SUNDEEP DHUPER,NEW DELHI V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 3, NOIDA , NOIDA

ITA 4447/DEL/2025

AI Insights

The case involves Sundeep Dhuper, who appealed against the order of the National Faceless Appeal Centre (NFAC) which sustained additions made to his income for the Assessment Year 2008-09. The additions were initially made by the Assessing Officer under sections 143(3) and 263 of the Income Tax Act, 1961, concerning alleged short-term capital gains, fuel expenses, and bonus payments. The Tribunal examined whether the appellant was the beneficial owner of a property from which capital gains were alleged, the nature and justification of the fuel expenses claimed, and the legality of the bonus payments made to employees. The Tribunal's decision was influenced by precedents and interpretations of relevant sections of the Income Tax Act, particularly concerning the beneficial ownership and the deductibility of expenses.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 838246 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 17-07-2025
• Other Referred Cases: Sama Om Reddy v. ITO, CIT v. Ansal Landmark Township (P) Ltd., Rajiv Kumar Aggarwal v. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA; CORRESPONDING INCOME NOT BEING TAKEN INTO
• Assessee Lawyers: D.P. SINGH
• Keywords: Capital asset; Additional evidence; Retrospective amendment; Commercial expediency; Gift; Capital Gains; TDS; Competent authority; Revision of order
• Section: 147; 148; 271(1)(c); 69C; 234B; 40(a)(ia)

Judgement Text

"P a g e | 1 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.4447/Del/2025 (Assessment Year:2008-09) Sundeep Dhuper B-207 II Floor, RG City Centre, Motia Khan New Delhi – 110055 Vs. ACIT, Circle-3 4th Floor, A-2D, Aaykar Bhawan, Sector-24, Noida Uttar Pradesh – 201301 \u0001थायीलेखासं./जीआइआरसं./PAN/GIR No: AAJPD9892L Appellant .. Respondent Appellant by : Sh. D.P. Singh, Adv. Respondent by : Sh. Rajesh Kumar Dhanesta, Sr. (DR) Date of Hearing 12.01.2026 Date of Pronouncement 20.02.2026 O R D E R PER ANUBHAV SHARMA, JM: This appeal is preferred by the assessee against the order dated 16.05.2025 of the Ld. National Faceless Appeal Centre (NFAC) (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN Printed from counselvise.com P a g e | 2 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) &Order No : ITBA/NFAC/S/250/2025-26/1076251049(1) arising out of the order dated 31.12.2018 u/s143(3) r.w.s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the ACIT, Circle-3, Noida for AY: 2008-09. 2. Heard and perused the records.The return of assessee was filed on 30.09.2008 declaring taxable income of Rs.26,17,035/-. Subsequently, the case was reopened u/s 147 of the Act and assessment order was passed u/s 143(3)/147 of the Act on 15.03.2016 and total income of Rs.26,17,035/-. By order dated 15.03.2016, Ld. PCIT has made certain directions u/s 263 of the Act, with regard to receipt of certain money as sales consideration which were not examined and thereby denovo assessment was ordered. In furtherance of which certain additions were made and which have been sustained by the ld. CIT(A) leading to the present appeal by the assessee and the grounds are reproduced below: Legal validity of the impugned Orders 1. That the assessment order dated 31.12.2018 passed under Section263/143(3) of the Income Tax Act, 1961 (the Act) by the Assessing Officer ('AO) and the additions/disallowances made therein are illegal, bad in law, without jurisdiction and not in accordance with the provisions of the Act. hence, the same is liable to be quashed. 2. That the Commissioner of Income Tax (Appeals) |'CIT (Appeals)] has erred in law and on facts in confirming the additions/disallowance made by theAO in the assessment order. Printed from counselvise.com P a g e | 3 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) 3. That in view of the facts and circumstances of the case, the AO has erred in making additions to the tune of Rs.3,93,69,350/- to the returned income of the Appellant and the same is liable to be deleted. 