULD BE READ RETROSPECTIVELY FROM 01.04.2005 AND NOT PROSPECTIV ELY FROM 01.04.2013. IN THIS VIEW OF THE MATTER, THE PROVISI ONS OF SECTION 40(A)(IA) OF THE ACT IS NOT ATTRACTED TO THE PAYMEN TS MADE BY THE ASSESSEE TO SHRI G. SHANKAR OF RS.2,69,21,500/- AND TO SHRI RAMESH KOTIAN OF RS.1,54,75,000/- SINCE THE OBJECT OF INTRODUCTION OF SECTION 40(A)(IA) OF THE ACT IS ACHIEVED FOR THE REASON THAT THE PAYEES / RECIPIENTS HAVE DECLARED AND OFFERED TO TA X THE PAYMENTS RECEIVED FROM THE ASSESSEE IN THEIR RESPECTIVE HAND S. ' ON SIMILAR ISSUE THE DECISION OF THE HON'BLE ITAT, DELHI IN THE CASE OF ITO VS. DR. JAIDEEP KUMAR SHARMA RUNS AS UN DER: 'WHEN WE LOOK AT THE OVERALL SCHEME OF THE SECTION AS IT EXISTS NOW AND THE BIGGER PICTURE AS IT EMERGES AFT ER INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA), IT IS BEYO ND DOUBT THAT THE UNDERLYING OBJECTIVE OF SECTION 40(A)(IA) WAS TO DI SALLOW DEDUCTION IN RESPECT OF EXPENDITURE IN A SITUATION IN WHICH T HE INCOME EMBEDDED IN RELATED PAYMENTS REMAINS UNTAXED DUE TO NON- DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE. IN OTHE R WORDS, DEDUCTIBILITY OF THE EXPENDITURE IS MADE CONTINGENT UPON THE INCOME, IF ANY, EMBEDDED IN SUCH EXPENDITURE BEING BROUGHT TO TAX, IF APPLICABLE. IN EFFECT, THUS, A DEDUCTION FO R EXPENDITURE IS NOT ALLOWED TO THE ASSESSES, IN CASES WHERE ASSESSES HA D TAX WITHHOLDING OBLIGATIONS FROM THE RELATED PAYMENTS, WITHOUT CORRESPONDING INCOME INCLUSION BY THE RECIPIENT. TH AT IS THE CLEARLY DISCERNIBLE BIGGER PICTURE, AND, UNMISTAKAB LY, A VERY I.T.A. NOS. 703 & 704/HYD/2015 SRI V. DWARAKANATH REDDY :- 6 -: PRAGMATIC AND FAIR POLICY APPROACH TO THE ISSUE-HOW SOEVER BELATED THE REALISATION OF UNINTENDED AND UNDUE HAR DSHIPS TO THE TAXPAYERS MAY HAVE BEEN. IT SEEMS TO PROCEED ON THE BASIS, AND RIGHTLY SO, THAT SEEKING TAX DEDUCTION AT SOURCE CO MPLIANCE IS NOT AN END IN ITSELF, SO FAR AS THE SCHEME OF THIS LEGA L PROVISION IS CONCERNED, BUT IS ONLY A MEANS OF RECOVERING DUE TA XES ON INCOME EMBEDDED IN THE PAYMENTS MADE BY THE ASSESSEE. THAT IS HOW, AS WE HAVE SEEN' A SHORT WHILE AGO, THE HON'BLE DELHI HIGH COURT HAS VISUALISED THE SCHEME OF THINGS AS EVIDENT FROM THE IR LORDSHIPS' REFERENCE TO AUGMENTATION OF RECOVERIES IN THE CONT EXT OF 'LOSS OF REVENUE' AND 'DEPRIVING THE GOVERNMENT OF THE TAX D UE AND PAYABLE. (PARA 7 OF THE ORDER) WITH THE BENEFIT OF THIS GUIDANCE FROM THE HON'BLE DELHI HIGH COURT, IN VIEW OF LEGISLATIVE AMENDMENTS MADE FROM TIME TO TIME, WHICH THROW LIGHT ON WHAT WAS ACTUALLY SOUGHT TO BE ACHIEVED BY THIS LEGAL PROVISION, AND IN THE LIGHT OF THE ABOVE ANALYSIS OF THE SCHEME OF THE LAW, WE ARE OF THE CO NSIDERED VIEW THAT SECTION 40(A)(IA) CANNOT BE SEEN AS INTENDED T O BE A PENAL PROVISION TO PUNISH THE LAPSES OF NON-DEDUCTION