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M/s. New Alignment Versus I.T.O., Ward-51 (4) , Kolkata

2016 (5) TMI 753 - ITAT KOLKATA

Addition u/s 40(a)(ia) - no deduction of Tax (TDS) on full labour charges - retrospectivity - Held that:- 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 Finance Act, 2012, w.e.f. 1-4-2013. The provisions are intended to remove hardship. We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the ext .....

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r payees have included the receipts from the Assessee in their returns of income in terms of the decisions referred to above is accepted. - Decided in favour of assessee for statistical purpose.

Undisclosed purchases - assessee submitted that only the profit element embodies in these purchases should be brought to tax and not the unrecorded value of purchases - Held that:- CIT(A) correctly held that the above arguments can apply only in case where there are regular unaccounted purchas .....

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t Kumar Kureel, JCIT, Sr.DR ORDER PER N.V.VASUDEVAN, JM: This is an appeal by the Assessee against the order dated 06.02.2014 of CIT(A) XXXII, Kolkata, relating to AY 2010-11. 2. At the time of hearing of the appeal the learned counsel for the assessee submitted that ground nos.4 to 6 alone need to be adjudicated and the other grounds may be treated as not pressed. 3. Ground Nos.4 & 5 raised by the Assessee read as follows :- 4.That the Learned Income Tax Officer passed the order for the Ass .....

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g the Asstt. Orders. 4. The Assessee is a partnership firm engaged in the business of civil contractor. The AO in the course of assessment proceedings found that the assessee had claimed expenditure to the tune of ₹ 1,27,44,615/- on account of labour charges . According to the AO the aforesaid payments were payments made for carrying out work and therefore attracted the provision of section 194C of the Income Tax Act, 1961 (Act) warranting deduction of tax at source at the time of payment .....

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to the AO to verify if the payees have declared the receipt from the Assessee in their return of income and if they have so declared then the addition u/s.40(a)(ia) of the Act should be deleted by the AO. The above submission was made in the context of the following amendments to the provisions of Sec.40(a)(ia) of the Act. With a view to liberalize provisions 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 .....

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f return of income by the resident payee referred to in the said proviso. 7. Since provisions of Section 40(a)(ia) as amended by Finance Act, 2012 is linked to Section 201 of the Act, in which a proviso was inserted, it is necessary to look into those provisions which read thus: Sec.201: (1) Where any person, including the principal officer of a company - (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, be .....

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o 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 such form as may be prescribed: 8. Memo .....

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ssessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing deduction of such sum, 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. 9. The provisions of Sec.40(a)(ia) of the Act are meant to ensure that the Assessee s perform their obligation to deduct tax at source in accordance with the provisions of the Act. Such compliance will ensure r .....

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payment to non-resident, the government does not have any other mechanism to recover the due taxes. Hence, no amendment was made in section 40(a)(i). The legislature has not given blanket deduction under section 40(a)(ia). The deduction as per amended section will be allowed only if the - (i) payee has furnished his return of income under section 139; (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 decl .....

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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. In CIT Vs. Alom Extrusions Ltd. 319 ITR 306 (SC), the Hon ble Supreme Court had to deal with the question, whether omission (deletion) of the second proviso to s. 43B of the IT Act, 1961, by the Finance 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 .....

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ing the return of income and necessary evidence of such payment was enclosed with the return of income. In other words, if contribution stood paid after the date for filing of the return, it stood disallowed. This resulted in great hardship to the employers. They represented to the Government about their hardship and, consequently, pursuant to the report of the Kelkar Committee, the Government introduced Finance Act, 2003, by which the second proviso stood deleted w.e.f. 1st April, 2004, and cer .....

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t April, 1988 (retrospectively). The Hon ble Supreme Court held that the deletion of the second proviso was retrospective w.e.f.1.4.2004. The Court considered the scheme of the Act and the historical background and the object of introduction of the provisions of S. 43B. The Court also referred to the earlier amendments made in 1988 with introduction of the 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 .....

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nd proviso and also made first proviso applicable to contribution to employees welfare funds referred to in S. 43B(b). 15. We find no merit in these civil appeals filed by the Department for the following reasons : firstly, as stated above, s. 43B (main section), which stood inserted by Finance Act, 1983, w.e.f. 1st April, 1984, expressly commences with a non obstante clause, the underlying object being to disallow deductions claimed merely by making a book entry based on mercantile system of ac .....

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pect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the IT Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefit .....

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iew, the Finance Act, 2003, which is made applicable by the Parliament only w.e.f. 1st April, 2004, would become curative in nature, hence, it would apply retrospectively w.e.f. 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC), the scheme of s. 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales-tax collected by the assessee and paid aft .....

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was disallowed under s. 43B which, as stated above, was inserted w.e.f. 1st April, 1984. It is also relevant to note that the first proviso which came into force w.e.f. 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Ltd. Etc. (supra). However, the assessee contended that even though the first proviso 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 A .....

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rticularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Ltd. Etc. (supra), held that the first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso 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 .....

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ee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example-in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March (end of accounting year) but before filing of the Returns under the IT Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which .....

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ew, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate w.e.f. 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003. 16. Before concluding, we extract hereinbelow the relevant observations of t .....

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o the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction." 17. For the aforestated reasons, we hold that Finance Act, 2003, to the 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 .....

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remove hardship. It was argued on behalf of the revenue that the existing provisions allow deduction in the year of payment and to that extent there is no hardship. We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. 13. The Hon ble Delhi High Court in the case of CIT Vs. Ans .....

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s are treated as allowed for statistical purpose. 14. Ground No.6 raised by the assessee reads as follows :- 6. That here we pray for relief for adhoc addition of ₹ 5,97,436/- without sufficient grounds arid the learned CIT (A) has error in ignoring the Judicial decision that noninclusion of amount of ₹ 5,97,436/- in Purchase Amount only fair profit rate should be taken. 15. In the course of assessment proceedings the AO noticed that the purchases as shown by the assessee in the book .....

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