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TMI Blog2015 (10) TMI 2429X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of remand. Disallowance u/s. 40(a)(ia) - assessee has paid interest/financial charges without deduction of tax as required u/s. 194C - Held that:- 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. See case of Merilyn Shipping [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] concluding 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. - Decided in favour of assessee - ITA No.425/Bang/2014 - - - Dated:- 24-9-2015 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER For The Appellant : Shri Gurunathan, Advocate For The Respondent : Shri Sunil Kumar Agarwala, Jt.CIT(DR) ORDER 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. 2. The assessee has raised the following grounds:- 1. The CIT (Appeals) erred in passing the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7. Before us, the ld. AR of the assessee has submitted that the assessee purchased the machinery which is used for mining work as well 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r:- 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. 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 13. 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 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 mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance (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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 uniform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-avis 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 27. 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 rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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