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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI VIJAY PAL RAO & SHRI JASON P. BOAZ,
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER,
ITA No.425/Bang/2014 Assessment year : 2008-09
Sri Satish Rajapur, Vs. The Deputy Commissioner of Prop: Rajapur Minerals, Income Tax, III Floor, Rajapur Inn, Circle 1, Bellary Road, J.P. Nagar, Bellary. Hospet. PAN : AEZPR 1636Q APPELLANT RESPONDENT
Appellant by : Shri Gurunathan, Advocate Respondent by : Shri Sunil Kumar Agarwala, Jt.CIT(DR)
Date of hearing : 14.09.2015 Date of Pronouncement : 24.09.2015
O R D E R Per Vijay Pal Rao, Judicial Member
This appeal by the assessee is directed against the order dated 30.1.2014 of the CIT(Appeals), Hubli for the assessment year 2008-09.
The assessee has raised the following grounds:- 2.
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“1. The CIT (Appeals) erred in passing the order in the manner in which he did. 2. The learned CIT (Appeals) erred in disallowing a sum of Rs.90,55,120/- towards additional depreciation without appreciating the submission of the Appellant that the Appellant being engaged in the business of manufacture is entitled to additional depreciation as provided under Section 32(1)(iia) of the Act. 3. The learned CIT (Appeals) further erred in upholding the disallowance with regard to finance charges without appreciating the explanation of the Appellant. 4. The learned CIT (Appeals) further failed to appreciate that finance charges are not interest payment falling within the provisions of Section 2(28A) of the Act and hence cannot be disallowed under Section 40a(ia) of the Act. 5. Without prejudice, even if finance charge is to be held as interest, then, the payment to the parties mentioned have been paid within 3l March of the relevant financial year and thus the disallowance under Section 40a(ia) of the Act is uncalled for. 6. The learned CIT (Appeals) ought to have allowed the claim with regard to finance charge by relying on the decision of the Special Bench of ITAT, Visakhapatnam in the case of Merilyn Shipping Corporation & Transports vs. ACIT reported in (2012) 16 ITR (Tri) 1. 7. For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.”
Ground No.1 is general in nature and calls for no specific adjudication.
Ground No.2 is regarding disallowance of additional depreciation u/s. 32(1)(iia) of the Act.
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The assessee is engaged in the business of trading in iron ore and also carrying out mining activities as regards excavation, crushing, screening and related activities.
During the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed additional depreciation on plant & machinery aggregating to Rs.90,55,120. The AO found that the assessee is engaged in the purchase and sale of iron ore and in the nature of contract work of excavation, crushing, screening, transport, loading and hiring of machineries. Thus, the AO asked the assessee as to why the claim for additional depreciation should not be disallowed. The assessee filed its reply and submitted that for the purpose of claiming depreciation u/s. 32(1)(iia), ownership of mine cannot be a criterion. The AO did not accept the contention of the assessee and held that assessee is engaged in the activity of carrying out the work on contract basis and merely because it is using machinery in the contract work taken from a person who is in the business of manufacture, the assessee cannot be said to be engaged in the business of manufacture or production of articles. Accordingly, the AO disallowed the claim of assessee. On appeal, the CIT(Appeals) has confirmed the disallowance made by the AO on this account.
Before us, the ld. AR of the assessee has submitted that the assessee purchased the machinery which is used for mining work as well
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as crushing and screening work. The ld. AR of the assessee has referred to the details of revenue earned by the assessee from the activity of crushing, screening as well as trading in iron ore. Thus, he has submitted that when the assessee is engaged in the activity of mining, crushing and screening, the same falls within the ambit of the term “manufacture” and therefore the assessee is entitled for additional depreciation under the provisions of section 32(1)(iia) of the Act. In support of this contention, he relied on the decision dated 20.9.2013 of this Tribunal in the case of ACIT v. R. Prabhu, ITA No.758/Bang/2012 and submitted that this Tribunal had decided an identical issue and has held that the activity of excavation, crushing and screening of iron ore falls under the definition of ‘manufacture of goods’ and therefore the assessee satisfies the conditions as provided u/s. 32(1)(iia) of the Act for claiming additional depreciation.
