TMI Blog2010 (12) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... , accordingly, this ground is dismissed - In the result, appeal is partly allowed - ITA NO. 2191/AHD/2008 - - - Dated:- 16-12-2010 - ORDER A N Pahuja : This appeal by the assessee against an order dated 12-3-2008 of the ld.CIT(Appeals)-II, Baroda, raises the following grounds : 1. "Learned CIT(A) has erred in law and on facts in confirming addition of Rs. 87,05,272 made by AO u/s 40(a)(ia) of the Act. By confirming this addition the ld. CIT(A) has failed to interpret provisions of the newly introduced section in its proper perspective and further not taking into consideration various submissions, arguments and judgments relied upon by the appellant, this action of ld. CIT(A) being without any merits or justification requires to be quashed. 2. Learned CIT(A) has further erred in directing AO to allow the expenses claimed in the subsequent year by holding that though the appellant deducted the tax from the transportation charges in the relevant year but failed to deposit the same within time allowed as per the provisions of section 200(1) of the Act. 3. Learned CIT(A) has erred in law and on facts in confirming addition of Rs. 69,806 made by AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-04 268792 2741 30/04/2005 11. Pratap Singh November-04 66856 681 30/04/2005 12. Jagtar Singh November-04 92104 939 30/04/2005 13. Parshansingh November-04 228947 2335 30/04/2005 14. Balbir Kaur December-04 236262 2412 29/06/2005 15. Balwant Singh December-04 383844 3916 29/06/2005 16. Gurprit Singh December-04 388582 3966 29/06/2005 17. Pratap Singh December-04 64148 655 29/06/2005 18. Jagtar Singh December-04 256480 2614 29/06/2005 19. Parshansingh December-04 202255 2064 29/06/2005 20. Hira Roadlines December-04 79780 813 29/06/2005 21. Indo TradingCo. December-04 95399 972 29/06/2005 22. Savinder Singh December-04 218084 2223 29/06/2005 23. Chanan Singh December-04 19181 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jagtar Singh \ March-05 148188 1510 29/06/2005 51. Parshansingh \ March-05 177429 1813 29/06/2005 52. Savinder Singh March-05 65562 669 29/06/2005 53. Tersem Singh March-05 61166 624 29/06/2005 Total 8705272 95873 2.1 Since the tax deducted at source had not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 of the Act, the AO disallowed the aforesaid amount of Rs. 87,05,272,having recourse to the extant provisions of section 40(a)(ia) of the Act. 3. On appeal the ld. CIT(A) while distinguishing the decisions relied upon on behalf of the assessee, upheld the findings of the AO, the assessee having not deposited the tax deducted at source within the time allowed u/s.200(1) of the Act. However, the ld. CIT(A) directed the AO to allow the deduction in the AY 2006-07, TDS having been deposited in April and June 2005. 4. The assessee is now in appeal before us against the aforesaid findings of the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o depositing of the tax deducted up to the last day of February of the previous year, before the end of the year was well thought over move after considering the representations received at that time and was 'intended' firstly to enforce the compliance to TDS provisions and secondly to get major portion of tax deducted during the year within that year to the exchequer. 3. In the Finance Act 2010 again the issue was re-considered by the Parliament and the provision was further relaxed by allowing the deduction of expenditures, if the tax was deducted during the entire year is paid before filing of the return. This amendment was made applicable from 1-4-2010. It has to be specifically noted that the Parliament has not made it applicable from 1-4-2005 as it had done while making the similar amendment to the section in 2008. This aspect can also be inferred from the Explanatory notes to the amendments in Finance Act, 2010 321 ITR (St). The Board have clarified that the amendment is with retrospective from 1-4-2010 making it clear that the mentioned date from which the amendment takes effect is only 1-4-2010. Therefore the inconvenience or hardship caused to the assessees from 1-5-200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily relied on the above-cited orders of the apex court and held that the amendment to section 40(a)(ia) by the Finance Act, 2010 is retrospective. The hon'ble ITAT Mumbai had not considered the above aspects of the two situations and mislead itself to believe the situation in both the sections is similar. 7. Further, the provisions of section 40(a)(ia) have to be interpreted keeping in view the intention of the Parliament in enacting the same. Reliance is placed on the following : When the meaning of the words is clear and unambiguous, the court has to give effect to it whatever be the consequences, as the Court has no jurisdiction to mitigate harsh consequences of the statute if any. Smt. Tarulata Shyam Others v. CIT 108 ITR 345 (SC) Patil Vijaya Kumar ors v. UOI Anr (Kar.) 151 ITR 48 Plain language of the statute is best understood as the declaration of the intention of the legislature. The Court cannot seek to supply omissions, as such an attempt would tantamount to power to legislate, which it does not have. The plain inference cannot be dismissed on the ground that it would be unreasonable or that the language is contrary to the obvious intention of the legislatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. 