TMI Blog2018 (1) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... icing however, when the said provision is not applicable for the year under consideration and the AO has not applied the same then, it cannot be disallowed. Thus when the trade disallowance is not an expenditure paid or payable as per the provisions of section 40A(2)(a) then the same cannot be disallowed for want of any prohibitory provision in the Income Tax Act. Disallowance of registrar of company fees and foreign travelling expenditure - Held that:- In the absence of the specific purpose of the foreign trip of the Executive Manager, the expenditure incurred on the foreign trip of the Executive Manger cannot be considered as an expenditure incurred wholly and exclusively for the business of the assessee. Thus upheld by the ld. CIT(A) in respect of the foreign trip expenses of the wife of the executive manager is justified and proper. As regards disallowance of ROC fees we find that the expenditure was incurred by the assessee for increasing the authorized share capital and therefore, the authorities below have rightly considered the said expenditure as capital in nature. The assessee has failed to show that how the said expenditure is revenue in nature when the same is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. 2. First we take up the appeal for the assessment year 2009-10 wherein the assessee has raised the following grounds:- 1. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the ld. AO in disallowing a sum of ₹ 5,15,638/- u/s 40a(ia) of Income Tax Act, 1961 as under:- Particulars (Interest paid to NBFCs) Reliance Capital Limited 67,521/- Barclays Bank 4,19,169/- Cholamandalam DBS Finance Limited 28,948/- Total 5,15,638/- The Action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of ₹ 5,15,638/-. 2. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the ld. AO in disallowing a sum of ₹ 8,00,969/- u/s 40A(2)(a) of Income Tax Act, 1961. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, when the recipient of the interest have included this amount in their R.O.C. filed and offer to tax then no disallowance is called for as per amended provisions of section u/s 40(a)(ia) of the Act. The ld. CIT(A) did not accept the contention of the assessee on both aspect and confirmed the disallowance made by the AO. 4. Before us, ld. AR of the assessee has not disputed that the first aspect of the issued regarding paid or payable of the amount as on 31.03.2009 is now covered by the decision of Hon ble Supreme Court in case of M/s Palam Gas Service Vs. CIT 394 ITR 300. The Hon ble Supreme Court has held in paras 17 and 18 as under:- 17. Insofar as judgment of the Allahabad High Court is concerned, reading thereof would reflect that the High Court, after noticing the fact that since the amounts had already been paid, it straightaway concluded, without any discussion, that Section 40(a)(ia) would apply only when the amount is 'payable' and dismissed the appeal of the Department stating that the question of law framed did not arise for consideration. No doubt, the Special Leave Petition thereagainst was dismissed by this Court in limine. However, that would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited, Barclays Bank and Cholamandalam DBC Finance Limited was included in the return of income filed by these Non Banking Financial Companies therefore, in view of the second proviso to section 40(a)(ia) of the Act no disallowance is called for in respect of this amount on which the recipient have paid the taxes. The assessee urged that the second proviso to section 40(a)(ia) is remedial in nature and therefore, the said amendment will have retrospective effect. We find that Hon ble Delhi High Court in case of CIT vs. Naresh Kumar (supra) while dealing with an identical issue has held in para 15 to 29 as under:- 15. Question whether the amendment is retrospective or prospective is vexed and rigid rule can be applied universally. Various rules of interpretation have developed in order to determine whether or not, an amendment is retrospective or prospective. Fiscal statutes imposing liabilities are governed by normal presumption that they are not retrospective. The cardinal rule is that the law to be applied, is that which is in force on the first day of the assessment year, unless otherwise mandated expressly or provided by necessary implication. The aforesaid dictum is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 29 Cr. App. 137. This view, however, has been criticized in Reherd Athlumney, In re [1898] 2 QB 547 on the ground that higher or greater punishment impairs existing rights or obligation;- No rule of construction is more firmly established than this; that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation, otherwise than as regards matters of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. 