2017 (2) TMI 398

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....inter alia shown expenditure to the tune of about Rs. 3,19,66,460/- which was paid to M/s. Aakriti Creation Pvt. Ltd. In the course of regular assessments, the assessee explained that the expenditure was incurred towards reimbursements of the cost of raw materials resourced by the payee which was a sister concern. The assessee is engaged in the business of manufacture and export of garments and accessories and M/s Aakriti Creation Pvt. Ltd. does fabric work. The A.O. disallowed the amount and added it back to the assessee's returns, bringing it to tax. The CIT(A) granted the relief to the assessee in view of the decision of the Tribunal in Grandprix Fab (P) Ltd. v. CIT (2010) 34 DTR 248. The ITAT confirmed that order. 3. Counsel for the Re....

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....the Agra Bench of the ITAT decision in Rajiv Kumar Agarwal v. ACIT, ITA No. 337/Agra/2013. The Agra Bench had stated as follows: "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 ....

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.... 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 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." 5. In the present case too, the Court is of the opinion that since the amounts received by the payee, i.e., M/s Aakriti Creation Pvt. Ltd.....