The ITO, Ward-3(4), Surat V. Shri Tushar A.Sanghvi,HUF, Surat

MA 153/AHD/2012

• Counselvise Citation: [2013] 124 COUNSELVISE.COM (IT) 0387 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 30 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 01-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATEJA
• Keywords: Deemed to accrue or arise in india
• Section: 40A(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER M.A. NO.153/AHD/2012 (ARISING OUT OF ITA NO. 1901/AHD/2011) A.Y: 2008-09 INCOME TAX OFFICER, WARD 3(4), SURAT VS SHRI TUSHAR A SANGHVI HUF PROP. OF M/S. PARTH ENTERPRISE, 603, JAY COMPLEX. ANAND MAHAL ROAD ADAJAN, SURAT PAN:AAFHS7515B (APPELLANT) (RESPONDENT) REVENUE BY : SHRI O.P. BATEJA, ASSESSEE(S) BY : SHRI TEJ SHAH / // / DATE OF HEARING : 05/07/2013 / DATE OF PRONOUNCEMENT: 31/07/2013 / O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER : THIS M.A. IS FILED BY THE REVENUE IN WHICH IT IS CO NTENDED BY THE REVENUE THAT THE TRIBUNAL HAS NOT DISCUSSED ANYTHIN G REGARDING THE MERIT OF THE CASE, PARTICULARLY THE RELIANCE PLACED ON PA RAGRAPH 25.3 AND 25.4 OF THE CIRCULAR NO.3 OF 2008 DATED 12.3.2008 AND CIRCU LAR NO.522 DATED 18.08.1988 AS ALSO THE PRESS NOTE DATED 2.5.1969. 2. IN THE COURSE OF HEARING BEFORE US, LEARNED D.R. FOR THE REVENUE REITERATED THE SAME CONTENTIONS WHICH WERE RAISED B Y THE REVENUE IN THE M.A. HE ALSO SUBMITTED RELEVANT EXTRACTS OF CIRCULA R NO.3 OF 2008 DATED 12.3.2008, CIRCULAR NO.522 DATED 18.8.1988 AND PRES S NOTED DATED 2.5.1969. MA NO.153/A HD/2012 (IN ITA NO.1901/AHD/2011) ITO, SURAT VS. SHRI TUSSHAR A. SANGHUVI A.Y. 2008-09 - 2 - 3. AS AGAINST THIS, IT WAS SUBMITTED BY LEARNED AR FOR THE ASSESSEE THAT THERE IS NO APPARENT MISTAKE IN THE IMPUGNED T RIBUNAL ORDER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT IN THE IMPUGNED TRIBUNAL ORDER, THE ISSUE DECIDED BY THE T RIBUNAL WAS THIS THAT WHETHER FOR THE EXPENDITURE INCURRED IN A.Y. 2004-0 5 FOR WHICH PAYMENT IS MADE IN A.Y. 2008-09, PROVISION OF SECTION 40A(3 ) APPLICABLE IN A.Y. 2004-05 ARE REQUIRED TO BE APPLIED OR THE PROVISION S APPLICABLE IN A.Y. 2008-09 BEING THE YEAR OF PAYMENT ARE TO BE APPLIED . THE AO HAD APPLIED THE PROVISIONS OF SECTION 40A(3) AS AMENDED W.E.F. 1.4.2008 BECAUSE THE PAYMENTS WERE MADE BY THE ASSESSEE IN A .Y.2008-09. THIS ISSUE WAS DECIDED BY THE TRIBUNAL ON THIS BASIS THA T THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY AN EARLIER TRIBUNAL DECIS ION RENDERED IN THE CASE OF ANANDKUMAR RAWATRAM JOSHI, AND RELEVANT PARAGRAP H OF THIS TRIBUNAL ORDER HAS BEEN REPRODUCED BY THE TRIBUNAL IN THE IM PUGNED TRIBUNAL ORDER. 