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2017 (4) TMI 906 - ITAT KOLKATA

2017 (4) TMI 906 - ITAT KOLKATA - TMI - Disallowance u/s 40(a)(ia) - scope of amendments - Held that:- 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 Finance Act, 2012, w.e.f. 1-4-2013. The provisions are intended to remove hardship. It was argued on behalf of the revenue that the existing provisions a .....

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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. We therefore accept the submission on behalf of the Assessee are of the view that it would be sufficient if the order of the CIT(A) is set aside and the issue remanded to the AO for verification as to whether payees have included the receipts from the Assessee in their returns of income in terms of the decisions referred to above. In case the payees are not cooperating in pro .....

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istical purpose. - I.T.A No. 2077/Kol/2013 - Dated:- 12-8-2016 - Sri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM For The Appellant : Shri Somnath Ghosh, Advocate For The Respondent : Shri Rajat Kumar Kureel, JCIT.Sr.DR. ORDER Per N.V.Vasudevan, JM This is an appeal by the Assessee against the order dated 20.5.2013 of CIT(A)- XXXVI, Kolkata, relating to AY 2006-07. 2. The grounds of appeal raised by the Assessee reads as follows: "1. For that the order of the Ld. CIT (A) is arbitrary, ill .....

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the end of the year. 4. For that on the facts and circumstances of the case the disallowance U/s. 40(a)(ia) is uncalled for. 5. For that on the facts and circumstances of the case the order of the CIT(A) be modified and the assessee be given the relief prayed for. 6. For that the assesee cravfes leve to add, alter or amend any ground before or at the time of hearing.´ 3. The assessee is a partnership firm which is engaged in the business of civil construction as promoter, developer and bu .....

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7 disclosing a total income of ₹ 11,580/-. In course of assessment proceedings. the Income Tax Officer, Ward 1 (4), Hooghly (hereinafter referred to as the Assessing Officer for the sake of brevity) found that the payments to Shri Azim Ansari along with Madan Mohan Enterprises and Surya Udyog were made without any deduction of tax at source as required u/s, 194C of the Act and accordingly the AO held that the mischief of the provisions of s.40(a)(ia) read with s. 194C of the Act was attrac .....

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ar ended 31st March 2006) is disallowed for failure to comply with the TDS provision and added to its total income for the financial year 2005-06 relevant to the assessment year 2006-07 by applying provision of section 40(a)(1a) of the I.T.Act 1961." 4. On appeal by the Assessee, the CIT(A) confirmed the order of the AO. 5. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. 6. We have heard the rival submissions. The learned counsel for .....

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eleted 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 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 accord .....

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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, 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, withou .....

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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. 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 .....

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cted 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 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 .....

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t 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 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. 10. The question is as to whether the amen .....

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td. 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 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 fu .....

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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 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' Prov .....

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e 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(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 .....

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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 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., i .....

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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 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 .....

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, 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 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 t .....

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s 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 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 t .....

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ive 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 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 d .....

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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 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 deductio .....

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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 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 l .....

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r 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 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. 12. We are of th .....

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