Kothiwale Tobacco Trading Co., Nipani v. Commissioner of Income Tax,, Belgaum

ITA 160/PAN/2014 | 2009-2010
Pronouncement Date: 14-11-2014 | Result: Allowed

Appeal Details

RSA Number 16024114 RSA 2014
Assessee PAN AABFK8679G
Bench Panaji
Appeal Number ITA 160/PAN/2014
Duration Of Justice 6 month(s) 7 day(s)
Appellant Kothiwale Tobacco Trading Co., Nipani
Respondent Commissioner of Income Tax,, Belgaum
Appeal Type Income Tax Appeal
Pronouncement Date 14-11-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 14-11-2014
Date Of Final Hearing 22-09-2014
Next Hearing Date 22-09-2014
Assessment Year 2009-2010
Appeal Filed On 07-05-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH PANAJI BEFORE S/SHRI P.K.BANSAL (AM) AND D.T.GARASIA (JM) I.T.A. NO.160/PNJ /2 014: ASSESSMENT YEAR 2009 - 2010 KOTHIWALE TOBACO TRADING CO. C/O. S.J.KAMAT & ASSOCIATES 17A SHRIJI COMPLEX NEAR MANOSHANTI HOTEL ST. INEZ PANAJI - GOA. PA NO.AABFK 8679 G VS. CIT OPP. CIVIL HOSPITAL DR. AMBEDKAR ROAD BELGAUM. APPELLANT RESPONDENT FOR THE APPELLANT: SHRI SHAM KAMAT CA/CHINMAY KAMAT CA FOR T HE RESPONDENT: SHRI VINAY SINGH RAWAT LD D.R. DATE OF HEARING: 2 2 .9.2014 DATE OF PRONOUNCEMENT: 14 /11/2014 ORDER PER D.T.GARASIA JM THE APPEAL FILED BY THE ASSESS EE IS DIRECTED AGAINST ORDER UNDER SECTION 263 OF THE INCOME TAX ACT 1961 DT. 10.3.2014 OF LD CIT BELGA UM FOR THE ASSESSMENT YEAR 2009 - 20 10. 2. GROUNDS RAISED BY THE ASESSEE ARE AS UNDER: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEANED CIT HAS ERRED IN CONSIDERING U/S 263 AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE THE ORDER U/S 143(3) PAS SED ON 21/11/2011. 2. IN THE FACTS OF CIRCUMSTANCES OF THE CASE THE ORDER OF THE LEARNED CIT IS WITHOUT JURISDICTION AND BAD IN LAW. 3. IN THE FACTS OF CIRCUMSTANCES OF THE CASE THE LEARNED CIT HAS FAILED TO APPRECIATE THAT IN RESPECT OF THE REIMBURSEMENT BY THE APPELLANT OF INTEREST BORNE BY ITS PARTNERS THE PROVISIONS OF DEDUCTION OF TDS WERE NOT APPLICABLE AND NO DISALLOWANCE IN RESPECT THEREOF WAS CALLED FOR; HENCE THE ORDER OF THE AO U/S 143(3) WAS N OT ERRONEOUS. 4. IN THE FACTS OF CIRCUMSTANCES OF THE CASE THE LEARNED CIT HAS PASSED THE ORDER U/S 263 WITHOUT APPLICATION OF MIND UNDER AN IMPRESSION THAT THE AMOUNTS IN 2 I.T.A. NO.160/PNJ/2014: ASSESSMENT YEAR 2009 - 2010 DISPUTE ARE PAID BY THE SCSSN SOCIETY INSTEAD OF BEING PAID TO THE SCSSN SOCI ETY. 5. THE LEARNED CIT HAS ERRED IN ENHANCING THE ASSESSMENT BY RS. 15 22 5L9/ - . 