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TMI Blog2018 (1) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 5,15,638/-. 2. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the ld. AO in disallowing a sum of Rs. 8,00,969/- u/s 40A(2)(a) of Income Tax Act, 1961. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 8,00,969/-. 3. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the ld. AO in making following disallowance:- Particulars Amount ROC Fees 33,900/- Foreign Travelling Expenditure 94,200/- Total 1,28,100/- The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 1,28,100/-. 4. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the ld. AO in tqaxing Interest Income on FDR amounting to Rs. 1,13,318/-. The action of the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal of the Department stating that the question of law framed did not arise for consideration. No doubt, the Special Leave Petition thereagainst was dismissed by this Court in limine. However, that would not amount to confirming the view of the Allahabad High Court (See V.M. Salgaocar & Bros. (P.) Ltd. v. CIT [2000] 243 ITR 383/110 Taxman 67 (SC) and Supreme Court Employees Welfare Association v. Union of India [1989] 4 SCC 187 . 18. In view of the aforesaid discussion, we hold that the view taken by the High Courts of Punjab & Haryana, Madras and Calcutta is the correct view and the judgment of the Allahabad High Court in Vector Shipping Services (P) Ltd. (supra) did not decide the question of law correctly. Thus, insofar as the judgment of the Allahabad High Court is concerned, we overrule the same. Consequences of the aforesaid discussion will be to answer the question against the appellant/assessee thereby approving the view taken by the High Court." Accordingly, in view of the above decision of Hon'ble Supreme Court in case of M/s Palam Gas Service Vs. CIT (supra), we do not find any error or illegality in the impugned orders of the ld CIT(A) to the extent of rejecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the law to be applied, is that which is in force on the first day of the assessment year, unless otherwise mandated expressly or provided by necessary implication. The aforesaid dictum is based upon the principle that a new provision creating a liability or an obligation, affecting or taking away vested rights or attaching new disability is presumed to be prospective. However, it is accepted that Legislatures have plenary power to make retrospective amendments, subject to Constitutional restrictions. 16. Based upon the aforesaid broad dictum, Judges and jurists have drawn distinction between procedural and substantive provisions. Substantive provisions deal with rights and the same are fundamental, while procedural law is concerned with the legal process involving actions and remedies. Amendments to substantive law are treated as prospective, while amendments to procedural law are treated as retrospective. This distinction itself is not free from difficulties as right to appeal has been held to be a substantive law, but law of limitation is regarded as procedural. There is an interplay and interconnect between what can be regarded as substantive and procedural law [see CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that classification of statute either substantive or procedural does not necessarily determine whether the enactment or amendment has retrospective operation, e.g., law of limitation is procedural but its application to past cause of action may result of reviving or extinguishing a right, and such operation cannot be said to be procedural. Similarly, when requisites of an action under the new statute, draws from a time incident to its passing, rule against retrospectivity may not be applicable. 20. In the said text, reference has been made to formulation by Dixon, C.J. in Maxwell v. Murphy [1957] 96 CLR 261 holding:- "The general rule of the common law is that a statute changing the law ought not, unless the intention appears with reasonable certainty, to be understood as applying to facts or events that have already occurred in such a way as to confer or impose or otherwise affect the rights or liabilities which the law had defined be reference to the past events. But given the rights and liabilities fixed by reference to the past facts, matters or events, the law appointing or regulating the manner in which they are to be enforced or their enjoyment is to be secured by jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be given retrospective effect from the inception on the ground that the proviso was added to remedy unintended consequences and supply an obvious omission. The proviso ensured reasonable interpretation and retrospective effect would serve the object behind the enactment. 25. In State through C.B.I Delhi v. Gian Singh AIR 1999 SC 3450 extreme penalty of death was diluted to alternative option of imprisonment for life recording that the legislative benevolence could be extended to an accused, who awaits judicial verdicts against his sentence. Earlier in Rattan Lal v. State of Punjab AIR 1965 SC 444 reference was made to Section 6 of the Probation of Offenders Act, 1958 and it was observed that if the Act was not given retrospective operation, it would lead to anomalies and thus could not be the intention of the Legislature. 