TMI Blog2018 (7) TMI 1850X X X X Extracts X X X X X X X X Extracts X X X X ..... Land Mark Township Pvt. Limited’s case [2015 (9) TMI 79 - DELHI HIGH COURT] holding the rationale behind the insertion of the second Proviso to Section 40(a)(ia) of the Act and that it is merely declaratory and curative and thus, applicable retrospectively with effect from 1st April, 2005. CIT(A) after considering the submissions of the assessee and going through the evidence on record found that the assessee had filed confirmation from the party that the payment made by him to M/s Jhandu Construction Company had been reflected in its return of income. Thus, the CIT(A) rightly decided the issue in favour of the assessee which has been upheld by the Tribunal. - Decided against revenue - ITA No. 558 of 2017 (O&M) - - - Dated:- 5-7-2018 - HON BLE MR. JUSTICE AJAY KUMAR MITTAL AND HON BLE MR. JUSTICE AVNEESH JHINGAN Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant-revenue. Ms. Radhika Suri, Senior Advocate with Mr. Manpreet Singh Kanda, Advocate for the respondent-assessee. JUDGEMENT Ajay Kumar Mittal,J. 1. The appellant-revenue has filed the instant appeal under Section 260A of the Income Tax Act, 1961 (in short, the Act ) against the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -revenue filed an appeal before the Tribunal, with reference to the addition mentioned at Sr. No. (ii) above. Vide order dated 26.05.2017, Annexure A.3, the Tribunal dismissed the appeal filed by the revenue. Hence, the instant appeal by the appellant-revenue. 3. We have heard the learned counsel for the parties. 4. The issue raised by the revenue before the Tribunal pertained to the retrospectivity of the second proviso to Section 40(a)(ia) of the Act. The said provision reads thus:- Provided further that where an assessee failed to deduct the whole or any part of tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the asssessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso. Sub-clauses (i), (ia) and (ib) in Section 40(a) were substituted for clause (i) by the Finance (No.2) Act, 2004 with effect from 1.4.2005. The second Proviso to Section 40(a)(ia) of the Act was inserted by Finance Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n carved out which shows the intention of the legislature not to treat the assessee as a person in default subject to fulfillment of the conditions as stipulated thereunder. No different view can be taken regarding introduction of Second Proviso to Section 40(a)(ia) of the Act with effect from 01.4.2013. This Proviso is also intended to benefit the assessee by creating legal fiction in his favour and not to treat him in default of deducting tax at source under certain contingencies and that it shall be presumed that the assessee had deducted and paid tax on such sum on the date of furnishing of the return of income by the resident/payee. 8. From legal analysis of first Proviso to Section 201(1) and second Proviso to Section 40(a)(ia) of the Act, it is discernible that according to both the provisos, where the payee/resident has filed its return of income disclosing the payment received by it or receivable by it, and has also paid tax on such income, the assessee would not be treated to be a person in default and presumption would arise in his favour as noted above. 9. Now the question that would require an answer is whether the insertion of Second Proviso to Section 40(a)(ia) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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