Bharti Airtel Ltd., New Delhi V. Addl. CIT, New Delhi

MA 27/DEL/2017

• Counselvise Citation: [2017] 124 COUNSELVISE.COM (IT) 5572 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 11-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 16-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UC DUBEY
• Keywords: Recovery proceedings; Business income; Business expenditure; Bonafide belief; Retrospective amendment; Non compliance; Reason to believe
• Section: 37(1); 201(1); 37; 2; 139

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E : NEW DELHI BEFORE SHRI I.C.SUDHIR , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER MA NO. 27/DEL/2017 (IN ITA NO. 5636/DEL/2011 (ASSESSMENT YEAR: 2007 - 08 ) & MA NO. 28/DEL/2017 (IN ITA NO.5816/DEL/2012 (ASSESSMENT YEAR: 2008 - 09) BHARTI AIRTEL LIMITED, BHARTI CRESCENT, 1, NELSON MANDELA ROAD, NEW DELHI VS. ADDL. CIT, RANGE - 2, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. AJAY VOHRA, SR. ADV SH. ROHIT JAIN, ADV MS. DEEPASHREE RAO, CA REVENUE BY: SH. UC DUBEY, SR. DR DATE OF HEARING 24/03 / 2017 DATE OF PRONOUNCEMENT 11 / 0 5 / 2017 O R D E R PER PRASHANT MAHARISHI , A. M. 1. TH IS MISCELLANEOUS APPLICATION IS FILED BY THE ASSESSEE IN ITA NO. 5636/DEL/2011 FOR THE ASSESSMENT YEAR 2007 - 08 BRIEFLY NARRATING THE ERROR IN THE ORDER OF THE TRIBUNAL AS UNDER: - RE: MODIFIED GROUNDS OF A PPEAL NOS. 6.7 TO 6.9 IN THESE GROUNDS OF APPEAL, THE APPLICANT HAD CHALLENGED DISALLOWANCE OF RS.505,47,21,495 UNDER SECTION 40(A)(IA). BEING THE AMOUNT OF FREE AIRTIME GIVEN TO DISTRIBUTORS ON SALE OF PRE - PAID SIM - CARDS. BY HOLDING THE SAME TO BE IN THE NATURE OF 'COMMISSION' LIABLE FOR DEDUCTION OF LAX AT SOURCE UNDER SECTION I94H OF THE ACT. IN THE ORIGINAL ORDER DATED 11.03.2014, THE HON'BLE TRIBUNAL, WHILE DISMISSING THE AFORESAID GROUNDS OF APPEAL RAISED BY THE APPLICANT, PRIMARILY RELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. IDEA CELLULAR LIMITED: 325 ITR 148 AND CONCLUDED THAT THE PAYMENTS MADE BY THE APPLICANT TO THE DISTRIBUTORS WAS IN THE NATURE OF 'COMMISSION' AND THEREFORE, TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE UNDER SECTION 194H OF THE ACT. THE SAID ORDER OF THE TRI BUNAL WAS RECALLED FOR ADJUDICATING THE ALTERNATE CONTENTIONS RAISED WITHOUT PREJUDICE, REGARDING THE APPLICABILITY OF PROVISIONS OF PAGE 2 OF 18 SECTION 40(A)(IA) OF THE ACT PROJECTED VIDE GROUND NOS. 6.7 TO 6.9 OF THE ORIGINAL MEMO OF APPEAL. '' AT THE TIME OF HEARI NG OF THE RECALLED APPEAL, THE FOLLOWING ALTERNATIVE CONTENTIONS WERE ACCORDINGLY RAISED BY THE APPLICANT BEFORE THE HON'BLE TRIBUNAL: (A) DISALLOWANCE UNDER SECTION 40FA)(IA) OF THE ACT WAS NOT AT ALL WARRANTED INASMUCH AS THE APPLICANT WAS UNDER BONAFI DE BELIEF THAT TAX WAS NOT DEDUCTIBLE AS SOURCE [CONTENTIONS NOTED IN PARA 6 OF THE ORDER]; WITHOUT PREJUDICE (B) DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT SHOULD HAVE, IF AT ALL. BEEN RESTRICTED TO THE AMOUNT REMAINING PAYABLE AS ON THE LAST DATE OF THE PREVIOUS YEAR [CONTENTIONS NOTED IN PARA 7 OF THE ORDER]; FURTHER, WITHOUT PREJUDICE (C) AMENDMENTS IN SECTION 40(A)(IA) BEING CURATIVE AND PROCEDURAL IN NATURE WOULD APPLY RETROSPECTIVELY TO THE YEAR UNDER CONSIDERATION AND CONSEQUENTLY, (I) DEDUCTION SHOULD BE DIRECTED TO BE ALLOWED IN SUBSEQUENT YEAR(S) WHEN TAX PAID BY THE PAYER/ PAYEE; (II) DISALLOWANCE SHOULD BE RESTRICTED TO 30% OF THE EXPENDITURE [CONTENTIONS NOTED IN PARA 8 OF THE ORDER]. (D) THE ASSESSING OFFICER COULD NOT HAVE, IN A NY CASE, DISALLOWED AMOUNT TO THE EXTENT THERE WAS NO ORDER UNDER SECTION 201 TREATING THE ASSESSE TO BE IN DEFAULT UNDER CHAPTER XVII - B OF THE ACT [CONTENTIONS NOTED IN PARA 9 OF THE ORDER]. RE: CONTENTION (A) WITH REGARD TO CONTENTION (A) ABOVE, THE HON'BLE TRIBUNAL HAS IN THE IMPUGNED ORDER DATED 24.10.2016. FOLLOWING THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD: 340 ITR 333, AGREED IN PRINCIPLE WITH THE CONTENTION RAISED T HAT SINCE THE APPLICANT ENTERTAINED BONAFIDE BELIEF THAT TAX WAS NOT DEDUCTIBLE AT SOURCE ON THE AMOUNT UNDER CONSIDERATION, THERE WAS NO WARRANT TO MAKE ANY DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT [REFER PARAS 14 AND 15]. THE HON'BLE TRIBUNAL, I N PARA 15, HOWEVER, HELD THAT THE AFORESAID DIRECTION WAS SUBJECT TO THE CONDITION THAT THE ASSESSING OFFICER WOULD VERIFY THAT THE RECIPIENT OF INCOME (I.E.. THE DISTRIBUTORS) HAD ULTIMATELY DEPOSITED TAX ON SUCH AMOUNTS. THE HON'BLE TRIBUNAL, ACCORDINGLY , SET - ASIDE THE ISSUE TO THE TILE OF THE ASSESSING OFFICER TO VERIFY AND ALLOW RELIEF ONLY TO THE EXTENT OF AMOUNT(S) ON WHICH TAX WAS PAGE 3 OF 18 ULTIMATELY PAID/DEPOSITED BY THE REC'IPIENT(S). THE RELEVANT FINDING OF THE TRIBUNAL IS RE - PRODUCED AS UNDER: 15 .. IT IS ALSO BEEN SUBMITTED BY THE LD AR THAT IN ALL PAST YEARS NO SUCH DISALLOWANCES HAVE BEEN MADE OR IT HAS BEEN HELD BY THE REVENUE THAT TAX IS REQUIRED TO BE DEDUCTED ON SUCH DISCOUNT ON PREPAID PRODUCTS SOLD TO ITS DISTRIBUTORS. IN VIEW OF THE DIVERGENT V IEWS OF THE HON'BLE HIGH COURTS AND COORDINATE BENCHES WE ARE OF THE VIEW THAT NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE ON THE ABOVE DISCOUNT AS HELD BY THE HON'BLE BOMBAY HIGH COURT. HON'BLE BOMBAY HIGH COURT HAS ALSO HEL D SO FOR THE REASON THAT THERE IS NO LOSS TO THE REVENUE AS PRESUMABLY THE RECIPIENT OF INCOME HAS DISCHARGED ITS TAX LIABILITY. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN CIT VERSUS KOTAK SECURITIES LIMITED (SUPRA) W E ALSO HOLD THAT DISALLOWANCE UNDER SECTION 40(A)(IA) CANNOT BE MADE IN THIS CASE IN VIEW OF THE OLD PRACTICE OF NOT DEDUCTIONS TAX AT SOURCE WHICH HAS BEEN ACCEPTED BY THE REVENUE AND EXISTENCE OF BONAFIDE BELIEF OF THE ASSESSEE FOR NON - DEDUCTIBILITY OF T AX AT SOURCE ON SUCH PAYMENTS. HOWEVER, THE ABOVE DIRECTION IS SUBJECT TO VERIFICATION BY THE LD. ASSESSING OFFICER THAT RECIPIENT OF THE INCOME HAS DISCHARGED THEIR OWN TAX LIABILITY. IN VIEW OF THIS WE SET ASIDE THIS GROUND OF APPEAL TO THE FILE OF THE L D. ASSESSING OFFICER FOR VERIFICATION THAT RECIPIENT OF THE INCOME HAS DISCHARGED THEIR TAX LIABILITY AND IF FOUND SO TO DELETE THE ADDITION ACCORDINGLY. ..................................' (EMPHASIS SUPPLIED) IT IS RESPECTFULLY SUBMITTED THAT THE HON'BLE TRIBUNAL HAS, WHILE FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES (SUPRA), INCORRECTLY APPLIED THE RATIO DECIDENDI OF THE SAID DECISION WHILE DIRECTING THE ASSESSING OFFICER TO VERIFY AND RESTRICT RELIEF ONLY TO TH E EXTENT OF AMOUNT(S) ON WHICH TAX WAS ULTIMATELY PAID BY THE RECIPIENT(S). THE HON'BLE COURT HAD. ON SIMILAR FACTS, IT IS SUBMITTED, ALLOWED RELIEF TO THE ASSESSEE ON THE GROUND OF BONAFLDE BELIEF ITSELF, WHICH WAS NOT SUBJECT TO ANY FURTHER CONDITION/ CA VEAT OF THE RECIPIENT OF INCOME HAVING DEPOSITED TAX ON SUCH INCOME AS EVIDENT FROM THE UNDERNOTED REPRODUCTION OF RELEVANT EXTRACTS FROM THE SAID DECISION: 31. IN THESE CIRCUMSTANCES, IF BOTH THE PARTIES FOR NEARLY A DECADE PROCEEDED ON THE FOOTING THAT SECTION 194J IS NOT ATTRACTED, THEN IN THE ASSESSMENT YEAR IN QUESTION, NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT PAGE 4 OF 18 DEDUCTING THE TAX AT SOURCE UNDER SECTION 194J OF THE ACT AND CONSEQUENTLY, NO ACTION COULD BE TAKEN UNDER SECTION 40 (A)FIA) OF THE ACT . !L IS RELEVANT TO NOTE THAT FROM AY 2006 - 07 THE ASSESSEE HAS BEEN DEDUCTING TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE THOUGH NOT AS FEES FOR TECHNICAL SERVICES BUT AS ROYALLY.... ...... ' THE HON'BLE HIGH COURT FURTHER NOTED THAT SINCE THE PAYEE HAD PRESUMABLY DISCHARGED ITS TAX LIABILITY, THERE WAS NO LOSS OF REVENUE AS PER THE BELOW MENTIONED EXTRACT: '.... .... IT IS FURTHER RELEVANT TO NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT ON ACCOUNT OF THE FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE, THE REVENUE HAS SUFFERED PRESUMABLY BECAUSE, THE STOCK EXCHANGE HAS DISCHARGED ITS TAX LIABILITY FOR THE ASSESSMENT YEAR IN QUESTION. .... THE RELIEF WAS HOWEVER, NOT PREMISED ON THE SAID GROUND, AS CLEARLY EVIDENT FROM THE LATER PART OF THE SAME PARAGRAPH OF THE JUDGEMENT, REPRODUCED BELOW: IN ANY EVENT, IN THE FACTS OF THE PRESENT CASE, IN VIEW OF THE UNDISPUTED DECADE OLD PRACTICE, THE ASSESSEE HAD BONA FIDE REASON TO BELIEVE THAT THE TAX WAS NOT DEDUCTIBLE AL SOURCE UNDER SECTION 194J OF THE ACT AND, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING SECTION 40(A)(IA) OF THE ACT AND DISALLOWING THE BUSINESS EXPENDITURE BY WAY OF TRANSACTION CHARGES INCURRED BY THE ASSESSEE ... ' (EMPHASIS SUPPLIED) ON PERUSAL OF THE ABOVE EXTRACTS, IT MAY BE NOTED THAT THE COURT HAS, BY WAY OF A CATEGORICAL FINDING, ALLOWED RELIEF TO THE ASSESSEE SOLELY ON THE GROUND OF BONAFIDE BELIEF REGARDING NON - DEDUCTION OF TAX AT SOURCE OUT OF THE PAYM ENT IN QUESTION. PERTINENTLY, THE AFORESAID DECISION OF THE HIGH COURT HAS SUBSEQUENTLY BEEN FOLLOWED BY VARIOUS CO - ORDINATE BENCHES OF THE TRIBUNAL, WHEREIN RELIEF HAS BEEN ALLOWED ONLY ON THE GROUND OF BONAFIDE BELIEF WITHOUT ANY FURTHER CAVEAT/CONDITION FOR VERIFICATION OF PAYMENT OF TAXES BY THE RECIPIENT OF INCOME. IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT WHILE ACCEPTING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN KOTAK SECURITIES (SUPRA) IN PRINCIPLE, THE DIRECTION BY THE TRIBUNAL FOR RESTR ICTING RELIEF TO THE EXTENT OF PAYMENT OF TAXES BY THE RECIPIENT(S) IS CONTRARY TO THE SAID DECISION AS ALSO DECISION OF VARIOUS CO - ORDINATE BENCHES OF THE TRIBUNAL, WHICH CLEARLY CONSTITUTES MISTAKE APPARENT FROM RECORD. THE ALTERNATE PROPOSITION THAT IF THE PAYEE HAD PAID TAX ON INCOME RECEIVED FROM THE APPLICANT, THERE COULD BE NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WAS RAISED VIDE CONTENTION (C) TO THE PRESENT APPEAL THAT AMENDMENTS IN PAGE 5 OF 18 THE SAID SECTION, BEING CURATIVE AND PROCEDURAL IN NATUR E, WOULD APPLY RETROSPECTIVELY TO THE YEAR UNDER CONSIDERATION AND CONSEQUENTLY: (I) DEDUCTION SHOULD BE DIRECTED TO BE ALLOWED IN THE SUBSEQUENT YEAR(S) WHEN TAX WAS PAID BY THE PAYER/ PAYEE; (II) DISALLOWANCE SHOULD BE DIRECTED TO BE RESTRICTED TO 30% OF THE EXPENDITURE. THE HON'BLE TRIBUNAL HAS ADJUDICATED THE FIRST LIMB OF THE ARGUMENT REFERRED IN SUB - POINT (I) ABOVE IN THE LATTER PART OF PARAGRAPH 15 OF THE APPELLATE ORDER, HOLDING THAT AMENDMENTS MADE IN SECTION 40(A)(IA) OF THE ACT ARE CURATIVE IN NATURE AND ACCORDINGLY WOULD HAVE RETROSPECTIVE EFFECT OBSERVING AS UNDER: THE OTHER ARGUMENT OF THE ASSESSEE WAS THAT IF THE PAYEE HAS INCLUDED THE ABOVE SUM AND DISCHARGED THE TAX LIABILITY NO DISALLOWANCE SHOULD BE MADE IN THE HANDS OF THE ASSESSEE IN VIEW OF THE AMENDMENT MADE BY THE FINANCE ACT 2012 BY INSERTION OF THE 2 ND PROVISO TO THE PROVISIONS OF SEC! ION 40(A)(IA) OF THE ACT. THE CO - ORDINATE BENCH IN THE SHRI KIT MAR RAY VERSUS INCOME LAX OFFICER IN 68 TAXNIAN.COM 129 HAS HELD THAT ABOVE PROVISO INSERTED BY THE FINANCE ACT 21)12 CAN BE SAID TO BE DECLARATORY AND CURATIVE IN NATURE AND