M/s Vishwas Builders, Mangalore V. CIT, Mangalore

ITA 907/BANG/2011

• Counselvise Citation: 90721114 RSA 2011
• Duration Of Justice: 3 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 17-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Retrospective amendment
• Section: 143(3); 194C; 263; 11; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.907/BANG/2011 ASSESSMENT YEAR : 2006-07 M/S. VISHWAS BUILDERS, VISHWAS CROWN, NEAR COCHIN BAKERY, KANKANADY, MANGALORE 575 002. PAN: AAFFV 8709E VS. THE COMMISSIONER OF INCOME TAX, MANGALORE. APPELLANT RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR) DATE OF HEARING : 29.10.2014 DATE OF PRONOUNCEMENT : 31.10.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER DATED 16.12.2010 PASSED U/S. 263 OF THE ACT BY THE COMMIS SIONER OF INCOME-TAX [CIT], MANGALORE RELATING TO ASSESSMENT YEAR 2006 -07. ITA NO. 907/BANG/2011 PAGE 2 OF 16 2. THE ASSESSEE IS A PARTNERSHIP FIRM. FOR THE A.Y . 2006-07, ASSESSEE FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.5,88,340. AN ORDER OF ASSESSMENT U/S. 143(3) OF THE ACT WAS PASSED IN WHI CH THE ASSESSING OFFICER MADE TWO ADDITIONS TO THE TOTAL INCOME VIZ. , A SUM OF RS.1 LAKH VOLUNTARILY OFFERED BY THE ASSESSEE FOR TAXATION AN D ANOTHER SUM OF RS.2,66,036 BY MAKING DISALLOWANCE FOR NON-DEDUCTIO N OF TAX AT SOURCE ON A PAYMENT OF RS.2,66,036 TOWARDS PAYMENT TO CONTRAC TORS FALLING U/S. 194C OF THE ACT. 3. THE LD. CIT, IN EXERCISE OF HIS POWERS U/S. 263 OF THE ACT, WAS OF THE VIEW THAT THE AFORESAID ORDER OF THE AO WAS ERRONEO US AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, INASMUCH AS THE AO HA S NOT MADE DISALLOWANCE OF A SUM OF RS.29,95,170 WHICH COMPRIS ED OF 170 PAYMENTS TOWARDS PROFESSIONAL FEES AND CONTRACT CHARGES ON W HICH TAX HAD NOT BEEN DEDUCTED AT SOURCE. THE CIT NOTICED THAT THE DATES OF PAYMENT OR CREDIT TO PAYEES ARE SPREAD THROUGHOUT THE PREVIOUS YEAR, I.E ., FROM MAY, 2005 TO FEBRUARY, 2006, BUT TDS WAS MADE ON A SINGLE AND MU CH LATER DATE, VIZ., 31.03.2006, IN EACH OF THE 170 INSTANCES. ULTIMATE LY THE TAX DEDUCTED AT SOURCE ON 31.3.2006 ON THE AFORESAID PAYMENTS WHICH WERE CLAIMED AND ALLOWED AS DEDUCTION IN THE ORDER OF ASSESSMENT WER E PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT ONLY ON 18.8.2006. IT IS NO T IN DISPUTE THAT 18.8.2006 WAS BEFORE THE DUE DATE FOR FILING RETURN OF INCOME BY THE ASSESSEE FOR AY 06-07 AS THE DUE DATE FOR FILING TH E RETURN OF INCOME IN THE CASE OF THE ASSESSEE FOR AY 06-07 WAS 31.10.2006. ITA NO. 907/BANG/2011 PAGE 3 OF 16 4. ACCORDING TO THE CIT, AS PER THE PROVISIONS OF S ECTION 194C/194H/194J OF THE ACT, UNDER THE ASSESSEE WAS O BLIGED TO DEDUCT TAX AT SOURCE ON PAYMENT MADE, THE DEDUCTION OF TAX AT SOURCE OUGHT TO HAVE BEEN MADE AT THE TIME OF PAYMENT OR AT THE TIME OF CREDIT OF SUCH INCOME IN THE BOOKS OF ACCOUNTS OF THE PERSON LIABLE TO PAY S UCH INCOME, WHICHEVER IS EARLIER. ACCORDING TO THE CIT, THE ASSESSEE POSTPO NED THE TIME OF DEDUCTION OF TAX AT SOURCE TILL THE MONTH OF MARCH, 2006 AND REMITTED THE AMOUNT TO THE CREDIT OF THE GOVERNMENT ON 18.8.2006 . THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT APPLICABLE TO THE RELEVANT AY NEED