6.1 The Memorandum explaining the aforesaid provisions in the Finance (No. 2) Bill, 2004 read as under : "Under the existing provisions of sub-clause (i) of clause (a) of section 40, failure to make deduction at source from payment of interest, royalty, fees for technical services or any other sum which is payable outside India, or in India to a non-resident or to a foreign company or failure to make payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee would be entitled to claim deduction in the year in which payment is actually made. However, certain assessees expressed difficulties in respect of tax deducted at source in the last month of the previous year, the due date for payment of which, as per the time specified in section 200(1) of the Act, was 7th of April in the subsequent year. Since time of only seven days was available for payment of the tax deducted at source from the expenditure incurred in the month of March, in order to avail deduction of the said expenditure in terms of the provisions of section 40(a)(ia) of the Act, section 40(a)(ia) was amended by the Finance Act, 2008 in the following terms in order mitigate the difficulties experienced by the assessees : Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession , (ia) 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 carrying out any work (incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tants : "Total disallowance of the expenses in the previous year in which they are incurred if TDS is not deducted or deducted but not deposited within the due date is very harsh and causes undue hardship. The deductor discharges his vicarious liability by collecting tax and depositing on behalf of the Government. If any genuine business expenditure is disallowed on account of short deduction of TDS, it causes injustice and subjects the deductor to unfair and arbitrary treatment. The provision of section 40(a)(ia) penalizes the deductor over and above the provisions of penalty and prosecution under relevant sections of the Income-tax Act, 1961. Suggestions Scrap section 40(a)(ia). If not, once tax is deducted and accordingly deposited to the credit of the Central Government, then no disallowance should be made. Alternatively, expenses to be disallowed only if the tax is not deposited till the due date of filing of the return of income (i.e. in lines with section 43B)." 6.5.1 Similarly, the Confederation of Indian Industry highlighted the general hardships caused to the assessees in the following terms: "Section 40(a)(ia) provides for disallowance of the expenses incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a penal interest under section 201(A) and under section 220(2) secondly, he is again penalized by the provisions of section 40(a)(ia). Recommendation. Section 40(a)(ia) should drawn/deleted and/or bring suitable amendments in the said Act, to help assessee in losing genuine deduction on this account." 6.5.2 The FIEO also submitted a detailed memorandum before the budget 2010-11 in the following terms : "14. Section 40(a)(ia) "It is noticed that department has applied section 40(a)(ia) to raise huge tax demands on assessees, for denial and technical default of late payment of TDS. The time limit for payment of TDS linked with disallowing expenses under section 40(a)(ia) should be reviewed and be enhanced to the date of filing of return. This provision is very harsh and so if may please be deleted." 6.6 In the light of difficulties expressed by various assessees as apparent from some of the aforesaid representations by the various organisations, the provisions of section 40(a)(ia) were amended by the Finance Act, 2010 but w.e.f. 1.4.2010 in the following terms: 'Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act mandated disallowance of entire expenditure, resulting in levy of tax @ 33.99% besides interest and penalty. In these circumstances, we are of the opinion that the provisions acted too harsh and were confiscatory in nature in relation to claim for deduction of a genuine expenditure, even when sufficient remedy was available under chapter XVII-B of the Act for enforcing recovery of TDS amount, interest or penalty thereon. 6.9 It is well settled that retrospectivity can be inferred from the wording of the statute (Mst. Rafiquenessa v. Lal Bahadur Chetri 1964 AIR 1511 (SC). Ordinarily, a statute will not affect the rights which had accrued before the statute came into force, unless there are express words in the statute affecting such rights or where a retrospective effect to the statute is inevitable by necessary intendment or implication vide State v. P.M.L. Srivastava [1953] ALJ 339, etc. As observed by the Hon'ble Apex Court in CIT v. Podar Cement (P.) Ltd. [1997] 5 SCC 482, the circumstances under which the amendment was brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon'ble Apex Court as follows : "13. It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the Legislature to affect existing rights, it is deemed to be prospective only-'nova constitute futuris formam imponere debet non praeteritis'-a new law ought to regulate what is to follow, not the past. It is not necessary that an express provision be made to make a statute retrospective and the presumption against retrospectivity may be rebutted by necessary implication especially in a case where the new law is made to cure an acknowledged evil for the benefit of the community as a whole. 14. The presumption against retrospective operation is not applicable to declaratory statutes... In determining, therefore, the nature of the Act, regard, must be had to the substance rather than to the form. If a new Act is 'to explain' an earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at if a statute is curative or merely declares the previous law retroactive operation would be more rightly ascribed to it than the legislation which may prejudicially affect past rights and transactions .." In this connection, the following observations of the Supreme Court in the case of Chettiam Veettil Ammad v. Taluk Land Board [1980] 1 SCC page 499, at page 523 ; AIR 1979 SC 1573, 1582, may also be referred to "It has always been considered permissible, and even desirable, for court, while interpreting a statute, to take note of the history of the statute and the circumstances in which it was passed or the mischief at which it was directed. The reason is that the meaning which is to be given to a statute should be such as will carry out its object.... 