5. NOW, THE QUESTION RAISED BY THE REVENUE IN THIS M.A. IS THAT IF THESE CIRCULARS AS POINTED OUT BY THE REVENUE IN TH E MA ARE CONSIDERED, THE RESULT WILL BE DIFFERENT. NOW WE EXAMINE THIS C ONTENTION OF THE REVENUE ALSO. THE FIRST CLAIM OF THE REVENUE IS THI S THAT PARAGRAPH 25.3 AND 25.4 OF CIRCULAR NO.3 OF 2008 SHOULD BE DISCUSS ED AND APPLIED. HENCE, WE FIRST REPRODUCE THESE TWO PARAGRAPHS OF C IRCULAR NO.3 OF 2008 DATED 12.3.2008, WHICH ARE AS UNDER: 25.3 THE PROVISIONS OF THE SAID SUB-SECTION WERE T O ACT AS AN ANTI- EVASION MEASURE. IT HAS COME TO NOTICE THAT SUBSTIT UTION OF THE DISALLOWANCE OF HUNDRED PER CENT BY TWENTY PER CENT HAS DILUTED THE DETERRENCE POTENTIAL OF THE PROVISIONS. THEREFORE, TO RE-STRENGTHEN THE DETERRENCE POTENTIAL, THE FINANCE ACT, 2007 HAS SUB STITUTED SUB-SECTION MA NO.153/A HD/2012 (IN ITA NO.1901/AHD/2011) ITO, SURAT VS. SHRI TUSSHAR A. SANGHUVI A.Y. 2008-09 - 3 - (3) OF SECTION 40A TO PROVIDE FOR HUNDRED PER CENT DISALLOWANCE OF PAYMENTS WHICH ARE MADE IN VIOLATION OF ITS PROVISI ONS. 25.4 THERE WERE OCCASIONS WHEN DEDUCTION OF EXPENDI TURE WAS CLAIMED IN ONE YEAR AND THE PAYMENT AGAINST SUCH EXPENDITUR E WAS MADE IN ANY SUBSEQUENT YEAR IN VIOLATION OF THE PROVISIONS OF T HE SAID SUB-SECTION. IN SUCH CASES, THE EXISTING FIRST PROVISO TO THE SAID SUB-SECTION PROVIDED FOR RE-COMPUTATION OF THE TOTED INCOME OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY AGAINST THE EXPENDITURE WAS INCURR ED. SUCH RE- COMPUTATION WAS ALLOWED TO BE MADE UNDER THE PROVIS IONS IN SECTION 154 AND THE LIMITATION OF FOUR YEARS IN RESPECT OF SUCH RE-COMPUTATION WAS RECKONED FROM THE END OF THE ASSESSMENT YEAR NE XT FOLLOWING THE PREVIOUS YEAR IN WHICH THE PAYMENT IN CONTRAVENTION OF PROVISIONS OF SUB-SECTION (3) OF SECTION 40A WAS MADE. IN MANY CA SES, VIOLATION WAS NOTICED AFTER EXPIRY OF FOUR YEARS WHEN NO REMEDY W AS AVAILABLE. RECTIFICATION OF PAST ASSESSMENTS INVOLVED INCONVEN IENCE TO THE ASSESSEE AND INCREASED PAPER WORK FOR THE DEPARTMENT. THE FI NANCE ACT, 2007, THEREFORE, HAS SUBSTITUTED THE EXISTING METHOD OF ' DISALLOWANCE IN AN EARLIER YEAR WITH A SIMPLIFIED METHOD OF CONTEMPORA NEOUS DISALLOWANCE BY DEEMING THE PAYMENTS MADE IN CONTRAVENTION OF LA W IN ANY SUBSEQUENT YEAR