TMI Blog2014 (11) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... r the payee has filed his return of income and paid taxes within the stipulated time – Decided in favour of revenue. - ITA No. 3893/Del/2010, ITA No. 5696/Del/2011 - - - Dated:- 25-7-2014 - George George K, JM And B. C. Meena, AM,JJ. For the Appellants : Shri Pradeep Dinodia, CA R K Kapoor, CA For the Respondent : Shri S N Bhatia, DR ORDER Per George George K, JM. These two appeals at the instance of department are filed against the CIT(A) orders dated 29.3.2010 and 5.10.2011, pertaining to assessment years 2007-08 and 2008-09 respectively. 2. Since, common issues are involved in these appeals and they pertains to the same assessee, they were heard together and disposed off by this consolidated order. 3. For the sake of convenience, the grounds raised for assessment year 2007-08 are reproduced below:- 1. The Ld. CIT(A) erred in deleting the addition of ₹ 64,55,563/- made u/s of sections 40(a)(ia) of the I. T. Act, 1961 as the assessee failed to comply the provisions of section 194J on the Lab Testing Charges. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of ₹ 88,689/- mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or assessment year 2007-08 reads as follows:- 13. The appellant has also referred to various judicial decisions in support of his claim that he was not liable for deduction u/s 194J. Considering the above and the judicial decisions cited by the appellant, it is clear that the appellant is an agent of M/s SRL Ranbaxy Ltd. and is not liable for deduction u/s 194J. In view of these facts, the disallowance u/s 40(a)(ia) is not legally tenable and is deleted. The ground is allowed. 5.1 The reasoning of the CIT(A) for deleting the additions of ₹ 88,689/- for the assessment year 2007-08 are as follows:- 15. The appellant has argued that on this amount no TDS can be supposed to have been deducted as it is merely contract for sale and not works contract. (Reliance placed on latest Bang ITAT ruling in SPICE and BHC in BDA; DHC in Dabur etc.) Considering the facts, this is a case of purchase of goods and not a case of job work liable for TDS u/s 194C. Therefore, the disallowance u/s 40(a)(ia) is not justified and is deleted. The ground is allowed. 5.2 For similar reasoning the CIT(A) has also deleted the additions made by the Assessing Officer for assessment year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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(0){ia), deals with an intended consequence or with an unintended consequence . 7. When we look at the overall scheme o] 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 word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 0f revenue. This disallowance does deincentivize not deducting lax a/ 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 deduct ion a/ 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 understan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile 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 info 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 lax 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. 7.2 In view of the above said order of the Co-ordinate Bench order of the Tribunal cited (supra), we direct the A.O to verify whether the payee has filed his return of income and paid taxes within the stipulated time. If it has done so, no disallowance u/s 40(a)(ia) in respect of the above said payments is called for. 7.3 Before concluding we have to mention that the assessee has filed necessary confirmation from the payee that they have paid the taxes on the amounts received from the assessee. The confirmation filed by payee is enclosed in the paper book filed by the assessee and is part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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