TMI Blog2020 (2) TMI 420X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 154 and cannot be said mistake apparent on record. The issue in hand is debatable, thus the same cannot be rectified by invoking the provisions of Section154 of the Act by the AO and the AO without examining the facts, nature of the business of the assessee and without bringing any material in his support to establish that the assessee was not manufacturer, had disallowed the claim of the assessee which is against the principles of law. We therefore, allow these grounds raised by the assessee and quash the decisions of the lower authorities on this issue. Rejection of books - invoking the provisions of section 145(3) and confirming the trading addition - HELD THAT:- In this case the books of account of the assessee are rejected in spite of declaring better n.p. rate of last 05 years as compared to average of last years. We are of the view that no trading addition is sustainable. Findings by the decision of SHRI KISHAN KUMAR SARAIWALA [ 2017 (8) TMI 1584 - RAJASTHAN HIGH COURT] we restore the matter back to the file of the AO to verify the results declared and attained finality by the assessee by comparing the average results of last 05 years and in case it is found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [ 2007 (8) TMI 12 - SUPREME COURT] has held that no penalty u/s 271C or interest u/s 201 can be charged in such cases. The principle so propounded equally and squarely applies on the facts of the present case also. Hence the entire disallowance be deleted in full. - Decided in favour of assessee. - ITA No. 484 And 485/JP/2019 - - - Dated:- 23-1-2020 - Shri Sandeep Gosain, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri Shrawan Kumar Gupta, Advocate For the Revenue : Shri K.C. Gupta, JCIT DR ORDER PER SANDEEP GOSAIN, J.M. Both these appeals have been filed by the assessee against separate orders of CIT(A) -4, Jaipur dated 30-01-2019 and 31-01-2019 for the assessment year 2013-14 2014-15 respectively. The assessee has raised the following grounds of appeal in respective appeals. ITA No. 484/JP/2019 A.Y. 2013-14 1. The impugned rectification assessment order u/s 154 r.w.s. 143(3) dated 19-03-2018 as well as the action taken by the AO u/s 154 and confirmed by the ld. CIT(A) is bad in law and on facts of the case for want of jurisdiction, being debatable issue and various other reasons and hence the same may kindl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f nondeduction of TDS on interest payment of ₹ 15,97,572/- by ignoring the facts, settled legal position etc. Hence, the disallowance so made by the AO and confirmed by the ld. CIT(A) is being totally contrary to the provisions of law and facts on record and hence the same may kindly be deleted in full. 5. The AO has grossly erred in law as well as on the facts of the case in charging interest u/s 234A.B.C. the appellant totally denies it liability of charging of any such interest. The interest so charged, being contrary to the provisions of law and facts, may kindly be deleted in full. 2.1 First of all, we take up the appeal of the assessee in ITA No.484/JP/2019 for the Assessment Year 2013-14 for adjudication. 3.1 Brief facts of the case are that the assessee is engaged in the business of Mine Contractor, manufacturing and trading of Marble Block. The assessee has filed his return of income declaring the total income of ₹ 1,70,88,620/- on dated. 30.03.2015 and the assessment was completed u/s 143(3) on dated 29.02.2016 at the total income of ₹ 2,32,35,180/- against which the assessee has also filed the appeal before the ld. CIT(A)- 3, Jaipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances the action of the AO is upheld. Appellant s Ground No. 1 is dismissed. 3.3 Aggrieved by the order of the ld. CIT(A), the assessee has preferred this appeal before us on the grounds mentioned hereinabove. 4.1 The Ground No. 1 and 2 of the assessee are interrelated and interconnected and relates to challenging the order of the ld. CIT(A) in confirming the order passed by the AO u/s 154 r.w.s. 143(3) of the Act. 4.2 At the outset of the hearing, the ld.AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the ld. CIT(A) and the same are contained in para 5 of the ld. CIT(A) s order which is reproduced as under:- 1. Invalid Action u/s 154: At the very outset it is submitted that the action taken by the ld. AO u/s 154 is invalid and illegal because of following reasons:- 1.1 Debatable issue cannot be rectified u/s 154: At the very outset it is submitted that section 154 allows the AO to rectify mistakes which are apparent from record and therefore only glaring and obvious mistakes which are self evident and does not require either a process of argument or investigation. The mistakes which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forth or out; to bring into being or existence. In Black s Law Dictionary, the expression produce is to bring forward; to show or exhibit; to bring into view or notice; to bring to surface. 