M/s. Lal Exports Ltd., Delhi v. ACIT, New Delhi

ITA 5859/DEL/2016 | 2012-2013
Pronouncement Date: 13-11-2019 | Result: Allowed

Appeal Details

RSA Number 585920114 RSA 2016
Assessee PAN DELOF2016A
Bench Delhi
Appeal Number ITA 5859/DEL/2016
Duration Of Justice 2 year(s) 11 month(s) 27 day(s)
Appellant M/s. Lal Exports Ltd., Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 13-11-2019
Appeal Filed By Assessee
Tags 5859
Order Result Allowed
Bench Allotted D
Tribunal Order Date 13-11-2019
Assessment Year 2012-2013
Appeal Filed On 16-11-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI PRASHANT MAHARISHI ACCOUNTANT MEMBER AND SHRI K.NARASIMHA CHARY JUDICIAL MEMBER I.T.A. NO.5859/DEL OF 2016 ASSESSMENT YEAR: 2012-13 M/S LAL EXPORTS LTD. VS ACIT CIRCLE 15(1) KHASRA NO.150 CHANDAN HULLA NEW DELHI. DELHI. PAN: AAACL9688G (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SHAFIQ KHAN ADVOCATE DEPARTMENT BY: SMT. APARNA KARAN CITDR DATE OF HEARING: 29.08.2019 DATE OF PRONOUNCEMENT: 13.11.2019 ORDER PER NARASIMHA K. CHARY JM THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER DATED 2.8.2016 PASSED BY THE LEARNED COMMISSIONER OF INCO ME-TAX (APPEALS)-5 NEW DELHI (CIT(A)) FOR THE ASSTT. YEAR 2012-13. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF READ Y-MADE GARMENTS. FOR ASSESSMENT YEAR 2012-13 IT HAS FILED ITS RETUR N OF INCOME ON 28/9/2012 DECLARING AN INCOME OF RS.1 42 30 983/-. ASSESSEE PAID THE TAXES ON THE BASIS OF BOOK PROFIT OF RS.2 61 74 414 /-UNDER MAT. LEARNED ASSESSING OFFICER HOWEVER ASSESSEE THE INCOME OF THE ASSESSEE AT RS.1 69 31 960/- AS AGAINST THE DECLARED INCOME OF RS.1 42 30 983/- BY 2 MAKING CERTAIN ADDITIONS WHICH INCLUDES THE ADDITI ON OF RS.9 84 589/-BY MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT 1961 (FOR SHORT THE ACT); RS.75 809/- BY DISALLOWING T HE INTEREST ON LATE PAYMENT OF TDS; AND A SUM OF RS.16 04 568/- BY INVO KING SECTION 43B OF THE ACT IN RESPECT OF DUES OF EPF OF AND ESI. 3. IN THE APPEAL PREFERRED BY THE ASSESSEE LD. CIT (A) DELETED THE ADDITION OF RS.16 04 568/- ADDED UNDER SECTION 43B OF THE ACT BUT CONFIRMED THE ADDITION OF RS.9 84 598/-DISALLOWED U NDER SECTION 40(A)(I) OF THE ACT AND RS.75 809/- BY DISALLOWING INTEREST ON LATE PAYMENT OF TDS. 4. AGGRIEVED BY THE FINDINGS OF THE LD. CIT(A) ASS ESSEE PREFERRED THIS APPEAL AND ARGUED THAT THE RECIPIENTS OF THE INTERE ST INCOME ARE WELL- KNOWN COMPANIES AND PAYING TAXES ON THEIR INTEREST INCOME AND THEREFORE THERE IS NO LOSS OF REVENUE ON THIS COUN T. IT WAS FURTHER SUBMITTED THAT IN VIEW OF THE DECISION OF THE HONB LE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. JDS APPARELS (P) LTD ( 2015) 370 ITR 454 (DELHI) BEFORE MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT LEARNED ASSESSING OFFICER MUST VERIFY WHETHER THE DEFAULT I S WANTON OR FOR GENUINE CAUSES BUT AS A MATTER OF FACT IN THIS CA SE THE ASSESSING OFFICER DID NOT AFFORD ANY OPPORTUNITY TO THE ASSESSEE TO Q UANTIFY THE INTEREST COST EACH MONTH AND THEREFORE THE DISALLOWANCE CA NNOT BE SUSTAINED. 5. LD. CIT(A) OBSERVED THAT THE ENTITIES TO WHOM TH E INTEREST WAS PAID OR NOT THE ENTITIES REFERRED TO UNDER SECTION 194A (III) OF THE ACT AND THEREFORE THE PROVISIONS OF SECTION 194A ARE APPLIC ABLE. HE FURTHER HELD THAT SECTION 40(A)(IA) OF THE ACT IS A DETERRENT AN D PENAL PROVISION HAVING 3 EFFECT OF PENALISING THE ASSESSEE WHO FAILED TO DED UCT TAX AT SOURCE AND ACTS TO THE DETRIMENT OF ECONOMIC INTERESTS BY INF LICTING HARDSHIP AND DEPRIVATION BY DISALLOWING EXPENDITURE ACTUALLY INC URRED AND TREATING IT AS DISALLOWED. HE FURTHER HELD THAT THE ASSESSEE FAILE D TO DEDUCT THE TDS ON THE INTEREST PAID AS REQUIRED UNDER SECTION 194A OF THE ACT AND THEREFORE FOR VIOLATION OF THE STATUTORY DUTY THE ASSESSEE SHALL SUFFER THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT. HE FURTHER OBSERVED THAT