Dcit New Delhi v. M S Ansal Landmark Township P Ltd New Delhi

1 In The Income Tax Appellate Tribunal Elhi Bench A New Delhi Before Shri H S Sidhu Judicial Member And Shri Prashant Maharishi Accountant Member I T A Nos 4820 Del 2014 Ita No 238 Del 2015 A Y Rs 2010 11 2011 12 Deputy Commissioner Of Income Tax Circle 1 1 Room No 392 C R Building I P Estate New Delhi 110 002 Vs M S Ansal Landmark Township Ltd 115 Ansal Bhawan 16 Kg Marg New Delhi Pan Aaeca 8892 P Appellant Respondent Department By Smt Aparna Karan Cit Dr Assessee By Sh Satyen Sethi Adv Order Per H S Sidhu Jm These Are The Appeals Filed By The Revenue Agains T The Respective Impugned Orders Of The Ld Cit A Iv New Delhi Pe Rtaining To Assessment Years 2010 11 2011 12 Since The Iss Ues Involved In These Appeals Are Common And Identical Hence The Se Appeals Were Heard Together And Are Being Disposed By This Commo N Order For The Sake Of Convenience 2 The Grounds Raised In Revenues Ita No 4820 De L 2014 Ay 2010 11 Read As Under 2 1 The Ld Cit A Has Erred On Facts And In Law I N Deleting Addition Of Rs 19 34 53 000 On Account Of Profit Reworked For Ghaziabad Sub Project Plotted 2 The Ld Cit A Has Erred On Facts And In Law In Deleting Addition Of Rs 4 37 87 000 On Rs 16 97 000 And Rs 9 65 000 On Account Of Profits Reworked For Meerut Sub Project 3 The Ld Cit A Has Erred On Facts And In Law In Deleting Addition Of Rs 1 26 46 909 Being Know How Fee Surrendered 4 The Appellant Craves Leave For Reserving The Rig Ht To Amend Modify Alter Add Or Forego Any Ground S Of Appeal At Any Time Before Or During The Hearing Of This Appeal 3 The Grounds Raised In Revenues Ita No 238 Del 2015 Ay 2011 12 Read As Under 1 The Ld Cit A Has Erred On Facts And In Law In Deleting Addition Of Rs 19 66 17 000 On Account Of Profit Reworked For Ghaziabad Sub Project Plotted 3 2 The Ld Cit A Has Erred On Facts And In Law In Deleting Addition Of Rs 35 000 On Account Of Profits Reworked For Meerut Sub Project Plotted 3 The Ld Cit A Has Erred On Facts And In Law In Deleting Addition Of Rs 35 000 On Account Of Profits Reworked For Meerut Sub Project Built Up 4 The Ld Cit A Has Erred On Facts And In Law In Deleting Addition Of Rs 1 09 000 On Account Of Profits Reworked For Karnal Sub Project Plotted 5 The Ld Cit A Has Erred On Facts And In Law In Deleting Addition Of Rs 40 000 On Account Of Profits Reworked For Karnal Sub Project Group Housing 6 The Appellant Craves Leave For Reserving The Ri Ght To Amend Modify Alter Add Or Forego Any Ground S Of Appeal At Any Time Before Or During The Hearing Of This Appeal Revenues Appeal Ita No 4820 Del 2014 Ay 2010 1 1 4 The Brief Facts Of The Case Are That The Case Of The Assessee Filed The Return Of Income Declaring A Loss Of Rs 62 72 484 On 01 10 2010 The Revised Return Of Income Was Filed On 31 3 2012 At An Income Of Rs 45 22 872 And The Same Was Processed U S 143 1 Of The Income Tax 4 Act 1961 Hereinafter Referred As The Act Notice U S 143 2 Of The Act Was Issued In This Case On 19 9 2011 And Duly Serve D On The Assesse In Response To The Notice U S 143 2 Of The Act And V Arious Other Statutory Notices The A R Of The Assessee Attended The Proc Eedings From Time To Time And Filed The Requisite Details Called For T Hereafter The Ao Completed The Assessment At Rs 24 44 43 910 And Made The Various Additions Vide Assessment Order Dated 26 03 2013 Pa Ssed U S 143 3 Ii Of The Income Tax Act 1961 5 Against The Aforesaid Assessment Order Dated 26 3 2013 Assessee Preferred An Appeal Before The Ld Cit A Who Vide His Impugned Order Dated 12 6 2014 Has Partly Allowed The Appeal Of Th E Asseseee 6 Aggrieved With The Impugned Order Of The Ld Cit A The Revenue Is In Appeal Before The Tribunal 7 Ld Dr Relied Upon The Order Of The Ao And Reit Erated The Grounds Of Appeal Raised In The Revenue Appeals And Reques Ted That Appeals Of The Revenue May Be Allowed By Cancelling The Orders Of The Ld Cit A 8 On The Other Hand Ld Counsel Of The Assessee Re Lied Upon The Order Of The Ld Cit A And Stated That Ld Cit A Has Pa Ssed A Well Reasoned Order Which Does Not Need Any Interference On