26. Principle of matching which is disturbed by Section 40(a)(ia) of the Act, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses as they have necessary cushion to absorb the effect. However, marginal and medium taxpayers, who wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aused to assessees, who paid the statutory dues within the prescribed period though the payments so made would not fall within the relevant previous year. Accordingly, a proviso was added by Finance Act, 1987 applicable with effect from 1st April, 1988. The proviso stipulated that when statutory dues covered by Section 43B were paid on or before the due date for furnishing of the return under Section 139(1), the deduction/expense, equal to the amount paid would be allowed. The Supreme Court noticed the purpose behind the proviso and the remedial nature of the insertion made. Of course, the Supreme Court also referred to Explanation 2 which was inserted by Finance Act, 1989 which was made retrospective and was to take effect from 1st April, 1984. Highlighting the object behind Section 43B, it was observed that the proviso makes the provision workable, gives it a reasonable interpretation. It was elucidated: "12. In the case of Goodyear India Ltd. v. State of Haryana this Court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act. 13. Therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court cannot be sustained." 23. Section 43B deals with statutory dues and stipulates that the year in which the payment is made the same would be allowed as a deduction even if the assessee is following the mercantile system of accountancy. The proviso, however, stipulates that deduction would be allowed where the statutory dues covered by Section 43B stand paid on or before the due date of filing of return of income. Section 40(a)(ia) is applicable to cases where an assessee is required to deduct tax at source and fails to deduct or does not make payment of the TDS before the due date, in such cases, notwithstanding Sections 30 to 38 of the Act, deduction is to be allowed as an expenditure in the year of payment unless a case is covered under the exceptions carved out. The amended proviso as inserted by Finance Act, 2010 states where an assessee has made payment of the TDS on or before the due date of filing of the return under Section 139(1), the sum shall be allowed as an expense in computing the income of the previous year. The two provisions are akin and the provisos to Sections 40(a)(ia) and 43B are to the same effect and for the same purpose. 24. In Podar Cement (P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the Hon'ble Calcutta High Court and Hon'ble Gujarat High Court, Hon'ble Allahabad High Court and other judgments as available and thereafter has come to the conclusion that the provisions of section 40(a)(ia) are mandatory in nature and non compliance/non deduction of tax attracts disallowance of the entire amount. Having said so, we will be failing in our duty if we do not discuss the amendment brought in by the Finance (No. 2) Act 2014 with effect from 1.4.2015 by virtue of which proviso to section 40(a)(ia) has been inserted, which provides that if any such sum taxed has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of previous year, and further, section 40(a)(ia) has been substituted wherein the 30% of any sum payable to a resident has been substituted. In the present case, the authorities below has added the entire sum of Rs. 7,51,322/- by disallowing the whole of the amount. Though the substitution in section 40 has been made effective with effective from 1.4.2015, in our view the benefit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed u/s 40A(2)(a) of the Act. In support of his contention, he has relied upon the decision of Hon'ble Delhi High Court in case of United Exports vs. CIT 330 ITR 549. 10. On the other hand, ld. DR has relied upon the orders of the authorities below and submitted that the CIT(A) has considered this issue and confirmed the disallowance on the ground that the assessee has failed to establish the commercial expediency for allowing the discount only to the sister concern and not to the other parties whose turnover with the assessee is more than the sister's concern. 11. We have considered the rival submissions as well as relevant material on record. We find that the ld. CIT(A) has accepted this contention of the assessee that discount allowed by the assessee is not an expenditure in respect of which payment is to be made in para 3.3 as under:- "3.3 I have examined the facts of the case, the assessment order and the submissions of the appellant. The provisions of section 40A(2)9a) pertains to disallowance of an expenditure in respect of which payment has been made or is to be made. A trade discount is not an expenditure in respect of which payment is to be made. The judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision can be said to be applicable. A trade discount, and admittedly it is not in dispute that the subject-matter of the claim is a trade discount, and not an expenditure, clearly therefore there does not arise the question of applicability of section 40A(2)(b)." Hence, in view