SHRI DILIP SURYAVANSHI, Bhopal V. THE ACIT 2(1), Bhopal

ITA 84/IND/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6245 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 09-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Keywords: Recovery proceedings; Business expenditure; Retrospective amendment; Non-deduction of tax; Reassessment proceedings
• Section: 194C; 201(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A.NO. 84/IND/2015 A.Y. : 2005-06 SHRI DILIP SURYAVANSHI, (PROP. M/S. DILIP BUILDERS) E-5/99, ARERA COLONY, BHOPAL VS ACIT, 2(1), BHOPAL APPELLANT RESPONDENT PAN NO. ANRPS2215H APPELLANTS BY : SHRI HITESH CHIMNANI, CA RESPONDENT BY : SHRI R. A. VERMA, DR O R D E R PER D.T.GARASIA, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)-I, BHOPAL, DATED 12.11.2014 FOR TH E ASSESSMENT YEAR 2005-06. DATE OF HEARING : 15.03.2016 DATE OF PRONOUNCEMENT : 22.04.2016 SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 2 2 2. THE SHORT FACTS OF THE CASE ARE AS UNDER :- 3. THE AO NOTICED THAT DURING THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HAD MADE PAYMENT OF RS. 1,75,00,000/- TO THE SUB-CONTRACTOR, SHRI DEVENDRA KUMAR JAIN, BUT DID NOT DEDUCT TDS ON THE SAID AMOUNT AS PER THE PROVISIONS OF THE INCOME-TAX ACT, 1961. THE ASSESSE E WAS ASKED TO EXPLAIN AS TO WHY THE EXPENSES OF RS. 1,75,00,000/- FOR SUB-CONTRACT WORK PAID TO SHRI DE VENDRA KUMAR JAIN SHOULD NOT BE DISALLOWED U/S 40(A)(IA) O F THE ACT. IN RESPONSE TO NOTICE, THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD PAID RS. 1,75,00,000/- TO SHRI DEVENDR A KUMAR JAIN AGAINST EXECUTION OF SUB-CONTRACT WORKS, BUT BY MISTAKE TDS WAS NOT DEDUCTED. HOWEVER, SHRI DEVENDR A KUMAR JAIN HAD INCLUDED THE SUB-CONTRACT RECEIPTS I N HIS GROSS TOTAL INCOME AND HAD PAID TAX THEREON. IT WAS ALSO SUBMITTED THAT THE ASSESSMENT OF SHRI DEVENDRA KUMA R JAIN FOR ASSESSMENT YEAR 2005-06 HAD ALREADY BEEN M ADE. SINCE HE HAD PAID TAX ON THIS INCOME, THERE SHOULD NOT BE AGAIN RECOVERY OF TAX ON THE SAME AMOUNT FROM THE ASSESSEE. THE AO DID NOT ACCEPT THE SUBMISSION OF T HE ASSESSEE AND AO HELD THAT THE ASSESSEE FAILED TO DE DUCT THE SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 3 3 TAX AT SOURCE ON SUB CONTRACT PAYMENT OF RS. 1,75,0 0,000/- MADE TO SHRI DEVENDRA KUMAR JAIN. HENCE, THE EXPENS ES CLAIMED ON ACCOUNT OF SUB-CONTRACT RECEIPT WAS DISA LLOWED U/S 40(A)(IA) OF THE ACT. 4. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. 5. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IS AN INDIVIDUAL. HE IS A GOVERNMENT CONTRACTOR AND RUNNING BUSINESS IN THE NAME OF PROP RIETORY CONCERN M/S. DILIP BUILDERS. THE ASSESSEES ORIGINA L RETURN WAS ACCEPTED AND THEREAFTER REOPENED U/S 147 OF THE ACT AND DURING THE REASSESSMENT PROCEEDINGS, THE PAYMEN T OF RS. 1,75,00,000/- MADE TO SUB CONTRACTOR, WAS DISA LLOWED. SHRI DEVENDRA KUMAR JAIN PAID THE TAXES ON THE SAID RECEIPT AND HIS INCOME