4. That in view of the facts and circumstances of the ease, the notice issued under Section 148 of the Act and the assessment order dated 15.03.2016 passed under Section 143(3)/147 of the Act by the DCIT, Circle-3, Noida is itself illegal, bad in law and without jurisdiction. Therefore, all the subsequent proceedings under are illegal, bad in law, without jurisdiction and liable to be quashed. Addition on account of short-term capital gains 5. That in view of the facts and circumstances of the case, the addition to the tune of Rs.1,54,00,000/- made by the AO on account of short-term capital gains is illegal and bad in law, and the CIT(Appeals) has erred in confirming the same. 6. That in view of the facts and circumstances of the case, the AO, and the CIT(Appeals) rejected the evidence submitted by the Appellant and assessed the entire sale proceed arising out of the transfer deed of lease hold rights dated 23.02.2008, as the income of the Appellant on surmises, conjecture and suspicion. 7. That in view of the facts and circumstances of the case, the AO and the CIT(Appeals) has failed to take into consideration that pursuant to the transfer deed dated 23.08.2008, the consideration was not received by the Appellant, and hence the same cannot be taxed in his hands. Addition on account of fuel expenses 8. That in view of the facts and circumstances of the case, the addition to the tune of Rs.1,45,16,786/- made by the AO on account of fuel expenses is illegal and bad in law, and the CIT(Appeals) has erred in confirming the same. 9. That in view of the facts and circumstances of the case, the addition on account of fuel expenses has been made mechanically on account of surmise, conjecture and suspicion, the Id. AO failed to take into consideration the fuel consumption data of the previous and the subsequent periods to verify the claim of the Appellant. Addition on account of bonus payable 10. That in view of the facts and circumstances of the case, the addition to the tune of Rs.13,26,930/- made by the AO on account of bonus payable is illegal and bad in law, and the CIT(Appeals) has erred in confirming the same. 11. That in view of the facts and circumstances of the case, the addition on account of bonus payable was made by the AO without considering the evidence as produced by the Appellant. Disallowance of Interest u/s 40(a)(ia) of the Income Tax Act for non-deduction of TDS Printed from counselvise.com P a g e | 4 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) 12. That in view of the facts and circumstances of the case, the disallowance of interest to the tune of Rs.55,08,596/- made by the AO on account ofRs. 39,73,191/- was paid as interest to banking institutions, and only the remaining amount of Rs. 15,35,405/- was paid as interest to NBFCs. 14. That in view of the facts and circumstances of the case, the AO failed to take into consideration that the payment of interest made to banking institutions is exempt from the application of tax deduction at source as per the provisions of Section 194A of the Act. 15. That in view of the facts and circumstances of the case, the AO has erred in law and on facts in charging the interest under Section 234B of the Act. 16. That in view of the facts and circumstances of the case, the AO has erred in law and on facts in initiating the penalty proceedings against the Appellant under Section 271(1)(c) of the Act. The Appellant craves leave to add to, alter, amend, and/or withdraw any ground or grounds of appeal either before or during the course of hearing the appeal.” 3. At the outset we observe that ground no. 1 to 4, 15 and 16 are general and not pressed specifically. Ground no. 5-7; The grounds pertain to the addition to the tune of Rs. 1,54,00,000/- on account of alleged short-term capital gains.The plot in question is a residential hold vacant plot of measuring 450 sq. mtrs. situated in Block - B, Sector 51, Noida, Uttar Pradesh. The said plot was purchased by the Appellant, Shri Sundeep Dhuper from Woo Yang Electronics (India) Ltd., through their GPA Holder Rekha Goel, vide Transfer Deed cum Sale Deed dated 30.03.3005, for a total consideration of Rs.17,80,000/- and a sum of Rs. 2,70,000/- was paid as stamp duty. The Transfer Deed dated 30.03.2005 pertaining to the purchase by the Appellant is placed at PB Pg. 85-91. 