TO BE LOOKED INTO. SECTION 40 HAS CERTAIN CLAUSES PROVIDING FOR THE AMOUNTS WHICH ARE NOT DEDUCTIBLE. SUB-CLAUSE (IA) OF CLAUSE (A) OF SE CTION 40 WAS INSERTED BY THE FINANCE (NO.2) ACT, 2004 WITH EFFECT FROM 1ST A PRIL, 2005 READING AS UNDER:- 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTED THE INCOME CHARGEABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSI ON .. (IA) ANY INTEREST, COMMISSION OR BROKERAGE, FEES FO R 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 FOR CARRYING OUT ANY WORK), ON OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT ITA NO. 907/BANG/2011 PAGE 4 OF 16 YEAR OR, HAS BEEN DEDUCTED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION. FOR THE PURPOSES OF THIS SUB-CLAUSE, - (I)COMMISSION OR BROKERAGE SHALL HAVE THE SAME MEANING AS IN CLAUSE (I) OF THE EXPLANATION TO SECT ION 194H; (II)FEES FOR TECHNICAL SERVICES SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB- SECTION (1) OF SECTION 9; (III)PROFESSIONAL SERVICES SHALL HAVE THE SAME ME ANING AS IN CLAUSE (A) OF THE EXPLANATION TO SECTION 194J ; (IV)WORK SHALL HAVE THE SAME MEANING AS IN EXPLANATION III TO SECTION 194C; 5. THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL EXPLAINED THE RATIONALE OF THE INSERTION OF THE NEW PROVISION IN FOLLOWING WORDS :- WITH A VIEW TO AUGMENT COMPLIANCE OF TDS PROVISIONS, IT IS PROPOSED TO EXTEND THE PROVISIONS OF SECTION 40(A)(I) TO PAYMENTS OF INTEREST, COMMISSION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES TO RESIDENTS, AND PAYMENTS TO A RESIDENT CONTRACTOR OR SUB-CONTRACTOR FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION, HAS NOT BEEN PAID BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200 AND IN ACCORDANCE WITH THE OTHER PROVISIONS OF CHAPTER XVII-B. IT IS ALSO PROPOSED TO PROVIDE THAT WHERE IN RESPECT OF ITA NO. 907/BANG/2011 PAGE 5 OF 16 PAYMENT OF ANY SUM, TAX HAS BEEN DEDUCTED UNDER CHAPTER XVII-B OR PAID IN ANY SUBSEQUENT YEAR, THE SUM OF PAYMENT SHALL BE ALLOWED IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. THE PROPOSED AMENDMENT WILL TAKE EFFECT FROM 1ST DAY OF APRIL, 2005 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2005- 2006 AND SUBSEQUENT YEARS. [CLAUSE 11] 6. THEREAFTER THE FINANCE ACT, 2008 MADE AMENDMENT TO CLAUSE (A) IN SUB-CLAUSE (IA) IN SECTION 40 WITH RETROSPECTIVE EF FECT FROM 1ST APRIL, 2005. THE SECTION AS AMENDED BY THE FINANCE ACT, 2008 REA D AS UNDER:- (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNT S PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN PAID,- (A) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 ; OR (B) IN ANY OTHER CASE, ON OR BEFORE THE LAST DAY OF THE PREVIOUS YEAR. PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HA S BEEN DEDUCTED- (A) DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE SAID DUE DATE ; OR (B) DURING ANY OTHER MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE END OF THE SAID PREVIOUS ITA NO. 907/BANG/2011 PAGE 6 OF 16 YEAR, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. ; 7. THE FINANCE ACT, 2008 BROUGHT OUT AMENDMENT TO S ECTION 40(A)(IA) W.R.E.F. 1.4.2005 BY RELAXING EARLIER POSITION TO S OME 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 