WAS ASSESSED BY THE ASSESSIN G OFFICER WHICH IS ON PAGE 9 15 OF THE PAPER BOOK. THE COPY OF THE ORDER OF ITO-TDS HAD RECOVERED INTEREST U/S 201(1A) OF RS. 94,248/- FROM THE ASSESSEE AND IT WAS ULTIMA TELY DEPOSITED BY THE DEDUCTEE, WHICH IS ON PAGE 16-20 O F THE PAPER BOOK. THE ASSESSEE HAS ALSO RELIED ON THE DEC ISION OF HINDUSTAN COCA-COLA BAVERAGES PRIVATE LIMITED VS. C IT, 211 SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 4 4 CTR 545 (S. C.) ALONGWITH CBDT CIRCULAR NO.272/201/ 95- IT(B) DATED 29 TH JANUARY, 1997. THUS, THERE WAS NO LOSS TO THE GOVERNMENT. THEREFORE, THE APPEAL SHOULD HAVE B EEN ALLOWED. THE LD. AUTHORIZED REPRESENTATIVE SUBMITT ED THAT THERE WAS AMENDMENT IN FINANCE ACT, 2012, BEING INS ERTION OF SECOND PROVISO TO SECTION 40(A)(IA), WHICH WAS CLARIFICATORY AND RETROSPECTIVE IN OPERATION. THE A SSESSEE HAS ALREADY PROVIDE THE IN PRINCIPLE COMPLIANCE O F THE CONDITIONS MENTIONED IN THAT SUB SECTION BEFORE THE AO IN THE ASSESSMENT PROCEEDINGS AND THUS NO DISALLOWANCE U/S 40(A)(IA) SHOULD BE MADE IN THIS CASE. THE SECOND P ROVISO IS RETROSPECTIVE W.E.F. 1.4.2013 AND NOT EARLIER. THER EFORE, NO PENALTY SHOULD BE LEVIED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT ONLY ISSUE IN THIS APPEAL IS DISALLOWA NCE OF RS. 1,75,00,000/- U/S 40(A)(IA) ON ACCOUNT OF NON-DEDUC TION OF TDS AND PAYMENT MADE TO ONE SHRI DEVENDRA KUMAR JAI N, SUB CONTRACTOR. THE ASSESSEE IS AN INDIVIDUAL AND H E IS A GOVERNMENT CONTRACTOR RUNNING THE BUSINESS IN THE N AME OF PROPRIETORY CONCERN M/S. DILIP BUILDERS. DURING THE SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 5 5 ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE AS SESSEE MADE PAYMENT OF RS. 1,75,00,000/- SUB-CONTRACTOR SH RI DEVENDRA KUMAR JAIN ON WHICH THE ASSESSEE HAS NOT DEDUCTED THE TDS, BUT SHRI DEVENDRA KUMAR JAIN HAD PAID TAXES DUE ON THE SAID RECEIPT AND HIS INCOME WAS AS SESSED BY THE ASSESSING OFFICER OF THE PAYEE, WHICH IS ON PAGE 9-15 OF THE PAPER BOOK. THE COPY OF THE ORDER OF ITO-TDS WHEREIN THE ITO TDS HAD RECOVERED INTEREST U/S 201(1A) OF R S. 94,248/- FROM THE ASSESSEE BEING THE COMPENSATION F OR DELAY OF TIME WHEN TDS OUGHT TO, HAVE BEEN DEPOSITE D BY THE DEDUCTOR AND WHEN IT WAS ULTIMATELY DEPOSITED B Y THE DEDUCTEE, WHICH IS ON PAGE 16-20 OF THE PAPER BOOK. SINCE THE PAYEE HAD ALREADY PAID TAXES, TAX COULD NOT ONC E AGAIN BE RECOVERED FROM THE PAYER I.E. ASSESSEE. THE RATI O OF DECISION OF HON'BLE SUPREME COURT IN THE CASE OF HI NDUSTAN COCA-COLA BEVERAGES PVT.LTD. VS. CIT, 211 CTR 545 ( S.C.) HELD THAT WHEN THE ASSESSEE IS IN DEFAULT FOR TDS, THE TAX ALREADY PAID BY RECIPIENT OF INCOME TAX PAYEE HAD A LREADY PAID THE TAXES DUE ON PAYMENT RECEIVED FROM IT FROM THE ASSESSEE. THEREFORE, THE TAX COULD NOT BE RECOVERED ONCE AGAIN FROM THE DEDUCTOR ASSESSEE. THIS ISSUE ALREAD Y STANDS SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 6 6 CLARIFIED BY CIRCULAR NO. 