PVRPL-APRCL(JV), Nellore, Hyderabad V. ITO, Ward-6(1), Hyderabad, Hyderabad

ITA 736/HYD/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98596 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 01-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: P RAVI SESHAGIRI RAO
• Keywords: Business expenditure; Application of stay; Retrospective amendment; Non-deduction of tax
• Section: 194C; 139

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 ITA.NO.736/HYD/2015 ASSESSMENT YEAR 2011-2012 AND S.A.NO.36/HYD/2015 ARISING OUT OF ITA.NO.736/HYD/2015 - ASSESSMENT YEAR 2011-2012 PVRPL - APRCL (JV) NELLORE 524 003. PAN AABAP1138L VS. INCOME TAX OFFICER WARD 6(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. P. RAVISESHAGIRI RAO FOR REVENUE : SMT. NIVEDITA BISWAS DATE OF HEARING : 0 3 .09.2015 DATE OF PRONOUNCEMENT : 09 .10 .2015 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS AGAINST THE ORDER OF THE LD. CIT(A), TIRUPATI DATED 27.02.2015. ASSESSEE IS AGGRIEVED ON THE DISALLOWANCE MADE UNDER THE PROVIS IONS OF SECTION 40(A)(IA) OF ENTIRE SUB CONTRACT PAYMENT S AT RS.29,04,44,502. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. 2 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.29,04,44,502/- MADE BY THE ASSESSING OFFICER BY APPLYING THE PROVISIONS OF SEC.40(A)(IA) OF THE I.T. ACT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT THE PROVISIONS OF SEC.194C HAVE NO APPLICATION TO THE PAYMENTS MADE BY THE APPELLANT TO ITS CONSTITUENTS AND, THEREFORE, NO TDS NEED BE MADE. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT THE AMOUNTS WERE PAID DURING THE PREVIOUS YEAR UNDER CONSIDERATION AND, THEREFORE, THE PROVISIONS OF SEC . 40(A)(IA) OF THE LT. ACT ARE NOT APPLICABLE. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE SEEN THAT THE APPELLANT PAID AMOUNTS TO THE PARTNERS OF THE JV AND SUCH AMOUNTS ARE NOT SUB CONTRACT PAYMENTS AND HENCE THE PROVISIONS OF SEC.194C HAVE NO APPLICATION. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 2. BRIEFLY STATED, ASSESSEE IS A JOINT VENTURE INCORPORATED BY TWO CONSTITUENTS NAMELY M/S. PVR PROJECTS LIMITED (PVRPL) AND M/S. APR CONSTRUCTIO NS LTD., (APRCL) FOR THE PURPOSE OF OBTAINING CONTRA CTS FROM THE GOVERNMENT. IT FILED ITS RETURN OF INCOME ON 26.11.2012 ADMITTING TOTAL INCOME OF RS.82,800. A.O . NOTICED THAT ASSESSEE HAS DEDUCTED THE TAX ON PAYME NTS MADE TO SUB-CONTRACTORS BUT THE SAME WERE PAID BELA TEDLY IN LATER YEARS. THEREFORE, AS PER PROVISIONS OF SEC TION 40(A)(IA) THE PAYMENTS TO AN EXTENT OF RS.29,07,34, 947 ARE TO BE DISALLOWED UNDER SECTION 40(A)(IA). ASSESSEE 3 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE SUBMITTED THAT THE PROVISIONS OF TDS ARE NOT APPLIC ABLE TO THE ASSESSEE JV IN THE ABSENCE OF ANY CONTRACTUAL R ELATION BETWEEN JV AND ITS CONSTITUENT MEMBERS, PROVISIONS OF SECTION 194C ARE NOT APPLICABLE TO THE FACTS OF THE CASE. ASSESSEE RELIED ON THE DECISION OF COORDINATE BENCH OF HYDERABAD TRIBUNAL IN THE