D EDUCTIBLE 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. IN OTHER WORDS, IF ANY AMOU NT ON WHICH TAX WAS DEDUCTIBLE DURING LAST MONTH OF THE PREVIOUS YEAR, THAT IS MARCH 2005, BUT WAS PAID BEFORE 31ST OCTOBER, 2005, BEING THE DUE D ATE U/S 139(1), THE DEDUCTIBILITY OF THE AMOUNT WAS KEPT INTACT. THE SE COND CATEGORY INCLUDED CASES OTHER THAN THOSE GIVEN IN CATEGORY FIRST. TO PUT IT SIMPLY, IF TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE FIRST ELE VEN MONTHS OF THE PREVIOUS YEAR, THAT IS, UP TO FEBRUARY, 2005, THE D ISALLOWANCE WAS TO BE MADE IF THE ASSESSEE FAILED TO PAY IT BEFORE 31ST M ARCH, 2005. 8. ACCORDING TO THE CIT, THE BENEFIT OF PAYING THE TAX DEDUCTED AT SOURCE ON OR BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S.139(1) OF THE ACT, AS LAID DOWN IN CLAUSE(A) ABOVE CAN BE AVAILED ONLY IF THE TAX DEDUCTIBLE RELATED TO PAYMENTS MADE IN THE MONTH OF MARCH, 2006. SINCE THE PAYMENTS MADE BY THE ASSESSEE IN THE PRESENT CA SE WERE IN THE ITA NO. 907/BANG/2011 PAGE 7 OF 16 MONTHS EARLIER TO MARCH, 2009, THE ASSESSEE OUGHT N OT TO HAVE POSTPONED THE TIME OF DEDUCTION OF TAX AT SOURCE TO THE MONTH OF MARCH, 2009 AND PAID THE TAX DEDUCTED AT SOURCE ON 18.8.2006 AND CLAIMED THE BENEFIT OF CLAUSE (A) ABOVE. ACCORDING TO THE CIT, THE ASSESSEE OUGH T TO HAVE DEDUCTED TAX AT SOURCE EVEN PRIOR TO THE MONTH OF MARCH, 2009 AN D THEREFORE THE TAX DEDUCTED AT SOURCE OUGHT TO HAVE PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT ON OR BEFORE 31.3.2006 AS LAID DOWN IN C LAUSE (B) ABOVE. ON THE ABOVE REASONING THE CIT HELD THAT THE AO OUGHT TO HAVE DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF A SUM OF RS. 29.95,170 INVOKING THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT. 9. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE CIT: 9. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE ASSESSEES AVERMENTS. SECTION 40(A)(IA) LAYS DOWN T HAT CERTAIN PAYMENTS NAMED THEREIN SHALL NOT BE DEDUCTED IN COM PUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, IF TAX DEDUCTIBLE AT SOURCE UNDER CHAPT ER XVII-B HAS NOT BEEN DEDUCTED, OR, AFTER DEDUCTION, HAS NOT BEE N PAID. IN THE LATTER CASE, THE SECTION IS ATTRACTED UNDER TWO CIR CUMSTANCES, VIZ., (1) IF TDS IS MADE DURING THE LAST MONTH OF THE PRE VIOUS YEAR, BUT NOT PAID BEFORE THE DUE DATE SPECIFIED IN SECTION 1 39(1); AND (2) IF TDS IS MADE AT ANY OTHER TIME, BUT NOT PAID ON OR B EFORE THE LAST DAY OF THE PREVIOUS YEAR. IT IS THE CASE OF THE ASS ESSEE THAT THE DEFAULT ON THE PART OF THE FIRM IS NOT IN FAILING T O MAKE TDS, BUT IN REMITTING THE TDS MADE TO GOVERNMENT ACCOUNT, AN D THAT SECTION 40(A)(IA) IS NOT ATTRACTED BECAUSE THE FIRS T CIRCUMSTANCE IS NOT MET OR, IN OTHER WORDS, THE TDS WAS PAID BEFORE THE DUE DATE SPECIFIED IN SECTION 139(1), VIZ., 31.10.2006. 