TMI Blog2023 (11) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... the Agra Bench of ITAT Rajiv Kumar Agarwal [ 2014 (6) TMI 79 - ITAT AGRA ] 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. - HON'BLE MR JUSTICE RAJIV SHAKDHER AND HON'BLE MR JUSTICE GIRISH KATHPALIA For the Appellant Through: Mr Aseem Chawla, Sr. Standing Counsel with Ms Pratishtha Chaudhary and Mr Aditya Gupta, Advocates. For the Respondent : Through: None. RAJIV SHAKDHER, J.: (ORAL) CM APPL. 56342/2023 1. Allowed, subject to just exceptions. ITA 599/2023 2. This appeal concerns Assessment Year (AY) 2008-09. 3. Via the instant appeal the appellant/revenue seeks to assail the order dated 27.04.2023 passed by the Income Tax Appellate Tribunal [in short, Tribunal ]. 4. The record shows that, insofar as the Tribunal was concerned, the impugned order, which came to be passed in favour of the respondent/assessee, emanated out of a second round of litigation before it. 4.1 In the first round, the Tribunal had remanded the matter to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and times keeper booths. 7. It is not in dispute that, insofar as the earlier AY is concerned i.e., AY 2007-08, the respondent/assessee had succeeded, and the addition, made in a similar circumstance, was deleted by the Tribunal. This order of the Tribunal was, then, confirmed by this court via the order dated 21.05.2018 passed in ITA 612/2018, titled Pr. Commissioner of Income Tax Delhi - 8 v. M/s. Shivaai Industries Pvt. Ltd. 7.1 While passing the order, the coordinate bench relied on judgments rendered in Commissioner of Income Tax v. Rajinder Kumar, (2013) TIOL 547 and Commissioner of Income Tax v. Ansal Land Mark Township Pvt. Ltd.. 8. We are informed by Mr Aseem Chawla, learned senior standing counsel, who appears on behalf of the appellant/revenue, that the appeal preferred by the appellant/revenue with the Supreme Court against the order of the coordinate bench dated 21.05.2018, in ITA 612/2018, was admitted on 18.02.2019. 9. We are also informed that the appeal, preferred in the Supreme Court, against the judgment rendered in Commissioner of Income Tax v. Ansal Land Mark Township Pvt. Ltd., was dismissed as withdrawn due to low tax effect. 10. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of the first proviso to Section 201 would show that as long as the conditions mandated therein are fulfilled by the payee, i.e., i) that Return of Income [ROI]under Section 139 was furnished; ii) the amount in issue was taken into account in computing income in the ROI; iii) that tax has been paid on the income declared by him in the ROI; and iv) that a certificate is furnished to show that the above-mentioned conditions are fulfilled, an assessee shall not be deemed to be an assessee in default . 15. The purpose of Section 40(a)(ia) of the Act is to disincentivize non-deduction of tax at source by disallowing, as deduction, the amount paid to the resident/payee. The second proviso appended to it, however, relaxes the rigour of the said provision by making its application dependent on the assessee being declared as assessee in default under Section 201(1) of the Act. 16. It is not in dispute that, in this case, no adverse findings were returned by the AO concerning fulfilment of conditions stipulated in the first proviso appended to Section 201(1) of the Act; an aspect which is noted both by the CIT(A) and the Tribunal. 17. As to the retro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 11. The first proviso to Section 210(1) [sic 201(1)] of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. 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 fulfillment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 avoid unintended consequences is to be treated as retrospective in nature even though it may not state so sp ..... 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