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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI B.R.BASKARAN & SHRI PAWAN SINGH
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “C”, MUMBAI BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No.6799/Mum/2014 for Assessment Year: 2007-08 ITO -25(2)(2), Shri Pravin T. Shah, C-11 Bldg., R No. 106, 202, Shreenath Kurpa, 5th Carter Road, Borivali (E), P.K. Bhavan, B.K.C, Bandra(E), Vs. Mumbai-51. Mumbai -400066 PAN: ANQPS8011G (Appellant) (Respondent)
Assessee by : Shri Bharti Singh(DR) Revenue by : Shri Jitendra Singh (DR) Date of hearing : 24.10.2016 Date of Pronouncement : 26.10.2016 O R D E R PER PAWAN SINGH, JM: 1. This appeal u/s 253 of the Income-tax Act is filed by the Revenue against the order of ld. Commissioner of Income-tax (Appeals)-35, Mumbai [for Short ‘CIT(A)’] dated 22.08.2014 for Assessment Year (AY)-2007-08. The assessee has raised the following grounds of appeal: (i) "On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the addition on account of sub-contract payments of Rs.69,70,849/- on which TDS was not deducted and was not deposited to government account as required u/s.40(a)(ia) of the IT. Act.” (ii) "On the facts and circumstances of the case and in law, the ld.CIT(A) erred in deleting the addition of cash labour payment of Rs. 1,37,952/ - on which TDS was not deducted and has not deposited to government account as required u/s. 40(a)(ia) of the IT Act." (iii) "On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in wrongly placing reliance on new provision introduced in Section 40(a)(ia) vide Finance Act 2010 which is not having retrospective effect and applicable w.e.f. 01.04.2010.” (iv) "The appellant prays that the order of the Ld. (CIT(A) on the above grounds be set aside and that of the AO be restored."
ITA No.6799/M/014, AY 2007-098 Shri Pravin T. Shah
The Ld. Departmental Representative (DR) for the Revenue argued that the ld. CIT(A) deleted the addition on wrong premises and prayed that the addition made by Assessing Officer (AO) be restored by setting aside the order of CIT(a). On the other hand, Ld. Authorised Representative (AR) of the assessee argued that assessee has deposited the Tax Deducted at Source (TDS) before the due date of filing of return of income. It was further argued that the grounds of appeal are covered in his favour by various decision of the Tribunal. 3. We have considered the rival contention of the parties and gone through the order of authorities below. The AO made the additions holding that the assessee deducted TDS for sub-contract payment to two parties i.e. Rs. 48,28,163/- to M/s D.K. Enterprises and Rs. 31,09,900/- to Jimit Enterprises which are covered under the provisions of section 194C. The assessee was required to deposit the TDS deducted up to the month of February 2007 before 31st March 2007 and the TDS deducted in the month of March on or before the due date of filing of return of income. The AO concluded that in case of D.K. Enterprises, the assessee deducted TDS and paid on 07.04.2007 which is beyond the statutory limit on 31.03.2007. In case of Jimit Enterprises, the TDS was also paid on 07.04.2007. Thus, disallowed the entire amount of sub-contract. Similarly, the AO observed that the assessee deducted TDS on account of labour payments and was paid on 07.04.2007, accordingly, corresponding labour charge of Rs. 1,37,952/- was disallowed. In appeal both the disallowance was confirmed. The Bangalore Tribunal in ITA No.717/Bang/2011 ACIT vs. Shri M. K. Gurumurthy held as under: “11. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that that the assessee deducted TDS which was not paid to the account of Central Govt. within the prescribed time, however, it was paid before the due date of filing the return specified in section 139(1) of the Act. On a similar issue, the Hon'ble Calcutta High Court held that amendment in sec. 40(a)(ia) is having retrospective operation and upheld the order of the ITAT in the case of CIT v. Virgin Creations, ITA No.302 of 2011, judgment dated 23.11.2011, copy of which ITA No.717/Bang/11 is placed at pages 15 and 16 of the assessee's compilation, by observing as under:- "The learned Tribunal on fact found that the assessee had deducted tax at source from the paid charges between the period April 1, 2005 and April 28, 2006 and the same were paid by the assessee in July and August 2006, i.e. well before the due date of filing of the return of income for the year under consideration. This factual position was undisputed." 2
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Although the aforesaid judgment was relating to the issue as to whether the amendment in section 40(a)(ia) was having retrospective effect or not, but from the ratio laid down in the said case, it is clear that addition u/s. 40(a)(ia) of the Act cannot be made if the payment of tax deducted at source has been made before the due date of filing the return of income for the year under consideration. In the present case, payment of the TDS has been made before the due date for filing of the return u/s. 139(1) of the Act, therefore the ld. CIT(A) was fully justified in deleting the addition made by the AO by following the decision of the ITAT Mumbai Bench in the case of Bapusaheb Nanasaheb Dhumal v. ACIT, [2010] 40 SOT 361 (MUM) wherein it has been held as under: "The controversy in the instant case revolved around the applicability of the provisions of section 194C while disallowing the expenditure under the provision of section 40(a)(ia). It was undisputed fact that the assessee made the payment to the sub- contractor during the previous year but the tax was deducted only on 31-3-2005. The Assessing Officer had already allowed the deduction in respect of payment made during the month of March, 2005 but disallowed the deduction in respect of the payment which was credited and made during the period other than the month of March, 2005. No doubt that as per the provisions of Chapter XVII-B and particularly section 194C as the payment under consideration was covered under the provisions of section 194C, tax had to be deducted at the time of ITA No.717/Bang/11 payment or credit of such sum in which the tax was deducted within 7days from the end of the month and had to be deposited with the Government within the period prescribed under section 194C. In case of failure of deduction of tax and/or depositing the same as per the provisions of section 194C or the provisions of Chapter XVII as the case may be, the assessee had to face the consequences as provided under the said Chapter XVII of the Act by attracting the penalty or interest. The provisions of section 40(a)(ia) are in addition to the provisions of Chapter XVII as well as Chapter XXII to ensure the deduction and deposit of TDS.
