BACKBONE TARMET NG JV,AHMEDABAD vs. THE INCOME-TAX OFFICER, WARD-5(2)(2), AHMEDABAD

PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as "CIT(A)" for short] dated 20.06.2022 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" for short], for the Assessment Year (AY) 2005-06. 2. Grounds raised are as under :- “1. The Ld. CIT(A)-NFAC erred on facts and in law in deciding appeal ex- parte without appreciating that business of the appellant has been closed since COVID-19 and therefore, in absence of any office, notice(s) claimed to be have been served through email could not be communicated to the partners of the appellant. Without prejudice to this it is submitted that no notice(s) came to be served on the appellant at the designated email stated in Form No. 35 for the purpose of service of notice(s). AY : 2005-06 2

Aggrieved by the same, the assessee filed appeal before the ld. CIT(A) who confirmed the Assessing Officer’s order. The assessee went in further appeal before the ITAT who gave relief to the extent of Rs.34,51,29,065/- to the assessee. The same was given by virtue of the first proviso to Section 40(a)(ia) of the Act, as per which disallowance u/s 40(a)(ia) of the Act was not to be made of expenses TDS pertaining to which was deposited by the assessee by the due date of filing of return of income u/s 139(1) of the Act. Revenue challenged the order of the ITAT before the Hon’ble High Court of Gujarat who in turn upheld the judgement of the ITAT. The matter was further referred to the Hon’ble Supreme Court which also rejected the plea of the Department.

there are certain pertinent facts which further need to be brought out in relation to the impugned issue. The impugned assessment year before us is AY 2005-06. The disallowance has been made u/s 40(a)(ia) of the Act for non- deduction of tax at source. The first proviso in lieu of which the assessee was granted relief by the ITAT to the tune of Rs.32,18,58,199/- was brought on the statute by Finance Act, 2010 with effect from 01.04.2010 and the provision so amended reads as under:- “(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or; after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139

Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid."

The second proviso, as per which the assessee sought relief by way of rectification application filed under Section 154 of the Act, was inserted by Finance (2) Act, 2012, with effect from 01.04.2013. The said proviso reads as under:- “Provided further 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.

proposition of law interpreted by the Hon’ble juri ictional High Court, the assessee was entitled to claim benefit of this proviso in the impugned year as the decision of the Hon’ble High Court interpreted the position of law as it always was and all facts having been produced before the Assessing Officer, the rectification application filed by it was valid in the eyes of law and needed to be entertained. That by virtue of the judgement of the juri ictional High Court holding the proviso to be applicable with retrospective effect, it was patent and obvious that the assessee was entitled to claim the benefit of the said proviso in the impugned year and, therefore, the non-allowance of the said claim was a mistake apparent from the record. In this regard, he has referred to the following decisions before us.

a) With respect to the proposition that the introduction of second proviso to Section 40(a)(ia) was retrospective in nature, reliance was placed on the following decisions:-

(i) PCIT vs. Perfect Circle India Pvt. Ltd, Income-tax Appeal No. 707 of 2016 dated 07.01.2019 (Bombay High Court); “2. It is not necessary to record background facts since the question of law raised by the Revenue is whether the second proviso to Section 40(a)(ia) of the Income Tax Act, 1961 ("the Act" for short) would have retrospective effect. We may notice that the said proviso was inserted w.e.f 1.4.2013 and in essence, it provides that where an assessee fails to deduct whole or any part of the tax at source but is not deemed to be an assessee in default under the first proviso to Section 201(1), then for the purpose of clause 40(a)(ia), 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 payee. The Revenue would content that the benefit of this proviso would be available to the assessee only prospectively w.e.f. 1.4.2013. Various Courts, however, have seen this proviso as beneficial to the assessee and curative in nature. The leading judgment on this point was of the Division Bench of Delhi Court in the case of CIT Vs. Ansal Land Mark Township P Ltd1. The Court held that Section 40(a)(ia) is not a penalty and insertion of second proviso is declaratory and curative in nature and would have retrospective effect form 1.4.2005 i.e the date from the main proviso 40(a)(ia) itself was inserted. AY : 2005-06 6

CIT2 even in absence of second proviso to Section 40(a)(ia) had noticed that the payee had already paid the tax. Under such circumstances, the Court held that the payer / deductor can at best be asked to pay the interest on delay in depositing tax. 3.Under such circumstances , no question of law arises. Tax appeal is dismissed”

(ii) PCIT Vs. Arvind Lifestyle Brands Ltd, R/Tax Appeal No. 539 of 2019, order dated 05.08.2019 (Gujarat High Court),

“4. The aforesaid findings of fact recorded by the CIT(A) ultimately came to be affirmed by the appellate tribunal, held as under:

“3. The common grievance in both these appeals relates to the holding that the amendment to Section 40(a)(ia) by the Finance Act, 2012 w.e.f. 01.04.2013 is prospective and by holding so the assessee is aggrieved by the disallowance of interest expenditure.

b) With respect to the proposition that subsequent interpretation of law by Courts would constitute a mistake apparent from record and recitificatory action u/s 154 of the Act would be in order.