6. THE LEARNED CIT HAS FAILED TO APPRECIATE THAT THE VIEW TAKEN BY THE AO IN THE ORDER U/S 143(3) IS A LEGALLY SUSTAINABLE AND PLAUSIBLE VIEW AND HENCE THE ORDER U/S 263 IS BAD IN LAW. 3. IN THIS CASE THE ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT 1961 WAS PASSED BY THE JCIT - RANGE - 2 BELGAUM ON 21.11.2011. HOWEVER ON VERIFICATION OF RECORD THE COMMISSIONER OF INCOME TAX BELGAUM NOTICED THAT THE ASSESSEE HAD TAKEN LOAN FROM SHRADDHA CREDIT S OUHARDA SAHAKARI NIYAMIT PAID INTEREST OF RS. 15 22 519/ - WITHOUT DEDUCTING TAX AT SOURCE AT THE TIME OF PAYMENT OF INTEREST WHICH ATTRACTS DISALLOW ANCE U/S 40( A)( IA) OF THE ACT. AS PER THE PROVISIONS OF SECTION 1 94A(2 ) (III) IN COME CREDITED OR PAID TO ANY BANKING COMPANY TO WHICH THE BANKING REGULATION ACT 1949 APPLIES OR ANY CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INCLUDING A CO - OPERATIVE LAND MORTGAGE BANK) IS OUTSIDE THE PUR VIEW OF PROVISIONS O F SECTION 1 94A(1). THUS IT WAS SEEN FROM THE RECORDS THAT ASSESSEE HA D PAID INTEREST ON LOAN TO A SOUHARDA WHO WA S CARRYING ON BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND NOT BANKING BUSINESS. THE CO - OPERATIVE S OCIETY REFERRED TO IN SECTION 194A(3)(I II) IS ONE WHICH IS CARRYING ON BANKING BUSINESS SINCE IT FU RTHER PROVIDES INC LUDING A CO - OPERATIVE LAND MORTGAGE BANK. THUS THE COOPERATIVE SOCIETY ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS OUTSIDE THE SCOPE OF SECTION 194 A(3)(III) . THEREFORE THE COMMISSIONER WAS OF THE VIEW THAT THE ASSESSING OFFICER HAS FAILED TO CONSIDER THE ABOVE FACT TO BRING THE SAME TO TAX IN VIEW OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THEREFORE THERE IS LACK OF VERIFICATION AND APPLICATIO N OF MIND BY THE AO ON THE FACTS AND ON LAW. THEREFORE HE HELD THAT THE ORDER PASSED BY THE AO IS ERRONEOUS IN SO FAR AS IT PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THEREFORE LD CIT ISSUED NOTICE U/S.263 OF THE ACT TO THE ASSESSEE TO SHOW CAUSE WHY THE ORDER PASSED BY THE AO BE NOT CANCELLED . IN REPLY TO THE SAID NOTICE THE ASSESSEE FILED WRITTEN SUBMISSION AS UNDER: AT THE OUTSET WE HAVE TO SUBMIT THAT THE ORDER OF ASSESSMENT DATED 22.27.2011 PASSED U/S. 743(3) OF THE INCOME TAX ACT 1962 (HER E INAFTER REFERRED TO AS THE ACT) BY THE LEARNED JOINT COMMISSIONER OF INCOME TAX RANGE - 2 BELGAUM IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. NO CASE HAS BEEN MADE OUT TO SHOW ANY INCOME WHICH HAS NOT BEEN SUBJECT TO TAX SO AS TO INVOKE THE PROVISION OF SECTION 263 OF THE ACT 3 I.T.A. NO.160/PNJ/2014: ASSESSMENT YEAR 2009 - 2010 WE ALSO SUBSTANTIATE THE SAME WITH REFERENCE TO THE ITEM STATED IN THE NOTICE TO SHOW THAT THERE IS NO SCOPE TO INVOKE THE PROVISION OF SECTION 263 OF THE ACT. WE ARE DOING THE BUSINESS OF TRAD E IN TOBACCO & ACTING AS COMMISSION AGENTS FOR SUPPLY OF TOBACCO TO THE CUSTOMERS. WE HAVE MADE THE PAYMENT FOR PURCHASE OF TOBACCO MORE THAN RUPEES 20 000/ - BY ACCOUNT PAYEE CHEQUE. SO ALSO WE HAVE RECEIVED SALE CONSIDERATION ONLY BY ACCOUNT CHEQUE/DD/RTGS. WE HAVE ACCOUNTED ALL THE RECEIPTS IN THE CAPTIONED YEAR. THE FIRM HAS OBTAINED LOAN FOR THE PURPOSE OF DOING THE BUSINESS OF THE FIRM . IT IS ALLEGED IN THE NOTICE THAT WE HAVE TAKEN LOAN FROM SHARDHA CREDIT SOUHARD SAHAKARI