10. I DO NOT FIND MERIT IN THE ABOVE CONTENTION. O PERATION OF SECTION 40(A)(IA) IS CONTINGENT UPON THE CONDITIONS FOR DEDUCTION OF TAX AT SOURCE PRESCRIBED UNDER THE RELEVANT SECT IONS IN CHAPTER XVII-B, SECTION 194C, WHICH DEALS WITH PAYMENTS TO CONTRACTORS, ITA NO. 907/BANG/2011 PAGE 8 OF 16 CLEARLY SPECIFIES THAT ANY PERSON RESPONSIBLE FOR P AYING ANY SUM TO ANY RESIDENT CONTRACTOR FOR CARRYING OUT ANY WOR K INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK SHALL DE DUCT TAX AT THE RATES PRESCRIBED AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF, W HICHEVER IS EARLIER . SIMILARLY, SECTION 194J, WHICH DEALS WITH FEES FO R PROFESSIONAL OR TECHNICAL SERVICES, ALSO LAYS DOWN THAT DEDUCTION OF TAX SHALL BE MADE AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT, WHI CHEVER IS EARLIER . 11. IN THE PRESENT CASE, DATES OF PAYMENT OR CREDI T TO PAYEES ARE SPREAD THROUGHOUT THE PREVIOUS YEAR, I.E., FROM MAY, 2005 TO FEBRUARY, 2006, BUT TDS WAS MADE ON A SINGLE AND MU CH LATER DATE, VIZ., 31.03.2006, IN EACH OF THE 170 INSTANCE S. SINCE DATES OF PAYMENT/CREDIT ACTUALLY PRECEDE THE DATES OF DEDUCT ION OF TAX AS SHOWN IN ANNEXURE-IIIC TO THE AUDIT REPORT, PROVISI ONS OF SECTION 40(A)(IA) ARE VERY MUCH ATTRACTED IN THIS CASE BOTH FOR NON DEDUCTION OF TAX AT SOURCE (SINCE THE ASSESSEE MADE PAYMENTS OR CREDITED THE PAYEES ACCOUNTS WITHOUT MAKING TDS) A ND FOR DELAY IN PAYMENT TO GOVERNMENT ACCOUNT. TDS SHOWN TO HAVE BEEN MADE 31.03.2006 ARE NOTHING BUT MERE BOOK ENTRIES I N THE NATURE OF BALANCE DAY ADJUSTMENTS THAT HAPPENED MUCH AFTER ACTUAL PAYMENTS OR CREDITS WERE MADE. THUS THE VERY OBJECT AND PURPOSE OF SECTIONS 194C AND 194J IS DEFEATED BY PAYMENTS O R CREDITS HAVING BEEN MADE WITHOUT DEDUCTING TAX AT THE TIME OF SUCH PAYMENTS OR CREDITS. THE FIRM HAS ADMITTED AS MUCH IN ITS WRITTEN STATEMENT DATED 09.12.2010, WHILE STATING THAT IT H AD DEDUCTED THE TAX DURING THE MONTH OF MARCH, 2006, ALTHOUGH IT WA S REQUIRED TO DEDUCT TAX THROUGHOUT THE YEAR FROM APRIL, 2005 TO FEBRUARY, 2006. THEREFORE, THE DISALLOWANCE UNDER SECTION 40( A)(IA) ARISES BY REASON OF FAILURE ON THE PART OF THE FIRM TO MAK E TDS, IN ADDITION TO THAT OF DELAY IN REMITTING THE TDS TO G OVERNMENT ACCOUNT. 10. DESPITE SERVICE OF NOTICE, NONE APPEARED ON BEH ALF OF THE ASSESSEE. WE HAVE HEARD THE LD. DR, WHO RELIED ON THE ORDER O F THE CIT. ITA NO. 907/BANG/2011 PAGE 9 OF 16 11. WE HAVE PERUSED THE ORDER OF THE LD. CIT AND NO TICE THAT HE HAS FOUND THAT ASSESSEE WAS MAKING PAYMENTS THROUGHOUT THE PREVIOUS YEAR I.E., MAY, 2005 TO FEBRUARY, 2006, BUT TDS WAS MADE ON A SINGLE DAY I.E., ON 31.3.2006. TDS HAS BEEN PAID BY THE ASSESSEE T O THE CREDIT OF THE CENTRAL GOVT. ON 18.8.2006, WHICH IS, ADMITTEDLY, B EFORE THE DUE DATE OF FILING OF RETURN OF INCOME. 12. SECTION 40(A)(IA) UNDERWENT FURTHER AMENDMENT BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 2010 . THE PROVISION SO AMENDED, NOW READS AS UNDER :- (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNT S PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR 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 BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SU B- SECTION (1) OF SECTION 139. PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HA S BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFT ER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTIO N 139, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. 