Our attention was drawn to CBDT Notification No.68[F.No.245/17/71- A&PAC] dated 17.11.1971 which reads as under:

“899. Mistakes apparent from records – Whether can be treated as such on the basis of subsequent decision of Supreme Court 1. The Board are advised that a mistake arising as a result of a subsequent interpretation of law by the Supreme Court would constitute “a mistake apparent from the records” and rectificatory action under section 35/154 of the 1922 Act/the 1961 Act would be in order. It has, therefore, been decided that where an assessee moves an application under section 154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position, a mistake has occurred in any of the completed assessments in his case, the application shall be acted upon, provided the same has been filed within time and is otherwise in order. Where any such applications have already been rejected and the assessee files fresh applications within the statutory time limit, the same may also be treated on par with the applications which may either be pending or received after the issue of this circular.

Reliance was also placed on the following decision

• B.V.K. Seshavataram Vs. CIT, 210 ITR 633 (AP)

“Section 256(1) , read with section 32(1)(iv) of the Income-tax Act, 1961 - Reference to High Court - Question of law - Assessment years 1981-82, 1982-83 and 1984-85 to 1987-88 - Whether a subsequent decision of Supreme Court can validly form basis for rectifying an order of assessment under section 154 - Held, yes”

(c) Our attention was also drawn to the decision of the Hon’ble juri ictional High Court in the case of SR Koshti Vs. CIT, [2005] 146 AY : 2005-06 9

as provided under the Act and if an assessee, under a mistake, misconception or on not being properly instructed, or over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. Our attention was drawn to paragraph No.20 of the order as under:-

“20. A word of caution. The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. This Court, in an unreported decision in case of Vinay Chandulal Satia v. N.O. Parekh, CIT [Spl. Civil Application No. 622 of 1981 dated 20-8-1981], has laid down the approach that the authorities must adopt in such matters in the following terms: "The Supreme Court has observed in numerous decisions, including Ramlal v. Rewa Coalfields Ltd. AIR 1962 SC 361, State of West Bengal v. Administrator, Howrah Municipality AIR 1972 SC 749 and Babutmal Raichand Oswal v. Laxmibai R. Tarte AIR 1975 SC 1297, that the State authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt."

(d) For the proposition that a claim to which an assessee is undeniably entitled can be claimed at any stage even in later point of time, reliance was placed on the decision of the Hon’ble juri ictional High No.7434 of 2019 dated 20.01.202, [2021] 127 taxmann.com 245 (Gujarat).

“Section 10(10C) of the Income-tax Act, 1961 - Voluntary retirement payments (Illustration) - Assessee, an employee of a bank, opted for scheme of early voluntary retirement as declared by bank and received a sum of certain amount - He filed his return of income without claiming benefit of exemption under section 10(10C) on said amount - Same was processed under section 143(3) and an assessment order was passed - In meantime, Supreme Court in a case of another employee of same bank passed a dictum that he was entitled to exemption under Backbone Tarmet NG JV Vs. ITO AY : 2005-06 10

section 10(10C) on amount received under early retirement scheme - On basis of same, assessee filed an application before Commissioner seeking to claim exemption under section 10(10C) - Commissioner disallowed same on ground that assessee had not claimed exemption during filling of return - Whether even if assessee had not claimed exemption in his return of income, he could claim same later in point of time - Held, yes - Whether, thus, assessee was to be allowed exemption under section 10(10C) on such amount received from bank under early retirement scheme - Held, yes [Paras 9 and 11] [In favour of assessee]”

(e) For the direct proposition applicable on this issue that, in view of the amended provision of Section 40(a)(ia) of the Act the assessee who had deposited TDS in Government account after end of the relevant year but before the due date of filing of the return of income, he was entitled to seek rectification of order passed by the Assessing Officer making disallowance u/s 40(a)(ia) of the Act, reliance was placed on the decision of the juri ictional High Court in the case of PCIT vs. Jigna Construction, [2016] 75 taxmann.com 58 (Guj.)