THE ASSESSEE DID NOT INDICATE AS TO WHETHER THE PAY EE HAD OFFERED THE CORRESPONDING INTEREST AS INCOME IN THE MANNER PROV IDED IN THE STATUTE NAMELY SECTION 40(A)(IA) OF THE ACT READ WITH 1 ST PROVISO TO SECTION 201(1) OF THE ACT. 6. IN RESPECT OF THE DISALLOWANCE OF INTEREST OF RS .75 809/-ON LATE PAYMENT OF TDS LD. CIT(A) WHILE FOLLOWING THE DEC ISION OF THE MADRAS HIGH COURT IN THE CASE OF CHENNAI PROPERTIES AND IN VESTMENTS LTD. 105 TAXMAN 346 AND ALSO THE DECISION OF A COORDINATE BE NCH OF THIS TRIBUNAL IN IYER & SONS (P) LTD. 1 ITD 502 REACHED THE CON CLUSION THAT THE INTEREST ON DELAYED TDS PAID BY THE ASSESSEE TAKES COLOUR FR OM THE NATURE OF THE PRINCIPAL AMOUNT REQUIRED TO BE PAID BUT NOT PAID W ITHIN TIME AND IN THE CIRCUMSTANCES IS IN THE NATURE OF PENALTY THOUGH N OT DESCRIBED AS SUCH IN SECTION 201(1A) OF THE ACT AND THEREFORE THE SAME CANNOT BE ALLOWED. 7. FELT AGGRIEVED BY THE ABOVE FINDINGS OF THE LD. CIT(A) ASSESSEE PREFERRED THIS APPEAL SUBMITTING THAT THE LD. CIT(A ) IS NOT CORRECT IN HIS FINDING THAT SECTION 40(A)(IA) OF THE ACT IS A DETE RRENT AND PENAL PROVISION HAVING THE EFFECT OF PENALISING THE ASSESSEE WHO HA S FAILED TO DEDUCT TAX AT SOURCE AND ACTS TO THE DETRIMENT OF ECONOMIC INT ERESTS OF THE STATE OR THAT IT OPERATES AND INFLICTS HARDSHIP AND DEPRIVAT ION BY DISALLOWING THE 4 EXPENDITURE ACTUALLY INCURRED AND TREATING IT AS DI SALLOWED. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P) LTD. ( 2015) 377 ITR 0635 (DELHI) WHEREIN THE HONBLE COURT ACCEPTED THE REA SONING OF THE AGRA BENCH OF ITAT IN RAJIV KUMAR AGARWAL VS. ACIT ITA N O. 337/AGRA/2013AS REGARDS THE RATIONALE BEHIND THE INSERTION OF THE S ECOND PROVISO TO SECTION 40(A) (IA) OF THE ACT AND ITS CONCLUSION TH AT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFE CT FROM 1ST APRIL 2005. HIS FURTHER SUBMISSION IS THAT THE RECIPIENTS OF TH E INTEREST ARE WELL- KNOWN COMPANIES AND PAYING TAXES ON THE INTEREST IN COME AND THEREFORE THE ASSESSEE CANNOT BE HELD AS ASSESSEE IN DEFAULT UNDER PROVISO TO SECTION 201(1) OF THE ACT. 8. PER CONTRA IT IS THE SUBMISSION ON BEHALF OF TH E REVENUE THAT WHETHER OR NOT THE RECIPIENT OF THE INTERESTS HAD D ECLARED THE INTEREST INCOME IN THE RETURNS OF INCOME AND THE PROPER COMP LIANCE WITH THE CONDITIONS PROVIDED IN THE PROVISO TO SECTION 201(1 ) OF THE ACT IS A VERIFIABLE FACT ONLY AT THE END OF THE ASSESSING OF FICER AND IS NOT OPEN FOR THE ASSESSEE TO SEEK DELETION OF THE AMOUNT WITHOUT ESTABLISHING FIRST THAT THE CONDITIONS STIPULATED IN THE PROVISO TO SE CTION 201(1) OF THE ACT WERE COMPARED WITH. 9. IN RAJIV KUMAR AGARWAL VS. ACIT ITA NO. 337/AGRA /2013 THE AGRA BENCH OF TRIBUNAL HELD THAT - ON A CONCEPTUAL NOTE PRIMARY JUSTIFICATION FOR SU CH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FO R THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUN T IN COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF TH E PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD THE REFORE NOT COME INTO 5 PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THE RE IS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT D EDUCTING TAX AT SOURCE WHEN SUCH TAX DEDUCTIONS ARE DUE BUT SO F AR AS THE LEGAL FRAMEWORK IS CONCERNED THIS PROVISION IS NOT FOR T HE 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 ST ATUTE AND TO EXAMINE WHETHER OR NOT ON A 'FAIR JUST AND EQUITABLE' INT ERPRETATION OF LAW- AS IS THE GUIDANCE FROM HON'BLE DELHI HIGH COURT ON INTER PRETATION OF THIS LEGAL PROVISION IN OUR HUMBLE UNDERSTANDING IT CO ULD NOT BE 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 RECIPI ENT. THE SCHEME OF SECTION 40(A)(IA) AS WE SEE IT IS AIMED AT ENSURI NG THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDIT URE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESS EE. IT IS NOT IN OUR CONSIDERED VIEW A PENALTY FOR TAX WITHHOLDING