NYT NIPA NI (HEREINAFTER TO AS THE SOCIETY) & WE HAVE PAID INTEREST OF RS.15 22 519/ - IN PREVIOUS YEAR RELATING TO THE ASSESSMENT YEAR 2009 - 10. IT IS FUR THER ALLEGED THAT WHILE MAKING THE PAYMENT OF THIS INTEREST WE HAVE NO T DEDUCTED ANY TAX AS PER THE PROVI SIONS OF INCOME TAX ACT 1961. THEREFORE IT IS PROPOSED TO DISALLOW THE EXPENDITURE OF INTEREST U/S 40( A)(IA) OF THE ACT. THE ACTUAL FACTS REGARDING ACCEPTANCE OF LOAN & REGARDING PAYMENT OF INTEREST ON SUCH BAN IS AS UNDER. THE FOLLOWING PERSONS A RE THE PARTNERS OF OUR FIRM. 1. CHANDARAKANT S . KOTHIZVALE 2. SURYAKANT S . KOTHIZOALE 3. SHASHIKANT S. KOTHIWATE 4. RUDRAKUMAR C. KOTHIWALE THE ABOVE FOUR PARTNERS HAVE OBTAINED THE LOAN IN THEIR OWN NAME FROM THE SOCIETY BY PROVIDING THEIR AGRICULTURAL LANDS AS MORTGAGE TO THE SAID SOCIETY. FURTHER THE FIRM HAS ALSO PROVIDED COLLATERAL SECURITY TO THE SAID SOCIETY. THE ABOVE PARTNERS HAVE PROVIDED THIS LOAN TO OUR FIRM AS LOAN WHICH HAS BEEN CREDITED UNDER THE HEADING AS UNDER 1. SHARD HA CREDIT SOUHARD SAHAKARI NYT. NIPANI CSK HYPOTHECATIONS LOAN ACCOUNT. 2. SHRADHA CREDIT SOUHARD SA HAKARI NYT. NIPANI 55K HYPOTHE CATIONS LOAN ACCOUNT. 3. SHRADHA CREDIT SOUHARD SAHAKARI NYT. NIPANI 55K HYPOTHECATIONS LOAN ACCOU NT. 4. SHRADHA CREDIT SOUHARD SAHAKARI NYT. NIPANI RCK HYPOTHECATIONS LOAN ACCOUNT. THE NAME OF THE SOCIETY HA S BEEN ENTERED ONLY TO IDENTIFY THAT PARTNER HAS OBTAINED LOAN FROM THE SOCIETY. THE SOCIETY HAS NOT GIVEN ANY LOAN DIRECTLY TO OUR FIRM. T HE SOCIETY HAS ISSUED CHEQUE FOR LOAN IN THE NAME OF THE PARTNERS INDIVIDUALLY & IN TURN THE PARTNERS HAVE DEPOSITED CHEQUE IN THEIR ACCOUNT AT KARNATAKA VIKAS GRAMEENA BANK BEARING SAVING BANK ACCOUNT NUMBERS AS UNDER 1. KOTHI WALE SURYAKANT SOMASHE KAR ACCOUNT NO.2012928 2. KOTHIWALE SHASHIKANT SOMASHEKAR ACCOUNT NO.2012929 4 I.T.A. NO.160/PNJ/2014: ASSESSMENT YEAR 2009 - 2010 3. KOTHI WALE CHANDRAKANT SOMASHEKAR ACCOUNT NO.2012930 4. KOTHIWALE RUDRAKUMAR CHANDRASEKHAR ACCOUNT NO .2012697 & THEN PARTNERS H AVE GIVEN THIS AMOUNT TO THE FIRM FOR THE PURPOSE OF BUSINESS OF BY ACCOUN T PAYEE CHEQUES. ON THE REQUEST OF THE PARTNER THE FIRM HAS PAID THE INTEREST ON THESE LOANS DIRECTLY TO THE SOCIETY FOR THE SAKE OF CONVENIENCE. THIS INTEREST IS ACTUALLY PAYABLE TO THE PARTNERS ON ACCOUNT OF LOAN OBTA INED FROM THEM & PARTNERS IN TURN HAVE TO PAY THE INTEREST TO THE SOCIETY. THEREFORE THE ACTUAL FRET IS THAT THE OBLIGATION FOR PAYMENT OF INTEREST BY THE FIRM IS TOWARDS PARTNERS & NOT TOWARDS THE SOCIETY. FURTHER THE SAID SOCIETY IS LEGALLY ENTITLED TO THE INTEREST FROM PARTNERS ONLY IN VIEW OF LOAN AGREEMENT EXECUTED BETWEEN THE INDIVIDUAL PARTNERS & THE SOCIETY. AS PER THE CONTRACT ACT THE SAID SOCIETY HAS NO ANY RIGHT TO COLLECT THE INTEREST FROM OUR PARTNERSHIP FI RM SO ALSO THE PARTNERSHIP F IRM IS UNDER NO OBLIGATION TO PAY THE INTEREST TO THE