272/201/95-IT(B) DATED 29 .1.1997. IN THE INSTANT CASE, THE ASSESSEE HAS PAID RS. 1,75 ,00,000/- TO SHRI DEVENDRA KUMAR JAIN AGAINST EXECUTION OF SU B CONTRACT IN THE INCOME TAX DEPARTMENT AND FOR THE A BOVE ASSESSMENT YEAR 2005-06, HE GOT THESE BOOKS AUDITED AND SUBMITTED AUDIT REPORT WITHIN THE TIME TO ACIT,2(1) , UJJAIN. ACCORDINGLY, SHRI DEVENDRA KUMAR JAIN HAS FILED THE COPY OF THE ASSESSMENT ORDER. THE PAYEE HAS ALSO, DEDUCTED INTEREST ON IT AND CHALLAN WAS SUBMITTED. 7. IN THE INSTANT CASE, THE QUESTION ARISES WHETHER TH E ASSESSEE CAN BE CONSIDERED AS IN DEFAULT FOR NOT DE DUCTING THE TDS, IF THE PAYEE EVEN THOUGH HAS SHOWN AMOUNT IN HIS RETURN ALSO. SECTION 40(A)(IA) OF THE INCOME-TAX A CT, 1961, HAS BEEN AMENDED BY THE FINANCE ACT 2012 W.E.F. 1.4 .2013, WHICH READS AS UNDER :- THE INSERTION OF SECOND PROVISO WAS EXPLAINED BY MEMORANDUM EXPLAINING THE PROVISION IN FINANCE BILL, 2012, REPORTED IN 342 ITR (STATUTES) 234 AT 26 0 & 261, WHICH READS AS UNDER.- E.RATIONAUZATION OF TAX DEDUCTION AT SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 7 7 SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. DEEMED DATE OF PAYMENT OF TAX BY T HE RESIDENT PAYEE. UNDER THE EXISTING PROVISIONS OF CHAPTER XVII-B OF T HE INCOME-TAX ACT, A PERSON IS REQUIRED TO DEDUCT T AX ON CERTAIN SPECIFIED PAYMENTS AT THE SPECIFIED RATES IF THE PAYMENT EXCEEDS SPECIFIED THRESHOLD. IN CASE OF NON-DEDUCTION OF TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER, HE IS DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201(1) IN RESPECT OF THE AMOUNT OF SUCH NON-DEDUCTION. HOWEVER, SECTION 191 OF THE ACT PROVIDES THAT A PERSON SHALL HE DEEMED TO BE ASSESSEE IN DEFAULT IN RESPECT OF NON/SHORT DEDUCTION OF TAX ONLY IN CASES WHERE THE PAYEE HAS ALSO FAILED TO PAY THE TAX DIRECTLY. THEREFORE, THE DEDUCTOR CANNOT BE TREATED AS ASSESSEE IN DEFAULT IN RESPECT OF NON/SHORT DEDUCTI ON OF TAX IF THE PAYEE HAS DISCHARGED HIS TAX LIABILITY. THE PAYER IS LIABLE TO PAY INTEREST UNDER SECTION SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 8 8 201(1A) ON THE AMOUNT OF NON/SHORT DEDUCTION OF TAX FROM THE DALE ON WHICH SUCH TAX WAS DEDUCTIBLE TO THE DALE ON WHICH THE PAYEE HAS DISCHARGED HIS TAX LIABILITY DIRECTLY. AS THERE IS NO ONE-TO-ONE CORRELATION BETWEEN THE TAX TO BE DEDUCTED BY THE PAYER AND THE TAX PAID BY THE PAYEE, THERE IS LACK OF CLARITY AS TO WHEN IT CAN BE SAID THAT PAYER HAS PAID THE TAXES DIRECTLY. ALSO, THERE IS NO CLARITY ON THE ISSUE OF THE CUT-OFF DATE, I.E., THE DALE ON WHICH IT CAN BE SAID THAT THE PAYEE HAS DISCHARGED HIS TAX LIABILITY. IN ORDER TO PROVIDE CLARITY REGARDING DISCHARGE OF LAX LIABILITY BY THE RESIDENT PAYEE ON PAYMENT OF ANY SUM RECEIVED BY HIM WITHOUT DEDUCTION OF TAX, IT PROPOSED TO AMEND SECTION 201 TO PROVIDE THAT THE PAYER WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX ON THE PAYMENT MADE TO A RESIDENT PAYEE SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT PAYEE- (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 9 9 139 ; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME ILL SUCH RETURN OF INCOME: AND (III) H AS 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. THE DATE OF PAYMENT OF TAXES BY THE RESIDENT PAYEE SHALL BE DEEMED TO BE THE DATE ON WHICH RETURN HAS BEEN FURNISHED BY THE PAYER. IT IS ALSO PROPOSED TO PROVIDE THAT WHERE THE PAYER FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX ON THE PAYMENT MADE TO A RESIDENT AND IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201(1) ON ACCOUNT OF PAYMENT OF TAXES BY THE SUCH RESIDENT, THE INTEREST UNDER SECTION 201(IA)(I) SHALL BE PAYABLE FROM THE DALE ON WHICH SUCH LAX WAS DEDUCTIBLE TO THE DATE OF FURNISHING OF RETURN OF INCOME BY SUCH SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 10 10 RESIDENT PAYEE. AMENDMENTS, ON SIMILAR LINES ARE ALSO PROPOSED TO BE MADE IN THE PROVISIONS OF SECTION 206C RELATING TO TCS FOR CLARIFYING THE DEEMED DATE OF DISCHARGE OF LAX LIABILITY BY THE BUYER OR LICENSEE OR LESSEE. THESE AMENDMENTS WILL TAKE EFFECT FROM 1 ST JULY, 2012. II. DISALLOWANCE OF BUSINESS EXPENDITURE ON ACCOUNT OF NON-DEDUCTION OF TAX ON PAYMENT TO RESIDENT PAYEE. A RELATED ISSUE TO THE ABOVE IS THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF CERTAIN BUSINESS EXPENDITURE LIKE INTEREST, COMMISSION, BROKERAGE, PROFESSIONAL FEE, ETC. DUE TO NON-DEDUCTION OF LAX. IT HAS BEEN PROVIDED THAT IN CASE THE TAX IS DEDUCTED IN SUBSEQUENT PREVIOUS YEAR, THE EXPENDITURE SHALL HE ALLOWED IN THAT SUBSEQUENT PREVIOUS YEAR OF DEDUCTION. IN ORDER TO RATIONALIZE THE PROVISIONS OF DISALLOWANCE SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 11 11 ON ACCOUNT OF NON-DEDUCTION OF TAX FROM THE PAYMENT S MADE TO A RESIDENT 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 TA X AND IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDE R SECTION 201(1) ON ACCOUNT OF PAYMENT OF TAXES BY TH E PAYEE, THE, FOR THE PURPOSE OF ALLOWING DEDUCTION O F SUCH SUM, IT SHALL BE DEEMED THAT THE ASSESSEE HAD DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE. THESE BENEFICIAL PROVISIONS ARE PROPOSED TO BE APPLICABLE ONLY IN THE CASE OF THE RESIDENT PAYEE. THESE AMENDMENTS WILL TAKE EFFECT FROM IST APRIL, 2013 AND WILL, ACCORDINGLY, APPLY IN RELATION TO TH E ASSESSMENT YEAR 2013-14 AND SUBSEQUENT ASSESSMENT YEARS. ' SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 12 12 8. AS PER THE AMENDMENT IN SECTION 40(A)(IA) W.E.F. 1 ST JULY, 2013, IF THE ASSESSEE IS LIABLE TO, DEDUCT T AX AT SOURCE AND IF HE HAS NOT DEDUCTED THE TAX AT SOURCE BUT PA YEE HAS ALREADY DEDUCTED AND PAID THE TAX ON SUCH SUM AND FURNISHED THE RETURN, THE ASSESSEE CANNOT BE TREATE D AS IN DEFAULT IN PAYING THE TDS AMOUNT. THIS AMENDMENT HA S RETROSPECTIVE EFFECT FROM 1.4.2005 AS HELD BY HON'B LE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P) LIMITED, (2015) 