OF TAX AT SOURCE FROM PAYMENTS FOR EXPENDITURE-PARTICULARLY WHEN THE RECIPIENTS HAVE TAKEN INTO ACCOUNT INCOME EMBEDDED IN THESE PA YMENTS, PAID DUE TAXES THEREON AND FILED INCOME TAX RETURNS IN ACCORDANCE WITH THE LAW. AS A COROLLARY TO THIS PROPOSITION, I N OUR CONSIDERED VIEW, DECLINING DEDUCTION IN RESPECT OF EXPENDITURE RELATING TO THE PAYMENTS OF THIS NATURE CANNOT BE TREATED AS AN 'IN TENDED CONSEQUENCE' OF SECTION 40(A)(IA). IT IT IS NOT AN INTENDED CONSEQUENCE, I.E., IF IT IS AN UNINTENDED CONSEQUEN CE, EVEN GOING BY BHARATI SHIPYARD LTD. VS. DEPUTY CIT [2011J 11 I TR (TRIB) 599 (MUM) [SBJ, 'REMOVING UNINTENDED CONSEQUENCES TO MA KE THE PROVISIONS WORKABLE HAS TO BE TREATED AS RETROSPECT IVE NOTWITHSTANDING THE FACT THAT THE AMENDMENT HAS BEE N GIVEN EFFECT PROSPECTIVELY'. THE REVENUE, THUS, DOES NOT DERIVE ANY ADVANTAGE FROM THE SPECIAL BENCH DECISION IN THE CA SE BHARTI SHIPYARD. (PARA 8 OF THE ORDER) ON A CONCEPTUAL NOTE, JUSTIFICATION FOR SUCH A DISA LLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FOR 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 RES TRICTIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSES SEE IS ABLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWANCE I.T.A. NOS. 703 & 704/HYD/2015 SRI V. DWARAKANATH REDDY :- 7 -: DOES DEINCENTIVISE NOT DEDUCTING TAX AT SOURCE, WHE N SUCH TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEW ORK IS CONCERNED, THIS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPAR ATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTIVISING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THINGS AND HAVE DISTINCTLY DIFFERENT, .END SOMETIMES MUTUALLY EXCLUSIVE, CONNOTATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHEME OF SECTION 40(A)(IA), AS ON TH E STATUTE, AND TO EXAMINE WHETHER OR NOT, ON A 'FAIR, JUST AND EQUITA BLE' INTERPRETATION OF LAW-AS IS THE GUIDANCE FROM THE H ON'BLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISIO N, IN OUR HUMBLE UNDERSTANDING, IT COULD NOT BE AN 'INTENDED CONSEQU ENCE' TO DISALLOW THE EXPENDITURE, DUE TO NON-DEDUCTION OF T AX 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 TEPSES 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 WITHOLDING LAPSE. THE PENALTY FO R TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271C AND SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PROVISIONS OF SECTION 40(A)(IA), AS THEY EXISTED PRIOR TO INSERTI ON OF SECOND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOUS INTEN TIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S 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 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 THE SECOND PROVISO M UST 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 ASSESSES FOR