19. The word fairly used in the aforesaid quotation is important and relevant, but for application of another rule of interpretation. G.P. Singh in Principles of Statutory Interpretation , 13th Edition, 2012 at page 538 under the sub-heading Recent statements of the rule against Retrospectivity has greatly emphasized the principle of fairness and observed that classification of statute either substantive or procedural does not necessarily determine whether the enactment or amendment has retrospective operation, e.g., law of limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atute with suggested degree of retrospectivity is unfair; that the words used by the Parliament could not have been intended to mean what they might appear to say. This principle was applied while interpreting a new provision in Arbitration Act in this case observing that the delay attributable to the claimant in pursuing a claim before enactment of the new provision, could be taken into consideration for dismissal. 23. Principle of fairness has not left us untouched and was applied by the Supreme Court in Vijay v. State of Maharashtra [2006] 6 SCC 289 in the following words:- The negotiation is not a rigid rule and varies with the intention and purport of the legislation, but to apply it in such a case is a doctrine of fairness. When a new law is enacted for the benefit of the community as a whole, even in absence of a provision the statute may be held to be retrospective in nature. 24. In Allied Motors (P.) Ltd. v. CIT [1997] (224) ITR 677/91 Taxman 205 (SC) it was held that the new proviso to Section 43B should be given retrospective effect from the inception on the ground that the proviso was added to remedy unintended consequences and supply an obvious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '22. Now, we refer to the amendments which have been made by the Finance Act, 2010 and the effect thereof. We have already quoted the decision of the Calcutta High Court in Virgin Creations (supra). The said decision refers to the earlier decision of the Supreme Court in the case of Allied Motors (P.) Ltd(supra) and Commissioner of Income Tax v. Alom Extrusions Ltd, [2009] 319 ITR 306 (SC). In the case of Allied Motors (P.) Ltd. (supra), the Supreme Court was examining the first proviso to Section 43B and whether it was retrospective. Section 43B was inserted in the Act with effect from 1st April 1984 for curbing claims of taxpayers who did not discharge or pay statutory liabilities but claimed deductions on the ground that the statutory liability had accrued. Section 43B states that the statutory liability would be allowed as a deduction or as an expense in the year in which the payment was made and would not be allowed, even in cases of mercantile system of accountancy, in the year of accrual. It was noticed that in some cases hardship would be caused to assessees, who paid the statutory dues within the prescribed period though the payments so made would not fall within the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in compliance with the relevant statute is entitled to deduction under Section 43-B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to Section 43-B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, 4th Edn. At p. 291: It is well-settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained. 23. Section 43B deals with statutory dues and stipulates that the year in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected the interpretation placed by them. The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provision clearly support view taken in paragraphs 17 - 20 that the expression said due date used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statute when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance.' 29. In view of the aforesaid discussion, we do not find any merit in the present appeals filed by the Revenue and they are dismissed. We further note that the Coordinate Bench of this Tribunal in case of Rajesh Yadav in ITA No. 895/JP/2012 vide order dated 29.01.2016 has held as under:- 6.1. Recently in the matter of P.M.S. Diesels 2015 ] 59 taxmann.com 100 (Punjab Haryana), Hon ble Punjab Haryana High Court had elaborately discussed the judgment passed by the Hon ble Calcutta High Court and Hon ble Gujarat High Court, Hon ble Allahabad High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and offered to tax and then decide this issue in light of above observation. 8. Ground No. 2 is regarding disallowance made u/s 40A(2)(a) of the Income Tax Act. During the year under consideration, the assessee has allowed discount of ₹ 8,00,969/- to its 100% subsidiary M/s VRC Enterprises Pvt. Ltd. The AO noted that the assessee has not allowed any discount to the other parties and allowed the discount only to the group concern of the assessee and accordingly the AO disallowed the said amount of ₹ 8,00,969/- u/s 40A(2)(a) of the Act. The assessee challenged the action of the AO before the CIT(A) but could not succeed. 