13. FROM THE ABOVE PROVISION AS AMENDED BY THE FIN ANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 2010 IT C AN BE SEEN THAT THE ONLY DIFFERENCE WHICH THIS AMENDMENT HAS MADE IS DISPENS ING WITH THE EARLIER ITA NO. 907/BANG/2011 PAGE 10 OF 16 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 D EDUCTIBLE 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 REQU IRED THE DEPOSIT OF TAX BEFORE THE CLOSE OF THE PREVIOUS YEAR IN CASE OF DE DUCTION DURING THE FIRST ELEVEN MONTHS, AS A PRE-CONDITION FOR THE GRANT OF DEDUCTION IN THE YEAR OF INCURRING EXPENDITURE, HAS BEEN ALTERED. THE HITHER TO REQUIREMENT OF THE ASSESSEE DEDUCTING TAX AT SOURCE DURING THE FIRST E LEVEN MONTHS OF THE PREVIOUS YEAR AND PAYING IT BEFORE THE CLOSE OF THE PREVIOUS YEAR UP TO 3 1ST MARCH OF THE PREVIOUS YEAR AS A REQUIREMENT FOR GRA NT 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 D EDUCTING TAX AT SOURCE, THE ASSESSEE FAILS TO PAY THE AMOUNT OF TAX ON OR B EFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 OF THE ACT. THE EFFECT OF THIS AMENDMENT IS THAT NOW THE ASSESSEE DEDUCTING TAX EI THER 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 YEA R OF INCURRING IT, IF THE TAX ITA NO. 907/BANG/2011 PAGE 11 OF 16 SO DEDUCTED AT SOURCE IS PAID ON OR BEFORE THE DUE DATE U/S 139(1). THIS IS THE ONLY DIFFERENCE WHICH HAS BEEN MADE BY THE FINA NCE ACT, 2010. 14. THIS TRIBUNAL IN THE CASE OF SRI SANTOSH KUMAR SHETTY IN ITA NO.1194/BANG/2012 BY ORDER DATED 26.7.2013 , HAS TAKEN A VIEW THAT AMENDMENT TO PROVISIONS OF SECTION 40(A)(IA) O F THE ACT BY THE FINANCE ACT, 2010 WILL OPERATE RETROSPECTIVELY W.E.F. 1.4.2 005. AS PER THE AFORESAID AMENDMENT, TAX DEDUCTED AT SOURCE, IF IT IS PAID ON OR BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME, THEN NO DISALLOWANC E U/S. 40(A)(IA) OF THE ACT CAN BE MADE. FOR THE SAKE OF READY REFERENCE, WE R EPRODUCE BELOW THE DECISION RENDERED ON A SIMILAR ISSUE IN THE CASE OF SRI SANTOSH KUMAR SHETTY (SUPRA) WHEREIN THE TRIBUNAL AFTER REFERRING TO THE LEGISL ATIVE HISTORY OF SEC.40(A)(IA) OF THE ACT:- HELD AS FOLLOWS: 15. THE QUESTION AS TO WHETHER THE AMENDMENT BY THE FINANCE ACT, 2010 AS AFORESAID IS PROSPECTIVE OR RE TROSPECTIVE FROM 1.4.2005 CAME UP FOR CONSIDERATION BEFORE THE MUMBAI SPECIAL BENCH ITAT IN THE CASE OF BHARATI SHIPYARD LTD . BEFORE THE SPECIAL BENCH IT WAS ARGUED THAT THE AMENDMENT WAS MADE WITH A VIEW TO REMOVE THE UNNECESSARY HARDSHIP CAUS ED TO THE ASSESSEE BY THE EARLIER PROVISION. THE SPECIAL BENC H BY ITS ORDER DATED 9.9.2011 HOWEVER HELD THAT THE AMENDMENT CARR IED OUT BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FRO M ASSESSMENT YEAR 2010- 2011 CANNOT BE HELD TO BE RETROSPECTIVE FROM ASSESSMENT YEAR 2005-2006. THE SPECIAL BENCH HELD THAT THE AMENDMENT BROUGHT OUT BY THE FINANCE ACT, 2010 TO S ECTION 40(A)(IA) W.E.F. 01.04.2010, IS NOT REMEDIAL AND CU RATIVE IN NATURE. 