TaxTMI 
TaxTMI 
2017 (11) TMI 670
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.... 29/05/2013 and also from Hon'ble jurisdictional High Court in the case of Ansal Land Mark Township Pvt. Ltd. (ITA 160 of 2015 and 161 of 2015), order dated 26/08/2015. This factual matrix was not controverted by the Ld. CIT-DR, Shri S.S. Rana, though he defended the addition/disallowance, made by the Ld. AO. 2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee declared income of Rs. 14,78,470/- in its return filed on 29/09/2012, which was processed u/s 143(1) on 26/02/2013 at the returned income. The case of the assessee was selected for scrutiny under CASS, therefore, notices u/s 143(2), and 142(1) were served upon the assessee to which the assessee attended the assessment proceedings from time to time and furnished the details asked for along with the copy of auditor's report dated 12/09/2012. It was observed from the accounts of the assessee that a loan of Rs. 3,33,24,028/- was raised and the assessee made payment of interest to the financial companies. It was observed by the AO that these organization are neither by banking company nor financial corporation, therefore, the expenses claimed on ....
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....e amendment in "declaratory and curative in nature, and, therefore, it should be given 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". None of these submissions, however, impressed the learned CIT(A). Relying upon a Special Bench decision in the case of Bharati Shipyard Ltd Vs. DCIT (141 TTJ 129), herejected this plea and concluded that insertion of second proviso to Section 40(a)(ia) cannot be held to have retrospective effect. The disallowance was thus confirmed by the learned CIT(A). The assessee is aggrieved and is in appeal before us. 3. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 4. Let us first take a look at the legislative amendment of section 40(a)(ia), vide Finance Act 2012, and try to appreciate the scheme of things as evident in the amended section. Second proviso to Section 40(a)(ia), introduced with effect from 1st April 2013, provides, that "where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions....
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....the scheme of disallowance under section 40(a)(ia) is concerned, substantially mitigates the rigour of, what otherwise seemed to be, a rather harsh disallowance provision. 5. As for the question as to whether this amendment can be treated as retrospective in nature, even in the case of Bharti Shipyard (supra)- a special bench decision vehemently relied upon in support of revenue's case, the special bench, on principles, summed up the settled legal position to the effect that "any amendment of the substantive provision which is aimed at ...... (inter alia) 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". It was held that if the consequences sought to be remedied by the subsequent amendments were to be treated as "intended consequences", the amendment could not be treated as retrospective in effect. The special bench then proceeded to draw a line of demarcation between intended consequences and unintended consequences, and finally the retrospectivity of first proviso was decided against the assessee on the ground that this special bench was of ....
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....proviso to Section 40(a)(ia), deals with an "intended consequence" or with an "unintended consequence". 7. When we look at the overall scheme of the section as it exists now and the bigger picture as it emerges after insertion of second proviso to section 40(a)(ia), it is beyond doubt that the underlying objective of section 40(a)(ia) was to disallow deduction in respect of expenditure in a situation in which the income embedded in related payments remains untaxed due to non deduction of tax at source by the assessee. In other words, deductibility of expenditure is made contingent upon the income, if any, embedded in such expenditure being brought to tax, if applicable. In effect, thus, a deduction for expenditure is not allowed to the assessees, in cases where assessees had tax withholding obligations from the related payments, without corresponding income inclusion by the recipient.That is the clearly discernable bigger picture, and, unmistakably, a very pragmatic and fair policy approach to the issue - howsoever belated the realization of unintended and undue hardships to the taxpayers may have been. It seems to proceed on the basis, and rightly so, that seeking tax ded....
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.... 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 d....
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....atistical purposes in the terms indicated above." 2.3. The aforesaid decision of the Tribunal was affirmed by Hon'ble Delhi High Court vide order dated 26/08/2015 (ITA No.160 & 161/2015), the relevant portion of the same is also reproduced hereunder:- " 1. Allowed, subject to all just exceptions. 2. The applications are disposed of. ITA No. 160 of 2015 & ITA No. 161 of 2015 3. These two appeals by the Revenue under Section 260A of the Income Tax Act („Act‟) are directed against the common order dated 21st July 2014 passed by the Income Tax Appellate Tribunal („ITAT‟) in ITA No. 2972/Del/2012 and ITA No. 877/Del/2013 for the Assessment Years („AYs‟) 2008-09 and 2009-10 respectively. 4. At the outset, it is pointed out by learned counsel for the Revenue that the questions (a) to (e) as projected by the Revenue in para 2 of the memorandum of appeal concerning ITAT‟s order deleting certain additions stand answered in favour of the Assessee by the order dated 2 nd March 2015 in ITA No. 162 of 2015 (CIT v. Ansal Land Mark Township (P) Ltd.) concerning and earlier AY. Consequently, those questions fo....
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....d 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". 10. It is pointed out by learned counsel for the Revenue that the first proviso to Section 201 (1) of the Act was inserted with effect from 1 st July 2012. The said proviso reads as under: "Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income; And the person furnishes a certificate to this effect from an accountant in....
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....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 separatepenal 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....