of the facts and circumstances of the case when the trade disallowance is not an expenditure paid or payable as per the provisions of section 40A(2)(a) of the Act then the same cannot be disallowed for want of any prohibitory provision in the Income Tax Act. 12. Ground No. 3 is regarding disallowance of registrar of company fees and foreign travelling expenditure. During the course of assessee proceedings the AO noted that the assessee has increased the authorized capital from Rs. 40 lacs to Rs. 60 lacs and incurred ROC fee of Rs. 33,990/- which is debited under the head of registration fee. On enquiry from the AO the assessee stated that the expensive was incurred to increase the authorized capital. The AO disallowed the claim of the assesee on the ground that it is a capital expenditure and not allowable under the provisions of the Act. Similarly the assessee has debited Rs. 1,88,400/- on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed. In the case in hand the assessee is not having any business outside India neither, the assessee is exporting any goods or articles nor importing. Therefore, in the absence of the specific purpose of the foreign trip of the Executive Manager, the expenditure incurred on the foreign trip of the Executive Manger cannot be considered as an expenditure incurred wholly and exclusively for the business of the assessee. The decision relied upon the assessee are based on the peculiar facts of those case as the assessee we are having substantial business with the foreign country and therefore the foreign trip in connection with the business of the assessee and particularly in the business of conference, seminar or other business gatherings can be considered as expenditure for the purpose of business of the assessee. Where there is no specific purpose has been explained for the visit of the executive manager then the disallowance made by the AO and upheld by the ld. CIT(A) in respect of the foreign trip expenses of the wife of the executive manager is justified and proper. 16. As regards disallowance of ROC fees we find that the expenditure was incurred by the assesee for increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income of Rs. 5,44,352/- which is less than the amount reported by the State Bank of India as per form 26AS. The assessee has not disputed the correctness of the income report in 26AS but has contended that the interest income accounted by the assessee is based on estimated accrual interest and the difference in the accounted income is revenue neutral. We do not agree with the contention of the assessee simply on the reason that when the correct amount of income is available as per Form 26AS then, the income of the assessee is required to be assessed on correct figures and facts instead of estimated figures accounted by the assessee. Further, when the corresponding TDS credit is available to the assessee for the year under consideration against the income reported in 26AS then the said credit cannot be allowed against less income declared by the assessee on this account. Accordingly, we do not find any error or illegality in the impugned orders of the authorities below qua this issue. 21. Now we take up two appeal for the assessment year 2010-11 and 2011-12 in which the assessee has raised common grounds. The grounds raised for the assessment year 2010-11 are reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that the insertion of second Proviso to sec. 40(a)(ia) is declaratory and curative in nature and has retrospective affect from 1.4.2005. 2.5 The jurisdictional ITAT, in the case of Shri Rakesh Tak vs. ITO in ITA No. 888/JP/2014, has reiterated the decision of Delhi High Court supra). Be that as it may, the moot point is whether the assessee has furnished the said certificate of C.A. in terms of 1st Proviso to sec. 201(1). The appellant has submitted the said certificates in respect of payment made to various parties as under:- S. N. Name of the parties Disallowance u/s 40(a)(ia) Certificate u/s 201(1) submitted of Rs. Date of filing as against due date 15/10/2010 1. Bajaj Auto Finance 39,020/- 39,020 30.03.2012 2. Cholamandalam DBC 43,598 41,913/- 30.03.2012 3. Reliance Capital 76,634/- 77,885/- 12.10.2010 The due date of filing of Return by the said payees was 15.10.2010 as per s. 139(1). Therefore only one of the above payees i.e. Reliance Capital Ltd. has submitted its return before the said due date. Thus the assessee is deemed to have deducted TDS on the amount of Rs. 76,634/-. Accordingly, the net relief on this ground comes to Rs. 76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed50:]" The ld. CIT(A) has not disputed the fact that all the three NBFCs has filed their return of income within a time period allowed u/s 139 and particularly u/s 139(4) of the Act. The first proviso to section 201(1) specifically requires the furnishing of return of income u/s 139 without specifying any sub-section, therefore, the time limit provided under any of the sub-section of section 139 will be considered for the purpose of allowing the benefit as per the first proviso. Once, the return of income were filed by the recipient, as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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