SOCIETY. THE COPIES OF THE LOAN AGREEMENTS ARE HEREBY ENCLOSED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ACCOUNTANT OF THE FIRM IN CONFUSION HAS STATED THAT THE INTEREST HA5 BEEN PAID TO THE CO - OPERATIVE BANK & THEREFORE THE TRANSACTION IS EXEMPTED FROM THE PROVISION OF TDS. NOW THE NATURE OF TRANSACTION IS CLEARLY AVAILABLE WHICH CLEARLY INDICATES THAT THE PAYMENT OF INTEREST IS NOT AN OBLIGATION OF OUR FIRM BUT INFLICT THE OBLIGATIO N IS OF THE PARTNERS TO THE SOCIETY & THE OBLIGATION OF THE FI RM IS TOWARDS PARTNERS ONLY. IN VIEW OF THIS FACT THE TDS PROVISIONS ARE NOT APPLICABLE FOR THE PAYMENT OF THE INTEREST TO THE PARTNERS & THEREFORE THE INTEREST PAID WITHOUT MAKING ANY TDS DOES NOT ATTRACT PROVISION OF SECTION 40(A )( IA) THEREFORE THERE CANNOT BE ANY DISALLOWANCE FOR THE EXPENDITURE OF THE PAYMENT OF THE INTEREST. THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER DID NOT SUFFER FROM ANY MISTAKE OR ERROR & THEREFORE IT CANNOT BE INFERRED THAT THE ASSESSMENT WAS PREJU DICIAL TO THE INTEREST OF THE REVENUE. THE PROVISIONS OF SECTION 263 ARE VERY CLEAR & THOSE PROVISION CAN BE ATTRACTED BY THE CIT ONLY & ONLY IF TWO CONDITIONS ARE SATISFIED. A. THE ASSESS MENT ORDER SOUGHT TO BE REVISED SHOULD BE ERRONEOUS B. THE ASSESSMENT ORDER SOUGHT TO BE REVISED SHOULD BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. NONE OF THESE CONDITIONS ARE SATISFIED IN THE INSTANT CASE SO AS TO CONFER THE JURISDICTION TO T HE CIT BELGAUM IN EXERCISING REVISIONARY POWERS. RELIANCE IS PLACED ON THE FOLLOWING JUDGMENTS. 1. CIT V/S INTERNATIONAL TRAVEL HOUSE LTD. 344 ITR 554. 2. G.M.MITTAL STAINLESS (PVT LTD.) (SUPREME COURT) 263 ITR 255. 3. CIT VS. MAX LNDIA LTD. 295 JTR 282 (SC). 5 I.T.A. NO.160/PNJ/2014: ASSESSMENT YEAR 2009 - 2010 4. CIT V/S G OKUL DAS EXPORTS 333 JTR 224(KAR). 5. MALBAR INDUSTRIAL CO. L TD. VS CIT 243 ITR 83 (S.C). FOR THE REASONS AS ABOVE MENTIONED IT MAY KINDLY APPRECIATED THAT THE FINANCIAL RESULTS DECLARE WERE COMPLETE & CORRECT & THEREFORE THERE IS NO ANY ISSUE PREJUDICIAL TO THE INTEREST OF THE REVENUE IN THE ASSESSMENT ORDER. WITHOUT PREJUDICIAL TO OUR ABOVE SUBMISSION WE FU RTHER SUBMIT THAT THE ASSESSMENT ORDER IN THE CASE OF SHARDHA CREDIT SOUHARDA SAHAKARI NYT. NIPANI H AS BEEN MADE BY ITO WARD - 1 N IPANI FOR ASSESSMENT YEAR 2009 - 10 TREATING THE SAID SOCIETY AS COOPERATIVE BANK DISALLOWING THE CLAIM OF DEDUC TION U/S 8OP(2)(A)(I) . THEREFORE THE SAID SOCIETY IS DEEMED AS CO - OPERATIVE BANK THEREFORE NATURALLY THE TDS PROV ISION U/S 194A ARE NOT APPLICABLE FOR THE PAYMENT OF INTEREST ON THE LOAN OBTAINED FROM A COOPERATIV E BANK. SINCE THE SAID SOCIETY HAS BEEN DEFINED AS CO - OPERATIVE BANK FOR THE PURPOSE OF ITS ASSESSMENTS THERE IS STRONG OBJECTION BY THE SAID SOCIETY T O MAKE TDS ON THE PAYMENT OF INTE REST. THE LETTER OF THE SOCIETY IS HEREBY ENCLOSED. WE THEREFORE PRAY THAT THE HONBLE COMMISSIONER BE PLEASED TO DROP THE PROCEEDINGS U/S 263 OF THE ACT IN VIEW OF OUR ABOVE SUBMISSION . 