16. PRIOR TO THE DECISION OF THE SPECIAL BENCH, I DENTICAL ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE ITAT KOLKA TA BENCH IN THE CASE OF VIRGIN CREATIONS VS. ITO, WARD 32(4), KOLKATA ITA NO. 267/KOL/2009 FOR AY 05-06. THE ISSUE THAT AROSE FOR ITA NO. 907/BANG/2011 PAGE 12 OF 16 CONSIDERATION WAS DISALLOWANCE OF EXPENSES U/S.40(A )(IA)CLAIMED AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS B EING EMBROIDERY CHARGES, DYEING CHARGES, INTEREST ON LOA N AND FREIGHT CHARGES WITHOUT DEDUCTING TAX AT SOURCE. THE EMBRO IDERY CHARGES WERE PAID BETWEEN 22ND MAY, 2004 TO 30.11.2 004. TAX HAD BEEN DEDUCTED AT SOURCE BUT WERE PAID TO THE GO VERNMENT ONLY ON 28.10.2005 AND NOT WITHIN THE TIME CONTEMPL ATED BY SECTION 200(1) OF THE ACT. THE DYEING CHARGES WERE PAID BETWEEN 5.4.2004 TO 20.8.2004. TAX WAS DEDUCTED AT SOURCE BUT WAS PAID TO THE GOVERNMENT ONLY ON 28.10.2005. FRE IGHT OUTWARD CHARGES WERE PAID WITHOUT DEDUCTION OF TAX AT SOURCE. INTEREST ON LOANS WERE CREDITED TO THE CREDITORS AC COUNT ON 31.3.2005 TO THE EXTENT THEY WERE PAID AFTER THE DU E DATE FOR FILING RETURN OF INCOME U/S.139(1) OF THE ACT, THE DISALLO WANCE WAS MADE U/S.40(A)(IA) OF THE ACT. BEFORE THE TRIBUNAL , THE ASSESSEE CONTENTED THAT THE AMENDMENT BY THE FINANCE ACT, 20 10 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 2010 WHEREBY A MOUNT OF TAX DEDUCTED AT THE TIME OF MAKING PAYMENT IN RESPECT O F EXPENDITURE REFERRED TO IN SEC.40(A)(IA) OF THE ACT, IF PAID TO THE GOVERNMENT ON OR BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME DUE DATE U/S 139(1) OF THE ACT SHOULD BE ALLOWED AS A DEDUCT ION. IN OTHER WORDS IT WAS ARGUED THAT THE AMENDMENT BY THE FINAN CE ACT, 2010 TO THE PROVISIONS OF SEC.40(A)(IA) HAS TO BE H ELD TO BE RETROSPECTIVE W.E.F. 1-4-2005. THE ITAT KOLKATA BE NCH BY ITS ORDER DATED 15.12.2010, HELD AS FOLLOWS: 8. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREFUL PERUSAL OF THE MATERIALS AVAILABLE ON RECOR D, KEEPING IN VIEW OF THE FACT THAT THOUGH THE LD.D.R. SUBMITTED THAT THE DECISIONS OF THE COORDINATE BENCHES ARE NOT BINDING AND THE KOLKATA BENCHES MAY TAKE A DIFFERENT VIEW, SINCE MUMBAI BENCH AFTER ANALYZING THE PROVISIONS OF SEC.40(A)9IA) SIN CE ITS INCEPTION AND VARIOUS AMENDMENTS MADE TO THE SAME INCLUDING THE SUGGESTION MADE BY THE INDUSTRY IN THE FORM OF REPRESENTATION IN THEIR PRE - BUDGET MEMORANDUM TO THE HONBLE FINANCE MINISTER AND BY APPLYING THE DECISION OF THE HONBL E APEX COURT IN THE CASE OF ALOM EXTRUSIONS LTD., HAS OBSERVED THAT THE PROVISIONS OF SECTION 40(A)(IA) AS STOOD PRIOR TO THE AMENDMENTS MADE BY THE FINANCE ACT 2010 THUS WERE RESULTING INTO UNINTENDED CONSEQUENCES AND CAUSING GRAVE AND GENUINE HARDSHIPS TO THE ASSESSES WHO HAD ITA NO. 907/BANG/2011 PAGE 13 OF 16 SUBSTANTIALLY COMPLIED WITH THE RELEVANT TDS PROVISIONS BY DEDUCTING THE TAXES AT SOURCE AND BY PAYING THE SAME TO THE CREDIT OF THE GOVERNMENT BEFORE THE DUE DATE OF FILING OF THEIR RETURNS U/S.139(1). IN ORDER TO REMEDY THIS POSITION AND T O REMOVE THE HARDSHIPS WHICH WAS BEING CAUSED TO THE ASSESSEE BELONGING TO SUCH CATEGORY, AMENDMENTS HAVE BEEN MADE IN THE PROVISIONS OF SECTION 40(A)(IA) BY THE FINANCE ACT, 2010. THE SA ID AMENDMENTS, IN OUR OPINION, THUS ARE CLEARLY REMEDIAL/CURATIVE IN NATURE AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF ALLIED MOTORS PVT.LTD. (SUPRA) AND MOM EXTRUSIONS LTD. (SUPRA) AND THE SAME THEREFORE WOULD APPLY RETROSPECTIVELY W.E.F. 1ST APRIL, 2005. IN THE CASE OF R.B.JODHA MAL KUTHIALA 82 ITR 570, IT WAS HELD BY THE HONBLE SUPREME COURT THAT A PROVISO WHICH IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE PROVISION WORKABLE, REQUIRES TO BE TREATED AS RETROSPECTIVE IN OPERATION SO THAT A REASONABLE INTERPRETATION CAN BE GIVEN TO THE SECTION AS A WHOLE. IN THE PRESENT CASE, THE AMOUNT OF TAX DEDUCTED AT SOURCE FROM THE FREIGHT CHARGES DURING THE PERIOD 01/04/2005 TO 28/02/2006 WAS PAID BY THE ASSESSEE IN THE MONTH OF JULY AND AUGUST 2006 I.E., WELL BEFORE THE DUE DATE OF FILING OF IT S RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. THIS BEING THE UNDISPUTED POSITION, WE HOLD THAT THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOUNT OF FREIGHT CHARGES BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) IS NOT SUSTAINABLE AS PER THE AMENDMENTS MADE IN THE SAID PROVISIONS BY THE FINANCE ACT, 2010 WHICH, BEING REMEDIAL/CURATIVE IN NATURE, HAVE RETROSPECTIVE APPLICATION, WE FIND NO REASON TO DEVIATE FROM THE DECISIONS OF THE ITATS MUMBAI BENCH AND AHMEDABAD BENCH, IN THE ABSENCE OF A CONTRARY VIEW, EXCEPT THE OTHER BENCHES DECISIONS OR ANY OTHER HIGH COURT. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCHES (SUPRA), WE ALLOW THE GROUND NOS. I TO 3 OF THE ASSESSEES APPEAL. ITA NO. 907/BANG/2011 PAGE 14 OF 16 17. AS AGAINST THE AFORESAID DECISION THE REVENUE PREFERRED APPEAL BEFORE THE HONBLE CALCUTTA HIGH COURT. THE HONBLE CALCUTTA HIGH COURT IN ITA NO. 302 OF 2011 GA 3200/2011 DECIDED ON 23.11.2011 , HELD AS FOLLOWS: WE HAVE HEARD MR. NIZAMUDDIN AND GONE THROUGH THE IMPUGNED JUDGMENT AND ORDER. WE HAVE ALSO EXAMINED THE POINT FORMULATED FOR WHICH THE PRESENT APPEAL IS SOUGHT TO BE ADMITTED. IT IS ARGUED BY MR. NIZAMUDDIN THAT THIS COURT NEEDS TO TAKE DECISION AS TO WHETHER SECTION 40(A)(IA) IS HAVING RETROSPECTIVE OPERATION OR NOT. THE LEARNED TRIBUNAL ON FACT FOUND THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE FROM THE PAID CHARGES BETWEEN THE PERIOD APRIL 1, 2005 AND APRIL 28, 2006 AND THE SAME WERE PAID BY THE ASSESSEE IN JULY AND AUGUST 2006, I.E. WELL BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME FOR THE YEAR UNDE R CONSIDERATION. THIS FACTUAL POSITION WAS UNDISPUTED. MOREOVER, THE SUPREME COURT, AS HAS BEEN RECORDED BY THE LEARNED TRIBUNAL, IN THE CASE OF ALLIED MOTORS PVT. LTD. AND ALSO IN THE CASE OF ALOM EXTRUSIONS LTD., HAS ALREADY DECIDED THAT THE AFORESAID PROVISION HAS RETROSPECTIVE APPLICATION. AGAIN, IN THE CASE REPORTED IN 82 ITR 570, THE SUPREME COURT HELD THAT THE PROVISION, WHICH HAS INSERTED THE REMEDY TO MAKE THE PROVISION WORKABLE, REQUIRES TO BE TREATED WITH RETROSPECTIVE OPERATION SO THAT REASONABLE DEDUCTION CAN BE GIVEN TO THE SECTION AS WELL. IN VIEW OF THE AUTHORITATIVE PRONOUNCEMENT OF THE SUPREME COURT, THIS COURT CANNOT DECIDE OTHERWISE. HENCE WE DISMISS THE APPEAL WITHOUT ANY ORDER AS TO COSTS. 