M/s. Aishu Fincorp Limited v. The Assistant Commissioner of lncome Tax

lncome Tax Tribunal Appeal Under Section 2604 of the Income Tax Act,1961 aggrieved by the Order dated 16-07-2010 passed in.lTA No. 66/HYD/09 for the Assessment Year 2005-2006 on the file of the lncome Tax Appellate Tribunal, Hyderabad Bench'A', Hyderabad. Between: M/S. Aishu Securities Ltd, 6-2-9131914, 1st floor, Progressive towers, Khairatabad, Hyderabad. ...Appellant AND lncome Tax Officer, Ward-1(1), Ayakar Bhavan, Hyderabad .: '*Yr*ry:"1=l-*ryr. ...Respondent - Counsel for the Appellants in both ITTAs : SRI A V A SIVP, KARTIKEYA representing SRI AV KRISHNA KOUNDINYA Counsel for the Respondents in both ITTAs: MS. BOKARC SAPNA REDDY (sENroR sc lNcoME TAx) The Court delivered the following: COMMON JUDGMENT THE HONOURABLE SRI JUSTICE P.SAM KOSI{Y AND THE HONOURABLE SRI JUSTICE SUDDALA CHALAPATHI RAO ITTA Nos.I98 & 234 OF 2012 COMMONJUDGMENT (per Hon'ble Sri Justice P.Sam Koshy) Heard Mr.A.V.A.Siva Kartikeya, leamed counsel representing Mr. A.V.Krishna Koundinya, leamed counsel for the appeilants and Ms. B.Sapna Reddy, learned Standing Counsel for the Income Tax Department for the respondent. Perused the record.

2. The instant appeals have been filed assailing the order dated 16.07.2010 passed by the leamed Income Tax Appellate Tribunal, Hyderabad, Bench 'A' in I.T.A.No.67lHyN\9 arrd I.T.A.No. 66lHyd/09 for the assessment year 2005-06.

3. The substantial question of law framed while admitting the appeals was whether the ITAT was right in upholding the disallowance made by the Assessing Officer for the amounts of Rs.1,88,85,983/- and Rs.1,13,18,977/- made under Section 40(a)(i a) of the Income Tax Act, 1961. 2

