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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 23.03.2016 passed by the Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2010-11.
The assessee has raised the following grounds: - “
1 Being aggrieved by the Appeal Order of the Learned Commissioner of Income Tax (Appeals) - 53 (Hereinafter referred to as the "CIT (A) - 53") with regard to the assessment order u/s 143 f3) of the Act of the Deputy Commissioner of Income Tax, A.Y. 2012-13 Central Circle - 5 (1), Mumbai, (hereinafter referred to as the "LAO"), this appeal petition is submitted on the following grounds:
1. On the facts and circumstances of the case and in law, the Learned CIT (A) -53 has erred in confirming disallowance of interest expenses amounting to Rs,37,39r48l/- made by the LAO u/S 40 (a) (la) of the Act.
2. The order under appeal is not only bad in taw and invalid, but also against the natural law of equity and justice,
3. That the appellant reserves its rights to amend, alter or raise any other additional grounds of appeal before during the course of appellate proceedings.” The brief facts of the case are that the assessee filed its return of 3. income for the A.Y. 2012-13 on 30.09.2012 declaring total income to the tune of Rs. Nil. The Notice u/s 143(2) of the Act dated 07.08.2013 was issued and served upon the assessee on 30.08.2013 and notice u/s 142(1) of the Act dated 27.08.2014 along with questionnaire was issued and served upon the assessee. The assessee is engaged in the business of property development during the year under consideration. On verification, it was found that the assessee has reversed its TDS claim, therefore, he was not entitled for the allowance of TDS interest to the tune of Rs.37,39,481/-. The Assessing Officer declined the interest claim of Assessee and added to the income of the assessee. The total income of the assessee was assessed to the tune of Rs.6,18,76,300/-. The assessee filed an appeal before the CIT(A) who also declined the claim of the Assessee, therefore, the assessee filed the present appeal before us.
ITA. No.4856/M/2016 A.Y. 2012-13
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The notice was issued to the assessee but assessee did not appear before us despite service. However, on the other hand, the Ld. Representative of the Department has argued that the CIT(A) has passed the order in accordance with law, therefore, the same is not liable to interfere with at this appellate stage. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - “5.3.1 E have considered the submissions of the appellant and perused the material available on record including copies of judicial decisions relied upon by H. The issue for adjudication is whether the A,O, was justified in disallowing interest of Rs.37,39,481/- u/s.40(a)(ia) of the Act on account of non-payment of TDS. During the I- V. relevant to the A.Y. under con side rat ion. the appellant had accrued/paid interest of Rs.3 7,39,4SI/- to Hl_ In this connection, 1 am unable to accept the appellant's plea that since HL to which interest was paid and whose TDS was to be deducted had filed its return and had no tax liability, no disallowance would be called for because the provisions of sections 40(a}(ia) and 201 operate in two different fields. As a precondition for claiming the expenditure otherwise allowable, the assessee has lo deduct lax as required under the provisions of the Act. On the contrary, the object of section 201 Is only to compensate the government for failure of the assessee to deduct lax at source. Section 201 enables The government to recover the form the assessee who defaults in making the deduction at the, time of payment. The appellant's reliance in this regard on the judicial decisions in the cases of Hindustan Coca Cola Beverage (P) Ltd. cited above will be of no avail, because that case was concerned with the provisions of section 201[I) rather than section 40(a)(ia) of (he Act and it was held therein that where the deducted/recipient of income has already paid taxes on amount received from the deducted, Department once again cannot recover tax from deduction on same income by treating deducted to be assessee in default for shortfall in its amount of tax deducted at source. If the contention of the appellant is accepted. It would render the provision of section 40(a)(ia) nugatory and defeat the very purpose and objective of said provision.