4. Subsequently on 01.06.2006, Shri Sundeep Dhuper, the appellant herein, executed a general power of attorney, vis-à-vis, the plot in question in favor of Shri Printed from counselvise.com P a g e | 5 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) Narpat Singh, the same is placed at PB Pg. 92-98. At the time of execution of the GPA, the said plot was still vacant. Pursuant to the GPA dated 01.06.2006, an agreement to sell dated03.06.2006 was executed between the Appellant, Shri Sundeep Dhuper, and the N.N. Buildwell Pvt. Ltd. through its Director Shri Narpat Singh for a consideration of Rs.23,50,000/-. The entire consideration was paid in advance to the vendor, i.e., the Appellant herein. (Ref- Clause 2 of the agreement to sell dated 03.06.2006).Further, stamp duty calculated @4% amounting to Rs.94,000/- was also paid. The agreement to sell dated 03.06.2006 has been placed @, PBPg. 99-115.On 23.02.2008, N.N. Buildwell Pvt. Ltd., through its Director Mr.Narpat Singh, the general power of attorney holder of the Appellant, executed a transfer deed of lease hold rights for the plot under question against a consideration of Rs. 1,75,00,000/- to Mr. Umesh Munjal. It is evident from the Transfer Deed of Lease Hold rights that Mr. Narpat Singh had constructed upon the vacant plot as vide the Transfer deed dated 23.02.2008, along with the 450 sq. mts. of the plot, a covered area on the ground floor measuring 255.46 sq. mts., a covered area on the first floor measuring 255.46 sq. mts. and a covered area on the second floor measuring 50.05 sq. mts. was also transferred to the Mr. Umesh Munial. The construction on the plot is evident from the photographs enclosed alongwith the transfer deed. Further, it is evident from the transfer deed that the proceeds of the sale was received by N.N. Buidwell Pvt. Ltd., and its Director Narpat Singh. The Printed from counselvise.com P a g e | 6 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) sale proceeds amounting to Rs.1,75,000/- were received vide Cheque No. 775634 dated 14.01.2008, Cheque No.775641 dated 15.02.2008, and Cheque No. 775642 dated 23.02.2008.All the aforesaid Cheques were drawn on ICICI Bank Ludhiana Branch.The transfer deed of lease hold rights dated 23.02.2008 is placed at PBPg. 116-132. 5. Ld. AR has contended that appellant is not the beneficial owner of the sale proceeds of the land pursuant to the transfer deed of lease hold rights dated 23.02.2008. It was contended that addition was made in the hands of assessee without bringing any evidence or positive material. 6. Some relevant clauses of the GPA dated. 01.06.2006 has been reproduced herein below for the sake of reference: \"2. To get the plan prepared from any architect to get the same sanctioned to deposit the fees, and to receive the sanctioned plan under his/her their won signature, and for the same to give any application, file any objection, to give statement, to file affidavit, undertaking indemnity bond etc. and to receive the same under his/her/their own signature. 3. To make application for the grant of quotas and permits of building materials and cement, to get sanctioned and to receive them under his/her/their won signature, and for the same, to give any application, to file objection, to give statement, to receive the same under his/her/their own signature. Printed from counselvise.com P a g e | 7 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) 4. To claim and receive the compensation/ alternative plot/ accommodation from U.P. Govt./Noida, or from any other concerned Authority under his/her/their own signature. 7. To obtain permission for the transfer of the said property by way of sale, gift, mortgage, lease, or otherwise, from any concerned authority, or the competent authority, and to file statement, to file affidavit, undertaking etc., and to receive the same under his/her/their own signature. 8. To enter into any agreement to sell the said property, with anyone/one's to receive the earnest/advance money in his/her/their own name and to issue the receipts thereof and to present the same for registration before the sub-registrar concerned to admit the execution thereof. 9. To sell the said property, to any one to execute the sale deed (s) Correction deed, transfer deed, lease deed, rectification deed, supplementary deed, conveyance deed, and to present the same for registration before the sub-registrar concerned to admit the execution to receive the consideration amount, and to issue receipts thereof. 13. To get the said property mutated his/her/their name/names and to do the needful thereof. 15. To execute, sign, and present all kinds of suits, plaints, complaints, appeals, statements, etc. in the proper court of law in connection with the said property. 