CASE OF ACIT, CENTRAL CIR CLE-4, HYDERABAD VS. M/S. MADHUCON SINO HYDRO (JV), HYDERABAD IN ITA.NO.646 & 701/HYD/2010 DATED 27.11.2012 TO SUBMIT THAT PROVISIONS OF TDS ARE NOT APPLICABLE. LEARNED A.O. HOWEVER DISTINGUISHED THE ORDER OF ITAT IN THE CASE OF M/S. MADHUCON SINO HYDRO (JV ) (SUPRA) AND APPLIED ANOTHER ORDER OF ITAT IN THE CA SE OF M/S. CTR-RAIL ONE-JV, HYDERABAD VS. ITO, WARD 6(3), HYDERABAD IN ITA.NO.1114 & 1122/HYD/2012 DATED 31.12.2012. ASSESSEE MADE AN ALTERNATE PLEA THAT PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE WHEN THERE ARE NO OUTSTANDING SUB-CONTRACT PAYMENTS AT T HE END OF THE YEAR FOLLOWING THE DECISION OF ITAT, SPE CIAL BENCH IN THE CASE OF M /S. MERILYN SHIPPING AND TRANSPORTS, VISAKHAPATNAM VS. ADDL.CIT, VISAKHAPATNAM, IN ITA.NO. 477/VIZ/2008 DATED 29.3.2012. LD. CIT(A) HOWEVER, REJECTED THE CONTENT ION STATING THAT ASSESSEE NEITHER PRESSED THIS GROUND N OR ELABORATED ON THIS ISSUE WITH REFERENCE TO DETAILS OF PAYMENTS OR SUB-CONTRACT CHARGES AS ON 31.03.2011. HE ALSO NOTED THAT AMOUNTS OF OUTSTANDING AS ON 31.03.2011 AND THE TDS WAS MADE IN SUBSEQUENT YEAR. ACCORDINGLY, HE DISMISSED THE GROUNDS PERTAINING TO THIS ISSUE. ASSESSEE IS AGGRIEVED. 4 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE 3. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE TRANSACTIONS AS RECORDED BY THE ASSESS EE IN THE BOOKS OF ACCOUNTS AND P & L ACCOUNT, WE ARE OF THE OPINION THAT ASSESSEE IS NOT PASSING ON THE ENT IRE AMOUNT RECEIVED AS PART OF THE CONTRACT TO ITS CONSTITUENTS. IN FACT, TDS MADE ON THE CONTRACT PAYMENTS WAS CLAIMED BY THE ASSESSEE AND NOT BY THE CONSTITUENTS. THEREFORE, THERE EXIST SOME CONTRACTU AL RELATIONSHIP. AMOUNTS RECEIVED BY THE ASSESSEE WER E SUBJECTED TO TDS BY THE PRINCIPAL AND AT THE SAME T IME ASSESSEE ALSO ADMITS THAT TDS WAS DONE ON THE SUB- CONTRACT PAYMENTS MADE TO ITS CONSTITUENTS. THE ISS UE IS NOT WHETHER ASSESSEE IS LIABLE TO DEDUCT TDS OR NOT. ASSESSEE HAVING DEDUCTED THE TAX, PAID BELATEDLY AS PER THE DETAILS FURNISHED IN THE ASSESSMENT ORDER AS UN DER: SL. NO. AMOUNT OF TAX DEDUCTED FROM SUB- CONTRACT PAYMENTS. YEAR OF DEDUCTION DUE DATE AS STIPULATED U/S.40(A)(IA) ACTUAL DATE OF REMITTANCE INTO CENTRAL GOVERNMENT ACCOUNT. 1. 53,31,687 2010-2011 30.09.2011 01.11.2011 2. 15,64,893 2010 - 2011 30.09. 2011 29.09.2012 TOTAL 68,96,580 THUS, AS CAN BE SEEN, THERE IS DELAY IN PAYMENT OF TDS TO THE GOVERNMENT AND ASSESSEE HAVING ADMITTED THAT AMOUNTS PAID ARE LIABLE TO BE DEDUCTED UNDER THE PROVISIONS OF THE ACT, IT CANNOT NOW CONTEND THAT T HERE IS NO NEED FOR DEDUCTING TAX. THE COORDINATE BENCH IN THE CASE OF CTR-RAILONE-JV VS. ITO, WARD 6(3), HYDERABA D 5 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE (SUPRA), EXAMINED SIMILAR FACTS AND CAME TO THE CONCLUSION AS UNDER : 15. . .BEFORE US THE ASSESSEE MADE A CLAIM THAT THE IT IS NOT LIABLE TO DEDUCT TDS U/S. 194C OF THE ACT. AS SEEN FROM THE ABOVE TABLE, THE ASSESSEE CREDITED THE CONTRACT RECEIPT TO