TaxTMI 
TaxTMI 
TaxTMI 
2014 (6) TMI 430
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....l facts. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has made interest payments, aggregating to Rs 5,01,872, without discharging his tax withholding obligations under section 194A. It was in this backdrop that the Assessing Officer, having noted the undisputed position regarding applicability of section 194 A on the facts of this case, and having noted that the scope of section 40(a)(ia) restricting deduction in respect of sums in respect of which tax withholding liability is not discharged, disallowed Rs 5,01,872 under section 40(a)(ia) r.w.s. 194 A of the Act. Aggrieved, assessee carried the matter in appeal before the CIT(A). It was, inter alia, contended by the assessee that in view of the insertion of second proviso to Section 40(a)(ia) by the Finance Act 2012, and in view of the fact that the recipients of the interest have already included the income embedded in these payments in their tax returns filed under section 139, disallowance under section 40(a)(ia) could not be invoked in this case. It was also contended that even though this proviso is stated to be effective 1st April 2013, since the amendment in "decla....
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....e declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed." The unambiguous underlying principle seems to be that in the situations in which the assessee's tax withholding lapse have not resulted in any loss to the exchequer, and this fact can be reasonably demonstrated, the assessee cannot be treated as an assessee in default. The net effect of these amendments is that the disallowance under section 40(a)(ia) shall not be attracted in the situations in which even if the assessee has not deducted tax at source from the related payments for expenditure but the recipient of the monies has taken into account these receipts in computation of his income, paid due taxes, if any, on the income so computed and has filed his income tax return under section 139(1). There is also a procedural requirement of issuance of a certificate, in the prescribed format, evidencing compliance of these conditions by the recipients of income, but that is essentially a procedural aspect of the matter. The legislative amendment so brought about by the Finance Act, 2012, so far as the scheme of disallowance under sect....
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....rder to augment recoveries........Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable" (Emphasis by underlining supplied by us)". Having noted the underlying objectives, Their Lordships also put in a word of caution by observing that, "the provision should be interpreted in a fair, just and equitable manner". Their Lordships thus recognized the bigger picture of realization of legitimate tax dues, as object of Section 40(a)(ia), and the need of its fair, just and equitable interpretation. This approach is qualitatively different from perceiving the object of Section 40(a)(ia) as awarding of costs on the "assessees who fail to comply with the relevant provisions by considering overall objective of boosting TDS compliance". Not only the conclusions arrived at by the special bench were disapproved but the very fundamental assumption underlying its approach, i.e. on the issue of the object of Section 40(a)(ia), was rejected too. In any event, even going by Bharti Shipyard decision (supra), what we have to really examine is whether 2012 amendment, inserting second proviso to Section 40(a)(ia), deals with an "intended ....
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.... this nature cannot be treated as an "intended consequence" of Section 40(a)(ia). If it is not an intended consequence i.e. if it is an unintended consequence, even going by Bharti Shipyard decision (supra), "removing unintended consequences to make the provisions workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively". Revenue, thus, does not derive any advantage from special bench decision in the case Bharti Shipyard (supra). 9. 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 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 se....
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....ome 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. 10. In view of the above discussions, we deem it fit and proper to remit the matter to the file of the Assessing Officer for fresh adjudication in the light of our above observations and after carrying out necessary verifications regarding related payments having been taken into account by the recipients in computation of their income, regarding payment of taxes in respect of such income and regarding filing of the related income tax returns by the recipients. While giving effect to these directions, the Assessing Officer shall give due and fair opportunity of hearing to the assessee, decide the matter in accordance with the law and by way of a speaking order. We order so. 5. We see no reasons to take any other view of the matter than the view so taken by us in the case of Rajeev Kumar Agarwal (supra). Respectful....
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....sideration as "stock-in-trade". Therefore, any contention that at the time of purchase, the nature of land was capital asset and only later, it was turned into stock--in-trade, is just afterthought, having no rational evidence. The appellant's argument that land is a capital asset at the time of registration of the purchase deed, is irrelevant since deeds are registered even in respect of land which are purchased by persons doing business in land. The court decisions are very clear on this aspect and the issue is well covered by the various court decision inter-alia following:- A. Hon'ble ITAT "A" Bench, Kolkata vide their order dated 08.10.2012 in the case of Jamir Mondal, Kolkata vs. ACIT, Circle-53, Kolkata in ITA No.128/Kol/2012, has held as under: "4. We have heard rival submissions and gone through facts and circumstances of the case. Admittedly, the assessee's nature of business was trading in land. During the year under consideration the assessee purchased land to the tune of Rs.67,49,3151/- from different parties. The assessee made payments partly by cheque and partly in cash exceeding Rs.20,000/- from the six parties in total amounting to Rs.9,25,000/- (det....
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....sp;" ..................... We have considered the rival submissions and found from record that undisputedly, the assessee was engaged in the business of builder and property development. The land so purchased during the year was treated by the assessee as its stock in trade. In respect of part of the payment made in cash for purchase of land, the Assessing Officer invoked provisions of Section 40A(3) and disallowed 20 % of such payment. We found that in the case of decision of Coordinate Bench relied on by the Id. Authorized Representative, Department was directed to make disallowance in the year of debiting such expenses in profit and loss account and an undertaking was also furnished by the assessee to the effect that it will come forward to offer the disallowance in the year in which such expenses will be debited in the profit and loss account. However, the facts of instant case are distinguishable. Since the assessee was engaged in the business of building construction and property development, the land so purchased essentially constituted its stock in trade. Even though the assessee had not shown the transaction of purchase and closing stock in trade in its profit and loss ac....