Our P Art And Requested To Dismiss The Appeal Of The Revenue 9 We Have Heard Both The Parties And Perused The Records Apropos Ground No 1 Relating To Deletion Of Addition Of Rs 19 34 53 000 On 5 Account Of Profit Reworked For Ghaziabad Sub Projec T Plotted Is Concerned We Find That Ao Has Made The Addition In Dispute O N The Basis Of Addition Made In Ay 2008 09 And Ld Cit A Has Deleted The A Ddition Made During The Year 2008 09 However In The Assessment Year 2009 10 The Ao Has Accepted The Order Of The Ld Cit A Of Ay 2008 09 And Hence No Such Addition Was Made In The Ay 2009 10 In The Order Pa Ssed U S 143 3 Of The I T Act 1961 We Further Note That The Ld Ci T A In The Present Year I E Ay 2010 11 While Passing The Impugned Order Ha S Thus Observed That Since There Is No Reason For Him To Differ From The Findings Of His Predecessor On This Issue Therefore In Order To Maintain The Rule Of Consistency Respectfully Following The Decision Of The Ld Cit A In The Ay 2008 09 The Issue In Hand Was Decided In Favour Of The Assessee And Ao Was Rightly Directed To Delete The Addition Of Rs 19 34 53 000 Which Does Not Need Any Interference On Our Part Hence We Uphold The Action Of The Ld Cit A On The Addition In Dispute And R Eject The Ground No 1 Raised By The Revenue 10 Apropos Ground No 2 Relating To Deletion Of Ad Dition Of Rs 4 37 87 000 On Rs 16 97 000 And Rs 9 65 0 00 On Account Of Profits Reworked For Meerut Sub Project Is Concerne D We Find That Ao Has Made The Addition In Dispute On The Basis Of Addit Ion Made In Ay 2008 09 And Ld Cit A Has Deleted The Addition Made During The Year 2008 09 However In The Assessment Year 2009 10 The Ao Has Accepted The Order Of The Ld Cit A Of Ay 2008 09 And Hence No Such Addition Was Made In The Ay 2009 10 In The Order Passed U S 143 3 Of T He I T Act 1961 We 6 Further Note That The Ld Cit A In The Present Yea R I E Ay 2010 11 While Passing The Impugned Order Has Thus Observed That Since There Is No Reason For Him To Differ From The Findings Of His P Redecessor On This Issue Therefore In Order To Maintain The Rule Of Consist Ency Respectfully Following The Decision Of The Ld Cit A In The Ay 2008 09 The Issue In Hand Was Decided In Favour Of The Assessee And Ao W As Rightly Directed To Delete The Addition Of Rs 4 37 87 000 In Re Spect Of Plots In Meerut Project On Account Of 98 72 Of Completion As Agai Nst 96 04 Of Completion Declared By The Assessee Rs 16 97 000 In Respect Of Built Up Area In Meerut Project On Account Of 60 36 Of Completion As Against 60 23 Declared By The Assessee Rs 9 65 0 00 In Respect Of Constructions Of Mall In Meerut Project On Account Of Adoption Of 38 41 Of Completion As Against 35 97 Declared By The Ass Essee Therefore The Ld Cit A Also Rightly Directed To Adopt The Loss Of Rs 30 7 Lacs On Account Of Percentage Completion Declared By The A Ssesse At 32 09 As Against 32 4 Adopted By The Ao Which Does Not Nee D Any Interference On Our Part Hence We Uphold The Action Of The Ld Cit A On The Addition In Dispute And Reject The Ground No 2 Ra Ised By The Revenue 11 Apropos Ground No 3 Relating To Deletion Of Ad Dition Of Rs 1 26 46 909 Being Know How Fee Surrendered Is Concerned We Find That Itat Agra Bench Has Considered The Similar I Ssue In The Case Of Rajiv Kumar Agarwal Vs Addl Cit In Ita No 337 Ag Ra 2013 In Their Order Dated 29 5 2014 And Held That The Insertion O F Second Proviso To Section 40 A Ia Is Declaratory And Curative In N Ature And It Has 7 Retrospective Effect From 1 St April 2005 We Also Find That Itat Has Relied On The Decision Of The Honble Delhi High Court In The Case Of Cit Vs Rajinder Kumar 362 Itr 241 However For The Sake O F Clarity The Relevant Observations Of The Itat Agra Bench As Gi Ven In Para 6 To 9 Are Reproduced As Under 6 However The Stand So Taken By The Special Bench Was Disapproved By Honble Delhi High Court In The Case Of Cit Vs Rajinder Kumar 362 Itr 241 While Doing So Their Lordships Observed That The Object Of Introduction Of Section 40 A Ia Is To Ensure That Tds Provisions Are Scrupulously Implemented Without Default In Order To Augment