“Section 40(a)(ia), read with sections 154 and 264, of the Income-tax Act, 1961 - Business disallowance - Interest, etc., paid to a resident without deduction of tax at source (Deposit of tax) - Whether in view of amended provision of section 40(a)(ia), assessee who had deposited TDS in Government account after end of relevant year but before due date of filing return, was entitled to seek rectification of order passed by A.O. making disallowance under section 40(a)(ia) - Held, yes [Para 7] [In favour of assessee]”

the maintainability of the rectification sought by it u/s 154 of the Act, and has fairly demonstrated that the same was wrongly dismissed by the authorities below as non-maintainable. As stated above, the assessee had moved an application u/s 154 of the Act seeking rectification in the order passed in its case to the effect that the disallowance u/s 40(a)(ia) of the Act of Rs. 2,30,59,781/- on payment made without deduction of tax at source be allowed in terms of the second proviso to Section 40(a)(ia) of the Act, which proviso undeniably was brought on the statute much after the impugned assessment year before us. The assessment year before us is AY 2005-06, and the second proviso to Section 40(a)(ia) of the Act, whose benefit is being sought by the assessee by way of rectification application, was introduced on the Statute by Finance Act, 2012, with effect from 01.04.2013. The effect of this proviso, as is evident from a bare perusal of the same reproduced above in our order, was that if the assessee is able to demonstrate that the payee had paid taxes on the amounts paid to it, no disallowance u/s 40(a)(ia) of the Act needed to be made in the hands of the payer-assessee for non-deduction of tax at source. The assessee had filed all necessary documents to the Assessing Officer evidencing the said fact regarding the applicability of the second proviso to the payments disallowed u/s 40(a)(ia) of the Act amounting to Rs.2,30,59,781/- .

word on law in its particular juri iction until overturned by a contrary decision of the hon’ble apex court. Therefore, the decision of the Hon’ble juri ictional High Court in the case of Arvind Lifestyle Brands Ltd. (supra), holding second proviso to Section 40(a)(ia) of the Act to have retrospective effect, was the interpretation of law in the juri iction of Gujarat as it always was. Even the Hon’ble High court of Bombay in the case of Perfect Circle (supra) held the proviso to be applicable with retrospective effect. The Revenue was unable to point out any contrary decision of either any High Court or the Hon’ble apex court. Therefore, the assessee was well within its right to have sought the benefit of this second proviso for the impugned year, i.e. AY 2005-06 as it was applicable for the impugned year also as per the decision of the Hon’ble juri ictional High Court. The application, therefore, filed by the assessee seeking the benefit of the second proviso, therefore, clearly pointed out a mistake which was apparent from record on account of the denial of benefit of the said proviso to the assessee. As rightly pointed out by the ld. Counsel for the assessee, courts have repeatedly held that if an assessee under a mistake/misconception is over-assessed, the authorities under the Act are required to assist him and ensure that only the legitimate taxes due are collected, S.R Koshti (supra). The application, therefore, filed by the assessee u/s 154 of the Act seeking the benefit of the second proviso to Section 40(a)(ia) of the Act, needed to be entertained and allowed since the assessee had pointed out a mistake apparent from record.

which the Hon’ble High court upheld the rectification sought by the assessee is we find identical to the present case. In the said case the assessee vide its rectification application had sought the benefit of the first proviso to section 40(a)(ia) of the Act which was brought on the statute subsequent to the assessment year to which the issue pertained and the grounds for seeking rectification was that the said proviso had been held by the juri ictional High Court to have effect retrospectively. The Hon’ble High court found merit in the assessee’s claim holding as under:

“7. It is this judgement of the Tribunal which the Revenue has challenged. In our opinion, the Tribunal committed no error. As noted, admitted facts are that the assessee having deducted tax at source deposited in the government only after the end of the year under consideration but before the due date for filing of the return. In view of the amended provision of Section 40(a)(ia) of the Act by virtue of amendment dated 01.04.2010, such expenditure would also be deductible during the same year. This provision was held to have retrospective effect by the judgement of the High Court in case of Omprakash R Chaudhary (supra). On the basis of such statutory change and the judgement of the High Court, the assessee was, as held by the Supreme Court in case of Asstt. CIT v. Saurashtra Kutch Stock Exchange Ltd. [2008] 305 ITR 227/173 Taxman 322, entitled to seek rectification. The Tribunal correctly granted such a relief which was denied by the Assessing Officer and Commissioner (Appeals). The Commissioner (Appeals) was not correct in holding that no appeal against the order passed by the Assessing Officer under Section 154 of the Act would be maintainable. The order of the Assessing Officer was passed dealing with the assessee's application for rectification under Section 154 of the Act in which, a specific prayer of the assessee was that the expenditure be recognized during the financial year in which the same was made.”

In view of the above, we hold the application filed by the assessee is maintainable u/s 154 of the Act and restore the issue back to the Assessing AY : 2005-06 14

Order pronounced in the open Court on 5th April, 2024 at Ahmedabad. (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER Ahmedabad, dated 05/04/2024 bt* bt* bt* bt*

आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant

आदेशानुसार/BY ORDER,उप/सहायक पंजीकार (Dy./Asstt.