As per sub-clause (ia) of clause (a) of section 40 when tax is deductible at source on the payment under Chapter XVII and such tax has not been deducted or after deduction has not been paid then the said deduction is not allowable. As per clause (A) of proviso to clause (a)(ia), if the tax is deducted during the last month of previous year and paid on or before the due date of filing of return as per the provisions of section 139(1), then such sum shall be allowed as deduction. In the cases where the tax is deducted during previous year other than the last month of previous year but is deposited before the last day of previous year then it will be allowed as deduction. Therefore, the condition for allowability of deduction is prescribed under section 40(a)(ia) itself and provisions of Chapter XVII and section 194C under Chapter XVII-B are relevant only for purposes of ascertaining deductibility of tax on payment. Once, the nature of payment is falling under the provisions of Chapter XVII/VII-B then disallowance under section 40(a)(ia) shall be as per condition as provided under this section itself. The proviso to section 40(a)(ia) makes it further clear that even in the case when the tax has been deductible as per the provisions of Chapter XVII but deducted in the subsequent year or deducted during the last month of previous year but paid after the due date under section 139(1) or deducted during the other month of the previous year except last month but paid after the end of the said previous year, then the said sum shall not be allowed as deduction in computing the income of the previous year but allowed in the previous year in which the said tax has been paid. If the condition of deduction and 3
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payment prescribed under Chapter XVII/XVII-B are applicable for disallowance of the deduction undersection 40(a)(ia) then the provisions of section 40(a)(ia) will be rendered as meaningless, absurd and etiose. As per the provisions of section 40(a)(ia), the deduction is disallowed only in the case when either no tax was deducted or it was not paid after deduction. But when the tax is deducted may be belatedly and deposited belatedly then deduction is allowable in the previous year in which it was so ITA No.717/Bang/11 deposited. Therefore, if the provisions of section 194C with respect to the time of deduction and payments are applied for the disallowance under section 40(a)(ia), then there will be no purpose or object for providing the certain conditions of actual deduction of tax and payment of tax under section 40(a)(ia). The provisions of Chapter XVII are relevant only for ascertaining the deductibility of the tax at source and not for the actual deduction and payment for attracting the provision of section 40(a)(ia). Since in the instant case, when the assessee had deducted tax in the last month of the previous year i.e. March, 2005 and deposited the same before the due date of filing of the return under section 139(1), then it was covered under clause (A) of proviso to section 40(a)(ia). Therefore, when the assessee 's case was covered under the main provisions of existing law then there was no need to go to the issue of prospective or retrospective effect of the amendment in the provisions by the Finance Act, 2010. Accordingly, the orders of the lower authorities were to be set aside and the claim of deduction of the assessee was to be allowed."
As regards to the decision of Special Bench Mumbai in the case of Bharti Shipyard Ltd. v. DCIT (132 ITD 53) relied by the ld. DR is concerned, although that decision may support the revenue's case, particularly the observations in para 25 of the decision which read as under:-
"The amendment to s. 40(a)(ia) by the Finance Act, 2010 has been specifically made retrospectively applicable from the asst. yr. 2010-11. It has nowhere been expressly set out that the amendment is curative or merely declaratory of the previous law. The intention of the legislature as gathered from the Notes on Clauses and the Memorandum Explaining the Provisions of the Finance Bill does not particularly indicate any relaxation in the provision retrospectively from asst. yr. 2005-06 by providing that the expenditure on which due tax was deducted upto February, 2005 but paid before the due date specified in s. 139(1) shall not suffer any disallowance in the asst. yr. 2005- 06."