AS PROFITS AND GAINS OF BUSINESS OR PROFESSION OF SUCH YEAR IN WHICH PAYMENT IS MADE IN VIOLATION OF LAW. THIS METHOD OF DEEMING THE INCOME IN THE YEAR OF PAYMENT, WILL CAS T AN OBLIGATION ON THE ASSESSEE TO DECLARE THIS DEEMED INCOME IN TERMS OF THE EXISTING REQUIREMENT UNDER LAW TO AFFIRM THAT THE AMOUNT OF TOTAL INCOME AND OTHER PARTICULARS IN HIS RETURN OF INCOME ARE TRULY STATED. 6. FROM PARAGRAPH 13 OF THE IMPUGNED TRIBUNAL ORDER , WE FIND THAT A CLEAR FINDING IS GIVEN BY THE TRIBUNAL. IN THIS PAR AGRAPH, IT IS HELD THAT UP TO A.Y. 2007-08 DISALLOWANCE UNDER SECTION 40A(3) W AS REQUIRED TO BE MADE IN THE RELEVANT YEAR IN WHICH LIABILITY WAS IN CURRED AND IF THE ASSESSEE MAKES PAYMENT IN A SUBSEQUENT YEAR IN CONT RAVENTION TO THE PRESCRIBED MODE THEN ALSO THE ASSESSMENT OF THE EAR LIER YEAR IN WHICH THE LIABILITY WAS INCURRED WAS REQUIRED TO BE RECTIFIED . THIS FINDING IS ALSO GIVEN BY THE TRIBUNAL THAT THE AMENDED PROVISIONS A PPLICABLE FROM 1.4.2008 DID NOT SPECIFY THAT THE PROVISIONS ARE AP PLICABLE TO THE LIABILITY INCURRED BY THE ASSESSEE PRIOR TO 1.4.2008 AND, THE REFORE, THESE PROVISIONS MA NO.153/A HD/2012 (IN ITA NO.1901/AHD/2011) ITO, SURAT VS. SHRI TUSSHAR A. SANGHUVI A.Y. 2008-09 - 4 - ARE APPLICABLE ONLY FOR THOSE EXPENSES WHICH ARE IN CURRED ON OR AFTER 1.4.2008. HENCE, IT APPEARS THAT ALTHOUGH NO SPECIF IC REFERENCE WAS MADE BY THE TRIBUNAL REGARDING THESE TWO PARAGRAPHS OF C IRCULAR NO.3 OF 2008 BUT FINDING IS ALREADY GIVEN BY THE TRIBUNAL THAT T HESE AMENDED PROVISIONS CANNOT BE MADE APPLICABLE TO THOSE EXPENSES, FOR WH ICH LIABILITY WAS INCURRED PRIOR TO 1.4.2008. HENCE, EVEN AFTER CONSI DERING THESE TWO PARAGRAPHS OF CIRCULAR NO.3 OF 2008, THE DECISION R EMAINS THE SAME THAT THESE AMENDED PROVISIONS OF SECTION 40A(3) ARE PROS PECTIVE AND NOT RETROSPECTIVE AND HENCE, THE SAME CANNOT BE APPLICA BLE TO THOSE EXPENSES FOR WHICH LIABILITY WAS INCURRED PRIOR TO 1.4.2008. 7. REGARDING CIRCULAR NO.522 DATED 18.8.1988, WE FI ND THAT AS PER THIS CIRCULAR, IT WAS SPECIFIED THAT FOR DISALLOWAN CE OF PAYMENTS MADE UNDER SECTION 40A(3), THE AMENDMENT BE APPLIED TO P AYMENTS MADE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1 989-90 AND SUBSEQUENT YEARS. HERE THE RELEVANT AMENDMENTS WERE REGARDING THE INCREASE IN THE AMOUNT OF PAYMENTS FROM RS.10,000/- TO 20,000/- AS PER DIRECT TAX LAWS AMENDMENT ACT AND THESE AMENDMENTS WERE MADE EFFECT IVE FROM 1.4.1989 AND THIS CIRCULAR