THE PROFIT AND LOSS A/C AND ALSO SHOWN THE SUBCONTRACT EXPENSES IN THE PROFIT AND LOSS A/C AND DEDUCTED TDS ALSO. THIS SHOWS THAT THE ASSESSEE HAS NOT ENTRUSTED THE WORK TO THE OTHER PARTIES ON BACK TO BACK BASIS. THOUGH THE ASSESSEE CLAIMED BEFORE THAT IT HAD ONLY CARRIED ON THE WORK ON JOINT VENTURE BASIS AND THE CONTRACT WAS EXECUTED BY THE CONSTITUENTS OF THE JOINT VENTURE IN THEIR INDIVIDUAL CAPACITY, IT IS NOT ON RECORD. BUT THE FACTS ARE THAT THE MAIN CONTRACT WAS GIVEN TO THE ASSESSEE ONLY, BUT IN TURN, THE ASSESSEE TREATED THE CONSTITUENTS AS SUB-CONTRACTORS IN ITS BOOKS OF ACCOUNT AND MADE NECESSARY ' DEDUCTION OF TDS ON THE PAYMENT MADE TO THEM. BEING SO, ONCE THE ASSESSEE RECEIVED THE PAYMENT AND CREDITED THE SAME TO THE PROFIT AND LOSS A/C. AND THEREAFTER PAYMENTS WERE MADE TO THE SUB- CONTRACTORS WHICH WAS CLAIMED IN THE ASSESSEE'S BOOKS OF ACCOUNT BY DEDUCTING THE TDS, NOW THE ASSESSEE CANNOT PLEAD THAT IT IS A BACK TO BACK CONTRACT SO AS NOT TO APPLY THE PROVISIONS OF SECTION 194C OF THE ACT. THE UNDISPUTED FACT SHOWS THAT THE ASSESSEE MADE THE PAYMENT TO THE SUB-CONTRACTORS AND DEDUCTED THE TDS AND THE SAME WAS NOT DEPOSITED IN THE GOVERNMENT ACCOUNT IN TIME. IN CASE OF FAILURE TO DEDUCT TDS OR FAILURE TO DEPOSIT THE SAME U/S. 194C OF THE ACT OR UNDER THE OTHER PROVISIONS OF THE ACT, AS THE CASE MAY BE, THE ASSESSEE HAS TO FACE THE CONSEQUENCES PROVIDED UNDER CHAPTER XVII OF THE ACT INVITING VARIOUS PENAL ACTIONS INCLUDING DISALLOWANCE EXPENDITURE. THE PROVISIONS OF SECTION 40(A)(IA) ARE IN THE NATURE OF ADDITIONAL MEASURES TO 6 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE ENSURE THE DEDUCTION AND DEPOSIT CASH (TDS) WITHIN THE TIME IN THE GOVERNMENT ACCOUNT. THUS, GROUND NOS. 2 AND 3 ARE DECIDED AGAINST THE ASSESSEE. 3.1. SINCE THE FACTS ARE SIMILAR TO THE ABOVE SAID CASE, WE APPROVE THE ACTION OF THE A.O. AND LD. CIT (A) IN HOLDING THAT ASSESSEE IS LIABLE FOR DEDUCTION OF TA X ON THE SUB-CONTRACT AMOUNTS PAID, BASED ON THE ENTRIES IN THE BOOKS OF ACCOUNTS AS PLACED BEFORE US. 4. NOW THE ISSUE IS, WHETHER PROVISIONS OF SECT ION 40(A)(IA) CAN BE INVOKED FOR DENYING THE DEDUCTION OF ENTIRE CONTRACT PAYMENTS FOR DELAY IN REMITTING THE TDS MADE. THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSES SEE BY THE COORDINATE BENCH OF ITAT, BANGALORE IN THE CASE OF DCIT CIRCLE-1, UDUPI VS. ANANDA MARAKALA (2014) 48 TAXMANN.COM 402 (BANGALORETRIB.). IN THAT CASE ALS O A.O. INVOKED PROVISIONS OF SECTION 40(A)(IA) AND TH E RELEVANT OBSERVATIONS OF THE BANGALORE TRIBUNAL IN THE CASE OF ANANDA MARAKALA (SUPRA) ARE AS UNDER : THE FINANCE ACT, 2008 BROUGHT OUT AMENDMENT TO SECTION 40(A)(IA) W.E.F 1-4-2005 BY RELAXING EARLIE R POSITION TO SOME EXTENT IT MADE TWO CATEGORIES OF DEFAULTS CAUSING DISALLOWANCE ON THE BASIS OF THE PERIOD OF THE PREVIOUS YEAR IN WHICH TAX WAS DEDUCTIBLE. THE FIRST CATEGORY OF DISALLOWANCES INCLUDED THE CASES IN WHICH TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT THERE WAS FAILURE TO PAY SUCH TAX ON OR BEFORE THE DUE DATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139 OF THE ACT. 7 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE IN OTHERWORDS, IF ANY AMOUNT ON WHICH TAX WAS DEDUCTIBLE DURING LAST MONTH OF THE PREVIOUS YEAR, THAT IS MARCH, 2005, BUT WAS PAID BEFORE 31-10- 2005, BEING THE DUE DATE U/S 139(1), THE DEDUCTIBILITY OF THE AMOUNT WAS KEPT INTACT. THE SECOND CATEGORY INCLUDED CASES OTHER THAN THOSE GIVEN IN CATEGORY FIRST. TO PUT IT SIMPLY, IF TAX W AS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR, THAT IS, UP TO FEBRUARY, 2005, THE DISALLOWANCE WAS TO BE MADE IF THE ASSESSEE FAILED TO PAY IT BEFORE 31-3-2005. (PARA 15). THEN CAME THE AMENDMENT TO SECTION 40(A)(IA) BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1-4-2010. (PARA 16). FROM THE PROVISION AS AMENDED BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1-1-2010 I T CAN BE SEEN THAT THE ONLY DIFFERENCE WHICH THIS AMENDMENT HAS MADE IS DISPENSING WITH THE EARLIER TWO CATEGORIES OF DEFAULTS AS PER THE FINANCE ACT, 2008, AS DISCUSSED IN THE EARLIER PARA, CAUSING DISALLOWANCE ON THE BASIS OF THE PERIOD OF THE PREVIOUS YEAR DURING WHICH TAX WAS DEDUCTIBLE. THE FIRST CATEGORY OF DISALLOWANCES INCLUDED THE CASES IN WHICH TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT THERE WAS FAILURE TO PAY SUCH TAX ON OR BEFORE THE DUE DATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139. THE FINANCE ACT, 2010 HAS NOT TINKERED WITH THIS POSITION. THE SECOND CATEGORY OF THE FINANCE ACT, 2008 WHICH REQUIRED THE DEPOSIT OF TAX BEFORE THE CLOSE OF THE PREVIOUS YEAR IN CASE OF DEDUCTION DURING THE FIRST ELEVEN MONTHS, AS A PRECONDITION FOR THE GRANT OF DEDUCTION IN THE YEAR OF INCURRING EXPENDITURE, HAS BEEN ALTERED. THE HITHERTO REQUIREMENT OF THE ASSESSEE DEDUCTING TAX AT SOURCE DURING THE FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR AND PAYING IT BEFORE THE CLOSE OF THE PREVIOUS YEAR UP TO 31ST MARCH, OF THE PREVIOUS 8 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE YEAR AS A REQUIREMENT FOR GRANT OF DEDUCTION IN THE YEAR OF INCURRING SUCH EXPENDITURE, HAS BEEN EASED TO EXTEND SUCH TIME FOR PAYMENT OF TAX UP TO DUE DATE U/S 139(1) OF THE ACT. AS PER THE NEW AMENDMENT, THE DISALLOWANCE WILL BE MADE IF AFTER DEDUCTING TAX AT SOURCE, THE ASSESSEE FAILS TO PAY THE AMOUNT OF TAX ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION L39 OF THE ACT. THE EFFECT OF THIS AMENDMEN T IS THAT NOW THE ASSESSEE DEDUCTING TAX EITHER IN THE LAST MONTH OF THE PREVIOUS YEAR OR FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR SHALL BE ENTITLED TO DEDUCTION OF THE EXPENDITURE IN THE YEAR OF INCURRING IT, IF THE TAX SO DEDUCTED AT SOURCE IS P AID ON OR BEFORE THE DUE DATE U/S 139(1). THIS IS THE ONLY DIFFERENCE WHICH HAS BEEN MADE BY THE FINANCE ACT, 2010. (PARA 17). FURTHER LIBERALIZATION OF PROVISIONS OF SECTION 40(A)(IA) WAS MADE THROUGH AMENDMENT BROUGHT BY THE FINANCE ACT, 