However, the Hon'ble Calcutta High Court has taken a different view in the case of CIT v. Virgin Creations (supra) and the issue stands decided ITA No.717/Bang/11 against the revenue. Therefore considering the precedent in the judicial hierarchy, we are bound to follow the decision of the Hon'ble Calcutta High Court because it is the only judgment of any High Court which is brought to our notice.
Similar view has been taken in the Third Member decision in the case of Kanel Oil & Export Inds. Ltd. v. JCIT [2009] 121 ITD 596 (Ahd) (TM) wherein it has been held as under:-
"In the instant case, question that came up for consideration was as to whether the order of the Special Bench upholding the levy of interest in the light of sub-section (4) of section 115JA should be followed or the judgment of the Bombay High Court in Snowcem India Ltd.'s case (supra), also rendered in the context of section 115JA, had to be applied. Both the decisions were under section 115JA. One was of a Special Bench of 4
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the Tribunal, Ahmedabad and the other was of a High Court, though not a jurisdictional High Court. A simple answer would be that the judgment of a High Court, though not of a jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench (of the Tribunal) on the basis of the view that the High Court is above the Tribunal in the judicial hierarchy. But this simple view is subject to some exceptions. It can work efficiently when there is only one judgment of a High Court on the issue and no contrary view has been expressed by any other High Court. But when there are several decisions of non-jurisdictional High Courts expressing contrary views, it has been recognized that the Tribunal is free to choose to adopt that view which appeals to it." 16. On the issue under consideration, the lone decision of non-jurisdictional High Court i.e., the Hon'ble Calcutta High Court is available on the very same issue, so that has to be followed because it will prevail over the order of the Special Bench of the ITAT, Mumbai Bench, since the Hon'ble High Court in the judicial hierarchy is above the Tribunal. We, therefore considering the totality of the facts as narrated hereinabove, do ITA No.717/Bang/11 not see any valid ground to interfere with the findings of the ld.CIT(Appeals).
The ITAT, Mumbai in case of ACIT vs. M/s Unity SNB Joint Venture (ITA No. 1456/M/13 considering the similar grounds held as under: “16.2: One can notice that the object of brining about provision of Section 40(a)(ia) in the year 2005 - 06 was to augment compliance of TDS provision. TDS either not deducted or deducted but not paid in respect of payment of interest, commission or brokerage etc., before the expiry of time prescribed under sub-section (1) of Section 200 and in accordance with the other provisions of Chapter XVIL such amount shall not be deducted in computing the 'income' chargeable under the head 'Profit & Gains of business or profession. Such provision starts with non obstante clause which states that notwithstanding anything contained in Section 30 to 38 of the Income-tax Act, if the tax deducted at source is not paid within prescribed time [under Section 200 (1)], no amount could be deducted while computing the income, under Chapter IV of the 'computation of business income'. 16.3: Thereafter, by way of amendment of Finance Act, 2008, further amendment was made whereby TDS deductible and deducted in the last month of previous year if was not paid till the due date of filing of return under sub-section (1) of Section 139 and in any other case, on or before the last day of the previous year, Section 40(a)(ia) provided for the disallowance of expenses like interest, commission, brokerage, etc. 16.4: Since, this had created anomaly whereby tax deducted in the last month was permitted payment till filing of return as per sub-section (1) of Section 139 whereas for the TDS deducted during the rest of the months, period was provided only till 31st March of the previous year, Finance Act, 2010 was brought. To bring parity, to remedy unintended consequences and to make the provision workable, it proposed to amend the said provision and provided inter alia that no disallowance would be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income as specified in sub-section (1) of Section 139. This has been given retrospective effect from 1st April 2010. 16.5: Of course, the Legislature has given the effect from a specified date and applied the same to A. Y. 2010-11 and subsequent years, this provision being 5
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curative in nature, its effect needs to be read retrospectively in operation. It’s very purpose would not be sub-served, if the effect is limited to A.Y. 2010-11 and subsequent years only. Strict construction if leads to a result not intended to be fulfilled by the object of legislation and another construction is possible apart from literal construction, then that construction needs to be preferred as held in a decision in case of CIT V. Alom Extrusion Limited [Supra). 16.6: We also cannot be oblivious of submissions not denied by the other side that various representations were made to the Finance Minister to bring about suitable amendment as the assessee otherwise was losing genuine deduction of expenditure on this count as also reflected in the speech of Finance Minister so also in the memorandum explaining the provision of the Finance Bill. 16. 