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TMI Blog2016 (2) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment was finalised at a total income of Rs. 14,80,600/-. The addition of Rs. 10,38,991/- was made by the Assessing Officer as, in his opinion, the assessee had failed to furnish the copies of account of any of the creditors. The Assessing Officer was of the view that neither the identity nor the creditworthiness of the creditors could be established. During the proceedings, the Assessing Officer had also sought details of job work done, payments made to the concerned parties, TDS deducted on such payments and the date of depositing the TDS and on a consideration of the details filed, he was of the view that there were payments amounting to Rs. 7,27,815/- on which the requirements pertaining to TDS were not fulfilled and accordingly Rs. 7,27,815/- was disallowed as per section 40(a)(ia) of the Act. 3. Aggrieved, the assessee went into appeal wherein on the issue of addition of Rs. 10,39,891, the Ld. CIT(A) gave a finding that the assessee was not able to provide confirmed copies of account of the creditors. The Ld. CIT(A) also gave a finding that there were a large number of petty creditors which were outstanding for as long a period as one year and for which the assessee cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the work was being executed near Rohtak and the site was being managed by the site in charge. All the transactions were being routed through the site in charge by maintaining his imprest account. The transactions in the imprest account were related to petty purchases, payment of day to day site expenses, payment to labor contractors, job work payments, payment to building material suppliers, wages to site labor etc. He submitted that all the sundry creditors for petty purchases, payments to labour contractors etc. were under the direct control of site in charge and as far as the head office was concerned, the nodal person was the site in charge. The Ld. AR further submitted that while accounting the transactions of sundry creditors for petty material supply as well as sundry creditors for labour payments were grouped under the imprest account of site in charge Shri Ashish Gupta and the group credit balance was Rs. 9,84,554.25. Ld. AR submitted a copy of group summary in support of his contention. 7. On the issue of disallowance u/s 40(a)(ia), the Ld. AR submitted that the assessee had paid all its taxes and filed its return of income. He relied on the orders of the Agra Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 upon 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 clearly discernable bigger picture, and, unmistakably, a very pragmatic and fair policy approach to the issue - howsoever belated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deincentivize not deducting tax at source, when such tax deductions are due, but, so far as 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 Hon'ble 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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