7. The GPA dated 01.06.2006 coupled with the agreement to sell dated 03.06.2006 against which the entire consideration of Rs. 23,50,000/- was received by the Appellant resulted in Shri Narpat Singh (Director N.N. Buildwell Pvt. Ltd.) becoming the beneficial owner of the land. It is evident from the aforesaid terms of Printed from counselvise.com P a g e | 8 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) the GPA dated 01.06.2006 that for all practical purposes, including receiving consideration from the sale of the plot in question, Shri Narpat Singh was the beneficial owner of the said property, and not the Appellant herein. The consideration thus received was not on behalf of the assessee. 8. The case of the Appellant is squarely covered by the Order dated 29.04.2020 passed by the Hyderabad Bench of the Ld. ITAT in the case of Sama Om Reddy v. ITO, ITA No. 2225/Hyd/2018 where while dealing with an identical issue in the bench held as follows: \"6. Having regard to the rival contentions and material on record, I find that by virtue of the AGPA dt.29-11-2006, the assessee has parted with his right in the property because he had received the entire sale consideration of Rs.5,94,000/- as agreed to between both the parties and has also handed over the vacant possession of the property to the Vendee therein. It is also stated therein that the GPA is given to the Vendee for the convenience of the purchaser for doing the necessary acts and things on behalf of the Vendor and the Vendee therein. Since the Vendee has paid the entire sale consideration and has taken possession of the property, the Vendee becomes the owner of the property u/s.53A of the TP Act and u/s.2(47) of the IT Act, it is a transter of the property. The Vendee has executed the Sale Deed by virtue of the said AGPA, as he has sold the property to another party for Rs.9,90,000/-. The sale of the property by the Vendee cum AGPA- holder cannot be considered as sale of property by the assessee. Printed from counselvise.com P a g e | 9 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) Further, it is worth noting that except being described as the Vendor, the assessee is neither a signatory to the subsequent Sale Deed nor is he the recipient of any of the sale consideration. In view of the same, it is held that the assessee is not liable for tax on any capital gain arising out of transfer of property vide Document No.1610/2012, dt.14-03-2012. Accordingly, the appeal of assessee is allowed.” 9. Thus we are inclined to hold that ld. Tax authorities have fallen in error to hold the receipt of consideration by Shri Narpat Singh, Director N.N. Buildwell Pvt. Ltd., to be taxable income of assesse. The grounds are sustained. 10. Ground no. 8-9; The grounds relate to addition to the tune of Rs.1,45,16,786/- u/s 69C of the Act on account of fuel expenses.Ld. AR has contended that Petrol/diesel/fuel expense incurred during AY 2008-09 is proportionate to the turnover, and indicates no significant/ abnormal increase when compared to preceding and subsequent years. It wassubmitted that the Appellant through its proprietorship firm - Sun National Transport Co. is involved in the business of transport services. The Appellant provides passenger vehicles including buses, cars, SUVs etc. to various companies in the National Capital Region. Therefore, petrol, diesel, engine oils constitute the most important raw material for the business purposes of the Appellant.The addition to the tune of Rs.1,45,16,786/- has been made u/s 69C of the Act on account of fuel expenses. Printed from counselvise.com P a g e | 10 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) Ld. AR has claimed that as a matter of practice and due to commercial expediency two accounts have been created.One account was made for the party from whom the appellant used to take fuel on credit basis, namely, Royal Service Station, and the other account was maintained on daily basis with imprest account with the cashiers of the transport firm.The addition has been made on the ground that the appellant debited an amount of Rs.2,11,13,626/- in his profit & loss account towards \"Petrol &Diesel Expenses\" and further debited an amount of Rs. 1,45,16,786/-towards \"Fuel expense\". Ld. AR has submitted that while arriving at the said conclusion the CIT (A) has ignored the ledger of petrol, diesel and fuel expenses placed at PB Pgs. 80-84. 