4. AFTER CONSIDERING THE ASSESSEES SUBMISSION LD COMMISSIONER OF INCOME TAX BELGAUM WAS OF THE VIEW THAT ASSESSEE HAS CLAIMED THAT THE IMPUG NED PAYMENT OF INTEREST OF RS.15 22 519 HAS BEEN PAID TO THE SHRADDHA CREDIT SOUHARDA SAHAKARI NIYAMIT ON BEHALF OF THE PARTNERS WHO HAVE OBTAINED LOAN FOR THE PURPOSES OF BUSINESS OF THE PARTNERSHIP FIRM. THE LOAN WAS OBTAINED BY THE PARTNERS ON THE SECURITY OF THEIR AGRICULTURAL LANDS. THE ASSESSEE S CONTENTION T HAT THE ASSESSEE HAS PAID INTEREST DIRECTLY TO CO - OPER ATIVE BANK AND CO - OPERATIVE BANK IS EXEMPT FROM THE PROVISIONS OF TDS IN VIEW OF SECTION 194A(3)(III) OF THE ACT. THE COMMISSIONER WAS OF THE VIEW THAT SHRADDHA CREDIT SOUHARDA SAHAKARI NIYAMIT HAS BEEN TREATED AS CO - OPERATIVE BANK. THE RECORD OF INTERES T SHOWS THAT THE ASSESSEE HAS NOT P AID INTEREST TO COOPERATIVE SOCIETY BUT IT HAS PAID TO CO - OPERATIVE BANK ENGAGED IN CARRYING ON BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THEREFORE AS PER THE PROVISIONS OF SECTION 194A(3)(I)(B) WHERE THE AMOUNT OF INCOME IN EXCESS OF RS.10 000/ - IS PAID TO A CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING THE PERSON WHO IS RESPONSIBLE FOR PAYING SUCH INCOME IS REQUIRED TO DEDUCT TAX AT SOURCE. THEREFORE THE CIT WAS OF THE VIEW THAT ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE AND THEREFORE HE ENHANCED THE INCOME BY RS.15 2 2 519/ - AND AO WAS DIRECTED TO PASS FRESH ORDER GIVING EFFECT TO THIS ORDER. 6 I.T.A. NO.160/PNJ/2014: ASSESSMENT YEAR 2009 - 2010 5. DURING THE COURSE OF HEARING LD A.R. HAS NOT ARGUED MUCH ON THE ORDER OF LD CIT BUT HAS SUBMITTED ADDITIONAL EVIDENCE IN THE FORM OF FORM 26 BEFORE US . 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RECORD OF THE CASE. WE FIND THAT THE ASSESSEE CLAIMED THAT IT HAD MADE PAYMENT OF INTEREST OF RS.15 33 519/ - TO SHRADDHA CREDIT SOUHAR DA SAHAKARI NIYAMIT ON BEHALF OF THE PARTNERS WHO HAVE OBTAINED LOAN FOR THE PURPOSES OF BUSINESS OF THE PARTNERSHIP FIRM. THE LOAN WAS OBTAINED BY THE PARTNERS ON THE SECURITY OF THEIR AGRICULTURAL LANDS. THE ASSESSEES CONTENTION THAT ASSESSEE IS NOT R ESPONSIBLE FOR DEDUCTING TAX AT SOURCE AS REQUIRED BY PROVISIONS OF SECTION 194A SINCE IT HAS NOT PAID INTEREST TO ITS PARTNERS BUT IT HAS PAID INTEREST DIRECTLY TO SHRADDHA CREDIT SOUHARDA SAHAKARI NIYAMIT ON BEHALF OF THE PARTNERS. THE ASESSEE CONTENDED THAT SHRADDHA CREDIT SOUHARDA SAHAKARI NIYAMIT IS A COOPERATIVE BANK AND EXEMPT FROM PROVISIONS OF TDS IN VIEW OF PROVISIONS OF SECTION 194A(3)(III). LD CIT HA VERIFIED THE LOAN PAPERS AND ALSO HE HAS VERIFIED THE ARRANGEMENT MADE IN PARTNERSHIP FIRM TO AVAIL THE LOAN FACILITY FOR WORKING OF THE FIRM. THE LOAN HAS BEEN TAKEN FOR THE PURPOSE OF TOBACO BUSINESS