4. Tc,day, when the matters are taken up lor hearing, the leamed counsel for the appellants submits that the issue involved in the instant cases have already come up for hearing before the Hon'ble Supreme Court arising out of Calculta High Courl judgmeni and the Hon'ble Supreme Court in Commissioncr of Income Tax vs. Calcultta Export Companyr lras decided the issue, wt erein at paragraphs 19 , 2l , 24, 25 to 28 har; held as under: "21) The amendment though has addr,>ssed the concerns of the assesses falling in the first category but with regard to the case falling in ttre second category, it was still resulting into rrnintended consequences and causing grave anc genuine hardships to the assesses who had substantially complied with the relevant TDS provisions by deducting the tax at source and by paying tl e same to the credit of the Government before the due date of filing of their returns under Section 139(1) of the lT Act. The disability to claim deductions on account of such lately credited sum of TDS in assessmernt of the previous year in which it was dedur:ted, was detrimental to the small traders who may not be in a position to bear the burden of such disallow€rnce in the present Assessment Year". "24) Thus, the Finance Act, 2010 further rrllaxed the rigors of Section 40(axia) of the lT Act to provide that all TDS made during the previous yea' can be deposited with the Government by the due dztte of filing the return of income. The idea was to allow additional time to the deductors to deposit the TDS so made. However, the Memorandum explaining the provisions 1 [2018] 404 rrR 6s4 (sc) of the Finance Bill, 2010 expressly mentioned as follows: "This amendment is proposed to take effect relrospectively from 1"t April, 2O1O and will, accordingly, apply in relation to the Assessment year 2010-11 and subsequent years". "25) The controversy surrounding the above amendment was whether the amendment being curative in nature should be applied retrospectively i.e., from the date of insertion of the provisions of Section a0(a)(ia) or to be applicabte from the date of enforcement". '26) TDS results in collection of tax and the deductor discharges dual responsibility of collection of tax and its deposit to the Government- Strict compliance with Section 40(a)(ia) may be justified keeping in view the legislative object and purpose behind the provision but a provision of such nature, the purpose of which is to ensure tax compliance and not to punish the tax payer, should not be allowed to be converted into an iron rod provision which metes out stern punishment and results in malevolent results, disproportionate to the offending act and aim of the legislation. Legislature can and do experiment and intervene from time to time when they feel and notice that the existing provision is causing and creating unintended and excessive hardships to citizens and subject or have resulted in great inconvenience and uncomfortable results. Obedience to law is mandatory and has to be enforced but the magnitude of punishment must not be disproportionate to what is required and necessary. The consequences and the injury caused, if disproportionate do and can result in amendments which have the effect of streamlining and correcting anomalies. As discussed above, the amendments made in 2008 and 2010 were steps in the said direction only. The legislative purpose and the object of the said amendments were to ensure payment and deposit of TDS with the Government". "27) A proMso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the Section, is required to be read into the Section tggive 4 the Sectiorr a reasonable interpretation and -equires to be treated as retrospective in operation so that a reasonable interpretation can be given to tlre Section as a whole". "28) The purpose of the amendment ma,je by the Finance Act, 2010 is to solve the anomali€ s thal the insertion of section 40(a)(ia) was causing k, the bona fide tax payer. The amendment, even if not given operation retrospectively, may not materirrlly be of consequence to the Revenue when lhe tar rates are stable and uniform or in cases of big assessoes having substantial turnover and equally huge expenses and necessary cushion to absorb the effect. However, marginal and medium taxpayers, who wc rk at low gross product rate and when expendihrre which becomes subject matter of an order under Section O(a)(ia) is substantial, can suffer severe adverse consequences if the amendment made in 2010 is not given retrospective operation i.e., from the date of substitution of the provision. Transferring :r shifting expenses to a subsequent year, in such casr>s, will not wipe off the adverse effect and the financial stress. Such could not be the intention of the l?gislature. Hence, the amendment made by the Finance Act, 2010 being curative in nature is required to be given retrospective operation i.e., from the date of i rsertion of the said provision". and as surh the issue raised stands decided against tlte Revenue and in favour of the appellants and the instant two appoals can also be disposed of in similar terms.

5. Learned Standing Counsel appearing for the department on verification of facts did accept the fact that the issue involved in the instant appeals in fact stands covered against the Rt:venue vide the aforesaid judgment of the Hon'ble Supreme Court. I I I I I I I 5

6. In view of the same, the present appeals stand allowed in favour of the assessees and against the Revenue holding that the disallowance made by the Assessing Officer which stood confirmed by the Appellate Tribunal was bad in law and which stands adjudicated by the Hon'ble Supreme Court in the aforesaid judgment in the case of Commisstoner of Income Tax vs. Calcultta Export Company (supra) 7 . The appeals, accordingly, stand allowed with consequences to follow. There shall be no order as to costs Consequently, miscellaneous petitions pending, if any, shall stand closed Sd/- I. NAGA LAKSHMI JOINT REGISTRAR ,/TRUE COPY// SECTION OFFICER To,

1. The lncome Tax Appellate Tribunal, Hyderabad Bench 'A', Hyderabad 2. One CC to SRI A V KRISHNA KOUNDINYA' Advocate [OPUC] 3 One CC to MS. BOKARO SAPNA REDDY (SENIOR SC INCOME TAX) loPUCl

4. Two CD Copies ADKiPSL Y< HIGH COURT DATED:1110812025 ( COMMON JUDGMENT lTTA.Nos.198 & 234 o12012 ; t'5 S147.(. 18 SEP zffi .,} ) i) t) t ALLOWING THE BOTH ITTAs WITHOUT COSTS (. X{-