On the other hand, the ld. DR has relied on the orders of authorities below and submitted that the AO has given a factual finding in the case of the assessee that it is not engaged in the business of manufacture and products of articles or goods, as required under the provisions of section 32(1)(iia) of the Act. He has further submitted that it is also not clear from the record as to whether any new plant & machinery purchased by the assessee is used for the purpose of carrying out the activities of excavation, crushing, screening or by hiring out the same, because the assessee is having diversified activities and earned revenue from various sources including hiring out the machineries. Thus, the ld. DR has
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submitted that when the AO has given a factual finding that the assessee is not in the business of manufacture or production of goods or articles, the decision relied upon by the assessee will not help the case of the assessee.
We have considered the rival submissions as well as relevant material on record. The claim of assessee in respect of additional depreciation has been denied by the AO on the ground that the assessee is not in the business of manufacture or production of goods or articles. Though the AO has recorded this fact that the assessee is in the activity of excavation, crushing and screening of iron ore, but such activity has been carried out by the assessee on behalf of the mine owners. Thus, the AO was of the view that assessee is not entitled for additional depreciation. Apart from this finding, the AO has not examined the source of revenue earned by the assessee from various activities and whether the assessee is doing this activity of excavation, crushing and screening of iron ore by purchasing the iron ore and then selling the same, or it was on contract basis on behalf of other parties. Even otherwise, an identical issue has been considered by the coordinate Bench of this Tribunal in the case of R. Prabhu (supra) in para 7 as under:-
“7. Having heard both the parties and having considered their rival contentions, we find that clause - (2a) of sub sec. 1 of sec. 32, provides than an assessee is eligible for additional depreciation if it has acquired any new plant or machinery and installed the same after 31st day of March 2005 and is engaged in the business of manufacture or production of any article or thing.
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The assessee herein is claiming to be in the business of mining i.e production of the iron ore. As seen from the work orders placed and agreements between the assessee and owner/lessees of the mines, the assessee has been engaged to carry out excavation, material shifting, crushing and screening of iron ore and the rates fixed for each of such work is also different. To apply the provisions of sec. 32(1)(iia) of the Act, it is necessary that the assessee has to carry on the work of manufacture or production of an article or thing and work of excavation, processing and transportation carried on by the assessee is evident from the agreements with each of the contractors that he has entered into and it would be sufficient and would satisfy the condition u/s 32(1)(iia) of the Income-tax Act if the assessee has purchased the machinery and has installed and used the same during the relevant financial year. As seen from the bills raised by the assessee, the assessee has charged the lessees on tonnage basis for iron ore production, waste production and rock breaker tonnage as is evident from bill NO.3 dated 9/3/2008 raised by the assessee of B.M.M.P.L, which is placed at page 12 of the paper book. Therefore, we are satisfied that the assessee was not just giving his vehicle on hire for carrying out the work of mining but he is in fact engaged in the mining business and is eligible for claiming additional depreciation u/s 32(1)(iia)of the Income-tax Act. Thus, assessee’s appeal is allowed.”
The relevant facts have not been examined by the AO as to the source of revenue earned by the assessee and for earning income from the activity of excavation, crushing and screening, whether the assessee has used newly acquired machinery on which the claim for additional depreciation has been made by the assessee. Accordingly, we are of the view that this issue requires a proper verification and examination of relevant facts at the level of the Assessing Officer and then, adjudication as per law by considering the decision of the coordinate Bench in the case of ACIT v. R. Prabhu (supra). Hence this issue is set aside to the record of
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the Assessing Officer for deciding the same afresh, after giving opportunity of hearing to the assessee.
Ground Nos. 3 to 6 are regarding disallowance u/s. 40(a)(ia) of the
Act. During the course of assessment proceedings, the AO noticed that the assessee has paid interest/financial charges of Rs.1,04,09,238 without
deduction of tax as required u/s. 194C of the Act. Since the assessee failed to deduct tax at source, the AO invoked the provisions of section
40(a)(ia) of the Act and disallowed the said sum of Rs.1,04,09,238. On appeal, the CIT(Appeals) has confirmed the disallowance made by the AO
in this respect.
Before us, the ld. AR of the assessee has submitted that the assessee has paid interest/financial charges to 3 companies viz., SREI
Infrastructure Finance Ltd., Sundaram Finance Ltd. and Tata Motor
Finance Ltd. He has pointed out that as regards the payment of interest to Sundaram Finance Ltd. of Rs.24,972, the certificate u/s. 197(1) of the Act
has been issued by the Department exempting from deduction of tax. He referred to the Certificate dated 18.04.2007 at page 14 of the PB III and
submitted that once the said company has been granted the certification of exemption, then the assessee was not required to deduct tax at source
while making payment of interest to Sundaram Finance Ltd.
