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TMI Blog2019 (11) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... /cis on account of Salary and not Professional Tax. Section 43B does not include in its ambit expenditure in the nature of salary which is distinct from bonus and leave encashment, therefore, there is no question of disallowance of expenditure in the nature of salary debited to Profit Loss A/c. Hence, the disallowance made by the A.O is deleted Disallowance u/s. 40(a)(ia) - HELD THAT:- No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. What is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of M/s. Basava Engineering Construction. The assessee filed his return of income for A.Y. 2010-11 on 12.09.2010 declaring total income at ₹ 92,51,140/-. The case was taken up for scrutiny. Thereafter, assessment was framed u/s 143(3) of the Act vide order dated 28.03.2013 and the total income was determined at ₹ 3,00,49,340/-. Aggrieved by the order of Assessing Officer, assessee carried the matter before Ld.CIT(A), who vide order dated 15.07.2014 (in appeal No.171/13-14) had granted substantial relief to the assessee.Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us and has raised the following grounds : "1. Whether in law and on facts and circumstances of the case, the learned CIT(A) has erred in deleting the addition of ₹ 10,43,114/- made by the AO on account of suppression of gross turnover as the assessee has claimed benefit of TDS made against the said amount? 2. Whether in law and on facts and circumstances of the case, the learned CIT(A) has erred in deleting the addition u/s. 43B of ₹ 96,505/- made by the AO as the professional tax remained outstanding? 3. Whether in law and on facts and circumstances of the case, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistant Commissioner of Income Tax (2005) 4 SOT 589 (Coch), it was held that "The TDS made in a particular assessment year should be given credit in the assessment of the respective assessment year itself. There is no provision in the IT Act to divide the TDS into different proportionate pieces and to give credit on the basis whether the entire income has been offered for assessment or not. There is also no provision in the IT Act to postpone the TDS credit to future assessment years other than the assessment year for which the TDS were made. Therefore, in substance the tax deducted at source must be attributed to the concerned assessment year and not to the particular item or source of income. If the tax deducted at source is attributed to that particular source or item of income, then the result will be perverse and chaotic. The provisions of law contained in s. 199 does not provide for any such casualty." The CIT(A) further after relying on the following decisions; deleted the addition made by Assessing Officer. a) Toyo Engg. India Ltd. Vs. Joint Commissioner of Income Tax (2006) 100 TTJ (Mumbai) 373 : (2006) 5 SOT 616 (Mumbai) b) Transmission Corporation of AP Ltd. &Anr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its ambit expenditure in the nature of "salary‟ which is distinct from bonus and leave encashment, therefore, there is no question of disallowance of expenditure in the nature of salary debited to Profit &Loss A/c. Hence, the disallowance made by the A.O is deleted." 12. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 13. Before us, Ld. DR took us through the order of Assessing Officer and supported the order of Assessing Officer. 14. The Ld. AR on the other hand reiterated the submissions made before the authorities below and supported the order of CIT(A). 15. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to addition of ₹ 96,505/-. We find that CIT(A) after considering submissions made by the assessee have deleted the addition made by Assessing Officer. Before us, the Revenue could not point out any fallacy in the findings of CIT(A). In view of this, we find no reason to interfere with the order of CIT(A) and thus, the ground No.2 of Revenue is dismissed. 16. The ground No.3 is with respect to deletion of disallowance u/s. 40(a)(ia) of the Act at ₹ 4,66,658/-. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta High Court, has held in the context of section 40(a)(ia) that the amendment is remedial in nature and designed to eliminate unintended consequences which may cause undue hardship to the taxpayers and is of clarificatory in nature and, therefore, has to be treated as retrospective with effect from 1stApril 2005. In the memorandum explaining the provisions relating to direct taxes in the Finance Bill 2012, in respect of amendment in section 40(a)(ia), it has been stated as under:- "RATIONALIZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I…….. II…………" Further, the CIT(A) also relying on the following decisions, deleted the addition made by the Assessing Officer. a) Rajeev Kumar Agarwal v. Additional Commissioner of Income-tax (2014) 45 taxmann.com 555 (Agra - Trib) b) CIT Vs. Virgin Creations (supra) and COMMISSIONER OF INCOME TAX Vs. Kotak Securities Ltd. (2012) 340 ITR 333 (Bom) 18. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 19. Before us, Ld. DR took us through the order of Assessing Officer and further submitted that though the Courts have held the inserti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature and should be given retrospective effect from 1st April 2005. 