4. The definition includes anything which is yielded either naturally or as a result of effort or work under production. Please note that mining is also a result of work for yielding marble or any other thing from earth. For the excavation of marble following process are followed : White Gold Locating a potential quarrying site is the first step in the mining process. An outcrop of exposed marble is the surest way for a geologist to locate a potential vein. Once marble has been located, diamond-tipped drill bits take core samples to determine the best location for digging the quarry, as well as the expected quality and purity of the marble. Next, a mining company needs to apply for all of the required licenses form the local, state, and central government, a process that can take months to years. Hitting and Motherload Once mining has begun, there may be several months of digging before any marble is extracted from the quarry, Overburden, or di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue which has been rectified by the ld. AO u/s 154 is highly debatable and it is the settled legal preposition and law that a debatable issue cannot be rectified u/s 154 and cannot be said mistake apparent on record. Our view is supported by the order of Hon ble ITAT Lucknow in the matter of Dy. Commissioner of Income Tax-6, Kanpur Vs. M/s JK Cement, Kamla Tower in [45 ITR 50] wherein it was held that where additional depreciation was granted on plant and machinery used for generation and distribution of power in original assessment, same could not be disallowed by invoking provisions of section 154. Our view is further supported by the order of Hon ble Chandigarh ITAT in the matter of S.R. Industries Ltd. Vs. ACIT Circle-3(1) Chandigarh in 156 ITD 125 wherein the reliance was placed on the decision of Calcutta High Court in 2006 284 ITR 42 in which it was stated that It is settled law that rectification proceedings u/s 154 can be resorted to, only to correct glaring and obvious mistakes of fact and law. If all facts are on record and no further calculation or ascertainment is necessary and if on these facts it is clear that an error of law or facts has been made, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot applied for, was made by deleting sum of ₹ 67,33,445 from sum of ₹ 2,91,93,886 allowed as a deduction u/s 36(1)(viia)-On appeal CIT(A) observed that said two provisions were not allowable as per Act- Tribunal, held that if interest was debited to borrowed account but for any reason interest had not actually realized, account was to be treated as NPA as per guidelines issued by RBI-In that eventuality, amount was unrealized, unrealized interest so taken to income should be reversed by debiting to P L Account and crediting to overdue interest reserve account-It was claim of assessee that during year unrealized interest taken to income had been reversed by debiting P L Account and crediting to provision for overdue interest account following guidelines issued by RBI- Tribunal found that this issue was highly debatable and it could not be adjudicated while acting u/s 154-AO should have made disallowance only while framing regular assessment or reassessment, which was made prior to resorting to this rectification-This disallowance could not be made while acting u/s 154 reason being this was not prima facie mistake it was a highly debatable issue - Held, it was clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese are allowed depreciation at 10 per cent. From the petition and the averments made therein and the statements made in the affidavit-in-opposition it is apparent that the mistake that is proposed to be rectified is dependent on the question whether the machinery used for production of safety razor blades can be said to be part of Iron Steel Industry and can come within category (b) mentioned hereinafter. This requires interpretation of the expression other machinery and plant . It was contended that other machinery and plant was intended to cover all machinery used in iron steel industry apart from the rolling mill rolls. It was urged that otherwise there was no purpose of using the expression other . It was further urged that in respect of this machine-rolling mill roll only nil depreciation was allowed for special reasons mentioned in the column of remarks. On the other hand it was urged on behalf of the respondent that the particular items mentioned within the brackets in III(i)(1)(3)(b) of Appendix I mentioned hereinbefore were exhaustive of the other machinery and plant included in the heading Iron Steel Industry . This is surely a question which requires, firstly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom record-Debatable issue outside the purview of section 154-Assessee was following straight line method of depreciation prior to the AY 2002-03-In the year in question, it changed the method to written down value method- Difference due to change in method of depreciation was shown in the profit and loss account under the head 'Expenditure- Depreciation'-Due to this change, book profits got reduced to ₹ 13,14,552/--Issue is whether AO can examine and go into the aspect of adjustment of prior period expenses against book profits for calculating tax u/s 115JB of the Act while exercising jurisdiction u/s 154- Held, there was considerable controversy on aspect of adjustment of prior period expenses against book profits for calculating tax u/s 115JB-Jurisdiction u/s 154 is confined to rectification of errors apparent from the record-AO cannot go into a debatable issue on which two or more views are possible and pass an order on merits-Appeal dismissed 2.7 In the case of CIT vs. Cello writing instruments containers (p) ltd.