9. Before us, the ld. AR of the assessee has submitted that trade discount is not a payment and therefore, does not fall in the ambit of section 40A(2)(a) of the Act. The assessee has granted discount from the sale price and mere fact that it was claim separately rather than the reducing from the sale value will not change its true nature. Thus, the AR has submitted that when the amount in question allowed as discount is not a payment of expenditure then the same cannot be disallowed u/s 40A(2)(a) of the Act. In support of his contention, he has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable in the facts of the present case. Section 40A(2)(a) runs as under :- ( 2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. This provision in the Act pertains to disallowance to an expenditure which is made by the assessee i.e., an amount actually spent by the assessee as an expenditure. The expression used in this provision is incurs any expenditure in respect of which payment has been or is to be made to any person [Emphasis supplied]. The emphasized words clearly show that actual payment must be made and there has to be an expenditure incurred before the provision can be said to be applicable. A trade disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thering. It is necessary to fulfill social obligations in order to form firm business relations. Therefore, the expenditure incurred for foreign travel of wife of the executive manager should be allowed as business expenditure. In support of his contention, he has relied upon the third Member decision (Jabalpur Bench of this Tribunal in this case Vindhya Telelink Ltd. v. JCIT 119 TTJ (Jab.) TM 433 as well as the decision of the Mumbai Special Bench in case of Glaxo Laboratories (India) Ltd. v. ITO 18 ITD 226 (BOM.)(SB). 14. On the other hand, ld. DR has relied upon the orders of the authority below and submitted that when the wife of the executive manager is not an employee of the assessee then, the expenditure incurred on the foreign travel of the wife cannot be allowed as business expenditure. 15. We have considered the rival submissions as well as relevant material on record. The assessee has incurred the expenditure on foreign tour of the Executive Manager along with his wife. It is settled proposition of law that at as per the provisions of section 37 of the IT Act an expenditure laid out wholly and exclusively for the purpose of the business can be allowed. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s estimation can be variance with the working of the bank however, such variance, over a total period of maturity of fixed deposit will get neutralized. The ld. CIT(A) did not accept these contention of the assessee upheld the addition made by the AO. 18. Before us, ld. AR of the assessee submitted that due to the method of accounting there was difference between the interest accounted by the assessee on FDRs and the interest shown as per 26AS however, the said difference is Revenue neutral when the assessee is reporting the total interest amount over the period of maturity. 19. On the other hand, ld. DR has relied upon the orders of the authorities below and submitted that the bank has correctly given the figure of interest income as available in the form No. 26AS, therefore, when the exact figure provided by the bank cannot be questioned then the estimated figure of the assessee cannot be taken as the income. 20. Having considered the rival submissions as well as relevant material on record, we note that as per form 26AS, the SBI has given the amount of interest accrued on FDRs during the year under consideration at ₹ 6,57,670/- whereas the assessee has accounted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second proviso to section 40(a)(ia) is applicable with retrospective effect in paras 2.4 and 2.5 as under:- 2.4 In the case of Sh. Girdhari Lai Bargoti (supra) it was further indicated that once the I.T. Returns are filed by the recipient NBFC, including therein the interest receipts from the assessee then the assessee would not be deemed to be in default. It is seen that the corresponding provisions are in 1st proviso to section 201(1) which provides that the assessee shall not be deemed to be in default if the recipient or liable deductee has filed his Return taking into account the amounts on which TDS was not deducted by the assessee and pays due taxes and the assessee furnishes the report of C.A. in the specified format to the above effect. If the assessee furnishes such report of C.A., the assessee shall be deemed to have deducted and paid the tax on the date of furnishing of Return by the abovestated recipient, in terms of 2nd Proviso to sec. 40(a)(ia). The said proviso is inserted by Finance Act,2012 w.e.f. 1.4.2013. However, several courts have held the same to be retrospective in operation. In the case ClT Vs. Ansal Land Mark Township P. Ltd. (2015) 377 ITR 635 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act then, the assessee cannot be held as assessee in default and according, in view of second proviso to section 40(a)(ia) no disallowance is called for. 24. On the other hand, ld. DR has relied upon the orders of the authorities below. 25. We have considered the rival submissions and relevant provisions of the Act. If a case is following under the first proviso to section 201(1) then for the purpose of section 40(a)(ia) what is required to be considered is the recipient has included and paid tax on this amount in returned income the same. The requirement of furnishing the return of income by the recipient is referred into first proviso to section 201(1) of the Act. Thus as per the first proviso to section 201(1) if the recipient has furnished his return of income u/s 139 then the assessee though has not deducted tax at source shall not to be deemed to the assessee in default in respect of such tax. For ready reference, we quote the first proviso to section 201(1):- 201. 48[(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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