THEREFORE, SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM 1 - 4 - 2005. NO OTHER CONTRARY DECISION WAS POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. IN VIEW OF THI S WE ACCEPT THE ARGUMENT OF THE ASSESSEE THAT THE 2''' PROVISO INSERTED BY THE FINANCE ACT 2012 SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM 01/04/2005. THEREFORE THIS ARGUMENT OF THE APPELLANT IS ALSO SET ASIDE TO THE FILE OF THE ID. ASSESSING OFFICER WITH A DIRECTION TO GIVE THE BENEFIT OF THE ABOVE PROVISO TO THE APPELLANT IN CASE THE CONTENTION OF BONAFIDE BELIEF OF THE ASSESSEE DOES NOT SURVIVE ON ANY AMOUNT. .......................' (EMPHASIS SUPPLIED) FROM THE AFORESAID IT WOULD HE NOTED THAT THE RELIEF CLAIMED VIDE CONTENTION (A) AND CONTENTION (C) WERE DISJUNCTIVE RELIEFS, VIZ. THE APPLICANT HAD CLAIMED THAT NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE UNDER SECTION I94H WITH RESPECT TO SALE OF PRE - PAID CARDS IN VIEW OF THE BONAFIDE BELIEF OF THE APPLIC ANT THAT SUCH TRANSACTION DID NOT ATTRACT THE MISCHIEF OF THE SAID SECTION: FAILING WHICH, IT WAS ALTERNATIVELY CLAIMED THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT COULD BE SUSTAINED IN VIEW OF THE FACT THAT THE PAYEES HAD PAID TAX ON THEIR INC OME, INCLUDING INCOME RECEIVED FROM THE APPLICANT. THE HON'BLE TRIBUNAL HAS WHILE DEALING WITH THE AFORESAID DISJUNCTIVE RELIEFS VIDE SEPARATE PARAGRAPHS FORMING PART OF OVERALL PARAGRAPH 15 OF THE APPELLATE ORDER, INADVERTENTLY PAGE 6 OF 18 DIRECTED IN THE FIRST PART OF PARA 15 THAT THE RELIEF ON ACCOUNT OF BONAFIDE BELIEF WAS SUBJECT TO VERIFICATION THAT THE PAYEES HAD PAID TAX ON THEIR INCOME, WHICH WAS. AS POINTED OUT EARLIER, EVEN OTHERWISE, NOT IN CONSONANCE WITH THE DECISION OF THE HON'BLE BOMBAY HIGH COURT ACCE PTED AND RELIED UPON BY THE HON'BLE TRIBUNAL. IN VIEW OF THE AFORESAID, IT IS RESPECTFULLY PRAYED THAT PARAGRAPH 15 OF THE ORDER DATED 24.10.2016 MAY KINDLY BE MODIFIED, BY DELETING THE SENTENCE BEGINNING WITH THE WORDS 'HOWEVER THE' AND ENDING WITH THE W ORDS 'DELETE THE ADDITION ACCORDINGLY'. CONTENTION REFERRED IN SUB - POINT (II) SUPRA, NAMELY, THE DISALLOWANCE SHOULD BE RESTRICTED TO 30% OF THE EXPENDITURE, THOUGH NOTED/RECORDED IN PARA 8. HAS NOT BEEN ADJUDICATED IN THE ORDER DATED CONTENTION (B): IT W AS SUBMITTED THAT DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT SHOULD HA \ E. IF AT ALL. BEEN RESTRICTED TO THE AMOUNT REMAINING PAYABLE AS ON THE LAST DATE OF THE PREVIOUS YEAR. THE AFORESAID CONTENTION, THOUGH NOTED/ RECORDED IN PARA 7. HAS NOT BEEN AD JUDICATED BY THE HON'BLE TRIBUNAL IN THE ORDER DATED 24.10.2016. CONTENTION (D): IT WAS SUBMITTED THAT THE ASSESSING OFFICER COULD NOT HAVE, IN ANY CASE, DISALLOWED AMOUNT TO THE EXTENT THERE WAS NO ORDER UNDER SECTION 201 TREATING THE ASSESSE TO BE IN DEFAULT UNDER CHAPTER XVII - B OF THE ACT. THE AFORESAID CONTENTION, THOUGH NOTED/RECORDED IN PARA 9, HAS NOT BEEN ADJUDICATED BY THE HON'BLE TRIBUNAL IN THE ORDER DATED 24.10.2016. IN VIEW OF THE ABOVE, IT IS RESPECTFULLY PRAYED THAT THE ORDER DATED 24.10. 2016 MAY KINDLY BE RECALLED FOR THE PURPOSE OF DECIDING THE AFORESAID ALTERNATIVE CONTENTIONS, NOT ADJUDICATED IN THE ORDER. RE: ADDITIONAL GROUND OF APPEAL THE ORDER OF THE TRIBUNAL DATED 11.03.2014 WAS ALSO RECALLED TO ADJUDICATE THE FOLLOWING ADDITIONAL GROUND RAISED BY THE APPLICANT: ' THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSEE OUGHT TO BE ALLOWED DEDUCTION OF LIABILITY BORNE BY THE ASSESSEE IN PURSUANCE OF ORDER(S) PASSED UNDER SECTION 201(1) OF THE INCOME TAX A CT, 1961 ('THE ACT'). ' VIDE THE AFORESAID ADDITIONAL GROUND OF APPEAL, TAX DEMANDS RAISED AGAINST THE APPLICANT UNDER SECTION 201(1) FOR VARIOUS ASSESSMENT YEARS, FOR ALLEGED DEFAULT IN DEDUCTION OF LAX AT SOURCE UNDER THE PROVISIONS OF THE ACT IN RESPEC T OF THE FOLLOWING TRANSACTIONS WAS CLAIMED AS BUSINESS DEDUCTION PAGE 7 OF 18 UNDER SECTIONS 28/ 37 OF THE ACT WHILE COMPUTING BUSINESS INCOME: (A) DISCOUNT ALLOWED TO DISTRIBUTORS ON SALE OF PRE - PAID PRODUCTS - ALLEGED NON - DEDUCTION OF TAX UNDER SECTION 194H OF THE ACT; (B) ROAMING CHARGES PAID TO OTHER CELLULAR SERVICE PROVIDERS - ALLEGED NON - DEDUCTION OF TAX UNDER SECTION 194J OF THE ACT; (C) INTEREST PAYMENTS MADE TO ABN AMRO BANK. NETHERLANDS - ALLEGED NON - DEDUCTION OF TAX UNDER SECTION 195 OF THE ACT. & SIMILAR ADDITIONAL GROUND WAS ADMITTED AND ADJUDICATED BY THE HON'BLE TRIBUNAL FOR ASSESSMENT YEAR 2008 - 09 IN 1TA NO. 58L6/DEL/2012 VIDE ORDER DATED 11.03.2014. THE RELEVANT EXTRACTS ARE REPRODUCED HEREUNDER FOR READY REFERENCE: '79. HAVING HEARD (HE RIVAL CONTENTIONS ON THIS PETITION, WE ARE INCLINED TO ADMIT THE ADDITIONAL GROUND OF APPEAL AS IT IS PURELY A LEGAL ISSUE AS TO WHETHER OR NOT THE LIABILITY BORNE BY THE ASSESSEE, UNDER SECTION 201 AND WHICH IS NOT RECOVERED FROM THE RECIPIENTS OF PAYMENTS WIT HOUT DEDUCTION OF TAX AT SOURCE, IS DEDUCTIBLE IN COMPUTATION OF ASSESSEE 'S INCOME. HOWEVER, AS IT INVOLVES FACTUAL VERIFICATIONS, WE ARE NOT INCLINED TO DEAL WITH THE SAME, ON MERITS, AT THIS STAGE. WE, THEREFORE, DEEM IT FIT AND PROPER TO REMIT THIS ISS UE TO FLIC FILE OF THE ASSESSING OFFICER TO ADJUDICATION DE NOVO, BY WAY OF A SPEAKING ORDER, IN ACCORDANCE WITH THE LAW AND AFTER GIVING Q FAIR AND REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSED. THE ASSESSEE IS DIRECTED TO MAKE ALL SUCH LEGAL AND FACT UAL SUBMISSIONS ON THIS ASPECT, AS HE MAY DEEM APPROPRIATE, AND THE ASSESSING OFFICER SHALL ADJUDICATE ON