(2009) 319 ITR 0063 MumHC held that Rectification of mistake-Mistake apparent from record- Computation of deduction under s. 80-IB-Deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der any other provision of the Act cannot be accepted 2.11 In the case of CIT vs. Investment Trust of India Ltd. (2009) 77 CCH 0725 PHHC it has been held that Rectification-Mistake apparent from record-Depreciation- Depreciation granted in original assessment-In the earlier year, depreciation was disallowed on the ground that the asset did not exist-In the rectification proceedings of current year, depreciation originally granted, withdrawn on the same ground-Issue of disallowance of depreciation was a debatable one-Cannot be the subject matter of depreciation-Withdrawal of depreciation in rectification proceedings is not proper - Addl. CIT vs. Kanta Behan (1982) 27 CTR (Del) 40 : (1983) 140 ITR 187 (Del) distinguished In the case of CIT vs. Shiv Narain Karmendra Narain 1124 All HC 280 ITR 0355 Rectification-Debatable issue-Rate of depreciation on generator-Question as to whether the generator is electrical installation and depreciation at the rate of 20 per cent is allowable thereon or not is a question of debate-In fact Tribunal has allowed depreciation on generator @ 20 per cent to the assessee in the subsequent assessment year-Therefore, depreciation @ 20 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipur vide their order dated 28/11/2014 in the case of Shri Bhagchand Choudhary v/s ACIT in appeal No.ITA No. 506/JP/2012 . In both the above cases it has been held that on the basis of numerous discrepancies pointed out by the Ld. AO in the assessment order suggest the implied or deemed invocation of section 145(3) of the Act and also held that normally additions under section 143(3) should be limited to the estimation of gross profit rate or net profit rate only, based on the relevant past history of the assessee and there is no further scope for making separate additions on different related grounds. The above decisions were based on the ratio of judgment of Hon ble ITAT, Jaipur Bench, Jaipur in the case of M/s. Choudhary and Brothers in ITA No. 1177/JP/2010 dated 1/5/2011 where in the Hon ble Tribunal had disapproved the multiple additions and had viewed that a composite addition to the GP/NP ratio would be sufficient to take care of all such discrepancies. The facts and circumstances of the present case are totally similar and identical of the above said cases and hence the ratio of judgment is fully applicable in this case also. Therefore in view of the above facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is respect the assessee had referred to some decisions of various Hon'ble High Courts and Hon'ble Supreme Courts also. Therefore, the matter raised before us is debatable as to whether the mining of marble block is manufacturing or not and assessee had also intimated the AO. Therefore, the modus operandi in support of the claim is to be covered under the mining and manufacturing activity. Therefore, the matter being debatable cannot be rectified u/s 154 of the Act. We further noticed that since the issue is debatable as to whether the assessee is manufacturing or not and for purpose firstly it should be decided that whether mining of marble block is manufacturing or not and when the interpretation of manufacturing has not been decided in the case of the assessee, then as to how it can be said that the assessee is not a manufacturer. From the various facts, it is on record of the AO that the issue is debatable and the issue which has been rectified by the AO u/s 154 is highly debatable and it is the settled legal preposition of law that a debatable issue cannot be rectified u/s 154 and cannot be said mistake apparent on record. Our view is supported by following case laws. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities-Impugned orders set aside- ITO vs. Volkart Bros. (1971) 82 ITR 50 (SC), CIT vs. South India Bank (2001) 166 CTR (SC) 216 : (2001) 249 ITR 304 (SC) and M.D. Narayan vs. Agrl. ITO (1974) 95 ITR 452 (Mys) relied on. In the present case the books of account has also been examined by the ld. AO during the course of original assessment. Hence the same position is here. (v) 2.3 In the case of Pr. CIT vs. Raigunj Central Co-Operative Bank Ltd. (2017) 98 CCH 0078 KolHC HELD Business Expenditure- Provision for Bad and Doubtful Debts in Respect of Rural Advances of Certain Banks-Rectification-In computation of income in assessment order disallowances was taken twice-These sums included sum of ₹ 67,33,445- Computation also provided for a deduction u/s 36(1)(viia) of said sum of ₹ 2,91,93,886 as admissible-Assessee applied for rectification u/s 154- Rectification regarding amount of ₹ 2,91,93,886 taken twice was made as sought for in said application- However further rectification, not applied for, was made by deleting sum of ₹ 67,33,445 from sum of ₹ 2,91,93,886 allowed as a deduction u/s 36(1)(viia)-On appeal CIT(A) observed that said two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remises there cannot be any jurisdiction for the ITO to take proceedings under s. 154 in view of the facts disclosed. In view of our discussions that the issue in hand is debatable, thus the same cannot be rectified by invoking the provisions of Section154 of the Act by the AO and the AO without examining the facts, nature of the business of the assessee and without bringing any material in his support to establish that the assessee was not manufacturer, had disallowed the claim of the assessee which is against the principles of law. We therefore, allow these grounds raised by the assessee and quash the decisions of the lower authorities on this issue. 