9. It is seen that the second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to subSection (1) of Section 201 of the Act, then, in such event, "it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso". 10. It is pointed out by learned counsel for the Revenue that the first proviso to Section 201 (1) of the Act was inserted with effect from 1st July 2012. The said proviso reads as under: "Provided that any person, including the principal 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into 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 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, du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. 15. In that view of the matter, the Court is unable to find any legal infirmity in the impugned order of the ITAT in adopting the ratio of the decision of the Agra Bench, ITAT in (Rajiv Kumar Agarwal v. ACIT)." In view of the aforesaid facts, we find force in the contention of Ld. DR. We therefore, restore the issue back to the file of Assessing Officer to decide the issue afresh about the disallowance in line with the aforesaid decision of Hon'ble Delhi High Court (supra) and in accordance with law. The assessee is also directed to file the requisite details called for by the authorities. The Assessing Officer shall grant adequate opportunity of hearing to the assessee. Thus, the ground No.3 of Revenue is allowed for statistical purposes. 23. The ground No.4 is with respect to deleting the addition of ₹ 1,90,81,660/- on account of service tax collected but not deposited. 24. During the course of assessment proceedings, the Assessing Officer on perusing the tax audit report noted that the assessee had received ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice tax element as a liability in its financial statements so as to comply with the accounting norms, the nature of sum of ₹ 1,90,81,666/- remains the same i.e."service tax‟. The observation of the A.Oin the assessment order that Service tax is linked with revenue and taxable u/s 28 is therefore, perverse and contrary to the irrefutable material available on record and further, the tangible submissions made by the appellant during the course of assessment proceedings that the service tax though billed but has not been debited to Profit &Loss A/c nor credited to Profit Loss A/c have not been properly appreciated by him. Further, the appellant has fervently relied upon the provisions of the Finance Act 1994 governing Service Tax and Service Tax Rules 1994 to contend that service tax is not in the nature of income. Section 66 of Chapter V of the Finance Act 1994 governing service tax is the charging section for levy of service tax, section 68 of the said Act determines the manner in which payment of service tax has to be made and furtherRule 6(1) of the Service Tax Rules 1994 prescribes the manner of payment of service tax as "The service tax shall be paid to the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai); (iii) DCIT vs. Hathway Cable &Datacom (P) Ltd. I.T.A. No.5757/M/2011 dated 05.09.2012 (ITAT Mumbai); 27. In view of the above factual and legal matrix, I am of the considered opinion that the addition of ₹ 1,90,81,666/- on account of Service Tax u/s 28 and corresponding disallowance under the provisions of Section 43B of the Act is unjustified and not sustainable and hence, deleted. 25. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 26. Before us, Ld. DR supporting the order of Assessing Officer submitted that while deciding the issue Ld. CIT(A) has ignored the fact that the assessee has routed the service tax amount through the Profit & Loss Account and in support of which she pointed to the Profit & Loss Account filed by the assessee and also the return of income. 27. The Ld. AR on the other hand reiterated the submissions made before the authorities below and further submitted that the issue is also covered in assessee'sfavour by the decision of Tribunal in assessee's own case for A.Y. 2009-10 in ITA No.174/BPR/2012, order dated 12.02.2016. He also placed on record the copy of the aforesaid decision. He thus, supported the order of CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the side of the Revenue, learned DR Smt. Shital S. Verma appeared and supported the order of the AO. 6. After considering the submissions of the learned DR, we are of the considered opinion that no interference is required in the decision given by the learned CIT (A). The issue of disallowance of unpaid statutory liability as prescribed u/s 43B of the IT ACT now stood resolved by several decisions. The impact of Circular No.372 dated 8thDecember, 1981 has also been considered. As per the said circular it is specifically mentioned that several cases have come to the notice where tax payers did not discharge their liability in respect of excise duties or other taxes although claimed, the said liability as deduction on the ground that the accounts have been maintained on mercantile basis. The CBDT has observed that on one hand the tax payers have claimed the deduction merely on the basis of accrual of liability but on the other hand, disputed the liability and did not discharge the obligation of payment of the tax. For some reasons or the other, the liability is disputed and not paid. This aspect has been considered by several Courts and came to the conclusion that in a situation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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