11. In this context we find that on behalf of assessee a comparative analysis of the fuel expense for the assessment year under consideration compared to previous years and subsequent years was filed and reflects that the expense on petrol/diesel/fuel incurred during AY 2008-09 is proportionate to the turnover, and indicates no significant/ abnormal increase. The said comparative for AY 2007-08, AY 2008-09, AY 2009-10, AY2010-11, is as follows; A.Y. 2007-08 2008-09 2009-10 2010-11 Revenue from transport services (in INR) 7,88,99,67 8/- 9,75,09,573/- 13,32,39,607/ - 16,20,10,093/- Petrol/Diesel/Fuel Expenses (In INR) 2,12,50,00 7/- (2,11,13,626+1,45,16 ,786) = 3,56,30,412/- 4,03,37,334/- 5,08,80,630/- % of revenue spent on fuel expenses 26.93% 36.54% 30.27% 31.40% Printed from counselvise.com P a g e | 11 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) 11.1 We find from the above table that the petrol/diesel/fuel expenses are consistent with the appellant's business size and have not significantly increased when compared to previous or subsequent years. There is no disproportionate or abrupt jump in the expenses that would suggest they were inflated. If the fuel expense of Rs.1,45,16,786/- incurred during 2008-09 is disregarded the % of revenue spent on fuel expense comes down to below 20% which is significantly/abnormally lower than the fuel expense compared to AY 2009-10, 2010-11 as well as 2007-08. Hence, the petrol/diesel/fuel expenses amounting to a sum of Rs.3,56,30,412/- is proportionate to the revenue/receipts from transport services during AY 2008-09. 11.2 We find substance in the contention that from the tabular chart above it is evident that during AY 2008-09 it was not possible for the appellant to achieve a turnover/ revenue of Rs.9,75,09,573/- from transport services provided by its proprietorship firm, Sun National Transport Co., by merely spending Rs.2,11,13,626/-on petrol/diesel/fuel etc. 11.3 Therefore it appears that justification given for two heads of expenditures needed to be examined rationally. The receipts/turnover from transport services has not been called into question, the books of account maintained by the appellant has not been questioned, nor has any cogent evidence been brought on record by the Printed from counselvise.com P a g e | 12 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) department, vis-à-vis, the fuel expense. Therefore, the addition of Rs.1,45,16,786/- deserves to be deleted. Grounds are sustained. 12. Ground no. 10-11; The ground pertain to an addition to tune of Rs. 13,26,930/- on account of Bonus paid to the employees u/s 69C of the Act. In this regard it was submitted by ld. AR that during AY 2008-09, the appellant paid to the staff a total salary of Rs. 92,35,417/-. Further, a sum of Rs. 13,26,930/-was paid as Bonus and the same was paid in cash. The copy of bonus ledger is placed at PB Pg. 133.During AY 2008-09, the bonus paid as a percentage of total salary is 14.36% which is within the limits prescribed by the Payments of Bonus Act, 1965. Further the bonus was paid in cash as is evident from the bonus ledger placed at PB Pg. 133. 12.1 We find that the addition has been made u/s 69C of the Act but the fact is that the source is duly recorded in the books of account. Source of expense incurred on bonus payment stands established as having been incurred out of funds shown in books of account. Neither the books have been discarded/ rejected by theCIT, nor has the sales/revenue/receipts been called into question. The gross profit has been accepted. No discrepancies has been pointed out by the auditor in the books of account for AY 2008-09. Thus the ground is sustained. Printed from counselvise.com P a g e | 13 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) 13. Ground no. 12-14. The ground arises out of disallowance of interest to the tune of Rs.55,08,596/- u/s 40(a)(ia) of the Act for non-deduction of TDS. The assertion of ld. AR is that the appellant was not required to deduct TDS on the interest amounting to Rs. 39,73,19l/- paid to banking institutions us 194A(3)(iii) of the Act. 13.1 It comes up that the total amount of interest to the tune of Rs.55,08,596/- paid by the Appellant during AY 2008-09, a sum of Rs. 39,73,191/- was paid as interest to banking institutions, and only the remaining amount of Rs. 15,35,405/- was paid as interest to NBFCs.Details of the interest on secured loan paid by the Appellant during AY2008-09 are as follows: Sr. No. Institution to which interest paid