LAPS E BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GO ING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY FOR TAX WITHHOLD ING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C AND SECT ION 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 HARDS HIPS EVEN IN CASES IN WHICH THE ASSESSEE'S 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 LEGAL POSITION TO THE EFFECT THAT A CURATIV E AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSP ECTIVE IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY THE I NSERTION 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 W E CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN 'INTENDED CONSE QUENCE' 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 M UCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY WE H OLD THAT THE INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATO RY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APR IL 2005 BEING THE 6 DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WA S INSERTED BY THE FINANCE (NO. 2) ACT 2004. 10. IN CIT VS. ANSAL LAND MARK TOWNSHIP (P) LTD (20 15) 377 ITR 0635 (DELHI) THE HONBLE JURISDICTIONAL HIGH COURT ACCE PTED THE ABOVE REASONING OF THE AGRA BENCH OF ITAT AS REGARDS THE RATIONALE BEHIND THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A) (I A) OF THE ACT AND ITS CONCLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFECT FROM 1 ST APRIL 2005. IN VIEW OF THIS DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AN SAL LAND MARK (SUPRA) WE ARE NOT IN AGREEMENT WITH THE OBSERVATIONS OF TH E LD. CIT(A) THAT WHETHER OR NOT THERE IS ANY LOSS TO THE REVENUE MER ELY ON THE FAILURE OF THE ASSESSEE TO DEDUCT TDS THE INTEREST EXPENDITUR E IS LIABLE TO BE DISALLOWED. 11. FURTHER ACCORDING TO THE ASSESSEE THE RECIPIEN TS OF THE INTEREST HAVE SHOWN THEIR INTEREST INCOME IN THE RETURNS OF INCOME FILED BY THEM AND THEREFORE THERE IS NO LOSS ON THIS COUNT. FUR THER ACCORDING TO HIM ASSESSEE CANNOT BE HELD TO BE AN ASSESSEE IN DEFAUL T IN VIEW OF THE PROVISO TO SECTION 201(1) OF THE ACT. ADMITTEDLY T HIS FACT HAS NOT BEEN VERIFIED AT THE END OF THE ASSESSING OFFICER. GRIEV ANCE OF THE ASSESSEE IS THAT NO OPPORTUNITY WAS GIVEN TO THEM EVEN TO QUANT IFY THE INTEREST COST EACH MONTH LET ALONE TO ESTABLISH THE COMPLIANCE W ITH THE PROVISO TO SECTION 201(1) OF THE ACT. SINCE THE LD. DR SUBMITS THAT THE COMPLIANCE WITH THE CONDITIONS UNDER PROVISO TO SECTION 201(1) OF THE ACT IS A VERIFIABLE FACT WE ARE OF THE CONSIDERED OPINION T HAT THIS IS A FIT CASE TO REMAND THE MATTER TO THE FILE OF THE ASSESSING OFFI CER WITH A DIRECTION TO THE ASSESSEE TO FILE THE EVIDENCE AVAILABLE WITH TH EM TO ESTABLISH THAT 7 THERE WAS COMPLIANCE WITH THE CONDITIONS UNDER PROV ISO TO SECTION 201(1) OF THE ACT. THIS ISSUE IS ACCORDINGLY REMAND ED TO THE FILE OF THE ASSESSING OFFICER FOR COMPLIANCE IN ACCORDANCE WITH OUR DIRECTIONS. 12. INSOFAR AS THE DISALLOWANCE OF INTEREST ON LATE PAYMENT OF TDS TO THE TUNE OF RS.75 809/- IS CONCERNED LD. CIT(A) F OLLOWED THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CHENNA I PROPERTIES AND INVESTMENTS LTD. 105 TAXMAN 346 AND NO MATERIAL IS BROUGHT TO OUR NOTICE AS TO HOW THE FINDING OF THE LD. CIT(A) ON T HIS ASPECT IS BAD UNDER LAW. WE DO NOT SEE ANY REASON TO INTERFERE WITH THE FINDING OF THE LD. CIT(A) ON THIS ASPECT AND ACCORDINGLY DISMISS GROUN D NO. 2 OF THE APPEAL OF THE ASSESSEE. 13. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER 2019. SD/- SD/- (PRASHANT MAHARISHI) (K.NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13 TH NOVEMBER 2019. VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 8 DRAFT DICTATED ON 6.11.2019 DRAFT PLACED BEFORE AUTHOR 8.11.2019 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON DATE OF UPLOADING ORDER ON THE WEBSITE FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.