AND FOR THE PURPOSE OF PARTNERSHIP BUSINESS. THE LOAN WAS NOT SANCTIONED BY THE SOCIETY TO PARTNERSHIP FIRM BUT THE LOAN HAS BEEN TAKEN FROM SHR ADDHA CREDIT SOUHARDA SAHAKARI NIYAMIT BANK. THE INTEREST LIABILITY HAS BEEN TAKEN IN THE BOOKS OF THE ASSESSEE FIRM AS INTEREST ACCOUNT REVEALED THAT A SUM OF RS.15 22 519/ - HAS BEEN PAID TO SOCIETY ON LOAN ACCOUNT. NO LOAN HAS BEEN DRAWN IN THE PARTNER S NAME NOR THE CAPITAL HAS BEEN SHOWN IN PARTNERS ACCOUNT. THEREFORE LD CIT WAS OF THE VIEW THAT LOAN HAS BEEN TAKEN BY THE PARTNERS IN HIS NAME. THEREFORE INTEREST PAYMENT IS INADMISSIBLE IN VIEW OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. WE FI ND THAT LD CIT HAS ALSO HELD THAT ASSESSEE HAS PAID INTEREST PAID TO CO - OP. BANK AND CO.OP.BANK IS NOT ENTITLED FOR DEDUCTION U/S.80P(4) OF THE ACT. THEREFORE LD CIT HAS DISALLOWED THE INTEREST PAID TO BANK IN VIEW OF PROVISIONS OF SECTION 40(A)(IA) OF T HE ACT. WE FIND THAT THIS TRIBUNAL IS TAKING CONSISTENT VIEW THAT THE CO - OPERATIVE BANK IS LIABLE FOR DEDUCTION OF TAX AT SOURCE IN VIEW OF THE DECISION IN THE CASE OF SARASWAT CO - OPERATIVE BANK LTD VS. ITO (ITA NOS.233 TO 236/PNJ/2014) AND IN THE CASE OF THE BAILHONG AL URBAN CO - OP. BANK LTD VS JCIT (ITA NO.85/PNJ/2013) FOR A.Y. 2009 - 2010 . THEREFORE WE ARE OF THE VIEW THAT LD CIT IS JUSTIFIED IN ACTION AND SAME DESERVES TO BE UPHELD. 7 . HOWEVER THE ASSESSEE HAS FILED ADDITIONAL EVIDENCE IN THE FORM O F FORM 26 WHICH IS ADMITTED IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF NTPC LTD. 229 ITR 283 (SC) . THE ADDITIONAL EVIDENCE STATES THAT WHETHER THE DISALLOWANCE U/S.40(A)(IA) CAN BE MADE FOR PAYMENT BY THE ASSESSEE FIRM BY WAY OF REIMBURSEMENT IN RESPECT OF 7 I.T.A. NO.160/PNJ/2014: ASSESSMENT YEAR 2009 - 2010 INTEREST INCURRED BY THE PARTNERS ON WHICH THE PARTNERS THEMSELVES WERE NOT REQUIRED TO DEDUCT A NY TDS. THE CONTENTION OF THE ASSESSEE THAT NO TAX IS REQUIRED TO BE DEDUCTED FROM THE SAID PAYMENTS AS SECTION 40(A)(IA) WAS INSERTED BY FINANCE ACT 2013 TO THE EFFECT THAT IF THE ASSESSEE IS NOT HELD TO BE AN ASSESSEE IN DEFAULT THE REQUIREMENTS OF T DS ARE FULFILLED ON THE DATE OF FURNISHING THE RETURN BY THE PAYEE.. THE SAID SECTION ALSO PROVIDES FOR FURNISHING EVIDENCE IN THE FORM NO.26A TOGETHER WITH A CERTIFICATE OF AN ACCOUNTANT IN ANNEXURE - A APPENDED THERETO TO THE EFFECT THAT THE PAYEE HAS F ILED THE RETURN OF INCOME AND INCLUDED THE RELEVANT AMOUNT THEREIN. THIS AMENDMENT IS CURATIVE EXPLANATORY AND RETROSPECTIVE. THE RETURN OF INCOME OF THE PAYEE SOCIETY WAS FI L ED BEFORE THE DUE DATE OF THE ASSESSEES RETURN; HENCE THE TDS REQUIREMENTS EVEN IF APPLI CABLE GOT DULY AND EFFECTIVELY FULFILL ED BY THE DUE DATE OF ASSESSEES RETURN AND NO DISALLOWANCE U/S.40(A)(IA) IS CALLED FOR. LD A.R. ALSO SUBMITTED FORM - 26 BEFORE US AND HE HAS ALSO SUBMITTED THE FINANCE BILL 201 2 WHEREIN T H E AMENDMENT TO SECTION 40 HAS BEEN MADE. LD A.R. ALSO RELIED UPON THE DECISION OF ITAT AGRA BENCH IN THE CASE OF RAJEEV KUMAR AGARWAL VS ACIT (2 014) 45 TAXMANN.COM 555 (AGRA T RIB) WHEREIN THE ISSUE IN CONTROVERSY IS COVERED BY THE ABOVE DECISION. HE THEREFORE U RGED TO ALLOW THE APPEAL OF THE ASSESSEE. 