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2016 (3) TMI 588 - ITAT KOLKATA

2016 (3) TMI 588 - ITAT KOLKATA - TMI - TDS u/s 194C - disallowance u/s 40(a)(ia) - whether the amendment made as above is prospective or retrospective w.e.f. 1.4.2005 when the provisions of Sec.40(a)(ia) were introduced? - Held that:- Reasoning of the Hon’ble Supreme Court in the case of Alom Extrusions Ltd (2009 (11) TMI 27 - SUPREME COURT) will equally to the amendment to Sec.40(a)(ia) of the Act whereby a second proviso was inserted in sub-clause (ia) of clause (a) of Section 40 by the Finan .....

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Hon’ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Towship (I) Pvt.Ltd. [2015 (9) TMI 79 - DELHI HIGH COURT] has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005

Disallowance of carriage expenses for want of vouchers - Held that:- As submitted that the vouchers could not be produced earlier because the issue was argued on legal grounds before CIT(A) and the counsel for the Assess .....

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now filed. The AO will afford opportunity of being heard to the Assessee before deciding the issue. - I.T.A No. 615/Kol/2015 - Dated:- 3-2-2016 - Sri N.V.Vasudevan, JM For The Appellant : Miss Varsha Jalan, Advocate For The Respondent : David Z. Chawngthu, Affl.CIT ORDER This is an appeal by the Assessee against the order dated 16.3.2015 of CIT(A)- 12, Kolkata, relating to AY 2009-10. 2. Ground No.1 & 3 raised by the Assessee can be conveniently decided together. These grounds read as follow .....

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For that the assessee is entit ed to the benefit of the second proviso to sec 40 (a) (ia)inasmuch as the assessee is not deemed to be an assessee in default under the first proviso to sec201(1). As such, disallowance under sec.40(a)(ia) in respect of Carriage Charges is not sustainable in law. 4. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal. 3. The Assessee is an individual. He carries on the business of distribution of Kerosene Oil. In the course o .....

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that where there is a duty to deduct tax at source and tax had not been deducted, the expenditure in respect of which tax at source had not been deducted will not be allowed as deduction while computing income from business of an Assessee, the AO disallowed ₹ 4,93,650/- and added the said sum to the total income of the Assessee. On appeal by the Assessee, the CIT(A) confirmed the order of the AO. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. 4. I hav .....

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isions of Section 40(a)(ia) of the Act Finance Act 2012 brought amendment w.e.f 01.04.2013 as under. The following second proviso was inserted in sub-clause (ia) of clause (a) of Section 40 by the Finance Act, 2012, w.e.f. 1-4-2013 : Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B 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, the .....

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- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of Section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the princip .....

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him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed: 6. Memorandum explaining the provisions while introducing Finance Bill, 2012 provides the justification of the amendment to section 40(a)(ia) in the following words:- In order to rationalise the provisions of disallowance on account of nondeduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that wher .....

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that the Assessee s perform their obligation to deduct tax at source in accordance with the provisions of the Act. Such compliance will ensure revenue collection without much hassle. When the object sought to be achieved by those provisions are found to be achieved, it would be unjust to disallowance legitimate business expenses of an Assessee. Despite due collection of taxes due, if disallowance of genuine business expenses are made than that would be unjust enrichment on the part of the Gover .....

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(ii) payee has taken into account such sum for computing income in such return of income; and (iii) payee has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed. 8. The question is as to whether the amendment made as above is prospective or retrospective w.e.f. 1.4.2005 when the provisions of Sec.40(a)(ia) were introduced. Keeping in view the purpose behind the proviso .....

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nance Act, 2003, operated w.e.f. 1st April, 2004, or whether it operated retrospectively w.e.f. 1st April, 1988? Prior to Finance Act, 2003, the second proviso to s. 43B of the IT Act, 1961 (for short, "the Act") restricted the deduction in respect of any sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees, unless it stood paid within the specified due date. According to the second proviso, the payment m .....

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of the Kelkar Committee, the Government introduced Finance Act, 2003, by which the second proviso stood deleted w.e.f. 1st April, 2004, and certain changes were also made in the first proviso by which uniformity was brought about between payment of fees, taxes, cess, etc., on one hand and contribution made to Employees' Provident Fund, etc., on the other. 9. According to the Department, the omission of the second proviso giving relief to the assessee(s) [employer(s)] operated only w.e.f. 1s .....

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e first and second provisos. The Court also noted further amendment made in 1989 in the second proviso dealing with the items covered in S. 43B(b) (i.e., contribution to employees welfare funds). After considering the same, the Court was of the view that it was clear that prior to the amendment of 2003, the employer was entitled to deduction only if the contribution stands credited on or before the due date given in the Provident Fund Act on account of second proviso to S. 43B. The situation cre .....

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non obstante clause, the underlying object being to disallow deductions claimed merely by making a book entry based on mercantile system of accounting. At the same time, s. 43B (main section) made it mandatory for the Department to grant deduction in computing the income under s. 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, M .....

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ds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by e .....

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Act came to be examined. In that case, the question which arose for determination was, whether sales-tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales-tax law should be disallowed under s. 43B of the Act while computing the business income of the previous year ? That was a case which related to asst. yr. 1984-85. The relevant accounting period ended on 30th June, 1983. The ITO disallowed the deduction claimed b .....

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oviso came to be inserted w.e.f. 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when s. 43B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Ltd. Etc. (supra). This Court, in Allied Motors (P) Ltd. Etc. (supra) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which p .....

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is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. Etc. (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (whe .....

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ter the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under s. 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right u .....

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construction to be placed on the provisions of Finance Act, 2003. 16. Before concluding, we extract hereinbelow the relevant observations of this Court in the case of CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC), which reads as under : "We should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner .....

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extent indicated above, is curative in nature, hence, it is retrospective and it would operate w.e.f. 1st April, 1988 (when the first proviso came to be inserted). For the above reasons, we find no merit in this batch of civil appeals filed by the Department which are hereby dismissed with no order as to costs. 10. I am of the view that the reasoning of the Hon ble Supreme Court in the case of Alom Extrusions Ltd(supra) will equally to the amendment to Sec.40(a)(ia) of the Act whereby a second .....

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is made to pay tax on a higher income in one year, there would still be hardship. 11. The Hon ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Towship (I) Pvt.Ltd., in ITA No.160/2015 judgment dated 26.8.2015 has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005. Thus the alternative prayer of the learned counsel for the Assessee in terms of Ground No.3 is accepted. Ground No.1(a) & (b) therefore does .....

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erred in confirming the action of the Ld. A.O. by making the addition of ₹ 6,60,1501- by alternatively invoking the provisions of sec. 40(a)(ia) r.w. sec. 194C of the Act on presumption basis. 13. As we have already seen while deciding Ground No. 1 & 3 above that the Assessee incurred expenditure towards carriage charges to the tune of ₹ 13,70,000/-. The AO disallowed a sum of ₹ 6,60,150/- out of the aforesaid expenditure on carriage for the reason that expenditure to that .....

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