5.1 The Ground No. 3 of the assessee is regarding charging of interest u/s 234A, 234B and 234C. Since we have quashed Ground No. 1, therefore, this ground being consequential in nature has become infructuous. Thus the appeal of the assessee in ITA No484/JP/2019 is allowed. 6.1 Now we take up the appeal of the assessee in ITA No. 485/JP/2019 for the Assessment Year 2014-15 for adjudication. 7.1 The Ground No. 1 of the assessee is general in nature which does not require any adjudication. 8.1 The Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t average G.P./N.P. rate of 5 years should be taken in the case of business. Accordingly, as per facts of the present case the average G.P./N.P. rate of last five years comes to 8.97%. In this respect, the comparative chart of N.P. Rate of last five years has already been filed by the assessee in his written submission. It was further submitted that during the year under consideration the assessee has already declared very high N.P. Rate of 11.09% as against average N.P. Rate of 8.97% but the ld. CIT(A) has ignored the said facts, although the same chart was also furnished before him. It was further submitted that even the Coordinate Bench of ITAT, Jaipur in the case of ITO, Bundi vs Rameshwar Meena in ITA No.420/JP/2017 dated 30-04-2019 had followed the above decision of Hon'ble Jurisdictional High Court. Therefore, in such circumstances, no addition is required to be made and the entire addition is liable to be deleted. It was further submitted that during the assessment proceeding[ the audited balance sheet, profit and loss account, trading account alongwith all the annexure, audit report and report in form 3CD, quantity details were filed before the AO and complete books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... results of last 05 years and in case it is found by the AO that the assessee has declared better n.p. rate as compared to earlier years then in that eventuality no trading additionis called for. It is needless to mention that before passing the afresh order on this issue by the AO, the assessee will be provided adequate opportunity of hearing by the AO and the assessee will submit the necessary details before him. Thus this Ground No. 2 of the assessee is allowed for Statistical purposes. 9.1 The Ground No. 3 of the assessee is regarding disallowance of ₹ 1,48,229/- towards interest on TDS. 9.2 Brief facts of this ground is that the AO during the course of assessment proceeding noted that assessee had debited a sum of ₹ 1,48,229/- toward the interest on TDS which is not allowable as revenue expenditure.. In first appeal,, the ld. CIT(A) held that the interest payment for delayed deposit of TDS is a nature of penalty and thus the same is not allowable. 9.3 During the course of hearing, the ld.AR of the assessee reiterated the same arguments as were raised by him before the ld. CIT(A) which is contained in para 14 of the ld. CIT(A) s order and the same is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench's decision in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.) The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732 (All.) (FB), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue. In view of the above judgment, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction. The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of interest on delayed deposit of TDS is penal in nature. The ld.AR of the assessee relied on the decision of Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. vs CIT (1998) 230 ITR 733 which does not find force in this ground of the assessee. Hence, the Ground No. 3 of the assessee is dismissed. 10.1 The Ground No. 4 of the assessee is regarding disallowance of rs15,97,572/- u/s 40(a)(ia) of the Act. 10.2 In this case, the AO noted that the assessee paid interest of ₹ 15,75,572/- to M/s. SREI Equipment Finance Ltd. ad ₹ 21,944/- to M/s. AU Finance on which no TDS was deducted. For want of justification by the assessee, the disallowance was made by the AO on account of non-deduction of TDS on total amount of interest paid of ₹ 15,97,572/- which was confirmed by the ld. CIT(A) in first appeal before him. 10.3 During the course of hearing, the ld.AR of the assessee reiterated the same arguments as were raised before the ld. CIT(A) which is contained in para 17 and the same is reproduced as under:- 1. Payee already paid tax on payment made by assessee: It is further submitted that the ld. AO has not disputed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on the sum credited to the account of a resident shall not be deemed to be an Assessee in default in respect of such tax if such resident-(i)has furnished his return of 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. The unambiguous underlying principle seems to be that in the situations in which the Assessee s tax withholding lapse have not resulted in any loss to the exchequer, and this fact can be reasonably demonstrated, the Assessee cannot be treated as an Assessee in default. 