Amount (in INR) i. Kotak Mahindra Bank 6,23,079/- ii. ICICI Bank 26,24,544/- iii. Indusind Bank 4,83,183/- iv. HDFC Bank 43,599/- v. Centurion Bank 1,96,386/- vi. Oriental Bank of Commerce 2400/ vii. Reliance 4,22,236/- viii. Tata Motors Financed Ltd. 11,13,142/- ix. Total 55,08,596/- x. Interest paid to Banking institution (i+ii+iii+iv+v+vi) 39,73,191/- xi. Interest paid to NBFCs(vii+viii) 15,35,405/- 13.2 The details of interest paid by the Appellant during AY 2008-09 along with the ledger account of interest was duly submitted by the Appellant before the lower Printed from counselvise.com P a g e | 14 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) authorities including the CIT(A), and the same is evident from the ledger account of interest paid by the Appellant during AY 2008-09 placed at PB Pgs. 155-157. 13.3 Admittedly the payment of interest made to banking institutions is exempt from the application of TDS under Section 194A of the Act. Hence, the disallowance of interest amounting to Rs. 39,73,191/- paid by the Appellant to banking institutions during AY 2008-09 is exempt from the application of tax deduction at source. In this context we find that copies of repayment schedule/ amortization schedule of the loans taken from banking institutions and NBCs against which interest was paid in AY 2008-09 is also placed as Additional Evidence and same being material needs to be admitted. In light of the same the disallowance of Rs. 39,73,191/- paid as interest to banking institutions on account of non-deduction of TDS during AY 2008-09 is liable to be deleted. 13.4 Coming to disallowance of interest amounting to 15,35,405/- paid to NBFCs ld. AR has submitted that same is not sustainable in view of the insertion of the second proviso to Section 40(a) (ia) r/w first proviso of Section201(1) of the Act. Ld. Counsel has relied decision of theHon'ble High Court of Delhi in the case of CIT v. Ansal Landmark Township (P) Ltd., ITA Nos. 160&161/2015 to contend that it is by Hon’ble High Court that the disallowance for non-deduction of TDS on payments on interest made to NBFCs was not sustainable in view of the insertion Printed from counselvise.com P a g e | 15 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) of second proviso to Section 40(a)(ia) of the Income Tax Act, 1961. The Hon'ble High Court of Delhi has placed reliance on the order passed by the Agra Bench of the Tribunal in the case of Rajiv Kumar Aggarwal v. ACIT, ITA No.337/Agra/ 2013 and held as follows: \"9. It is seen that the second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st 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 XVII B. 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 event, 'it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso'. 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra), the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: “On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction Printed from counselvise.com P a g e | 16 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a \"fair, just and equitable\" interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an \"intended consequence\" to disallow the expenditure, due to non deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a) (ia) does not add to the same. The provisions of Section 40(a)(ia), as they Printed from counselvise.com P a g e | 17 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an \"intended consequence\" to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004.” 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from Ist April 2005, merits acceptance.\" Printed from counselvise.com P a g e | 18 ITA No.4447/Del/2025 SundeepDhuper (AY: 2008-09) 13.5 Therefore, the AO is directed to verify whether the said amount is included by these NBFC in their income and paid taxes therein. If this has been proved with necessary form prescribed, the disallowance of Rs. 15,35,405/- paid as interest to NBCs is liable to be deleted. The grounds are thus sustained for statistical purposes. 14. As a consequence of aforesaid determination of grounds in favour of assessee the appeal is allowed with consequence to follow as above. Order pronounced in the open court on 20.02.2026 Sd/- (Manish Agarwal) Sd/- (Anubhav Sharma) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 20.02.2026 Rohit, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Printed from counselvise.com "