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2017 (12) TMI 471

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..... ect on account of 98.72% of completion as against 96.04% of completion declared by the assessee, ₹ 16,97,000/- in respect of built up area in Meerut project on account of 60.36% of completion as against 60.23% declared by the assessee, ₹ 9,65,000/- in respect of constructions of Mall in Meerut project on account of adoption of 38.41% of completion as against 35.97% declared by the assessee. Therefore, the Ld. CIT(A), also rightly directed to adopt the loss of ₹ 30.7 lacs on account of percentage completion declared by the assesse at 32.09% as against 32.4% adopted by the AO, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the addition in dispute and reject the ground no. 2 raised by the Revenue. Addition being know how fee surrendered - addition u/s Section 40(a)(ia) - Held that:- CIT(A) has observed that AO has not considered the above judicial pronouncement on the issue. In view of the above facts and circumstances of the case and judicial pronouncements on the issue, Ld. CIT(A) has rightly held that the second proviso to Section 40(a)(ia) is clarificatory and curative in nature and therefore, the assessee wa .....

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..... 3. The Ld. CIT(A) has erred on facts and in law in deleting addition of ₹ 35,000/- on account of Profits reworked for Meerut sub-project built-up. 4. The Ld. CIT(A) has erred on facts and in law in deleting addition of ₹ 1,09,000/- on account of profits reworked for Karnal sub project plotted. 5. The Ld. CIT(A) has erred on facts and in law in deleting addition of ₹ 40,000/- on account of profits reworked for Karnal sub project group housing. 6. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. REVENUE S APPEAL - ITA NO. 4820/DEL/2014 (AY 2010-11) 4. The brief facts of the case are that the case of the assessee filed the return of income declaring a loss of ₹ 62,72,484/- on 01.10.2010. the revised return of income was filed on 31.3.2012 at an income of ₹ 45,22,872/- and the same was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred as the Act). Notice u/s. 143(2) of the Act was issued in this case on 19.9.2011 and duly served on the assesse. In response to the notice u/s. 143( .....

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..... s ground no. 2 relating to deletion of addition of ₹ 4,37,87,000/- on ₹ 16,97,000/- and ₹ 9,65,000/- on account of Profits reworked for Meerut sub project is concerned, we find that AO has made the addition in dispute on the basis of addition made in AY 2008-09 and Ld. CIT(A) has deleted the addition made during the year 2008-09. However, in the assessment year 2009-10 the AO has accepted the order of the Ld. CIT(A) of AY 2008-09 and hence, no such addition was made in the AY 2009-10 in the order passed u/s. 143(3) of the I.T. Act, 1961. We further note that the Ld. CIT(A) in the present year i.e. AY 2010-11 while passing the impugned order has thus observed that since there is no reason for him to differ from the findings of his Predecessor on this issue. Therefore, in order to maintain the Rule of consistency, respectfully following the decision of the Ld. CIT(A) in the AY 2008-09, the issue in hand was decided in favour of the assessee and AO was rightly directed to delete the addition of ₹ 4,37,87,000/-, in respect of plots in Meerut project on account of 98.72% of completion as against 96.04% of completion declared by the assessee, ₹ 16,97,000/- i .....

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..... ssees 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(a)(ia), deals with an intended consequence or with an unintended consequence . 7. When we look at the overall scheme of 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 words, deductibility of expenditure is made contingent up6n the income, if any, embedded in such expenditure being brought to tax, if applicable. In effect, thus, a deduction for expenditure is not all .....

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..... 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. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far a s the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at 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 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 broug .....

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..... Finance Act, 2012 w.e.f. 1.4.2013 is clarificatory in nature and hence the benefit of the same should be applied retrospectively. We further find that the Pune Bench of the ITAT in the case of DCIT, Cir-3, Pune Vs. Bhandari Associates in ITA no. 1129 vide their order dated 19.5.2014 has held that the second proviso to Section 40(a)(ia) was clarificatory in nature. The Bench referred to the decision of ITAT Cochin Bench in the case of Antony D. Mundackal vs. the ACIT vide ITA No. 38/COCH/2013 dated 29.11.2013 for A.Y. 2009-10. 11.2 Therefore, Ld. CIT(A) has observed that AO has not considered the above judicial pronouncement on the issue. In view of the above facts and circumstances of the case and judicial pronouncements on the issue, Ld. CIT(A) has rightly held that the second proviso to Section 40(a)(ia) is clarificatory and curative in nature and therefore, the assessee was entitled for claim of deduction and AO was rightly directed to verify the claim of the assessee that the tax has been paid on the above amount by the payee i.e. Ansal Properties and Infrastructure Ltd. in terms of the aforesaid judgments and allow the aforesaid deduction if the tax has indeed been paid by .....

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