THE SAME BY SPECIFICALLY DEALING WITH THE SAME BY WAY OF A SPEAKING ORDER. WE DIRECT SO. 80. THE ADDITIONAL GROUND OF APPEAL, AS SET OUT ABOVE, IS THU S ADMITTED IN PRINCIPLE BUT REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION ON MERITS' (EMPHASIS SUPPLIED) IN THE RECALLED ORDER DATED 24.10.2016. THE HON'BLE TRIBUNAL HAS NOT ADJUDICATED THE AFORESAID ADDITIONAL GROUND ON THE ERRONEOUS PREM ISE THAT SINCE RELIEF HAD ALREADY BEEN GRANTED TO THE APPLICANT IN MODIFIED GROUNDS OF APPEAL NOS. 6.7 TO 6.9. THE ISSUE RAISED IN THE ADDITIONAL GROUND OF APPEAL WAS MERELY ACADEMIC AND REQUIRED NO SEPARATE ADJUDICATION. IT IS SUBMITTED THAT THE AFORESAID ADDITIONAL GROUND IS AN INDEPENDENT LEGAL GROUND IN ITSELF WHICH, IN OUR RESPECTFUL SUBMISSION, WOULD NOT BE RENDERED ACADEMIC, EVEN IF COMPLETE RELIEF IS ALLOWED IN GROUND NOS. 6.7 TO 6.9. IN THE AFORESAID ADDITIONAL GROUND THE APPLICANT HAS CONTENDED TH AT AMOUNT PAID IN PURSUANCE TO NOTICE UNDER SECTION 201 OF THE ACT SHOULD BE DIRECTED TO BE ALLOWED AS DEDUCTION, WHICH WAS NOT JUST RESTRICTED TO DISALLOWANCE ON ACCOUNT OF NON - DEDUCTION OF TAX AT SOURCE OUT OF ALLEGED COMMISSION PAID ON SALE OF PRE - PAID CARDS. FURTHER, THE SAID GROUND, IT MAY BE APPRECIATED, RELATES TO THE ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION PAGE 8 OF 18 28/37 AS AGAINST THE ISSUE OF DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WHICH HAS BEEN PRECIPITATED IN GROUND NOS. 6.7 TO 6.9. IN VIEW OF THE AFORESAID, DISMISSAL OF THE ADDITIONAL GROUND HOLDING THE SAME TO BE ACADEMIC CONSTITUTES, IT IS RESPECTFULLY SUBMITTED, MISTAKE APPARENT FROM RECORD, WHICH MAY KINDLY BE RECTIFIED BY ISSUING CORRIGENDUM AND/ OR RECALLING THE ORDER FOR THE PUR POSE OF DECIDING THE ADDITIONAL GROUND. 2. THE LD AR REITERATED THE FACTS STATED IN THE MISCELLANEOUS APPLICATION REGARDING NON ADJUDICATION ON ALTERNATE CONTENTIONS OF THE ASSESSEE WITH RESPECT TO GROUND NO. 6.7 TO 6.9 AS WELL AS THE ADDITIONAL GROUND OF APPEAL. 3. THE LD DR VEHEMENTLY OPPOSED THE MISCELLANEOUS APPLICATION STATING THAT WHEN THE ISSUE IN SUBSTANCE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE NOT DECIDING THE SEVERAL OTHER ALTERNATIVE ARGUMENTS RAISED BY THE ASSESSEE IS NOT AN ERROR APPARENT FROM RECORDS . 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE HON'BLE SUPREME COURT IN CASE OF HONDA SEIL POWER PRODUCTS LTD. 295 ITR 466 (S.C.) HAS HELD THAT NON CONSIDERATION OF VITAL CONTENTIONS AND JUDICIAL PRECEDENT CITED IS A MISTAKE APPARENT FROM RECOR D. THEREFORE, WE REJECT THE CONTENTION OF THE LD DR. AS THE SUBSTANTIAL ARGUMENTS HAVE ALREADY BEEN RECORDED EXHAUSTIVELY IN THE ORDER OF THE BENCH AND NO FURTHER FACTS ARE REQUIRED TO BE ADDUCED BY EITHER PARTY , INSTEAD OF RECALLING THE ORDER FOR DECIDING MERELY THE CONTENTIONS AND THE ADDITIONAL GROUND, WE PROCEED TO DECIDE THE ISSUE ON MERIT ITSELF . 5. THE FIRST CONTENTION OF THE ASSESSEE IS THAT HON'BLE BOMBAY HIGH COURT IN CASE OF CIT VS. KOTAK SECURITY LTD. 340 ITR 333 HAS HELD THAT DISALLOWANCE U/S 40 A(IA) OF THE ACT WAS NOT AT ALL WARRANTED AS THE APPLICANT WAS UNDER BONA FIED BELIEF THAT TAX WAS NOT DEDUCTIBLE AT SOURCE . THE HON'BLE BOMBAY HIGH COURT IN PARA NO. 31 HAS STATED THAT IF BOTH THE PARTIES FOR NEARLY A DECADE PROCEEDED ON THE FOOTING THAT SECTION 194J OF THE ACT IS NOT ATTRACTED THEN IN THE ASSESSMENT YEAR IN QUESTION NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE U/S 194J OF THE ACT AND CONSEQUENTLY NO ACTION COULD BE TAKEN U/S 40A( I A) OF THE ACT. THE SIMILAR F ACTS ARE ALSO IN THE CASE OF THE ASSESSEE AS IT IS UNDERTAKING SIMILAR TRANSACTIONS OF SALES OF PREPAID SIM CARDS SINCE 1995 - 96 WITHOUT DEDUCTING TAX AT SOURCE AND REVENUE ALSO PAGE 9 OF 18 HAS NOT QUESTIONED NON - DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE. THE FIRST TI ME THE DISALLOWANCE HAS BEEN MADE IN THE IMPUGNED ASSESSMENT YEAR . IN VIEW OF THIS , IT IS CONTENDED THAT ASSESSEE WAS UNDER A BONA FIDE BELIEF FOR ALMOST MORE THAN A DECADE THAT PROVISIONS OF TAX DEDUCTION AT SOURCE DO NOT APPLY TO THE TRANSACTION OF SALE OF PREPAID SIM CARDS. THE REVENUE HAS NOT CONTROVERTED THAT THE BELIEF OF THE ASSESSEE REGARDING NON - DEDUCTION OF TAX AT SOURCE WAS NOT BONA FIDE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE BOMBAY HIGH COURT IN CIT VS. KOTAK SECURITIES LTD (SUP RA) WE ALSO HOLD THAT IN SUCH CIRCUMSTANCES NO ACTION COULD BE TAKEN U/S 40A(I A) OF THE ACT. IN THE RESULT, THIS CONTENTION OF THE ASSESSEE IS ALLOWED. IN VIEW OF THIS , THE MODIFIED PARAGRAPH 15 OF THE ORDER DATED 24.10.2016 SHALL BE READ AS UNDER: - 15. IT IS ALSO BEEN SUBMITTED BY THE LD. A R THAT IN ALL PAST YEARS NO SUCH DISALLOWANCES HAVE BEEN MADE OR IT HAS BEEN HELD BY THE REVENUE THAT TAX IS REQUIRED TO BE DEDUCTED ON SUCH DISCOUNT ON PREPAID PRODUCTS SOLD TO ITS DISTRIBUTORS. IN VIEW OF THE DIVERG ENT VIEWS OF THE HONBLE HIGH COURTS AND COORDINATE BENCHES WE ARE OF THE VIEW THAT NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE ON THE ABOVE DISCOUNT AS HELD BY THE HONBLE BOMBAY HIGH COURT. HONBLE BOMBAY HIGH COURT ALSO HE LD SO FOR THE REASON THAT THERE IS NO LOSS TO THE REVENUE AS PRESUMABLY THE RECIPIENT OF INCOME HAS DISCHARGED ITS TAX LIABILITY. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CIT VERSUS KOTAK SECURITIES LIMITED (SUPRA) WE ALSO HOLD THAT DISALLOWANCE UNDER SECTION 40 (A)( IA) CANNOT BE MADE IN THIS CASE IN VIEW OF THE OLD PRACTICE OF NOT DEDUCTING TAX AT SOURCE WHICH HAS BEEN ACCEPTED BY THE REVENUE AND EXISTENCE OF BONAFIDE BELIEF OF THE ASSESSEE FOR NON - DEDUCTIBILITY OF TAX AT SOURCE ON SUCH PAYMENTS. THE OTHER ARGUMENT OF THE ASSESSEE WAS THAT IF THE PAYEE HAS INCLUDED THE ABOVE SUM AND DISCHARGED THE TAX LIABILITY NO DISALLOWANCE SHOULD BE MADE IN THE HANDS OF THE ASSESSEE IN VIEW OF THE AMENDMENT MADE BY THE FINAN CE ACT 2012 BY INSERTION OF THE 2ND PROVISO TO THE PROVISIONS OF SECTION 40 (A) (IA) OF THE ACT. THE COORDINATE BENCH IN THE SHRI KUMAR ROY VERSUS INCOME TAX OFFICER IN 68 TAXMAN.COM 129 HAS HELD THAT ABOVE PROVISO INSERTED BY THE FINANCE ACT 2012 CAN BE S AID TO BE DECLARATORY AND CURATIVE IN NATURE AND THEREFORE, SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM 1 - 4 - 2005. NO OTHER CONTRARY DECISION WAS POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. IN VIEW OF THIS WE ACCEPT THE ARGUMENT OF THE ASSESSEE TH AT THE 2ND PROVISO INSERTED BY THE FINANCE ACT 2012 SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM 01/04/2005. THEREFORE THIS ARGUMENT OF THE APPELLANT IS ALSO SET ASIDE TO THE FILE OF THE LD. ASSESSING OFFICER WITH A DIRECTION TO GIVE THE BENEFIT OF THE PAGE 10 OF 18 ABOVE PROVISO TO THE APPELLANT IN CASE THE 1ST CONTENTION OF BONAFIDE BELIEF OF THE ASSESSEE DOES NOT SURVIVE ON ANY AMOUNT. 6. THE SECOND CONTENTION OF THE ASSESSEE WAS WITH RESPECT TO ALTERNATIVE PLEA THAT DISALLOWANCE , IF ANY , FOR NON DEDUCTION OF TAX SHOULD BE RESTRICTED TO 30% OF THE EXPENDITURE . THE CLAIM OF THE ASSESSEE WAS THAT FINANCE ACT, 2014 HAS AMENDED THE PROVISIONS OF SECTION 40 ( A ) ( I A) TO RESTRICT THE DISALLOWANCE FOR NON DEDUCTION OF TAX AT SOURCE TO THE EXTENT OF 30% OF THE EXPENDITURE. C ONTENTION OF THE ASSESSEE HAS BEEN RECORDED AT PAGE NO. 28 TO 31 OF THE ORDER. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS . PRIOR TO AMEND MENT THE SECTION READS AS UNDER : - 'ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB - CONTRACTOR, BEING RESIDENT, FOR CARRYI NG OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK)' THE FINANCE (NO. 2) ACT, 2014, W.E.F. 1 - 4 - 2015 SUBSTITUTED THE ABOVE WITH : - THIRTY PER CENT OF ANY SUM PAYABLE TO A RESIDENT 7. BY FINANCE (NO. 2) ACT 2015 HAS AMENDED THE PROVISIONS OF SECTION 40(A)(IA) W.E.F 01.04.2015 TO PROVIDE THAT THE DISALLOWANCE UNDER THE SAID SUB - CLAUSE SHALL BE RESTRICTED TO 30% AND THE PROVISIONS OF THIS SECTION SHALL BE APPLICABLE TO ALL EXPENDITURE WHICH IS PAYABLE TO RESIDENT O N WHICH TAX IS DEDUCTIBLE UNDER THE HEADING B - DEDUCTION OF TAX AT SOURCE OF CHAPTER XVII . THEREFORE BY THIS AMENDMENT IT HAS INCREASED THE SCOPE OF EXPENDITURE AND REDUCED THE QUANTUM OF DISALLOWANCE. THOUGH THE FINANCE MINISTER EXPLAINED THE AMENDMENT THA T EARLIER DISALLOWANCE OF 100% OF SUCH EXPENDITURE HAS CAUSED UNDUE HARDSHIP TO THE ASSESSEE PARTICULARLY WHERE THE RATE OF TAXES ONLY 1% TO 10%. THEREFORE, ONLY 30% OF SUCH PAYMENT INSTEAD OF 100% WILL BE DISALLOWED. IN THE EXPLANATORY MEMORANDUM, THE REA SONS WERE ALSO GIVEN OF REDUCING THE HARDSHIP. HOWEVER, IT WAS STATED THAT THESE AMENDMENT WILL TAKE EFFECT FROM 1 ST APRIL 2015 AND ACCORDINGLY APPLY FOR AY 2015 - 16 ONWARDS . WE ARE N OT INCLINE D TO ACCEPT THE CONTENTION OF THE LD AR THAT RATE OF DISALLOW ANCE REDUCED FROM 100 % TO 30 % OF THE EXPENDITURE BY THE FINANCE ACT 2014 APPLIES RETROSPECTIVELY FOR FOLLOWING REASONS : - PAGE 11 OF 18 A) THE ABOVE PROVISION IS NOT CURATIVE IN NATURE, IT DOES NOT CURE ANY DEFECT BUT MERELY FOR NON COMPLIANCES REDUCES THE RATES OF DISALLOWANCES. B) MERE INCREASE OR DECREASE IN THE RATES OF DISALLOWANCES CANNOT BE TERMED AS HARDSHIP, C) IT IS A SUBSTANTIVE PROVISION AND NOT PROCEDURAL PROVISIONS . D) THE O THER TWO PROVISION INSERTED WITH EFFECT FROM 1 - 4 - 2010 AND 1 - 4 - 2013 HAVE EITHER EXTENDED THE DATE OR HAS PROVIDED A PROCEDURE TO ESTABLISH THAT TAXES HAVE BEEN PAID. IN THE AMENDMENT WITH EFFECT FROM 1 - 4 - 2015, THE RATES OF DISALLOWANCES HAVE BEEN REDUCED. THEREFORE THE AMENDMENT WHICH ARE EARLIER HELD T O BE RETROSPECTIVE IN NATURE ARE OF DIFFERENT NATURE, HENCE, REASONS GIVEN FOR THEIR RETROSPECTIVE APPLICABILITY DOES NOT APPLY IN THE PRESENT CASE AS BOTH PROVISIONS ARE NOT COMPARABLE. E) IMPUGNED AMENDMENT HAS TWO EFFECTS , IT INCREASES THE SCOPE OF THE NATURE OF PAYMENTS COVERED FOR DISALLOWANCE AS WELL AS REDUCTION IN THE RATES OF DISALLOWANCES. FROM ONE SIDE IT INCREASES THE BURDEN ON THE ASSESSEE AND FROM OTHER SIDE IT REDUCES THE RATES OF DISALLOWANCES. BOTH THE ABOV E PROVISION ARE INSEPARABLE. FOR THIS REASON WE ARE GUIDED BY THE DECISION OF HONOURABLE SUPREME COURT IN CASE OF CIT V VATIKA TOWNSHIP P LIMITED ( 2014) 367 ITR 466 (SC) WHERE IN IN PARA NO 32 - 34 IT HAS BEEN HELD AS UNDER : - 32. THE OBVIOUS BASIS OF THE PRINCIPLE AGAINST RETROSPECTIVITY IS THE PRINCIPLE OF 'FAIRNESS', WHICH MUST BE THE BASIS OF EVERY LEGAL RULE AS WAS OBSERVED IN THE DECISION IN L'OFFICE CHERIFIEN DES PHOSPHATES V. YAMASHITA - SHINNIHON STEAMSHIP CO. LTD . [1994] 1 AC 486. THUS, LEGISLAT IONS WHICH MODIFIED ACCRUED RIGHTS OR WHICH IMPOSE OBLIGATIONS OR IMPOSE NEW DUTIES OR ATTACH A NEW DISABILITY HAVE TO BE TREATED AS PROSPECTIVE UNLESS THE LEGISLATIVE INTENT IS CLEARLY TO GIVE THE ENACTMENT A RETROSPECTIVE EFFECT; UNLESS THE LEGISLATION I S FOR PURPOSE OF SUPPLYING AN OBVIOUS OMISSION IN A FORMER LEGISLATION OR TO EXPLAIN A FORMER LEGISLATION. WE NEED NOT NOTE THE CORNUCOPIA OF CASE LAW AVAILABLE ON THE SUBJECT BECAUSE AFORESAID LEGAL POSITION CLEARLY EMERGES FROM THE VARIOUS DECISIONS AND THIS LEGAL POSITION WAS CONCEDED BY THE COUNSEL FOR THE PARTIES. IN ANY CASE, WE SHALL REFER TO FEW JUDGMENTS CONTAINING THIS DICTA, A LITTLE LATER. 