18. IT CAN BE SEEN FROM THE ABOVE DECISION OF THE H ONBLE CALCUTTA HIGH COURT THAT AMENDMENT TO THE PROVISION S OF SEC.40(A)(IA) OF THE ACT, BY THE FINANCE ACT, 2010 AS AFORESAID WAS HELD TO BE RETROSPECTIVE FROM 1.4.2005. IF THE AMENDMENT IS CONSIDERED AS RETROSPECTIVE FROM 1.4.2005, THE EFFE CT WILL BE THAT PAYMENTS OF TDS TO THE CREDIT OF THE GOVERNMENT ON OR BEFORE THE LAST DATE FOR FILING RETURN OF INCOME U/S.139(1 ) OF THE ACT FOR THE RELEVANT AY HAVE TO BE ALLOWED AS DEDUCTION. A DMITTEDLY IN THE CASE OF THE ASSESSEE PAYMENTS WERE SO MADE BEFO RE THE SAID ITA NO. 907/BANG/2011 PAGE 15 OF 16 DUE DATE AND IN TERMS OF THE DECISION OF THE HONBL E CALCUTTA HIGH COURT NO DISALLOWANCE COULD BE MADE BY THE AO U/S. 40(A)(IA) OF THE ACT. 19. THE QUESTION NOW IS AS TO WHETHER TO FOLLOW T HE DECISION OF THE HONBLE SPECIAL BENCH WHICH HAS TAKEN THE VI EW THAT AMENDMENT BY THE FINANCE ACT, 2010 TO THE PROVISION S OF SEC.40(A)(IA) OF THE ACT IS PROSPECTIVE AND NOT RET ROSPECTIVE FROM 1.4.2005 OR THE DECISION OF THE HONBLE CALCUTTA H IGH COURT TAKING A CONTRARY VIEW. ON THE ABOVE QUESTION, THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE DECISION OF THE ITAT DELHI IN THE CASE OF TEJ INTERNATIONAL (P) LTD. V. DY. CIT (2000) 69 TTJ (DEL) 650 , WHEREIN IT WAS HELD THAT IN THE HIERARCHICAL JUDICIAL SYSTEM THAT WE HAVE IN INDIA, THE WISDOM OF THE COURT BELOW HAS TO YIELD TO THE HIGHER WISDOM O F THE COURT ABOVE, AND THEREFORE, ONCE AN AUTHORITY HIGHER THAN THIS TRIBUNAL HAS EXPRESSED ITS ESTEEMED VIEWS ON A AN ISSUE, NOR MALLY, THE DECISION OF THE HIGHER JUDICIAL AUTHORITY IS TO BE FOLLOWED. THE BENCH HAS FURTHER HELD THAT THE FACT THAT THE JUDGM ENT OF THE HIGHER JUDICIAL FORUM IS FROM A NON-JURISDICTIONAL HIGH COURT DOES NOT REALLY ALTER THIS POSITION, AS LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. GODAVARIDEVI SARAF 113 ITR 589(BOM) . 20. IN VIEW OF THE ABOVE, WE HOLD FOLLOWING THE DE CISION OF THE HONBLE CALCUTTA HIGH COURT, THAT AMENDMENT TO THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT, BY THE FINA NCE ACT, 2010 IS RETROSPECTIVE FROM 1.4.2005. CONSEQUENTLY, ANY PAYMENT OF TAX DEDUCTED AT SOURCE DURING PREVIOUS YEARS RELEVA NT TO AND FROM AY 05-06 CAN BE MADE TO THE GOVERNMENT ON OR BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S.139(1) OF THE ACT. IF PAYMENTS ARE MADE AS AFORESAID, THEN NO DEDUCTION U /S.40(A)(IA) OF THE ACT CAN BE MADE. ADMITTEDLY IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED THE TAX DEDUCTED AT SOURCE O N OR BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S.139(1) OF THE ACT AND THEREFORE THE IMPUGNED DISALLOWANCE DESERVES TO BE DELETED. WE ORDER ACCORDINGLY AND ALLOW THE APPEAL BY THE ASSES SEE. 21. THE AFORESAID VIEW HAS ALSO BEEN TAKEN IN THE FOLLOWING DECISIONS OF THE TRIBUNAL:- RAJAMAHENDRI SHIPPING & OIL FIELD SERVICES LTD., ITA NO.352/VIZAG/2008 DATED 13.04.2012. ITA NO. 907/BANG/2011 PAGE 16 OF 16 SRI PIYUSH C. MEHTA, ITA NO.1321/MUM/2009 DATED 11.04.2012. 15. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE HON BLE HIGH COURT OF KARNATAKA IN ITA NO.590/2013 BY JUDGMENT DATED 15.7 .2014, HAS UPHELD THE VIEW TAKEN BY THE TRIBUNAL. IN VIEW OF THE ABO VE, WE ARE OF THE VIEW THAT THE ORDER OF CIT U/S.263 OF THE ACT CANNOT BE SUSTAINED AS PER THE LAW AS IT STANDS TODAY. ACCORDINGLY, THE SAME IS QUASH ED. 16. IN THE RESULT, APPEAL BY THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER , 2014 . SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEM BER BANGALORE, DATED, THE 31 ST OCTOBER, 2014 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.