TMI Blog2019 (11) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure in the nature of salary‟ which is distinct from bonus and leave encashment, therefore, there is no question of disallowance of expenditure in the nature of salary debited to Profit Loss A/c. Hence, the disallowance made by the A.O is deleted Disallowance u/s. 40(a)(ia) - HELD THAT:- No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. What is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder :- The assessee is an individual, who is stated to be carrying on the business of mechanical contractor in the name of M/s. Basava Engineering Construction. The assessee filed his return of income for A.Y. 2010-11 on 12.09.2010 declaring total income at ₹ 92,51,140/-. The case was taken up for scrutiny. Thereafter, assessment was framed u/s 143(3) of the Act vide order dated 28.03.2013 and the total income was determined at ₹ 3,00,49,340/-. Aggrieved by the order of Assessing Officer, assessee carried the matter before Ld.CIT(A), who vide order dated 15.07.2014 (in appeal No.171/13-14) had granted substantial relief to the assessee.Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us and has raised the following grounds : 1. Whether in law and on facts and circumstances of the case, the learned CIT(A) has erred in deleting the addition of ₹ 10,43,114/- made by the AO on account of suppression of gross turnover as the assessee has claimed benefit of TDS made against the said amount? 2. Whether in law and on facts and circumstances of the case, the learned CIT(A) has erred in deleting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments by providing that tax is deductible at the time of payment or credit whichever is earlier, thus,the law itself envisages deduction of TDS from advance payments and not just at the time of crediting the account of payee against the expenses. In the case of Smt.PushpaVijoy vs. Assistant Commissioner of Income Tax (2005) 4 SOT 589 (Coch), it was held that The TDS made in a particular assessment year should be given credit in the assessment of the respective assessment year itself. There is no provision in the IT Act to divide the TDS into different proportionate pieces and to give credit on the basis whether the entire income has been offered for assessment or not. There is also no provision in the IT Act to postpone the TDS credit to future assessment years other than the assessment year for which the TDS were made. Therefore, in substance the tax deducted at source must be attributed to the concerned assessment year and not to the particular item or source of income. If the tax deducted at source is attributed to that particular source or item of income, then the result will be perverse and chaotic. The provisions of law contained in s. 199 does not provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone through the assessment order and submissions of the appellant. It remains an undisputed fact that the appellant was prevented by reasonable cause due to which professional tax deducted from the salary of the employees could not be deposited to the Government Exchequer. It is also an undisputed fact that the appellant had credited the amounts so deducted to a separate account, secondly,undisputedly, debit to Profit Loss A/cis on account of Salary and not Professional Tax. Section 43Bdoes not include in its ambit expenditure in the nature of salary‟ which is distinct from bonus and leave encashment, therefore, there is no question of disallowance of expenditure in the nature of salary debited to Profit Loss A/c. Hence, the disallowance made by the A.O is deleted. 12. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 13. Before us, Ld. DR took us through the order of Assessing Officer and supported the order of Assessing Officer. 14. The Ld. AR on the other hand reiterated the submissions made before the authorities below and supported the order of CIT(A). 15. We have heard the riv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the payments have been made through proper banking channel. It is seen that since the time section 40(a)(ia) was introduced in the statute book, the same has undergone various amendments and all such amendments viz. the amendment brought by the Finance Act 2008,Finance Act 2010 and Finance Act 2012 have extended relief to the taxpayers. Furthermore, I find that the Hon‟ble Calcutta High Court in CIT v.Virgin Creations ITAT No.302 of 2011 GA 3200/2011 COMMISSIONER OF INCOME-TAX, KOL-XI, KOL VsVIRGIN CREATIONS Date :23rdNovember, 2011, it has been held that amendment by Finance Act 2010 would operate retrospectively. The Calcutta High Court, has held in the context of section 40(a)(ia) that the amendment is remedial in nature and designed to eliminate unintended consequences which may cause undue hardship to the taxpayers and is of clarificatory in nature and, therefore, has to be treated as retrospective with effect from 1stApril 2005. In the memorandum explaining the provisions relating to direct taxes in the Finance Bill 2012, in respect of amendment in section 40(a)(ia), it has been stated as under:- RATIONALIZATION OF TAX DEDUCTION AT SOURCE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. It is seen that the issue in these AYs arises in the context of the disallowance by the Assessing Officer of the payment made by the Respondent Assessee to Ansal Properties and Infrastructure Ltd. ( APIL‟) which payment, according to the Revenue, ought to have been made only after deducting tax at source under Section 194J of the Act. Before the ITAT, it was urged by the Assessee that in view of the insertion of the second proviso to Section 40(a) (ia) of the Act, the payment made could not have been disallowed. Reliance was placed on the decision of the Agra Bench of ITAT in ITA No. 337/Agra/2013 (Rajiv Kumar Agarwal v. ACIT) in which it was held that the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and should be given retrospective effect from 1st April 2005. 