In respect of the other two payments to SREI Infrastructure Finance Ltd. and Tata Motor Finance Ltd., the ld. AR of the assessee has submitted
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that payment was not outstanding and already paid before the end of financial year as on 31.3.2008 and therefore in view of the decision of the Vishakapatnam Special Bench in the case of Merilyn Shipping Corporation & Transports vs. ACIT, 136 ITD 23, no disallowance can be made u/s. 40(a)(ia) of the Act, when the amount has already been paid and it is not payable. He has also relied on the decision of coordinate Bench of this Tribunal in the case of CIT v. Ananda Marakala, 48 taxman.com 402 and submitted that by following the decision of the Special Bench in the case of Merilyn Shipping Corporation & Transports (supra), the coordinate Bench has taken a similar view that no disallowance u/s. 40(a)(ia) can be made, when the payment has already been made. Thus the ld. AR has submitted that disallowance made by the AO u/s. 40(a)(ia) of the Act is not warranted and the same may be deleted.
On the other hand, the ld. DR has relied on the orders of the authorities below.
Having considered the rival submissions and the relevant material on record, we note that the AO has disallowed the payment of interest/financial charges u/s. 40(a)(ia), the details of which are recorded by the AO in para 4 page 7 of the assessment order as under:-
“4. The assessee has paid the following interest/finance charges without deduction of tax as required u/s. 194C of the Act:
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SREI Infrastructure Ltd. Rs.69,82,902 2. Sundaram Finance Ltd. Rs. 24,972 3. Tata Motor Finance Ltd. Rs.34,01,364 ----------------- Rs.1,04,09,238”
As regards the payment to Sundaram Finance Ltd. of Rs.24,972, we find that the Department has granted exemption vide Certificate dated 18.4.2007 u/s. 197(1) of the Act to the said company. Therefore the assessee was not required to deduct any tax at source in respect of payment made to the said company. In view of the fact that the Department has already granted exemption to the said company, therefore, disallowance made by the AO u/s. 40(a)(ia) of the Act for want of tax deduction at source is not warranted. Accordingly, the same is deleted.
For the remaining two payments, the ld. AR has relied on decision of the Special Bench of the Tribunal in the case of Merilyn Shipping Corporation & Transports (supra). We further note that the coordinate Bench of this Tribunal in the case of Ananda Marakala (supra), while dealing with an identical issue, had in paras 25 to 30 held as under:-
“25. The question is as to whether the amendment made as above is prospective or retrospective w.e.f. 1.4.2005 when the provisions of Sec.40(a)(ia) were introduced. Keeping in view the purpose behind the proviso inserted by the Finance Act, 2012 in section 40(a)(ia) of the Act, it can be said to be declaratory and curative in nature and therefore, should be given 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. In CIT Vs. Alom Extrusions Ltd. 319 ITR 306 (SC), the Hon’ble Supreme Court had to deal with the question, whether
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omission (deletion) of the second proviso to s. 43B of the IT Act, 1961, by the Finance Act, 2003, operated w.e.f. 1st April, 2004, or whether it operated retrospectively w.e.f. 1st April, 1988? Prior to Finance Act, 2003, the second proviso to s. 43B of the IT Act, 1961 (for short, "the Act") restricted the deduction in respect of any sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees, unless it stood paid within the specified due date. According to the second proviso, the payment made by the employer towards contribution to provident fund or any other welfare fund was allowable as deduction, if paid before the date for filing the return of income and necessary evidence of such payment was enclosed with the return of income. In other words, if contribution stood paid after the date for filing of the return, it stood disallowed. This resulted in great hardship to the employers. They represented to the Government about their hardship and, consequently, pursuant to the report of the Kelkar Committee, the Government introduced Finance Act, 2003, by which the second proviso stood deleted w.e.f. 1st April, 2004, and certain changes were also made in the first proviso by which uniformity was brought about between payment of fees, taxes, cess, etc., on one hand and contribution made to Employees' Provident Fund, etc., on the other. According to the Department, the omission of the second proviso giving relief to the assessee(s) [employer(s)] operated only w.e.f. 1st April, 2004, whereas, according to the assessee(s)-employer(s), the said Finance Act, 2003, to the extent indicated above, operated w.e.f. 1st April, 1988 (retrospectively). The Hon’ble Supreme Court held that the deletion of the second proviso was retrospective w.e.f.1.4.2004. The Court considered the scheme of the Act and the historical background and the object of introduction of the provisions of S. 43B. The Court also referred to the earlier amendments made in 1988 with introduction of the first and second provisos. The Court also noted further amendment made in 1989 in the second proviso dealing with the items covered in S. 43B(b) (i.e., contribution to employees welfare funds). After considering the same, the Court was of the view that it was clear that prior to the amendment of 2003, the employer was entitled to deduction only if the contribution stands credited on or before the due date given in the Provident Fund Act on account of second proviso to S. 43B. The situation created further difficulties and as a result of representations made by the industry, the amendment of 2003