8 . LD D.R. ON THE OTHER HAND RELIED UPON THE ORDER OF LD CIT . 9 . HAVING HEARD BOTH THE SIDES WE FIND THAT AS PER SECTION 194 AND 191 OF THE ACT WHICH PROVIDES THAT THE PERSON SHALL BE DEEMED TO BE AN ISSUE IN DEFAULT IN RESPECT OF NON/SHORT DEDUCTION OF TAX ONLY IN CASES WHERE THE PAYEE HAS ALSO FAILED TO PAY THE TAX DIRECTLY. THEREFORE THE DEDUCTOR CANNOT BE TREATED AS ASSESSEE IN DEFAULT IN RESPECT OF NO/SHORT DEDUCTION OF TAX IF THE PAYEE HAS DISCHARGED H IS TAX LIABILITY. IN ORDER TO PROVIDE CLARITY REGARDING DISCHARGE OF TAX LIABILITY BY THE RESIDENT PAYEE ON PAYMENT OF ANY SUM RECEIVED BY HIM WITHOUT DEDUCTION OF TAX IT WAS AMENDED IN SECTION 201 TO PROVIDE THAT THE PAYER WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX ON THE PAYMENT MADE TO A RESIDENT PAYEE SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT PAYEE HAS FURNISHED THE RETURN OF INCOME UNDER SECTION 139 SECONDLY HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND THIRDLY HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME AND THE PAYER FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. WE FIND THAT THE TRIBUNAL IN THE CASE OF RAJEEV KUMAR AGARWAL (SUPRA) HAS DEALT WITH THIS ISSUE IN DETAIL IN ITS ORDER AND DISCUSSED THE VARIOUS JUDGEMENTS WHEREIN IT HAS BEEN HELD AS UNDER: 8 I.T.A. NO.160/PNJ/2014: ASSESSMENT YEAR 2009 - 2010 9. ON A CONCEPTUAL NOTE PRIMARY JUSTIFICATION F OR SUCH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENS ATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUNT IN COMPUTATION OF TAX ABLE IN COME IN THE HANDS OF THE RECIPIENTS OF THE PAY MENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD THEREFORE NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF R EVENUE THIS DISALLOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE WHE N SUCH TAX DEDUCTIONS ARE DUE BUT SO FAR AS THE LEGAL FRAMEWORK IS CONCERNED THIS PROVISION IS NOT FOR THE PURPOSE OF PENALI ZING FOR THE TAX DEDUCTION AT SOU RCE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTIVIZING A L APSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THINGS AND HAV E DISTINCTLY DIFFERENT AND SOMETIMES MUTUALLY EXCLUSIVE CONNOTATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHEME OF SECTION 40(A)(IA) AS ON THE STATUTE AND TO EXAMINE WHETHER OR NOT ON A FAIR JUST AND EQUITABLE INTERPRETATION OF LAW - AS IS THE GUIDANC E FROM HONBLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION IN OUR HUMBLE UNDERSTANDING IT COULD NOT HE AN INTENDED CONSEQUENCE TO DISALLOW THE EXPENDITURE DUE TO NON DEDUCTION