61 TAXMANN.COM 45 (DEL ), WHEREIN THE HON'BLE HIGH COURT HAS HELD THAT 9. IT IS SEEN THAT THE SECOND PROVISO TO SECTION 40(A)(IA) WAS INSERTED BY THE FINANCE ACT, 2012, W.E.F. 1 ST APRIL, 2013. THE EFFECT OF THE SAID PROVISO IS TO INTRODUCE A LEGAL FICTION WHERE AN ASSESSEE FAILS TO DEDUCT TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVIIB. WHERE SUCH ASSESSEE IS DEEMED NOT TO BE AN ASSESSEE IN DEFAULT IN TERMS OF THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201 OF THE ACT, THEN, IN SUCH EVEN, IT SHA LL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 13 13 OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. 10. IT IS POINTED OUT BY THE LD. COUNSEL FOR THE REVENUE THAT THE FIRST PROVISO TO SECTION 201(1) OF THE ACT WAS INSERTED W.E.F. 1 ST JULY, 2012. THE SAID PROVISO READS AS UNDER :- PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT - (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139 ;: (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME ILL SUCH RETURN OF INCOME: AND SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 14 14 (III) H AS 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. 11. THE FIRST PROVISO TO SECTION 201(1) OF THE ACT HAS BEEN INSERTED TO BENEFIT THE ASSESSEE. IT ALSO STATES THAT WHERE A PERSON FAILS TO DEDUCT TAX AT SOURCE ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME U/S 139 OF THE ACT. NO DOUBT, THERE IS A MANDATORY REQUIREMENT U/S 201 TO DEDUCT TAX AT SOURCE UNDER CERTAIN CONTINGENCIES, BUT THE INTENTION OF THE LEGISLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJECT TO THE SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 15 15 FULFILLMENT OF THE CONDITION AS STIPULATED IN THE FIRST PROVISO TO SECTION 201(1). THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) ALSO REQUIRES TO BE VIEWED IN THE SAME MANNER. THIS AGAIN IS A PROVISO INTENDED TO BENEFIT THE ASSESSEE. THE EFFECT OF THE LEGAL FICTION CREATED THEREBY IS TO TREAT THE ASSESSEE AS A PERSON NOT IN DEFAULT OF DEDUCTING TAX AT SOURCE UNDER CERTAIN CONTINGENCIES. 12. RELEVANT TO THE CASE IN HAND, WHAT IS COMMON TO BOTH THE PROVISOS TO SECTION 40(A)(IA) AND SECTION 201(1) OF THE ACT IS THAT AS LONG AS THE PAYEE/RESIDENT ( WHICH IN THIS CASE IS ALIP) HAS FILED 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 BE TREATED AS A PERSON IN DEFAULT. AS FAR AS THE PRESENT CASE IS CONCERNED, IT SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 16 16 IS NOT DISPUTED BY THE REVENUE THAT THE PAYEE HAS FILED RETURNS AND OFFERED THE SUM RECEIVED TO TAX. 13. RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE DELH I HIGH COURT, WE ARE OF THE VIEW THAT IN THIS CASE TH E ASSESSEE HAS NOT PAID THE TAXES, BUT THE TAX HAS ALREADY BEE N PAID BY SHRI DEVENDRA KUMAR JAIN TO WHOM THE ASSESSEE HAS P AID RS. 1,75,00,000/- AGAINST THE EXECUTION OF THE SAID CONTRACT WORK. WE, THEREFORE, FOLLOWING