Recoveries Failure To Deduct Tds Or Deposit Tds Results In Loss Of Revenue And May Deprive The Government Of The Tax Due And Payable Emphasis By Underlining Supplied By Us Having Noted The Underlying Objectives Their Lordships Also Put In A Word Of Caution By Observing That The Provision Should Be Interpreted In A Fair Just And Equitable Manner Their Lordships Thus Recognized The Bigger Picture Of Realization Of Legitimate Tax Dues As Object Of Section 40 A Ia And The Need Of Its Fair Just And Equitable Interpretation This Approach Is Qualitatively Different From Perceiving The Object Of Section 40 A Ia As Awarding Of Costs On The Assessees Who Fail To Comply With The Relevant Provisions By Considering Overall Objective Of Boosting Tds Compliance Not Only The Conclusions Arrived At By The Special Bench Were 8 Disapproved But The Very Fundamental Assumption Underlying Its Approach I E On The Issue Of The Object Of Section 40 A Ia Was Rejected Too In Any Event Even Going By Bharti Shipyard Decision Supra What We Have To Really Examine Is Whether 2012 Amendment Inserting Second Proviso To Section 40 A Ia Deals With An Intended Consequence Or With An Unintended Consequence 7 When We Look At The Overall Scheme Of The Section As It Exists Now And The Bigger Picture As It Emerges After Insertion Of Second Proviso To Section 40 A Ia It Is Beyond Doubt That The Underlying Objective Of Section 40 A Ia Was To Disallow Deduction In Respect Of Expenditure In A Situation In Which The Income Embedded In Related Payments Remains Untaxed Due To Non Deduction Of Tax At Source By The Assessee In Other Words Deductibility Of Expenditure Is Made Contingent Up 6 N The Income If Any Embedded In Such Expenditure Being Brought To Tax If Applicable In Effect Thus A Deduction For Expenditure Is Not Allowed To The Assessees In Cases Where Assessees Had Tax Withholding Obligations From The Related Payments Without Corresponding Income Inclusion By The Recipient That Is The 9 Clearly Discernable Bigger Picture And Unmistakably A Very Pragmatic And Fair Policy Approach To The Issue Howsoever Belated The Realization Of Unintended And Undue Hardships To The Taxpayers May Have Been It Seems To Proceed On The Basis And Rightly So That Seeking Tax Deduction At Source Compliance Is Not An End In Itself So Far As The Scheme Of This Legal Provision Is Concerned But Is Only A Mean Of Recovering Due Taxes On Income Embedded In The Payments Made By The Assessee Thats How As We Have Seen A Short While Ago Honble Delhi High Court Has Visualized The Scheme Of Things As Evident From Their Lordships Reference To Augmentation Of Recoveries In The Context Of Loss Of Revenue And Depriving The Government Of The Tax Due And Payable 8 With The Benefit Of This Guidance From Honble Delhi High Court In View Of Legislative Amendments Made From Time To Time Which Throw Light On What Was Actually Sought To Be Achieved By This Legal Provision And In The Light Of The Above Analysis Of The Scheme Of The Aw We Are Of The Considered View That Section 40 A Ia 10 Cannot Be Seen As Intended To Be A Penal Provision To Punish The Lapses Of Non Deduction Of Tax At Source From Payments For Expenditure Particularly When The Recipients Have Taken Into Account Income Embedded In These Payments Paid Due Taxes Thereon And Filed Income Tax Returns In Accordance With The Law As A Corollary To This Proposition In Our Considered View Declining Deduction In Respect Of Expenditure Relating To The Payments Of This Nature Cannot Be Treated As An Intended Consequence Of Section 40 A Ia If It Is Not An Intended Consequence I E If It Is An Unintended Consequence Even Going By Bharti Shipyard Decision Supra Removing Unintended Consequences To Make The Provisions Workable Has To Be Treated As Retrospective Notwithstanding The Fact That The Amendment Has Been Given Effect Prospectively Revenue Thus Does Not Derive Any Advantage From Special Bench Decision In The Case Bharti Shipyard Supra 9 On A Conceptual Note Primary Justification For Such A Disallowance Is That Such A Denial Of Deduction Is To Compensate For The