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was carried out which deleted the second proviso and also made first proviso applicable to contribution to employees welfare funds referred to in S. 43B(b). “15. We find no merit in these civil appeals filed by the Department for the following reasons : firstly, as stated above, s. 43B (main section), which stood inserted by Finance Act, 1983, w.e.f. 1st April, 1984, expressly commences with a non obstante clause, the underlying object being to disallow deductions claimed merely by making a book entry based on mercantile system of accounting. At the same time, s. 43B (main section) made it mandatory for the Department to grant deduction in computing the income under s. 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act (octroi) and other tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the IT Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only w.e.f. 1st April, 2004, would become curative in nature, hence, it would apply retrospectively w.e.f. 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC), the scheme of s. 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales-tax collected
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by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales-tax law should be disallowed under s. 43B of the Act while computing the business income of the previous year ? That was a case which related to asst. yr. 1984-85. The relevant accounting period ended on 30th June, 1983. The ITO disallowed the deduction claimed by the assessee which was on account of sales-tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under s. 43B which, as stated above, was inserted w.e.f. 1st April, 1984. It is also relevant to note that the first proviso which came into force w.e.f. 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Ltd. Etc. (supra). However, the assessee contended that even though the first proviso came to be inserted w.e.f. 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when s. 43B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Ltd. Etc. (supra). This Court, in Allied Motors (P) Ltd. Etc. (supra) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Ltd. Etc. (supra), held that the first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a- vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. Etc. (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that
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Finance Act, 2003, to the above extent, operated prospectively. Take an example—in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March (end of accounting year) but before filing of the Returns under the IT Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under s. 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under s. 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate w.e.f. 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003. 16. Before concluding, we extract hereinbelow the relevant observations of this Court in the case of CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC), which reads as under : "We should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction."
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For the aforestated reasons, we hold that Finance Act, 2003, to the extent indicated above, is curative in nature, hence, it is retrospective and it would operate w.e.f. 1st April, 1988 (when the first proviso came to be inserted). For the above reasons, we find no merit in this batch of civil appeals filed by the Department which are hereby dismissed with no order as to costs.”
We are of the view that the reasoning of the Hon’ble Supreme Court in the case of Alom Extrusions Ltd(supra) will equally to the amendment to Sec.40(a)(ia) of the Act whereby a second proviso was inserted in sub-clause (ia) of clause (a) of Section 40 by the Finance Act, 2012, w.e.f. 1-4-2013. The provisions are intended to remove hardship. It was argued on behalf of the revenue that the existing provisions allow deduction in the year of payment and to that extent there is no hardship. We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship.
As far as the appeal of the revenue is concerned, we find that the use of word “Payable”, in Section 40(a)(ia) of the Act has created controversy as to whether payable includes amounts paid during the year. There were conflicting decisions rendered by the Tribunal. � In the case of DCIT vs. Ashika Stock Broking Ltd. reported in 44 SOT 556 the Hon’ble Kolkatta ITAT has decided the matter in favour of revenue and after following its decision dated 15.01.2010 in the case of Poddar Son’s EXL. P Ltd vs. ITO in ITA No. 1418(Kol.)/09 has held that provisions of Section 40(a)(ia) of the Act are applicable to even sums paid during the year. � In the case of Teja Construction vs. ACIT reported in 39 SOT 13 the Hon’ble Hyderabad ITAT has decided the issue against the Revenue and has held that provisions of Section 40(a)(ia) of the Act are not
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applicable in respect of sums/amount paid during the year and which are not payable at end of the year on date of balance sheet, as it is applicable only in respect of “Payable amount” shown in balance sheet as outstanding expenses on which TDS has not been made. Similar laws were laid in various other cases. � To resolve the above issue Special Bench was constituted and the Hon’ble Visakhapatnam Special Bench of ITAT in the case of Merilyn Shipping & Transport vs. Addl CIT reported in 20 taxmann.com 244 has decided the issue against the Revenue and after comparing the proposed and enacted provision which is intended from the replacement of the words in the proposed and enacted provision from the words ‘amount credited or paid’ to ‘payable’ has held that it has to be concluded that provisions of Section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS.