9. It is seen that the second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax. 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by 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 abl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an intended consequence to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has 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. 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. 15. In that view of the matter, the Court is unable to find any legal infirmity in the impugned order of the ITAT in adopting the ratio of the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding Engineering services to Power and Cement industries, the appellant raises bills (including service tax) and after verification and approval of such bills by the customers, payments are released. It is seen that the appellant is preparing his accounts on accrual basis wherein it has to recognise for the income/revenue in respect of work done at the time of raising invoices irrespective of realization/ receipts thereof till which time, the same are appearing under Sundry Debtors in the financial statements. Undisputedly, the amount of ₹ 1,90,81,666/- represents the element of Service Tax and not part of appellant‟s revenue by any stretch of imagination. On a careful consideration of the entire material on record and factual matrix and matter in dispute, I find that though invoices (including service tax element) have been raised by the appellant in respect of work executed and further the appellant, though, has accounted for such revenue as income and the attached service tax element as a liability in its financial statements so as to comply with the accounting norms, the nature of sum of ₹ 1,90,81,666/- remains the same i.e. service tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance under the provisions of Section 43B of the Act. The decisions in the case of ACIT vs. Real Image Media Technologies (P) Ltd. 116 TTJ 964 (ITAT Mum.) in the case of Pharma Search Vs. ACIT 53 SOT 1 (ITAT Mum.) fortifies the said view. 26. Further, the disallowance made by the A.O deserves to be deleted on one more aspect that since the appellant is accounting for the Service Tax liability under separate Account therefore, it has not claimed any deduction of service tax nor did it debit the same as an expenditure in the Profit Loss Account, hence, the same could not be disallowed u/s 43B of the Act. The judgment of the Hon‟ble High Court of Delhi in the case of CIT Vs. Noble Hewitt (India) (P) Ltd. 305 ITR 324 fortifies the said view. The case of the appellant also finds support from the following decisions: (i) Ind Global Corporate Finance Pvt. Ltd. vs. ITO (2012) 33 CCH 388 (ITAT Mumbai); (ii) DCIT vs. Ovira Logistic Pvt. Ltd. (2012) 34 CCH 310 (ITAT Mumbai); (iii) DCIT vs. Hathway Cable Datacom (P) Ltd. I.T.A. No.5757/M/2011 dated 05.09.2012 (ITAT Mumbai); 27. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of Tribunal by relying on the decision in the case of ITO Vs. Sri Tapan Das, Prop. M/s. Amkey Construction in ITA No.150/BLPR/2012, order dated 04.12.2015 had on similar issue in assessee s own case deleted the addition made by the Revenue by observing as under: 5. With this brief background, we have heard both the sides. At the outset, it is worth to mention that this issue had already been considered by us in the case of ITO vs. Sri Tapan Das, Prop. M/. Amkey Construction in ITA No.150/BLPR/2012 order dated 4.12.2015, wherein, we have discussed the law pronounced on it and thereafter held as under: 4. Hence, after referring to the case laws namely S. B. Foundry (1990) 185 ITR 555 (All.)and India Carbon Ltd. Vs IAC Anr. (1993) 200 ITR 759 (Gau) it was held that the admitted factual position was that the assessee had not claimed any amount by way of service tax as a deduction, therefore, there was no question of disallowance of any tax or dues u/s 43B of the IT Act. Against the relief, as granted by the learned CIT (A), now, the Revenue is in appeal before us. 5. On the date of hearing, no one was present from the side ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view that the original order of the Tribunal for earlier year is a valid order and in that case the Tribunal on identical facts, has decided the issue in favour of assessee. 31. We further find that Hon bleDelhi High Court in the case of CIT Vs. Noble Hewitt (India) (P) Ltd. (2008) 305 ITR 324 (Del) has held that when assessee has not debited the amount of service tax to the P L A/c and has not claimed it as expenditure, the question of disallowance does nor arise. Before us, the Revenue has not placed any contrary binding decision in its support. In view of this, we find no reason to interfere with the order of CIT(A) and thus, the ground No.4 of Revenue is dismissed. 32. In the result, the appeal of Revenue is partly allowed for statistical purposes. ITA No.318/RPR/2014 A.Y. 2011-12 33. The ground No.1 is with respect to deleting the addition of ₹ 1,04,26,385/- by the CIT(A). 34. This issue is identical to the issue raised in ground No.4 in ITA No.222/RPR/2014. Since the facts in the year under consideration being identical to that of A.Y. 2010-11, our decision in ITA No.222/RPR/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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