OF TAX AT SOURCE EVEN IN A SITUATION IN WHICH CORRESPONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE SCHEME OF SECTION 40(A)(IA) AS WE SEE IT IS AIMED 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 271C 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 B EYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEES TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCO MINGS 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 TH OUGH IT MAY NOT STATE SO SPECIFICALLY THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSIONS AS ALSO FOR THE DETAILED REASONS SET OUT EARLIER WE CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN INTENDED CONSEQUENCE TO PUNISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTION IN RESPECT OF RELATED PAYMENTS EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL 2005 BEING THE D ATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT 2004. 10. I N VIEW OF THE ABOVE DISCUSSIONS WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS AND AFTER CARRYING OUT NECESSARY VERIFICATIONS REGARDING RELATED PAYMENTS HAVI NG BEEN TAKEN INTO ACCOUNT BY THE RECIPIENTS IN COMPUTATION OF THEIR INCOME REGARDING PAYMENT OF TAXES IN RESPECT OF SUCH INCOME AND REGARDING FILING OF THE RELATED INCOME TAX RETURNS BY THE RECIPIENTS. WHILE GIVING EFFECT TO THESE 9 I.T.A. NO.160/PNJ/2014: ASSESSMENT YEAR 2009 - 2010 DIRECTIONS THE ASSESSI NG OFFICER SHALL GIVE DUE AND FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE DECIDE THE MATTER IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. WE ORDER SO. 10 . RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL (SUPRA) WE RESTORE THE ISSUE UN DER CONSIDERATION BEFORE US BACK FOR FRESH ADJUDICATION BY THE ASSESSING OFFICER IN THE LIGHT OF ABOVE JUDGMENT AND AFTER CARRYING OUT NECESSARY VERIFICATION REGARDING PAYMENTS HAVING BEEN TAKEN INTO ACCOUNT BY THE RECIPIENTS IN COMPUTATION OF THEIR INCOME REGARDING PAYMENT OF TAXES IN RESPECT OF SUCH INCOME AND REGARDING FILING OF THE RELATED INCOME TAX RETURNS BY THE RECIPIENTS. WHILE GIVING EFFECT TO THESE DIRECTIONS THE ASSESSING OFFICER SHALL GIVE DUE AND FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE DECIDE THE MATTER IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. 11 . IN THE RESULT APPEAL F ILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNC ED IN THE OPEN COURT ON 1 4 /11/2014 S D / - S D / - (P.K.BANSAL) (D.T.GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED PANAJI 1 4 /11/2014 B.K.PARIDA SR. PS COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE : KOTHIWALE TOBACO TRADING CO. C/O. S.J.KAMAT & ASSOCIATES 17A SHRIJI COMPLEX NEAR MANOSHANTI HOTEL ST. INE Z PANAJI - GOA. 2. THE REVENUE: JCIT RANGE - 2 BELGAUM 3. THE CIT BELGAUM 4. THE CIT(A) BELGAUM 5. DR PANAJI BENCH 6. GUARD FILE. TRUE COPY// BY ORDER ASST. REGISTRAR ITAT PANAJI