2012. WITH A VIEW TO LIBERALIZE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FINANCE ACT, 2012 BROUGHT AMENDMENT WITH EFFECT FROM 1- 4-20] 3. (PARA 21). THE PROVISIONS OF SECTION 40(A)(IA) ARE MEANT TO ENSURE THAT THE ASSESSEE'S PERFORM THEIR OBLIGATION TO DEDUCT TAX AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. SUCH COMPLIANCE WILL ENSURE REVENUE COLLECTION WITHOUT MUCH HASSLE. WHEN THE OBJECT SOUGHT TO BE ACHIEVED BY THOSE PROVISIONS ARE FOUND TO BE ACHIEVED, IT WOULD BE UNJUST TO DISALLOWANCE LEGITIMATE BUSINESS EXPENSES OF AN ASSESSEE. DESPITE DUE COLLECTION OF TAXES DUE, IF DISALLOWANCE OF GENUINE BUSINESS EXPENSES ARE MADE THAN THAT WOULD BE UNJUST ENRICHMENT ON THE PART OF THE GOVERNMENT AS THE PAYEE WOULD HAVE ALSO PAID THE TAXES ON SUCH INCOME. IN ORDER TO REMOVE THIS ANOMALY, THIS AMENDMENT HAS BEEN INTRODUCED. IN EASE OF PAYMENT TO NON-RESIDENT, THE GOVERNMENT DOES NOT HAVE ANY OTHER MECHANISM TO RECOVER THE DUE TAXES. HENCE, NO AMENDMENT WAS 9 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE MADE IN SECTION 40(A)(I). THE LEGISLATURE HAS NOT GIVEN BLANKET DEDUCTION UNDER SECTION 40(A)(IA). THE DEDUCTION AS PER AMENDED SECTION WILL BE ALLOWED ONLY IF THE (I) PAYEE HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139; (II) PAYEE HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND (III) PAYEE HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME. AND THE PAYER FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. (PARA 24). THE QUESTION IS AS TO WHETHER THE AMENDMENT MADE AS ABOVE IS PROSPECTIVE OR RETROSPECTIVE W.E. F. 1-4-2005 WHEN THE PROVISIONS OF SECTION 40(A)(IA ) WERE INTRODUCED. KEEPING IN VIEW THE PURPOSE BEHIND THE PROVISO INSERTED BY THE FINANCE ACT, 20] 2 IN SECTION 40(A)(IA) OF THE ACT, IT CAN BE SAID T O BE DECLARATORY AND CURATIVE IN NATURE AND THEREFORE, SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM 1-4-2005, BEING THE DALE FROM WHICH SUB-CLAUSE (IA) OF SECTIO N 40(A) WAS INSERTED BY THE FINANCE (NO 2) ACT, 2004. (PARA 25). IN CIT VS. SIKANDARKHAN N. TUNVAR (2014) 220 TAXMAN 256/(2013) 33 TAXMANN.COM 133 (GUJ.), THE HON'BLE GUJARAT HIGH COURT HELD THAT IN MERILYN SHIPPING & TRANSPORT (SUPRA) THE MAJORITY HELD THAT AS THE FINANCE BILL PROPOSED THE WORDS 'AMOUNT CREDITED OR PAID' AND AS THE FINANCE ACT USED THE WORDS 'AMOUNTS PAYABLE', SECTION 40(A)(IA) COULD ONLY APPLY TO AMOUNTS THAT ARE OUTSTANDING AS OF 31 ST MARCH, AND NOT TO AMOUNTS ALREADY PAID DURING THE YEAR. THIS VIEW IS NOT CORRECT FOR TWO REASONS. FIRSTLY, A STRICT READING OF SECTION 40(A)(IA) SHOWS THAT ALL THAT IT REQUIRES I S 10 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE THAT THERE SHOULD BE AN AMOUNT PAYABLE OF THE NATURE DESCRIBED, WHICH IS SUCH ON WHICH TAX IS DEDUCTIBLE AT SOURCE BUT SUCH TAX HAS NOT BEEN DEDUCTED OR IF DEDUCTED NOT PAID BEFORE THE DUE DATE. THE PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE MUST REMAIN SO PAYABLE THROUGHOUT DURING THE