PROVIDED THAT THESE AMEN DMENT BE APPLIED TO PAYMENTS MADE IN THE PREVIOUS YEAR RELEVANT TO ASSE SSMENT YEAR 1989- 1990. HENCE, IT IS SEEN THAT AS PER CIRCULAR NO.522 DATED 18.8.1988 ALSO, THE AMENDMENT WERE PROSPECTIVE AND NOT RETROSPECTIV E. HENCE, AFTER CONSIDERING THESE BOTH CIRCULARS, IT CANNOT BE SAID THAT THESE BOTH CIRCULARS WILL HAVE ANY IMPACT ON THE IMPUGNED TRIBUNAL ORDER . WE HOLD THAT EVEN AFTER CONSIDERING THESE BOTH CIRCULARS, IT IS HELD THAT THE AMENDED PROVISIONS OF SECTION 40A(3) AS AMENDED BY THE FINA NCIAL YEAR 2007 WILL BE APPLICABLE ONLY TO THOSE EXPENSES FOR WHICH LIAB ILITY HAD BEEN INCURRED MA NO.153/A HD/2012 (IN ITA NO.1901/AHD/2011) ITO, SURAT VS. SHRI TUSSHAR A. SANGHUVI A.Y. 2008-09 - 5 - ON OR AFTER 1.4.2008 AND THESE AMENDED PROVISIONS C ANNOT BE MADE APPLICABLE TO THOSE EXPENSES FOR WHICH LIABILITY WA S INCURRED PRIOR TO 1.4.2008. 8. PRESS NOTE DATED 2.5.1969 WAS ALSO REFERRED TO B Y THE REVENUE IN THE M.A. AND ALSO BY LEARNED DR FOR THE REVENUE. WE DO NOT FIND ANY RELEVANCE OF THIS PRESS NOTE DATED 2.5.1969 BECAUSE AS PER THIS PRESS NOTE, CERTAIN CLARIFICATION ARE GIVEN REGARDING THE APPLI CABILITY OF THE NEW PROVISION UNDER SECTION 40A(3) AND SOME QUESTIONS A RE ANSWERED BUT THERE IS NO OBSERVATION IN THIS PRESS NOTE THAT ANY AMENDED PROVISIONS WILL BE APPLICABLE TO THOSE EXPENSES FOR WHICH LIAB ILITY WAS INCURRED BY THE ASSESSEE BEFORE THE RELEVANT AMENDMENT. HENCE, THIS PRESS NOTE IS ALSO NOT RELEVANT AND IT DOES NOT AFFECT THE OUTCOME IN THE IMPUGNED TRIBUNAL ORDER. 9. FROM THE ABOVE DISCUSSION, IT SEEN THAT NEITHER ANY CIRCULAR NOR THE PRESS NOTE CITED BY THE REVENUE IS RESULTING INTO A NY APPARENT MISTAKE IN THE IMPUGNED TRIBUNAL ORDER AND HENCE THE MA OF THE REVENUE IS DEVOID OF MERIT. WE HOLD ACCORDINGLY. 10. IN THE RESULT, MA OF THE REVENUE STANDS DISMISS ED. SD/- SD/- (MUKUL KR. SHRAWAT) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNT ANT MEMBER AHMEDABAD; DATED 31/07/2013 PRABHAT KR. KESARWANI, SR. P.S. TRUE COPY MA NO.153/A HD/2012 (IN ITA NO.1901/AHD/2011) ITO, SURAT VS. SHRI TUSSHAR A. SANGHUVI A.Y. 2008-09 - 6 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. #$#% ' '& / CONCERNED CIT 4. ' '&() / THE CIT(A)-III, AHMEDABAD 5. )*' %, ' ' % , ,-$ / DR, ITAT, AHMEDABAD 6. *./ 0 / GUARD FILE. / BY ORDER, 1 11 1/ // /,' #2 ,' #2 ,' #2 ,' #2 ( DY./ASSTT.REGISTRAR) ' ' % ' ' % ' ' % ' ' % , , , , ,-$ ,-$ ,-$ ,-$ / ITAT, AHMEDABAD