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 disallowdeduction 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 upon the income, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 279 CTR 384(Del) 28.08.2015 copy is enclosed. Hence the issue now till is settled. In the present case the assessee had submitted the certificate from the payee and the ld. AO has not disputed the same. 1.2 It is submitted that the underlying idea and basic concept of TDS was to ensure an early and fast recovery of the taxes. It is designed so that the payer itself should make a deduction of tax at source on the income of the payee. Thus, it was an advance collection and recovery of the tax for on and behalf of the payee, in whose hand, after including the subjected amount of income, there is going to be a liability of tax thereupon. If either there is no liability to pay tax or because of the tax already stood paid by the payee, there is no further liability of the payer. The very purpose of making deduction of tax at source and depositing with the Govt., stands fulfilled. It is under this background, the Hon ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. v/s CIT 293 ITR 226 followed in Children s Education Society v/s DCIT Anr 34 DTR 145(Ker)- has held that no penalty u/s 271C or interest u/s 201 can be charged in such cases. The princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies has paid tax on such interest, no disallowance u/s 40 (a)(ia) be made in the hands of the assessee. It is a settled law that second proviso to section 40 (a)(ia) inserted w.e.f.01.04.2013 has retrospective effect as held in Bangalore Bench in case of Sh. G. Shankar Vs. ACIT in ITA No. 1832/Bang/2013 dt. 10.10.2014, Agra Bench in case of Rajeev Kumar Agarwal Vs. ACIT (2014) 34 ITR (Trib.) 479, Delhi Bench in case of ITO Vs. Dr. Jaideep Kumar Sharma (2014) 34 ITR (Trib.) 565, Bangalore Bench in case of DCIT Vs. Ananda Marakala (2014) 150 ITD 323 as the amendment was made to remove the undue hardship. 3. Books Rejected No disallowance u/s 40(a)(ia): Further Sec. 145(3) has already been invoked and trading addition has already been made hence no further disallowance can be made u/s 40(a)(ia). Further alternatively it is submitted that as in the above cases the books of accounts has been rejected by the ld. AO by invoking the provisions of Sec. 145(3) and after rejection of books of accounts he has estimated the trading income due to defects founds in the books of accounts. When the books of accounts has been rejected and provisions of S. 145(3) of the Act are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso, no disallowance and addition can be made separately for determination of income. Kindly refer CIT v/s Banwarilal Bansidhar 229 ITR 229 (All) , Gupta Construction Co. v/s ACIT 84 TTJ (All) 46 , ACIT VS. KPS Construction ITA No. 657/JU/2007 ITAT, Jodhpur . We further rely on the judgment in the case of Teja Construction v/s ACIT (2010)36 DTR 220 (ITAT), Hyderabad A Bench , where in it is held that the books of accounts of the appellant was not relied, and rejected by the AO. Based on the reliance on the same books, for the purpose of invoking the provision s of section 40(a)(ia) is improper. The estimation of income takes care of the irregularities committed by the appellant. Further addition by invoking section 40(a)(ia) amounts to punishing the appellant for a same offence on double occasions, which is not permitted by law, as stipulated in the decision given in the case of Devi Prasad Vishwanath Prasad (1969) 72 ITR 194(SC) . Further, recently in the case of ACIT V/s M/s. Choudhary Brothers, Jaipur in ITA No.879/JP/2011 the Tribunal has observed that by implication, books of accounts were rejected by the AO and upheld by the CIT(A). Relying on the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone through the amendment of Section 40(a)(ia) and u/s 201(1) in Financne Act, 2012 which provides Second Proviso to Section 40(a)(ia) of the Act, introduced w.e.f. Ist April 2013 which provides that where an Assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an 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 Assessee 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 . We have also noticed that after this amendment the ITAT,Agra Bench in the case of Rajeev Kumar Agarwal vs Addl. CIT , 165 TTH 228( Agra) held that that Second proviso to Section 40(a)(ia), introduced with effect from 1st April 2013, provides, that where an Assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an Assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 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 as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. The scheme of Section 40(a)(ia), as ITAT 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 ITAT s 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. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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