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2015 (9) TMI 79 - DELHI HIGH COURT

2015 (9) TMI 79 - DELHI HIGH COURT - [2015] 377 ITR 635 (Del) - Retrospectivity of the second proviso to Section 40(a) (ia) - disallowance by the AO of the payment made by Assessee to Ansal Properties and Infrastructure Ltd. (ĎAPILí) which payment, according to the Revenue, ought to have been made only after deducting tax at source under Section 194J - Held that:- The second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said .....

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Bench of ITAT in Rajiv Kumar Agarwal v. ACIT ( 2014 (6) TMI 79 - ITAT AGRA) in which it was held that the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and has retrospective effect from 1st April 2005, merits acceptance. No substantial question of law arises - Decided in favour of the Assessee - ITA 160/2015, ITA 161/2015 - Dated:- 26-8-2015 - Dr. S. Muralidhar and Mr. Vibhu Bakhru, JJ. For the Petitioner : Mr. Kamal Sawhney,Senior Standing counsel wi .....

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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 2nd March 2015 in ITA No. 162 of 2015 (CIT v. .....

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on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of Section 201, then, for the purpose of this sub-clause, 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 6. When it was pointed out to learned counsel for the Appellant that no question as such has been sought to be urged by the Revenue in the memorandum of appe .....

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PIL ) which payment, according to the Revenue, ought to have been made only after deducting tax at source under Section 194J of the Act. Before the ITAT, it was urged by the Assessee that in view of the insertion of the second proviso to Section 40(a) (ia) of the Act, the payment made could not have been disallowed. Reliance was placed on the decision of the Agra Bench of ITAT in ITA No. 337/Agra/2013 (Rajiv Kumar Agarwal v. ACIT) in which it was held that the second proviso to Section 40 (a) (i .....

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ction (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 1st July 2012. The said proviso reads as under: Provided that any person, including the principal officer of a company, w .....

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e; And the person furnishes a certificate to this effect from an accountant in such form as may be prescribed. 11. The first proviso to Section 210 (1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Secti .....

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legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee .....

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o refer to para 9 of the said order which reads as under: 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. .....

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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 .....

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n Section 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, s .....

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