In CIT Vs. Sikandarkhan N.Tunvar & Others, TAX APPEAL NO. 905 of 2012 & others Dated02/05/2013, the Hon’ble Gujarat High Court held that in Merilyn Shipping 146 TTJ 1 (Viz) (SB,) the majority held that as the Finance Bill proposed the words “amount credited or paid” and as the Finance Act used the words “amounts payable“, s. 40(a)(ia) could only apply to amounts that are outstanding as of 31st March and not to amounts already paid during the year. This view is not correct for two reasons. Firstly, a strict reading of s. 40(a)(ia) shows that all that it requires is that there should be an amount payable of the nature described, which is such on which tax is deductible at source but such tax has not been deducted or if deducted not paid before the due date. The provision nowhere requires that the amount which is payable must remain so payable throughout during the year. If the assessee’s interpretation is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the
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amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. There is no logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. Secondly, the principle of deliberate or conscious omission is applied mainly when an existing provision is amended and a change is brought about. The Special Bench was wrong in comparing the language used in the draft bill to that used in the final enactment to assign a particular meaning to s. 40(a)(ia). Accordingly, Merilyn Shipping does not lay down correct law. The correct law is that s. 40(a)(ia) covers not only to the amounts which are payable as on 31st March of a particular year but also which are payable at any time during the year. The Hon’ble Kolkatta High Court in CIT Vs. Md.Jakir Hossai Mondal (supra) did not agree with the view of the Special Bench in the case of Merilyn Shipping following its judgment on 3rd April, 2013 in ITAT No. 20 of 2013, G.A. No. 190 of 2013 (CIT, Kolkata-XI Vs. Crescent Export Syndicates) holding that the views expressed in the case of Merilyn Shipping & Transports (ITA.477/Viz./2008 dated 20.3.2012) were not acceptable.
However, we find that the Hon’ble Allahabad High Court has however upheld the view taken by the Special Bench ITAT in the case of Merilyn Shipping (supra) in the case of M/s. Vector Shipping Services Pvt. Ltd. (supra). The relevant observations of the Hon’ble Court were as follows:-
“We do not find that the revenue can take any benefit from the observations made by the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. (136 lTD 23) (SB) quoted as above to the effect Section 40(a)(ia) was introduced in the Act by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deduction at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head ‘Income from Business and Profession’ in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance
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of expenditure on which such TDS was deductible. In the present case tax was deducted as TDS from the salaries of the employees paid by M/s Mercator Lines Ltd., and the circumstances in which such salaries were paid by M/s Mercator Lines Ltd., for M/s Vector Shipping Services, the assessee were sufficiently explained. It is to be noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year. We do not find that the Tribunal has committed any error in recording the finding on the facts, which were not controverted by the department and thus the question of law as framed does not arise for consideration in the appeal. The income tax appeal is dismissed.”
Thus there are two views on the issue, one in favour of the assessee expressed by the Hon’ble Allahabad High Court and the other against the assessee expressed by the Hon’ble Gujarat & Calcutta High Courts. Admittedly, there is no decision rendered by the jurisdictional High Court on this issue. In the given circumstances, following the decision of the Hon’ble Supreme Court in the case of Vegetable Products Ltd. (supra), we hold that where two views are possible on an issue, the view in favour of the assessee has to be preferred. Following the decision of the Hon’ble Allahabad High Court, we uphold the order of the CIT(A).”
To maintain the rule of consistency, we follow the decision of coordinate Bench of this Tribunal cited supra and accordingly this issue is decided in favour of the assessee. The disallowance made by the AO u/s. 40(a)(ia) of the Act is deleted.
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In the result, the appeal of the assessee is partly allowed.
Pronounced in the open court on this 24th day of September, 2015.
Sd/- Sd/-
( JASON P. BOAZ ) ( VIJAY PAL RAO ) Accountant Member Judicial Member
Bangalore, Dated, the 24th September, 2015.
/D S/
Copy to:
Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar, ITAT, Bangalore.