THE ABOVE DECISION A RE OF THE VIEW THAT NO ADDITION IS REQUIRED, BUT WE FOUND THA T AS PER THE SECOND PROVISO TO SECTION 40(A)(IA) READ WITH F IRST PROVISO TO SECTION 201(1) ARE DULY COMPLIED WITH BY THE ASS ESSEE OR NOT, WHICH REQUIRES VERIFICATION AT THE STAGE OF AO . THEREFORE, WE RESTORE THE MATTER TO THE FILE OF AO. AS PER THE PAPER BOOK FILED BEFORE US, THE PAYEE SHRI DEVENDRA KUMAR JAIN HAS FURNISHED ITS RETURN OF INCOME ON 6.11.200 7, WHICH IS AT PAGE 9 OF THE PAPER BOOK. THE ASSESSEE HAS AL SO DRAWN OUR ATTENTION TO THE FINDING OF AO ON PAGE 9 & 10 O F THE PAPER BOOK. THE ASSESSEE HAS ALSO FILED THE EVIDENC E REGARDING PAYMENT OF DUE TAXES WHICH IS ON PAGES 13 ,15 & 17 OF THE PAPER BOOK. WE FIND THAT THE ASSESSEE HAS NOT FILED SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 17 17 THE CERTIFICATE, BUT IT IS MERE FORMALITY. WE FIND THAT THE AO IS DIRECTED TO VERIFY THESE FACTS FROM THE RECORD A ND THE AO SHALL SEE THAT IF SHRI DEVENDRA KUMAR JAIN HAS FURN ISHED HIS RETURN OF INCOME AND SHOWN AS PAID TAXES ON THE CONTRACT AMOUNT OF RS. 1,75,00,000/-, THEN NO DISAL LOWANCE IS REQUIRED U/S 40(A)(IA) OF THE INCOME-TAX ACT, 19 61. 14. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. DR SHRI R. A. VERMA HAS SUBMITTED THE DECISION OF HON' BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE, (2013) 33 TAXMANN.COM 250 (CAL) AND THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CAS E OF CIT VS. VECTOR SHIPPING SERVICES (P) LIMITED, (2013) 35 7 ITR 642 (ALL). 15. WE HAVE GONE THROUGH THE JUDGMENT OF HON'BLE CALCUTTA HIGH COURT, WHEREIN HON'BLE CALCUTTA HIGH COURT HAS REVERSED THE JUDGEMENT OF SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ADDL. CIT, (2012) 136 ITD 23, WHEREIN IT IS HELD THAT IF ALL THE AMOUNTS HAD BEEN PAID, THEN NO DISALLOWANCE COULD BE MADE U/S 40(1)(IA) AND IF ANY AMOUNT WAS FOUND TO BE SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 18 18 PAYABLE AS ON THE YEAR END, THEN THE AO WOULD GIVE THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE HIS CASE AS TO WHY THE DISALLOWANCE, IF ANY, SHOULD NOT BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(1)(IA). THE HON'BLE CALCUTTA HIGH COURT HAS REVERSED THE JUDGEMENT OF SPECIAL BENCH AND THE JUDGMENT WAS IN FAVOUR OF THE DEPARTMENT. SIMILARLY, THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES (P) LIMITED, 357 ITR 642, HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE DEPARTMENT. WE HAVE ALSO GONE THROUGH THE JUDGEMENT OF HON'BLE ALLAHABAD HIGH COURT, WHEREIN THE HON'BLE ALLAHABAD HIGH COURT HAS HELD AS UNDER :- IT WAS FOUND THAT CIT(A) HAD RECORDED FINDING THAT THE ALLOWANCE WAS CLAIMED FOR SALARIES ON WHICH TDS WAS DEDUCTED BY MERCATOR LINES LIMITED FOR THE ASSESSEE. THE CIT(A) HAD HELD THAT FIRSTLY, THE PROVISIONS OF SECTION 194C READ WITH SECTION 40(A)(IA) WERE NOT APPLICABLE TO THE CASE OF THE APPELLANT. SECONDLY, NATURE OF EXPENSES