7: Giving plain or natural meaning to the amendment as contended by the Department, if is likely to create a, situation enhancing the hardship and advance discrimination, purposive and. reasonable interpretation is required to be given by the Court. When plain interpretation frustrates the very legislative intent, the Court is expected to bear in mind the legislative intent from the language used in the statue with the help of permissible tools of interpretation of statute. 17: The core issue as to whether the amendment made by the Finance Act 2010 to Section 40[a](ia) of the Act is retrospective from the date of insertion of the provision i.e., 1st April 2005 therefore needs to be answered in affirmation. It can be seen that the amendment made by the Finance Act 2010 allows additional time upto the due date of filing of the return in respect of even those instances where TDS has been deducted during the first eleven months of the previous year. The additional time till the due date of filing of the return, in case of TDS made during the last month of the previous year was already available by the amendment made by Finance Act 2008. Thus, it is apparent that the relaxation made by the amendment made under the Finance Act, 2010 brings the law in parity with the aforementioned situation and accordingly, for the TDS deducted all throughout the year, time is extended from payment till the filing of return. It is thus apparent that when the amendment introduced by the Finance Act, 2008 of relaxing the time for deposit of TDS was made retrospective from the year 2005 [1st April 2005], the amendment by Finance Act 2010 with regard to other limb of time limit for payment of TDS has to be held, retrospective not from 1st April 20 I 0 only. If we recall at this stage the speech of Finance Minister while introducing this provision by way of Finance Act, 2010, this' amendment essentially has been brought for relaxing the current provision on disallowance of expenditure. The tax, if is deducted at any time during the financial year and paid before the date of filing of the return, the Legislature intended to allow deduction on such expenditure with an intention to permit additional time for most deductors upto September of the next financial year. 17.1: We draw further support from the fact that the rigor of payment of interest is also enhanced by increasing the interest charged on tax deducted, if any deposit by the specified date i.e., up to the filing of the return is not made from 12% to 18% per annum in the provision of Section 201(1A). Prior to the said amendment of Finance Act, 2010 under Section 201(1A), assessee was liable to pay simple interest at one per cent for every month or part of month, in case of failure to deduct tax on payment of deducted tax, increase is made correspondingly from one per cent to one and half per cent for every month or part of month for discouraging delay in deposit. As rightly contended by the respondents arithmetical discrepancy can be well judged from the fact that the rates of TDS may vary between 1 % to 10%, whereas, legitimate business expenditure denied is 100% resulting into taxation of gross 6
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receipts coupled with levy of interest and penalty, which would mean that the possibility cannot be ruled out of business of the tax payer getting closed down permanently, if there is absence of any scope of claiming any expenses in the next year. 7. Similar is the view expressed by the Delhi High Court in the cases of CIT Vs. Oracle Software India Limited reported in 293 ITR page 253, H.S. Mohindra Traders Vs. I.T.G., Ward 39 (2), New Delhi and Calcutta High Court in the case of CIT Vs. Virgin Creations. 8. We are in the respectful agreement with the view expressed by the Gujarat High Court in giving retrospective operation to the said amendment notwithstanding that the parliament has expressly stated that it comes into effect from 01.04.2010. The said amendment is curative in nature. The tribunal committed an error in holding it as prospective. The substantial questions of law is answered in favour of the assessee and against the revenue. 5. Now coming to the fact of the case, the assessee deposited the TDS amount on 07.04.2007. Return of income for the relevant AY was fled on 17.10.2007 and subsequent revised return of income on 10.12.2007. Thus, the amount of TDS was paid before the filing of return of income, thus, the disallowance is not sustainable in view of the various decision referred above. With these observations, we do not find any merit in the appeal of the Revenue and the same is dismissed. 6. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 26th October, 2016 Sd/- Sd/- (B.R.BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated 26/10/2016 S.K.PS आदेशक��ितिलिपअ�ेिषत/Copy of the Order forwarded to : आदेशक��ितिलिपअ�ेिषत आदेशक��ितिलिपअ�ेिषत आदेशक��ितिलिपअ�ेिषत 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent. 3. आयकरआयु�(अपील) / The CIT(A), Mumbai. 4. आयकरआयु�/ CIT 5. िवभागीय�ितिनिध,आयकरअपीलीयअिधकरण,मुंबई/ DR, आदेशानुसार/BY ORDER, आदेशानुसार आदेशानुसार आदेशानुसार ITAT, Mumbai 6. गाड�फाईल / Guard file. स�यािपत�ित //True Copy/ सहायकपंजीकार उप/सहायकपंजीकार उप उप उप सहायकपंजीकार सहायकपंजीकार (Asstt.Registrar) आयकरअपीलीयअिधकरण,मुंबई / ITAT, Mumbai आयकरअपीलीयअिधकरण आयकरअपीलीयअिधकरण आयकरअपीलीयअिधकरण 7