NON-DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTION LN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. THAT W ILL BE GOING I.T.A. NOS. 703 & 704/HYD/2015 SRI V. DWARAKANATH REDDY :- 8 -: MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. A CCORDINGLY, WE HOLD THAT THE INSERTION OF THE SECOND PROVISO TO SE CTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETRO SPECTIVE EFFECT FROM APRIL 1, 2005, BEING THE DATE FROM WHICH SUB C LAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO.2) AC T, 2004. (PARA 9 OF THE ORDER)' 5.5 COMING TO THE FACTS OF THE CASE, THE APPELLANT FAILED TO MAKE TDS ON THE PAYMENTS OF RS.1,59,16,750/-, FOR W HICH THE PROVISIONS OF SECTION 40(A)(IA) WERE APPLIED BY THE ASSESSING OFFICER. ON THE LINES OF THE DECISIONS OF THE HON'BE ITAT, B ANGALORE AND DELHI AS CITED ABOVE, THE INSERTION OF SECOND PROVI SO TO SECTION 40(A)(IA) WAS INTERPRETED AS EFFECTIVE FROM 01.04.2 005 AND IN THIS CASE ASSESSMENT YEAR BEING 2010-11, THE INTERPRETAT ION IS EQUALLY APPLICABLE TO THE FACTS OF THE CASE. THEREBY, IT I S REASONABLE TO HOLD THAT PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLIC ABLE IN THIS CASE AND DISALLOWANCE CANNOT BE MADE WHERE THE PAYEE ADM ITS THE INCOME AND PAYS TAX. HOWEVER, SINCE FORM 26A WAS NO T AVAILABLE TO THE ASSESSEE TO BE FURNISHED BEFORE THE ASSESSIN G OFFICER, THE ASSESSING OFFICER MAY EXAMINE THE SAID DETAILS OF I NCOME OFFERED AND TAXES PAID BY THE PAYEE AND ALLOW THE EXPENSES AS CLAIMED BY THE ASSESSEE SUBJECT TO FINDINGS OF SUCH VERIFICATI ON. THUS, ON THE LINES OF THE DECISIONS OF HON'BLE ITAT, BANGALORE A ND DECISION OF HON'BLE ITAT, DELHI (SUPRA), IT IS REASONABLE TO HO LD THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE TO THE CASE, PROVIDED THE PAYEE HAS OFFERED THE AMOUNT FOR TAX P URPOSE AND HAVE PAID OR DEEMED TO HAVE PAID THE TAXES ON SUCH INCOME. SUBJECT TO THE OUTCOME OF SUCH VERIFICATION, THE GROUND OF APPEAL IS TREATED AS ALLOWED. 6. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO N OT SEE ANY REASON TO INTERFERE WITH THE WELL REASONED ORDER OF CIT(A) AS HE HAS CONSIDERED THE LEGAL PRINCIPLES ESTABLISHED BY THE CO-ORDINATE BENCHES AND ACCORDINGLY, DECIDED THE ISSUE. THEREFORE, THE ORD ER OF CIT(A) IS UPHELD AND REVENUES GROUND ON THIS IS REJECTED. IN FACT THE REVENUES GROUND IS THAT SECOND PROVISO IS EFFECTIVE ONLY FROM 01-04 -2013 AND NOT FOR THE IMPUGNED ASSESSMENT YEARS. SINCE THIS ISSUE WAS AL READY CONSIDERED AND DECIDED THAT THE SECOND PROVISO TO SECTION 40(A )(IA) IS DECLARATORY AND CURATIVE IN NATURE AND HAS RETROSPECTIVE EFFECT FROM 01-04-2005 FROM THE DATE IN WHICH SUB-CLAUSE I.E., SECTION 40( A) WAS INSERTED BY FINANCE ACT. IN VIEW OF THIS, WE FIND NO MERIT IN THE REVENUES I.T.A. NOS. 703 & 704/HYD/2015 SRI V. DWARAKANATH REDDY :- 9 -: CONTENTIONS. ACCORDINGLY, GROUND NO.1 IN BOTH THE ASSESSMENT YEARS ON THIS ISSUE IS REJECTED. 7. THE NEXT ISSUE FOR CONSIDERATION IS GROUND NO. 2 IN AY. 2011-12. THE ISSUE CONTESTED IS WITH REFERENCE TO GIVING CRE DIT FOR SECURITY TRANSACTIONS TAX OF RS. 7,58,265/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE PAID SECURITY TRANSACTION TAX OF RS. 7,58,263/- AND HAS DEBITED THE SAME IN ITS P&L A/C. WHILE GIVING CREDIT TO THE PRE-PAID TAXES, THE SAID SECURITY TRA NSACTION TAX HAS BEEN CONSIDERED AGAIN. AO RECORDS THAT WHEN THIS WAS PO INTED OUT, ASSESSEES AR HAS AGREED FOR THE DISALLOWANCE OF RS. 7,58,263/ - AND WAS ADDED BACK TO THE INCOME RETURNED. ASSESSEE HOWEVER, TOO K UP THE ISSUE AS A GROUND BEFORE THE LD. CIT(A) AND LD. CIT(A) VIDE PA RA 6 HAS DIRECTED THE AO TO ALLOW THE AMOUNT AS A CREDIT BY STATING AS UN DER: 6.1 DURING THE COURSE OF SCRUTINY PROCEEDINGS THE ASSESSING OFFICER HAD MADE ADJUSTMENT OF RS. 7,58,263/- TO TH E TOTAL INCOME BEING THE SECURITY TRANSACTION TAX (STT) CLAIMED TW ICE. HAVING DONE, THE CREDIT AS PER SECTION 88E OF INCOME TAX W AS NOT GIVEN, WHICH APPEARS AN APPARENT MISTAKE. THE APPELLANT R EQUESTED FOR GIVING CREDIT FOR THE SAME, RAISING A SEPARATE GROU ND FOR IT. HAVING FOUND THE CLAIM TO BE IN ORDER AND ALLOWABLE, THE A SSESSING OFFICER IS DIRECTED TO GIVE CREDIT FOR THE SECURITY TRANSAC TION TAX AS PER THE PROVISIONS OF SECTION 88E. THUS, THIS GROUND OF AP PEAL TREATED AS ALLOWED. 8. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE HAVE TO UPHOLD THE REVENUES GROUND. THERE IS A MISTAKE IN THE DIRECT ION OF CIT(A) TO GIVE CREDIT FOR THE SECURITY TRANSACTION TAX AS PER THE PROVISIONS OF SECTION 88E. THE LD. CIT(A) FAILED TO NOTICE THAT VIDE SUB -SECTION 3 OF SECTION 88E, NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOW ED IN OR AFTER THE ASSESSMENT YEAR BEGINNING ON THE FIRST DAY OF APRIL , 2009. SINCE, THE IMPUGNED ASSESSMENT YEARS ARE AFTER THAT DATE, THE DIRECTION OF CIT(A) IS NOT AS PER THE PROVISIONS OF LAW. ACCORDINGLY, THE ORDER OF CIT(A) ON THIS ISSUE IS SET ASIDE. THE ORDER OF AO IS THEREFORE R ESTORED. REVENUES GROUND IS ACCORDINGLY ALLOWED. I.T.A. NOS. 703 & 704/HYD/2015 SRI V. DWARAKANATH REDDY :- 10 - : 9. IN THE RESULT APPEAL IN ITA NO. 703/HYD/2015 (AY . 2010-11) IS DISMISSED AND APPEAL IN ITA NO. 704/HYD/2015 (AY. 2 011-12) IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER, 2015 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 11 TH SEPTEMBER, 2015 TNMM COPY TO : 1. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), 2 ND FLOOR, AAYAKAR BHAVAN, KT ROAD, TIRUPATI. 2. SRI V. DWARAKANATH REDDY, D.NO. 2-1285, B.V. RED DY COLONY, CHITTOOR. 3. CIT (APPEALS), TIRUPATI. 4. CIT, TIRUPATI. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.