INCURRED BY THE SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 19 19 ASSESSEE DO NOT FORM PART OF EXPENSES DISALLOWABLE U/S 40(A)(IA). THIRDLY, WHEN SUCH TYPE OF EXPENSES INCURRED BY THE APPELLANT WERE TOTALLY PAID AND NOT REMAINED PAYABLE AS AT THE END OF THE RELEVANT ACCOUNTING PERIOD, PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE. FURTHER, THE APPELLANT HAD CLARIFIED ALL THE FIVE QUESTIONS RAISED AS ABOVE AND ITS CLARIFICATIONS WERE FOUND SATISFACTORY AND CONVINCING. THUS, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING ADDITION ON ACCOUNT OF DISALLOWANCE MADE U/S 40(A)(IA). 16. WE FIND THAT SPECIAL LEAVE PETITION HAS BEE N FILED AGAINST THE JUDGMENT OF VECTOR SHIPPING SERVICES BY SPECIAL LEAVE PETITION NO. 8068/2014 AND THE SPECIAL LEAVE PETITION WAS DISMISSED. RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT, WE ARE OF THE VIEW TH AT THOUGH THE HON'BLE CALCUTTA HIGH COURT AND HON'BLE GUJARAT HIGH COURT HAVE DECIDED THIS ISSUE IN FAVO UR OF THE DEPARTMENT, BUT THE HON'BLE ALLAHABAD HIGH COURT HA S DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE CONFIRM ING THE SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 20 20 DECISION OF MERILYN SHIPPING & TRANSPORTS VS. ADDL. CIT, (2012) 136 ITD 23. AGAINST THE JUDGMENT OF ALLAHABA D HIGH COURT, THE MATTER WENT TO HON'BLE SUPREME COURT, WH ICH IS THE JUDGMENT AND IS ON PAGE 77 OF THE PAPER BOOK, W HEREIN THE HON'BLE SUPREME COURT HAS DISMISSED THE SPECIAL LEAVE APPLICATION BY OBSERVING AS UNDER :- ORDER HEARD MR.MUKUL ROHATGI, LEARNED ATTORNEY GENERAL, F OR THE PETITIONER DELAY IN FILING AND REFILLING SPECIAL LEAVE PETITIO N IS CONDONED. SPECIAL LEAVE PETITION IS DISMISSED. DIGITALLY SIGNED BY RAJESH DHAM DATE :2014.07.02 17. FROM THIS, IT IS CLEAR THAT THE JUDGEMENT OF HON'B LE ALLAHABAD HIGH COURT IS CONFIRMED BY THE HON'BLE S UPREME COURT. 18. MOREOVER, WE FIND THAT WE ARE RELYING UPON THE INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT, SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 21 21 WHICH IS CURATIVE AND HAS RETROSPECTIVE EFFECT W.E. F. 1.4.2005 BEING THE DATE FROM WHICH SECTION 40(1)(IA) OF THE ACT WAS INSERTED BY THE FINANCE ACT, 2004. IN VIEW OF THIS, WE ARE OF THE VIEW THAT THE MATTER REQUIRES VERIFICATION WITH REGARD TO PAYMENTS TAKEN IN TO ACCOUNT BY RECIPIENT IN COMPUT ATION OF ITS INCOME AND VERIFICATION OF PAYMENT OF TAX IN RE SPECT OF SUCH INCOME AND ALSO FILING THE INCOME TAX RETURN B Y THE RECIPIENT. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF AO AND THE ASSESSEE WILL PROVIDE ALL THE DETAILS IN TE RMS OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE INCOME-T AX ACT, 1961. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL, 2016. SD/- (B.C.MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 22 ND APRIL, 2016. CPU* SHRI DILIP SURYAVANSHI, BHOPAL VS. ACIT, 2(1), BHOP AL I.T.A.NO. 84/IND/2015 A.Y. 2005-06 22 22 5.4