6.12 In fact, as has been stated in Craies on Statute Law, seventh edition, at page 395, to explain a former statute, the subsequent statute has relation back to the time when the earlier Act was passed. In such a case, as the Act is 'declaratory', the presumption against construing it retrospectively so as to respect vested rights, is not applicable. It is not only that declaratory or clarificatory statutes can be gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and we must first be clear regarding the proper canons of construction. The rule is that when a subsequent Act amends an earlier one in such a way as to incorporate itself, or a part of itself, into the earlier Act, then the earlier Act must thereafter be read and construed (except where that would lead to a repugnancy, inconsistency or absurdity) as if the altered words had been written into the earlier Act with pen and ink and the old words scored out so that thereafter there is no need to refer to the amending Act at all. " 6.14 The amendments made in the existing provisions of a section justly and for the benefit of assessees and the community as a whole, as in the instant case, may relate to a time antecedent to their commencement. The presumption against retrospectivity may in such cases be rebutted by necessary implication from the language employed in the statute. It cannot be said to be an invariable rule that a statute could not be retrospective unless so expressed in the very terms of the section which had to be construed. The question is whether, on a proper construction, the Legislature may be said to have so expressed its intention. Even though the amendment to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act were cited by the assessee in support. In Allied Motors (P.) Ltd. (supra), it was held that when a proviso inserted to remedy unintended consequences and to make section workable, a proviso which supplies omission in the section and which proviso is required to be read in to the section to give the section a reasonable interpretation, it could be read as retrospective in operation particularly to give effect to the section as a whole. Likewise, in Alom Extrusions Ltd. (supra) the omission of the second proviso to section 43B of the Act by the Finance Act, 2003 was held to operate retrospectively w.e.f. 1.4.1988, the amendment being curative in nature. In the instant case also, as observed by the Hon'ble FM in his budget speech while presenting the budget for the FY 2010-11, the extant provisions of section 40(a)(ia) were relaxed with the amendment in the section by permitting deduction of the stipulated expenditure in the event tax deducted at source was paid on or before the due date of filing of return. In terms of the tests laid down by the Hon'ble Apex Court in the case of Zile Singh (supra), considering the scope of the extant provisions of the section 40(a)(ia) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the arguments of the Revenue on that ground "it rarely happens that a provision of the Income-tax Act is declaratory of the law. This Act is one of the most categoric branches of law and its changes are mostly to be gathered from the express words employed to further the current fiscal policy of the Government." As is evident, in this case ,the Revenue sought to apply a new provision introduced in the Act more than ten years after the end of the relevant assessment year with retrospective effect. Nowhere the issue of applicability of an amendment to an existing provision was involved. The Ld. DR has not explained as to how this case assists the Revenue. 6.15 In nutshell, none of the aforesaid decisions relied upon by the ld. DR support the case of the Revenue that amendments made by the Finance Act, 2010 to section 40(a)(ia) of the Act w.e.f. 1.4.2010 are applicable prospectively alone. 7. In view of the foregoing, especially when the purpose behind enactment of provisions of section 40(a)(ia) of the Act was merely to augment compliance of provisions relating to TDS in Chapter XVII-B of the Act and no more, we reiterate that amendments made to the provisions of section 40(a)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee did not furnish any reply, the AO disallowed the claim for excess depreciation of Rs. 69,806. 9. On appeal, the ld. CIT(A) upheld the findings of the AO, the assessee having not pressed their ground before him. 10. The assessee is now in appeal before us. The ld. AR on behalf of the assessee did not make any submissions before us on this ground nor pointed out any infirmity in the findings of the ld. CIT(A) while the issue raised before the ld. CIT(A) having not been pressed, we have no hesitation in rejecting the ground raised by the assessee. Therefore, ground No. 3 in the appeal is dismissed. 11. Ground No. 4 relates confirmation of ad hoc disallowance of Rs.50,000 made by AO out of tyre expenses. The AO noticed on verification of details of Rs. 8,14,435 towards tyre expenses that certain vouchers were not supported by the valid bills or invoice. Despite show-cause, proposing a disallowance of Rs.50,000 out of these expenses, the assessee did not furnish any reply. Accordingly, the AO disallowed an amount of Rs. 50,000. 12. On appeal, the assessee did not point out any infirmity in the findings of the AO. Therefore, the learned CIT(A) sustained the disallowance. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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