33. WE WOULD ALSO LIKE TO POINT OUT, FOR THE SAKE OF COMPLETENESS, THAT WHERE A BENEFIT IS CONFERRED BY A L EGISLATION, THE RULE AGAINST A RETROSPECTIVE CONSTRUCTION IS DIFFERENT. IF A LEGISLATION CONFERS A BENEFIT ON SOME PERSONS BUT WITHOUT INFLICTING A CORRESPONDING DETRIMENT ON SOME PAGE 12 OF 18 OTHER PERSON OR ON THE PUBLIC GENERALLY, AND WHERE TO CONFER SUCH BENEFIT AP PEARS TO HAVE BEEN THE LEGISLATORS OBJECT, THEN THE PRESUMPTION WOULD BE THAT SUCH A LEGISLATION, GIVING IT A PURPOSIVE CONSTRUCTION, WOULD WARRANT IT TO BE GIVEN A RETROSPECTIVE EFFECT. THIS EXACTLY IS THE JUSTIFICATION TO TREAT PROCEDURAL PROVISIONS AS R ETROSPECTIVE. IN GOVERNMENT OF INDIA V. INDIAN TOBACCO ASSOCIATION [2005] 7 SCC 396, THE DOCTRINE OF FAIRNESS WAS HELD TO BE RELEVANT FACTOR TO CONSTRUE A STATUTE CONFERRING A BENEFIT, IN THE CONTEXT OF IT TO BE GIVEN A RETROSPECTIVE OPERATION. THE SAME DO CTRINE OF FAIRNESS, TO HOLD THAT A STATUTE WAS RETROSPECTIVE IN NATURE, WAS APPLIED IN THE CASE OF VIJAY V. STATE OF MAHARASHTRA [2006] 6 SCC 286 . IT WAS HELD THAT WHERE A LAW IS ENACTED FOR THE BENEFIT OF COMMUNITY AS A WHOLE, EVEN IN THE ABSENCE OF A PROVISION THE STATUTE MAY BE HELD TO BE RETROSPECTIVE IN NATURE. HOWEVER, WE ARE CONFRONTED WITH ANY SUCH SITUATION HERE. 34. IN SUCH CASES, RETROSPECTIVELY IS ATTACHED TO BENEFIT THE PERSONS IN CONTRADISTINCTION TO THE PROVISION IMPOSING SOME BURDEN OR LI ABILITY WHERE THE PRESUMPTION ATTACHES TOWARDS PROSPECTIVITY. IN THE INSTANT CASE, THE PROVISO ADDED TO SECTION 113 OF THE ACT IS NOT BENEFICIAL TO THE ASSESSEE. ON THE CONTRARY, IT IS A PROVISION WHICH IS ONEROUS TO THE ASSESSEE. THEREFORE, IN A CASE LIKE THIS, WE HAVE TO PROCEED WITH THE NORMAL RULE OF PRESUMPTION AGAINST RETROSPECTIVE OPERATION. THUS, THE RULE AGAINST RETROSPECTIVE OPERATION IS A FUNDAMENTAL RULE OF LAW THAT NO STATUTE SHALL BE CONSTRUED TO HAVE A RETROSPECTIVE OPERATION UNLESS SUCH A CO NSTRUCTION APPEARS VERY CLEARLY IN THE TERMS OF THE ACT, OR ARISES BY NECESSARY AND DISTINCT IMPLICATION. DOGMATICALLY FRAMED, THE RULE IS NO MORE THAN A PRESUMPTION, AND THUS COULD BE DISPLACED BY OUT WEIGHING FACTORS. F) FURTHER , THE LEGISLATURE IT SELF HA S MADE IT APPLICABLE FROM A Y 2015 - 16. IN THE RESULT THIS CONTENTION OF ASSESSEE IS REJECTED AND WE HOLD THAT AMENDMENT TO SECTION 40A (IA) WITH EFFECT FROM 1 - 4 - 2015 OF REDUCTION IN RATE OF DISALLOWANCE COUPLED WITH THE INCREASE IN SCOPE OF THE DISALLOWANCE IS NOT RETROSPECTIVE IN NATURE.AND . 8. THE NEXT ARGUMENT OF THE ASSESSEE WAS THAT DISALLOWANCE U/S 40A(IA) SHOULD HAVE IF AT ALL BEEN RESTRICTED TO THE AMOUNT REMAINING PAYABLE AT ON THE LAST DATE OF THE PR EVIOUS YEAR. THE ARGUMENT OF THE ASSESSEE IS RECORDED AT PARA NO. 7 AT PAGE NO. 10 TO 16 OF THE ORDER. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS, HOWEVER WE HAVE COME ACROSS THE RECENT DECISION OF THE HON'BLE SUPREME COURT IN CASE OF M/S. PALAM G AS SERVICES VS. CIT IN CIVIL APPEAL NO. 5512/2017 DATED 03.05.2017, WHEREIN HON'BLE SUPREME COURT HAS HELD THAT DISALLOWANCE U/S 40A(1A) CANNOT BE RESTRICTED TO AMOUNT PAYABLE AT THE END OF THE YEAR ONLY BUT ALSO APPLIES TO THE AMOUNT PAID DURING THE YEAR ALSO. IN VIEW OF THIS, ABOVE ARGUMENT OF THE ASSESSEE IS REJECTED. PAGE 13 OF 18 9. THE NEXT ARGUMENT OF THE ASSESSEE WAS THAT ASSESSING OFFICER COULD NOT HAVE DISALLOWED THE AMOUNT TO THE EXTENT OF NO ORDER U/S 201 PASSED TREATING THE ASSESSEE TO BE ASSESSEE IN DEFAUL T. THE RELEVANT ARGUMENTS OF THE ASSESSEE ARE RECORDED AT PARA NO. 9 OF THE ORDER. THE ASSESSEE HAS RELIED UPON THE DECISION OF COORDINATE BENCH IN CASE OF BHARTI HEXACO M LTD. VS. ACIT 68 TAXMAAN.COM 35 7 (DELHI TRIBUNAL) FOR THIS PROPOSITION. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND WE HAVE ALSO PERUSED THE DECISION OF THE COORDINAT E BENCH IN CASE OF BHARTI HEXCOM LTD. VS. ACIT, (SUPRA) . THE ISSUE BEFORE THE COORDINATE BENCH WAS WHETHER DISCOUNT PROVIDED TO THE DISTRIBUTORS ON SALE OF PRE PAID VOUCHERS IS IN THE NATURE OF COMMISSION AND TAX IS NOT DEDUCTED ON THAT SUM U/S 194H OF THE ACT SAME IS DISALLOWABLE U/S 40A(IA) OF THE ACT. THE COORDINATE BENCH HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THE REASON THAT IN ASSESSEES OWN CAS E THE COORDINATE BENCHES FOR THE SAME YEAR HAVE HELD THAT PROVISION OF SECTION 194H ARE NOT APPLICABLE ON THE IMPUGNED EXPENDITURE WHILE DECIDING THE ISSUE U/S 201 OF THE ACT. TO SAY SUCCINCTLY THAT IN THAT PARTICULAR ORDER U/S 201 PASSED BY THE ASSESSING OFFICER HOLDING THE ASSESSEE TO BE AN ASSESSEE IN DEFAULT FOR NON DEDUCTION OF TAX AT SOURCE ON SALE OF PREPAID SIM CARDS WAS NOT SUSTAINED BY THE COORDINATE BENCH FOR THE REASON THAT SALE OF THE SIM CARDS WAS ACTUALLY A RIGHT TO SERVICE AND THEREFORE, PRO VISION OF SECTION 194H DO NOT APPLY. THEREFORE, IN THAT PARTICULAR CASE THE COORDINATE BENCH HAS HELD THAT ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT. IN THIS BACKGROUND IN PARA NOS. 42 TO 44 OF THE ORDER THE COORDINATE HAS DISCUSSED THIS ISSUE AS UNDER: - 42. THEREFORE, THE PROVISIONS CONTAINED IN CHAPTER XVIIB HAVE TO BE GIVEN EFFECT TO WHILE QUANTIFYING THE LIABILITY OF AN ASSESSEE. THE COMPUTATION OF INCOME CANNOT BE EFFECTED WITHOUT HAVING RECOURSE TO SECTION 40(A)(IA) AND CONSEQUENTLY TO PROVISIONS OF CHA PTER XVII - B. SECTION 40(A)(IA) COMES INTO PLAY WHEN ANY INTEREST, COMMISSIONS OR BROKERAGE ETC. PAYABLE TO A RESIDENT, ON WHICH TAX WAS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139 THEN SUCH PAYMENTS WILL NOT BE ALLOWED AS DEDUCTION. 