YEAR. IF THE ASSESSEE'S INTERPRETATION IS ACCEPTED, IT WOULD LEAD TO A SITUATION WHERE THE ASSESSEE WHO THOUGH WAS REQUIRED TO DEDUCT THE TAX AT SOURCE BUT NO SUCH DEDUCTION WAS MADE OR MORE FLAGRANTLY DEDUCTION THOUGH MADE IS NOT PAID TO THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONLY BECAUSE THE AMOUNT WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOTHER ASSESSEE WHO WOULD OTHERWISE BE IN SIMILAR SITUATION BUT IN WHOSE CASE THE AMOUNT REMAINED PAYABLE TILL THE END OF THE YEAR. THERE IS NO LOGIC WHY THE LEGISLATURE WOULD HAVE DESIRED TO BRING ABOUT SUCH IRRECONCILABLE AND DIVERSE CONSEQUENCES. SECONDLY, THE PRINCIPLE OF DELIBERATE OR CONSCIOUS OMISSION IS APPLIED MAINLY WHEN AN EXISTING PROVISION IS AMENDED AND A CHANGE IS BROUGHT ABOUT. THE SPECIAL BENCH WAS WRONG IN COMPARING THE LANGUAGE USED IN THE DRAFT BILL TO THAT USED IN THE FINAL ENACTMENT TO ASSIGN A PARTICULAR MEANING TO SECTION 40(A)(IA). ACCORDINGLY, MERILYN SHIPPING & TRANSPORT (SUPRA) DOES NOT LAY DOWN CORRECT LAW. THE CORRECT LAW IS THAT SECTION 40(A)(IA) COVERS NO T ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31 ST MARCH, OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. THE HON'BLE KOLKATTA HIGH COURT IN CIT V. MD. JAKIR HOSSAI MONDAL (2013) 33 TAXMAN.COM 123 DID NOT AGREE WITH THE VIEW OF THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING FOLLOWING ITS JUDGMENT ON 3RD APRIL, 2013 IN ITAT NO. 20 OF 2013, G.A. NO. 190 OF 2013 (CIT, KOLKATA-XI, VS. CRESCENT EXPORT SYNDICATES (2013) 216 TAXMAN 258/33 TAXMANN.COM 250 (CAL.) HOLDING THAT THE VIEWS 11 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE EXPRESSED IN THE CASE OF MERILYN SHIPPING & TRANSPORTS [SUPRA) WERE NOT ACCEPTABLE. (PARA 28). HOWEVER, THE ALLAHABAD HIGH COURT HAS HOWEVER UPHELD THE VIEW TAKEN BY THE SPECIAL BENCH ITAT IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) IN THE CASE OF CIT V. VECTOR SHIPPING SERVICES (P.) LTD., (2013) 357 ITR 642/218 TAXMAN 93/38 TAXMANN.COM 77 (ALL.) (PARA 29). THUS THERE ARE TWO VIEWS ON THE ISSUE, ONE IN FAVOUR OF THE ASSESSEE EXPRESSED BY THE HONBLE ALLAHABAD HIGH COURT AND THE OTHER AGAINST THE ASSESSEE EXPRESSED BY THE GUJARAT & CALCUTTA HIGH COURTS. ADMITTEDLY, THERE IS NO DECISION RENDERED BY THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE GIVEN CIRCUMSTANCES, FOLLOWING THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. VEGETABLE PRODUCTS LTD (1993) 88 ITR 192 (SC) IT IS HELD THAT WHERE TWO VIEWS ARE POSSIBLE ON AN ISSUE, THE VIEW IN FAVOUR OF THE ASSESSEE HAS TO BE PREFERRED. FOLLOWING THE DECISION OF THE HIGH COURT , THE ORDER OF THE COMMISSIONER (APPEALS) IS UPHELD. (PARA 30). 5. FURTHER, THE COORDINATE BENCH OF DELHI TRIBUNAL IN THE CASE OF ITO VS. DR. JAIDEEP KUMAR S HARMA (2014) 34 ITR (TRIB.) 565 (DEL.) HAS CONSIDERED THE AMENDMENT IN 2012 TO THE EFFECT ASSESSEE NOT TO BE DEEMED IN DEFAULT, IF RECIPIENT HAS FILED RETURN OF INCOME AND PAID TAXES WITHIN THE STIPULATED TIME. IN THAT CASE, IT WAS HELD AS UNDER : 10. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SECOND PROVISO TO SECTION 40(A)(IA) INSERTED BY THE FINANCE ACT, 2012 READS AS UNDER : 12 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE '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 DEFAULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHALL 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 PAYEE REFERRED TO IN THE SAID PROVISO.' 11. EVEN THOUGH THE ABOVE STATED PROVISO WAS INSERTED WITH EFFECT FROM APRIL 1, 2013, THE AGRA BENCH OF THE TRIBUNAL IN THE CASE OF RAJIV KUMAR AGGARWAL IN I.T.A.NO. 337/AGRA/2013 ORDER DATED MAY 29,2013, FOLLOWING THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. RAJINDER KUMAR REPORTED IN [2014] 362 ITR 241 (DELHI) AND HELD THAT THE SECOND PROVISO IS DECLARATORY AND CURATIVE IN NATURE AND HAS RETROSPECTIVE EFFECT FROM APRIL 1, 2005. THE RELEVANT FINDINGS OF THE AGRA BENCH OF THE TRIBUNAL CITED (SUPRA) READS AS FOLLOWS : '6. HOWEVER, THE STAND SO TAKEN BY THE SPECIAL BENCH WAS DISAPPROVED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. RAJINDER KUMAR REPORTED IN (2014) 362 ITR 241 (DELHI). WHILE DOING SO, THEIR LORDSHIPS OBSERVED THAT, THE OBJECT OF INTRODUCTION UNDER SECTION 40(A)(IA) IS TO ENSURE THAT TDS PROVISIONS ARE SCRUPULOUSLY IMPLEMENTED WITHOUT DEFAULT IN ORDER TO AUGMENT RECOVERIES ... FAILURE TO DEDUCT TDS OR DEPOSIT TDS RESULTS IN LOSS OF REVENUE AND MAY DEPRIVE THE GOVERNMENT OF THE TAX DUE AND PAYABLE' (EMPHASIS' SUPPLIED)'. HAVING NOTED THE UNDERLYING OBJECTIVES, THEIR LORDSHIPS ALSO PUT IN A WORD OF CAUTION BY OBSERVING THAT, 'THE PROVISION SHOULD BE INTERPRETED IN A FAIR, JUST AND EQUITABLE MANNER'. 13 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE THEIR LORDSHIPS THUS RECOGNISED THE BIGGER PICTURE OF REALISATION OF LEGITIMATE TAX DUES, AS OBJECT OF SECTION 40(A)(IA), AND THE NEED OF ITS FAIR, JUST AND EQUITABLE INTERPRETATION. THIS APPROACH IS QUALITATIVELY DIFFERENT FROM PERCEIVING THE OBJECT OF SECTION 40 (A) (IA) AS AWARDING OF COSTS ON THE 'ASSESSEES WHO FAIL TO COMPLY WITH THE RELEVANT PROVISIONS BY CONSIDERING OVERALL OBJECTIVE OF BOOSTING TDS COMPLIANCE'. NOT ONLY THE CONCLUSIONS ARRIVED AT BY THE SPECIAL BENCH WERE DISAPPROVED BUT THE VERY FUNDAMENTAL ASSUMPTION UNDERLYING ITS APPROACH, I.E., ON THE ISSUE OF THE OBJECT OF SECTION 40(A)(IA), WAS REJECTED TOO. IN ANY EVENT, EVEN GOING BY BHARATI SHIPYARD LTD. V. DEPUTY CIT (2011) 11 ITR (TRIB.) 599 (MUM) (SB) DECISION, WHAT WE HAVE TO REALLY EXAMINE IS WHETHER 2012 AMENDMENT, INSERTING SECOND PROVISO TO SECTION 40(A)(IA), DEALS WITH AN 'INTENDED CONSEQUENCE' OR WITH AN UNINTENDED CONSEQUENCE'. 7. WHEN WE LOOK AT THE OVERALL SCHEME OF THE SECTION AS IT EXISTS NOW AND THE BIGGER PICTURE AS IT EMERGES AFTER INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) IT IS BEYOND DOUBT THAT THE UNDERLYING OBJECTIVE OF SECTION 40(A)(IA) WAS TO DISALLOW DEDUCTION IN RESPECT OF EXPENDITURE IN A SITUATION IN WHICH THE INCOME EMBEDDED IN RELATED PAYMENTS REMAINS UNTAXED DUE TO NON-DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE. IN OTHER 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 FOR EXPENDITURE IS NOT ALLOWED TO THE ASSESSEES, IN CASES WHERE ASSESSEES HAD TAX WITHHOLDING OBLIGATIONS FROM THE RELATED PAYMENTS, WITHOUT CORRESPONDING INCOME INCLUSION BY THE RECIPIENT. THAT IS THE CLEARLY DISCERNIBLE BIGGER PICTURE AND, UNMISTAKABLY, A VERY PRAGMATIC AND FAIR POLICY APPROACH TO THE ISSUE HOWSOEVER, BELATED THE REALISATION OF 14 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE UNINTENDED AND UNDUE HARDSHIPS TO THE TAXPAYERS MAY HAVE BEEN. IT SEEMS TO PROCEED ON THE BASIS, AND RIGHTLY SO, THAT SEEKING TAX DEDUCTION AT SOURCE COMPLIANCE IS NOT AN END IN ITSELF, SO FAR AS THE SCHEME OF THIS LEGAL PROVISION IS CONCERNED, BUT IS ONLY A MEAN OF RECOVERING, DUE TAXES ON INCOME EMBEDDED IN THE PAYMENTS MADE BY THE ASSESSEE. THAT IS HOW, AS WE HAVE SEEN A SHORT WHILE AGO, THE HONBLE DELHI HIGH COURT HAS VISUALISED THE SCHEME OF THINGS AS EVIDENT FROM THEIR LORDSHIPS REFERENCE TO AUGMENTATION OF RECOVERIES IN THE CONTEXT OF 'LOSS OF REVENUE' AND DEPRIVING THE GOVERNMENT OF THE TAX DUE AND PAYABLE. 6. IN THIS CASE, ASSESSEE HAS PLACED ON RECORD EVIDENCE THAT CONSTITUENTS HAS FILED THE RETURNS OF INCOME AND CLAIMED TDS, WHATEVER IS DEDUCTED BY THE ASSESS EE WHICH WAS ALSO DULY ALLOWED. IN VIEW OF THIS, THERE IS NO DISPUTE THAT CONSTITUENTS HAVE ACCOUNTED FOR THE IN COMES AND ALSO PAID TAXES ACCORDINGLY. IN VIEW OF THIS, F OLLOWING THE COORDINATE BENCH DECISIONS SUPRA, WE ARE OF THE OPINION THAT THE PROVISIONS OF AMENDMENT BROUGHT IN FINANCE ACT, 2012 ARE TO BE CONSIDERED AS CLARIFICA TORY AND AS ASSESSEE HAS DEDUCTED TAX AND ALSO PAID THOU GH BELATEDLY, WE ARE OF THE OPINION THAT PROVISIONS OF SECTION 40(A)(IA) CAN BE LIBERALLY INTERPRETED SO AS TO EXC LUDE THE AMOUNTS FROM THE PURVIEW OF THE ABOVE SECTION. A.O. IS DIRECTED TO ALLOW THE EXPENDITURE AS CLAIMED. ASSES SEES GROUNDS ARE ALLOWED ACCORDINGLY. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 15 ITA.NO.736/HYD/2015 PVRPL-APRCL (JV), NELLORE 8. IN VIEW OF THE DISPOSAL OF THE APPEAL, STAY APPLICATION FILED BY THE ASSESSEE BECOMES INFRUCTUO US. IN VIEW OF THAT STAY APPLICATION IS REJECTED. 9. TO SUM-UP, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND STAY APPLICATION OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.10.2015 SD/- SD/- (SMT. P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 09 TH OCTOBER, 2015 VBP/- COPY TO 1. PVRPL - APRCL (JV), NELLORE - 524 003. C/O. MR. S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, 3-6-643, STREET NO.9, HIMAYATNAGAR, HYDER ABAD 500 029. 2. INCOME TAX OFFICER, WARD 6(1), I.T. TOWERS, A.C. GUARDS, HYDERABAD. 3. CIT (A) , AAYAKAR BHAVAN, K.T. ROAD, TIRUPATI - 517501. 4. CIT, TIRUPATI . 5. D.R. ITAT B BENCH, HYDERABAD 6. 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