Loss Of Revenue By Corresponding Income Not Being Taken Into 11 Account In Computation Of Taxable Income In The Hands Of The Recipients Of The Payments 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 Revenue This Disallowance Does Deincentivize Not Deducting Tax At Source When Such Tax Deductions Are Due But So Far A S The Legal Framework Is Concerned This Provision Is Not For The Purpose Of Penalizing For The Tax Deduction At Source Lapses There Are Separate Penal Provisions To That Effect Deincentivizing A Lapse And Punishing A Lapse Are Two Different Things And Have 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 Guidance From Honble Delhi High Court On Interpretation Of This Legal Provision In Our Humble Understanding It Could Not Be An Intended Consequence To Disallow The Expenditure Due To Non Deduction Of Tax At Source Even In A Situation In Which Corresponding 12 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 271 C 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 Beyond The Obvious Intentions Of The Lawmakers End 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 Shortcomings Of Provision And Thus Obviate The Unintended Hardships Such An Amendment In Law In View Of The Well Settled 13 Legal Position To The Effect That A Curative Amendment To Avoid Unintended Consequences Is To Be Treated As Retrospective In Nature Even Though 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 1 St April 2005 Being The Date From Which Sub Clause Ia Of Section 40 A Was Inserted By The Finance No 2 Act 2004 11 1 We Further Note That Itat Hyderabad A Benc H In The Case Of Acit Vs Plr Projects Pvt Ltd In Ita No 1079 Hyd 2013 For A Y 2007 08 14 Vide Their Order Dated 12 3 2014 Has Held That The Second Proviso To Section 40 A Ia Of The Act Inserted By The Financ E Act 2012 W E F 1 4 2013 Is Clarificatory In Nature And Hence The B Enefit Of The Same Should Be Applied Retrospectively We Further Find That The Pune Bench Of The Itat In The Case Of Dcit Cir 3 Pune Vs Bhand Ari Associates In Ita No 1129 Vide Their Order Dated 19 5 2014 Has Held That The Second Proviso To Section 40 A Ia Was Clarificatory In N Ature The Bench Referred To The Decision Of Itat Cochin Bench In Th E Case Of Antony D Mundackal Vs The Acit Vide Ita No 38 Coch 2013 Da Ted 29 11 2013 For A Y 2009 10 11 2 Therefore Ld Cit A Has Observed That Ao Has Not Considered The Above Judicial Pronouncement On The Issue In View Of The Above Facts And Circumstances Of The Case And Judicial Pr Onouncements On The Issue Ld Cit A Has Rightly Held That The Second Proviso To Section 40 A Ia Is Clarificatory And Curative In Nature A Nd Therefore The Assessee Was Entitled For Claim Of Deduction And Ao Was Rightly Directed To Verify The Claim Of The Assessee That The Tax Ha S Been Paid On The Above Amount By The Payee I E Ansal Properties And Infrastructure Ltd In Terms Of The Aforesaid Judgments And Allow The A Foresaid Deduction If The Tax Has Indeed Been Paid By The Payee Respectf Ully Following The Precedents We Do Not Find Any Infirmity In The Fin Ding Of The Ld Cit A On The Issue In Dispute Hence We Uphold The Actio N Of The Ld Cit A On This Issue And Reject The Ground No 3 Raised By The Revenue 15 Revenues Appeal Ita No 238 Del 2015 Ay 2011 12 12 As Regards Issues Raised In This Appeal Are C Oncerned We Find That The Issues Involved In This Appeal Are Similar And Identical To The Issues Involved In Ita No 4820 Del 2014 Ay 2010 11 As Aforesaid Therefore Respectfully Following The Consistent View As Take N In Revenues Ita No 4820 Del 2014 Ay 2010 11 As Aforesaid We Do Not Find Any Infirmity In The Order Of The Ld Cit A Hence We Uphold The O Rder Of The Ld Cit A On The Issues In Dispute And Accordingly Reject The Grounds Raised By The Revenue 13 In The Result Both The Appeals Filed By The Revenue Stand Dismissed Order Pronounced On 06 12 2017 Sd Sd Prashant Maharishi H S Sidhu Accountant Member Judicial Member Date 06 12 2017 Srbhatnagar Copy Forwarded To 1 Appellant 2 Respondent 3 Cit 4 Cit A 5 Dr Itat True Copy By Order Assistant Registrar Itat Delhi Benches 16