ITA. No.4856/M/2016 A.Y. 2012-13 5.3.2. The appellant has also relied heavily on the amendments made by the Finance Act, 2012 in sections 201 and 40(a)(ia). The second proviso to section 40(a)(ia) inserted in the statute w.e.f. 01.04.2014 has already been reproduced in para 5.2.2 above. This has to be understood along with the first proviso to section 201(1) which is also introduced by the Finance Act, 2012 w.e.f. 01.07.2012 and provides that:- “any person who fails to deduct the whole or any part of the tax in accordance with the provisions of this chapter on the sum paid to a resident or 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- Has furnished his return of income under section 139; Has taken into account such sum for computing income in such return of income and 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 account in such form as may be prescribed.” The appellant submits that since HL had declared the interest income in the Income tax return for A.Y.2Q12-I3, the purpose of (axing the interest income in the hands of The right person has been served- Placing reliance on decisions of Lucknow, Delhi and Agra Benches of Hon’ble ITAT as cited in para 5,2.3 above, the appellant contends that since the aforesaid amendments in Sections 40(a)(ia) and 201(1) by the Finance Act, 2012 are Intended to cure a defect or remove an anomaly or remedy unintended consequences, these are declaratory and curative in nature and will have retrospective effect from 01-04.2005 when section 40(a)(ia) was introduced by the Finance (No.2) Act, 2004, 5.3.3 The point emerging for consideration now is whether the aforesaid amendments brought about by the Finance Act, 2012 are prospective or retrospective in application. It is a welt-settled rule of construction that every is prospective unless It Is made to have retrospective operation either or by necessary Implication. Ordinarily, the courts are required to gather the intention of the legislature from the overt language of the provision in order to see whether it has been made prospective or retrospective in operation Retrospective effect to a provision cannot generally be given by judicial and quasi judicial authorities unless it is expressly given by the legislature. There was nothing to prevent the legislature from say in explicit terms. Since Section 40(a)(ia) has been introduced TO augment compliance of IDS provisions, an element of A.Y. 2012-13 difficulty or hardship in the form of" disallowance of any amount in the year of default was "intended" so as to secure better TDS compliance. In this connection the appellant's on the judicial precedent in allied Motors (P) Ltd. {supra) will be of no help, because that case was concerned of amendment made by inserting first proviso lo Sect inn 43B w.£.frOLQ4,1998 and the issue was whether the said proviso was retrospective or prospective in operation. The same holds* good with regard to (he ratio in the case of Alom Extrusions Ltd- died above dealing with the effect of deletion of second proviso to section 436. It is noted that there is divergence of opinion among various High Courts a welt as Benches of Hogtie Tribunal in the matter. While Hon'ble High Court in the case of CIT v. Rajinder Kumar 362 ITR 241 (Del) and Lucknow, Delhi and Agra Benches of Hon'ble ITAT in [he cases cited above have taken the view that the second proviso to Section 40(a)(ia) is of curative and declaratory nature a/id Is hence retrospectively applicable. He Cochin Bench m The case of Sea Food Park India Ltd. v. DCJT 39 CCH195 (Cochin) (Trib.) has held that the said proviso is applicable prospectively from Ql.Q4,2QlB and not retrospectively, it I£ observed that while arriving at the said decision, the Cochin Bench of the Hon'ble Tribunal has followed the judgment of the Hon'ble Kerala High Court in the case of M/s. Prudential Logistics & 'Transports 364 ITR689 (Ker). The issue before the Hon’ble High Court was whether the assesse having failed to deduct tax at source on the lorry hire/ freight charges paid lo three different persons got any benefit or his obligation was absolved, if the recipients of the said amount had already paid taxes 011 the amounts received by them in the light of The amendment to the second proviso to section 4CKaXia). It was held that the amendment giving breathing space to payer of amounts is with effect from 01,04,2013 and. therefore, the said benefit was not applicable to the assessee in A.Y.2Q07-D8. Even the Hon'ble Calcutta High Court in the case of CIT v. Cresset Export Syndicate 262 CTR 525 held that the contention that The second sought to become effective from 01,04,2013 should be held to have already become operative prior to the appointed date cannot be acceded to. “The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error.” 5.3.4 Thus it ii noticed that there is divergent of opinion among various Courts in regard to the nature of amendment brought out by inserting the s proviso below section 40(a)(ia) the Act According to the rules of precedent, in case of conflicting decisions of High Courts, the later decision is to be preferred if reached after full consideration of earlier decision However, it Is seen that neither the Hon’ble Delhi High Court nor the Hon'ble Kerala High Court had any occasion to deal with (he earlier decision of Hon'ble Calcutta High Court cited above. In these circumstances, it is proposed to follow by the Hon’ble? Calcutta and Kerala High Courts the second proviso |o Section 40{a)(id) Is applicable prospectively and not retrospectively. Further it has been clearly held in the case of Maharashtra State Electricity Distribution Co. Ltd. V. ACIT 133 ITD 519 (Mum) that payment of due tax A.Y. 2012-13 by the payee is of no consequence when the question of disallowance u/s.40(a)(ia) in the hands of the payer is concerned. In that case, the argument that since the subsequently paid the Income inclusive of The said receipts from the assessee and hence no disallowance can he made u/s.40(a)(ia) has been found to be devoid of merit. The Hon’ble Tribunal has taken note of the fact that failure of the assesses to deduct tax at source or to deposit such after deducting within the prescribed period entails several consequences such as applicability of sections 201, 40(a)(ia) and also penalty u/s.271C etc. H has been unequivocally held that no doubt the payment of due tax by the payee would exonerate (he assessee from being treated as assessee in default u/s.201, bur would not obliterate the other statutory consequences for non-deduction of TDS including the disallowance in items of section 40(a)(ia). in view of the above discussion, 1 do not find any error or infirmity in the action of The A.O. in disallowing Interest of Rs.37,39,481/- on account of non-payment of TDS thereon u/s 40(a)(ia) of the Act which is accordingly upheld. Hence, Ground No.2 Taken up by The appellant is dismissed.”
On appraisal of the above mentioned finding or by considering this fact that the assessee failed to bring any distinguishable material before us, we nowhere found it justifiable to interfere with the order passed by the CIT(A) in question. Therefore, we confirmed the finding of the CIT(A) on this issue and dismissed the appeal of the assessee.