43. THEREFORE, IT FOLLOWS THAT THERE SHOULD BE SUM PAID BY ASSESSEE ON WHICH TAX WAS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB BEFORE 40(A)( IA) COULD COME INTO PLAY. ADMITTEDLY IN THE CASE OF ASSESSEE, IT PAGE 14 OF 18 HAS BEEN HELD THAT THE PROVISIONS OF SECTION 194H AS WELL AS PROVISIONS OF SECTION 194J ARE NOT ATTRACTED AND THEREFORE, THERE WAS NO AMOUNT ON WHICH TAX WAS DEDUCTIBLE. THEREFORE, SECTION 40 (A)(IA) CANNOT COME INTO PLAY. THE MACHINERY PROVISIONS CANNOT OPERATE INDEPENDENTLY AND BEFORE THE COMPUTATION PROVISIONS CONTAINED IN SECTION 40(A)(IA) CAN COME INTO THE PLAY, THE EFFECT OF APPLICABILITY OF MACHINERY PROVISION HAS TO BE CONSIDERED. 44. N OW, IF WE ACCEPT THE SUBMISSIONS ADVANCED BY LD. CIT(DR) THAT THE PROVISIONS OF SECTION 40(A)(IA) AND PROVISIONS OF SECTION 201 OPERATE IN TWO INDEPENDENT FIELDS THEN IT WOULD LEAD TO CONTRADICTORY FINDINGS BY TRIBUNAL FOR THE SAME ASSESSMENT YEAR IN RESPE CT OF THE SAME SUBJECT MATTER AND ISSUE. HAD THERE BEEN NO DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE SAME ASSESSMENT YEAR, THEN IN VIEW OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF IDEA CELLULAR LTD. ( SUPRA ) DEDUCTION COULD NOT BE ALLOWED TO ASSESSEE. HOWEVER, IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT, KEEPING IN VIEW THE INTEGRATED SCHEME OF THE ACT, WE ARE OF THE OPINION THAT NON - DEDUCTION OF TAX UNDER CHAPTER XVIIB LEADS TO CONSEQUENCES CONTEMPLATED U/S 201 AND, TH EREFORE, SECTION 40(A)(IA) AND PROVISIONS CONTAINED IN CHAPTER XVII - B CONSTITUTE AN INTEGRATED CODE AND, ACCORDINGLY, EFFECT HAS TO BE GIVEN TO THE DECISIONS OF TRIBUNAL'S GUAHATI AND JAIPUR BENCHES, WHICH WILL OPERATE AS RES - JUDICATA. IN ANY VIEW OF THE M ATTER, THE VIEW BENEFICIAL TO THE ASSESSEE IS TO BE TAKEN. WE, ACCORDINGLY, ALLOW THE ASSESSEE'S APPEAL IN RESPECT OF GROUND NOS. 1 AND 1.1. 10. W E ARE OF THE OPINION THAT RELIANCE ON THIS DECISION IS MISPLACED FOR THE REASON THAT IN THAT CASE THERE WERE ALR EADY ORDERS U/S 201 OF THE ACT IN ASSESSEES OWN CASE THAT TAX IS NOT REQUIRED TO BE DEDUCTED ON IMPUGNED PAYMENT AND THEREFORE DISALLOWANCE U/S 40A (IA) CANNOT BE MADE. NOW EXAMINING THE ARGUMENT OF THE ASSESSEE INDEPENDENTLY WE PERUSED THE PROVISION OF SECTION 201 OF THE ACT. IT PROVIDES THAT IN CASE OF THE PERSON WHO IS REQUIRED TO DEDUCT TAX AT SOURCE DOES NOT DEDUCT OR AFTER DEDUCTING DOES NOT PAY THAN SUCH PERSON SHALL WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCE WHICH HE MAY INCUR, BE DEEMED TO BE AS SESSEE IN DEFAULT IN RESPECT OF SUCH TAXES AND THEN CONSEQUENTLY, THE PROVISION OF RECOVERY OF TAX, INTEREST AND PENALTY MAY APPLY. IT IS FURTHER PROVIDED THAT NO SUCH ORDER OF DEEMING ASSESSEE TO BE ASSESSEE IN DEFAULT SHALL NOT BE MADE AFTER THE EXPIRY OF 7 YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE IMPUGNED PAYMENT IS MADE OR CREDIT IS GIVEN. THE PROVISIONS OF SECTION 40(A)( I A) PROVIDES THAT NOTWITHSTANDING CONTRARY IN SECTION 30 TO 38 , THE AMOUNT SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME , IF TAX HAS NOT BEEN DEDUCTED ON CERTAIN SUMS OR AFTER DEDUCTION PAGE 15 OF 18 IT HAS NOT BEEN DEPOSITED BEFORE THE SPECIFIED DATE . WE GIVE OUR REASON FOR DISAGREEING WITH THE ARGUMENTS OF THE LD AR. A) ON READING OF BOTH THE PROVISIONS IT IS APPARENT THAT THERE WAS TWIN CONSEQUENCES APPLICABLE IN CASE ASSESSEE FAILS TO DEDUCT TAX AT SOURCE AND AFTER DEDUCTING FAILS TO PAY, (I) SUCH AMOUNT SHALL NOT BE ALLOWED AS DEDUCTION AND (II) FURTHER THE ASSESSEE MAY BE ASKED TO PAY THE TAX ALONG WI TH INTEREST AND PROBABLE PENALTY . B) THE ABOVE ARGUMENT CAN ALSO BE TESTED THAT IN CASE IF THE AMOUNT IS DISALLOWED U/S 40(A)( I A) OF THE ACT , DOES IT PROHIBIT THE LD ASSESSING OFFICER IN RECOVERING THE TAX AND INTEREST FROM THE ASSESSEE BY PASSING AN ORDER U/S 201 OF THE ACT. THE OBVIOUS ANSWER IS NO. C) THE SECOND PROVISO TO SECTION 40A (IA) OF THE ACT INSERTED WITH EFFECT FROM 1.4.2013 BY THE FINANCE ACT 2012 ALSO VISUALIZES A SITUATION THAT WHEN THE ASSESSEE IS NOT DEEMED TO BE IN DEFAULT U/S 201 OF TH E ACT, AND IF THE PAYEE HAS FILED THE RETURN , THE DISALLOWANCE U/S 40A (IA) SHALL NOT BE MADE. IN VIEW OF THIS WE DO NOT AGREE WITH THE CONTENTION OF THE ASSESSEE THAT UNLESS THERE IS AN ORDER U/S 201 OF THE ACT THE IMPUGNED AMOUNT CANNOT DISALLOWED U/S 40 ( A ) ( I A) OF THE ACT. 11. THE NEXT CONTENTION OF THE ASSESSEE IS THAT ADDITIONAL GROUND OF APPEAL ADMITTED HAS NOT BEEN ADJUDICATED. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS AS UNDER: - THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSEE OUGHT TO BE ALLOWED DEDUCTION OF LIABILITY BORNE BY THE ASSESSEE IN PURSUANCE OF ORDER(S) PASSED UNDER SECT I ON 201(1) OF THE INCOME TAX ACT, 1961. (THE ACT) 12. THE ASSESSEE HAS SUBMITTED THAT SIMILAR ADDITIONAL GROUND WAS ADMITTED AND ADJUDICATED BY COORDINATE BENCH FOR AY 2008 - 09 IN ASSESSEES OWN CASE IN ITA NO. 5816/DEL/2012 DATED 11.03.2014. WE HAVE CAREFULLY PERUSED THE ABOVE DECISION WHICH IS AS UNDER: - 78. THE ASSESSEE HAS MOVED AN APPLICATION FOR ADMISSION OF ADDITIONAL GROUND WHICH IS R EPRODUCED BELOW FOR READY REFERENCE: PAGE 16 OF 18 THE APPLICANT CRAVES LEAVE TO RAISE THE FOLLOWING BY WAY OF ADDITIONAL GROUND OF APPEAL: THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSEE OUGHT TO BE ALLOWED DEDUCTION OF LIABILITY BORNE BY THE ASSESSEE IN PURSUANCE OF ORDER(S) PASSED UNDER SECTION 201 (1) OF THE INCOME TAX ACT, 1961 (THE ACT). TAX DEMANDS UNDER SECTION 201(1) OF THE ACT HAS BEEN RAISED AGAINST THE APPLICANT FOR VARIOUS ASSESSMENT YEARS, FOR ALLEGED DEFAULT IN DEDUCTION OF TA X AT SOURCE UNDER THE PROVISIONS OF THE ACT, IN RESPECT OF THE FOLLOWING TRANSACTIONS : (A) DISCOUNT ALLOWED TO DISTRIBUTORS ON SALE OF PRE - PAID PRODUCTS - ALLEGED NON - DEDUCTION OF TAX UNDER SECTION 194H OF THE ACT; (B) ROAMING CHARGES PAID TO OTHER CELLULAR SERVICE PROVIDERS - ALLEGED NON - DEDUCTION OF TAX UNDER SECTION 194J OF THE ACT; (C) INTEREST PAYMENTS MADE TO ABN AMRO BANK, NETHERLANDS - ALLEGED NON - DEDUCTION OF TAX UNDER SECTION 195 OF THE ACT. THE ISSUE WHET HER TAX WAS ACTUALLY DEDUCTIBLE AT SOURCE ON THE AFORESAID TRANSACTIONS IS, IT IS SUBMITTED, STILL UNDER DISPUTE, WHICH IS PENDING ADJUDICATION BEFORE VARIOUS APPELLATE AUTHORITIES AND NO FINALITY HAS BEEN REACHED ON THE ISSUES AS YET. HOWEVER, IN PURSUANC E OF PROCEEDINGS INITIATED UNDER SECTION 201 OF THE ACT, THE APPLICANT, IN ORDER TO SAFEGUARD ITS BUSINESS INTERESTS AND TO PREVENT ANY COERCIVE ACTION BY THE DEPARTMENT RESULTING IN OBSTRUCTION/DAMAGE TO ITS BUSINESS, HAS, IN VARIOUS ASSESSMENT YEARS, DEP OSITED 'UNDER PROTEST', CERTAIN AMOUNTS OF TAX DEMANDS RAISED IN PURSUANCE OF THE ORDERS UNDER THAT SECTION. THE AMOUNT OF TAX LIABILITY BORNE BY THE APPLICANT, IN PURSUANCE OF ORDER(S) PASSED UNDER SECTION 201(1), HAS, HOWEVER, NOT BEEN CONSIDERED FOR ALL OWANCE AS DEDUCTION WHILE COMPUTING BUSINESS INCOME UNDER THE PROVISIONS OF THE ACT. THE APPLICANT IN THIS REGARD, RESPECTFULLY SUBMITS THAT THE TAX LIABILITY HAS BEEN BORNE 'UNDER PROTEST' AND THE LEGAL ISSUE OF DEDUCTIBILITY OF TAX AT SOURCE ON THE SPECI FIED TRANSACTIONS IS PENDING ADJUDICATION BEFORE VARIOUS APPELLATE AUTHORITIES. FURTHER, PART OF THE AMOUNT OF TAX DEMANDED PURSUANT TO ORDERS PASSED UNDER SECTION 201 OF THE ACT HAS, IT IS SUBMITTED, BEEN PAID BY THE APPLICANT IN VARIOUS ASSESSMENT YEARS, WITHOUT ANY ADMISSION OF THE LIABILITY TO DEDUCT TAX AT SOURCE, IN THE LARGER BUSINESS INTEREST, STRICTLY IN THE CAPACITY AS A TRADER, IN ORDER TO AVOID ANY FORCEFUL/COERCIVE STEPS BY THE DEPARTMENT. IN THE AFORESAID CIRCUMSTANCES, THE APPLICANT SHOULD B E HELD ENTITLED TO DEDUCTION OF THE DEMANDS CRYSTALLIZED AND/OR PAID DURING THE YEAR UNDER CONSIDERATION PURSUANT TO ORDERS PASSED UNDER SECTION 201 OF THE ACT. IN VIEW OF THE AFORESAID, IT IS RESPECTFULLY PRAYED, THAT THE AMOUNT OF TAX LIABILITY ACCRUED/B ORNE BY THE APPLICANT IN PURSUANCE OF THE ORDERS PASSED UNDER SECTION 201 (1), SHOULD BE DIRECTED TO BE CONSIDERED FOR ALLOWANCE AS BUSINESS DEDUCTION UNDER SECTIONS 28/37 OF THE ACT. PRAYER: PAGE 17 OF 18 THE AFORESAID ISSUE OF ALLOWABILITY OF PAYMENT OF TAX LIABILITY ACCRUED/BORNE IN PURSUANCE OF ORDERS PASSED UNDER SECTION 201(1) OF THE ACT IS, IT IS SUBMITTED, PURELY A LEGAL ISSUE, AND FACTS IN RELATION TO THE SAME ARE ALREADY AVAILABLE ON RECORD. THE ADDITIONAL GROUND OF M APPEAL IS BEING RAISED ON THE APPLICANT BEI NG RECENTLY ADVISED OF THE CORRECT LEGAL POSITION AND THE OMISSION TO RAISE THE AFORESAID ADDITIONAL GROUND OF APPEAL EARLIER IS NEITHER WILLFUL NOR DELIBERATE. THE ADDITIONAL GROUND OF APPEAL CALLS FOR BEING ADMITTED AND ADJUDICATED ON MERITS IN VIEW OF THE DISCRETION VESTED IN YOUR HONOUR UNDER RULE 11 OF THE INCOME - TAX (APPELLATE TRIBUNAL) RULES, 1963 AND THE DECISION OF THE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. V. CIT : 229 ITR 383. 79. HAVING HEARD THE RIVAL CONTENTIONS ON THIS PETITION, WE ARE INCLINED TO ADMIT THE ADDITIONAL GROUND OF APPEAL AS IT IS PURELY A LEGAL ISSUE AS TO WHETHER OR NOT THE LIABILITY BORNE BY THE ASSESSEE, UNDER SECTION 201 AND WHICH IS NOT RECOVERED FROM THE RECIPIENTS OF PAYMENTS WITHOUT DEDUCTION OF TA X AT SOURCE, IS DEDUCTIBLE IN COMPUTATION OF ASSESSEES INCOME. HOWEVER, AS IT INVOLVES FACTUAL VERIFICATIONS, WE ARE NOT INCLINED TO DEAL WITH THE SAME, ON MERITS, AT THIS STAGE. WE, THEREFORE, DEEM IT FIT AND PROPER TO REMI T THIS ISSUE TO THE FILE OF TH E ASSESSING OFFICER TO ADJUDICATION DE NOVO, BY WAY OF A SPEAKING ORDER, IN ACCORDANCE WITH THE LAW AND AFTER GIVING A FAIR AND REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSEE IS DIRECTED TO MAKE ALL SUCH LEGAL AND FACTUAL SUBMISSIONS ON TH IS ASPECT, AS HE MAY DEEM APPROPRIATE, AND THE ASSESSING OFFICER SHALL ADJUDICATE ON THE SAME BY SPECIFICALLY DEALING WITH THE SAME BY WAY OF A SPEAKING ORDER. WE DIRECT SO. 80. THE ADDITIONAL GROUND OF APPEAL, AS SET OUT ABOVE, IS THUS ADMITTED IN PRINCI PLE BUT REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION ON MERITS. 13. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR EARLIER YEARS WE SET ASIDE THE ABOVE ADDITIONAL GROUND OF APPEAL AFTE R ADMISSION TO THE FILE OF THE LD ASSESSING OFFICER TO DECIDE THE CLAIM OF THE ASSESSEE AFRESH AFTER CONSIDERING THE PROVISIONS OF SECTION 40(A)(II) AND SECTION 37(1) READ WITH EXPLANATION 1 OF THAT SECTION OR ANY OTHER PROVISIONS OF THE INCOME TAX ACT. 14. THE MISCELLANEOUS APPLICATION OF THE ASSESSEE IS ACCORDINGLY DISPOSED OFF. ORDER PRO NOUNCED IN THE OPEN COURT ON 1 1 / 0 5 / 2017 . - S D / - - S D / - ( I.C.SUDHIR ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 1 / 0 5 / 2017 A K KEOT COPY FORWARDED TO PAGE 18 OF 18 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI