This could be a far reaching judgment which can engulf presumptive taxation enabling section(s) 44AD and 44AE. The interpretation by the Tribunal of Non Obstante Clause in section 43B as against similar one in section 44AF certainly have set the ball rolling for similar disallowance for ITRs filed under section 44AD and 44AE.  In case of a conflict between two obstante clauses in two different statutes, Supreme Court has held that such conflict has to be resolved on consideration of policy and purpose underlying the enactments and the language used therein. Generally a later enactment would prevail upon the earlier one if both deal specifically with the same subject. However, perhaps this is the first instance of conflict between two non-obstante clause in one statute.

IN THE INCOME TAX APPELLATE TRIBUNAL
PANAJI BENCH, PANAJI
BEFORE SHRI GEORGE MATHAN, HON’BLE JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, HON'BLE ACCOUNTANT MEMBER

ITA No. 26/PNJ/2013                 AY 2006-07
Good Luck Kinetic, Ahmad Mansion, Ambaji Salcete, Margao, Goa 403602 (PAN: AAFFG283K) Appellant
Vs.
ITO, Ward-2, Margao, Respondent
Order

 PER GEORGE MATHAN :
1. This is an appeal filed by the Assessee against the order of CIT(A), Panaji in Appeal No. 202/MRG/08-09 dt. 30.3.2012 for the A.Y 2006-07. The appeal filed by the Assessee is delayed by 253 days. Originally, the Tribunal had dismissed the Assessee‟s appeal vide an order dt. 25.7.2013 on the ground that the delay in filing of the appeal was not condoned. The Assessee has challenged the said order before the Hon'ble Jurisdiction High Court of Bombay at Goa in ITA NO. 27 of 2014 and the Hon'ble High Court vide order dt. 6.3.2014 has condoned the delay in filing the appeal and directed the Tribunal to dispose the appeal on merits. Consequently, this appeal was posted for hearing today. Shri D.E. Robinson, Advocate represented on behalf of the Assessee and Shri Nishant K., ld. DR represented on behalf of the Revenue.

2. It was submitted by the ld. AR that the Assessee is a dealer in two wheelers. It was the submission that this was the last year of his business and subsequently the Assessee has closed his business. It was the submission that the turnover of the Assessee for the relevant assessment year was Rs. 18,07,249/- and the Assessee had filed its return of income under the presumptive tax provision of Sec. 44AF by applying rate of 5%. It was the submission that in the course of the assessment the AO made two additions. The first addition was by invoking the provisions of Sec. 43B in respect of the statutory liabilities which had not been paid by the Assessee before the due date. On a specific query as to whether the statutory liabilities have been paid subsequently, the ld. Counsel was unable to submit any details. The second addition was in respect of the sundry creditors to the tune of Rs. 11,18,163/-. It was the submission by the ld. AR that as the Assessee had filed its return under the presumptive tax provision of Sec. 44AF and the said provision specifically excluded the provisions of Sec. 28 to 43C, no further addition on account of the statutory liabilities could be made u/s 43B or any addition in respect of the sundry creditors as no books of accounts were liable to be looked into under the presumptive tax provision. It was submitted by the ld. AR that the provisions of Sec. 44AF opened with the words “notwithstanding anything to the contrary contained in Sec. 28 to 43C”. It was the submission that as the provisions of Sec. 28 to 43C were excluded when applying the presumptive tax provision of Sec. 44AF, no addition could be made by relying upon the books of accounts. For this proposition, he placed reliance upon the decision of the Coordinate Pune Bench of this Tribunal in the case of Darshan Enterprises reported in 308 ITR (A.T) 362 wherein though the appeal was a penalty appeal, the Tribunal had held that the Assessee was under the bona fide impression that under the provisions of Sec. 44AE and 44AF there was no obligation on the Assessee to declare the profits as per the books in the return which were higher than the presumptive profits as per the said section and had consequently cancelled the penalty. It was the further submission that the true effect of the non-obstante clause in Sec. 44AF is that the provisions mentioned therein have full operation and the provisions embraced in the non-obstante clause do not become an impediment for the operation of that section. He also relied upon the decision of the coordinate Pune Bench of the Tribunal in the case of Sunil M. Kankariya, 298 ITR (A.T) 205 to submit that in the said decision it has been categorically held that when applying Sec. 44AE, since the unabsorbed depreciation falls u/s 32(2) of the Act, which is within the debarred claims as per Sec. 44AE(3), therefore the Assessee was not entitled for the set off of the unabsorbed depreciation. He also placed reliance upon Circular no. 779 dt. 14.9.1999 to submit that under the existing provisions of Sec. 44AF, presumptive tax scheme are provided for computation of profits and gains of the business of retail trade in any goods or merchandise and there was no requirement for the Assessee to maintain the books of accounts for such business and to get them audited if the deemed profit and gains are taken as taxable profit of such business. It was the submission that the Assessee having applied the provisions of Sec. 44AF and the AO having accepted the same, no further addition by applying provisions of Sec. 43B or in respect of sundry creditors was permissible. He also placed reliance upon the decision of the Hon'ble Delhi High Court in the case of Woodward Governor India P. Ltd. reported in 253 ITR 745 to submit that non-obstante clause “notwithstanding anything” is something appended to a section in the beginning with a view to give the enacting part of the section, in case of conflict, an overriding effect over the provisions of the Act mentioned in the non-obstante clause. He also placed reliance on the decision of the Hon'ble Rajasthan High Court in the case of Oil and Natural Gas Commission reported in 255 ITR 413 to support his argument in respect of the non-obstante clause. It was the submission that consequently the disallowance made by invoking the provisions of Sec. 43B and the addition representing sundry creditors were liable to be deleted.

3. It was an alternative submission that if the books of accounts of the Assessee were to be considered, then, the books of accounts in its entirety would have to be considered and the profit and loss account of the Assessee for the relevant assessment year showed a loss of more than Rs. 5 lacs.

4. In reply, the ld. DR vehemently supported the order of the AO and the CIT(A). It was the submission that though the Assessee has filed return by applying provisions of Sec. 44AF there is no bar from verifying the books of accounts. It was the submission that the AO had never directed the Assessee to apply the provisions of Sec. 44AF. It was the submission that it was only on account of a survey conducted on the Assessee on 24.6.2005 that the statutory payments having not been paid have been noticed. It was the submission that the provisions of Sec. 43B did apply in the Assessee‟s case.

5. We have heard the rival submissions. The decisions relied upon by the Assessee are not applicable to the facts of the Assessee‟s case insofar as none of them have considered the applicability of Sec. 43B when the return is filed applying the provisions of Sec. 44AF. A perusal of Sec. 44AF clearly shows that the opening words in the said section are “notwithstanding anything to the contrary contained in Sec. 28 to 43C”. A perusal of the provisions of Sec. 43B shows that the opening words are “notwithstanding anything contained in any other provisions of this Act”. As per the provisions of Sec. 44AF admittedly once the presumptive tax provision is applied, the income of the Assessee is fixed at 5% of the total turnover. The non-obstante clause in Sec. 44AF is not the only words that call for interpretation. When the presumptive tax rate is applied u/s 44AF, the said sum equaling 5% of the total turnover is deemed to be the profit and gains of such business chargeable to tax under the head „Profits and gains of business or profession‟. It only means that the deduction allowable u/s 28 to 43C is deemed to have been already granted to the Assessee. This is because the said provisions u/s 28 to 43C are provisions relating to the computation of business income of the Assessee. However, a perusal of the provisions of Sec. 43B shows that the said provision is a “restriction” on the allowance of a particular expenditure representing statutory liability and such other expenses claimed in the profit and loss account unless same has been paid before the due date of filing the return. The statutory liability in the present case has not been paid before the due date of filing the return. Further, the non-obstante clause in Sec. 43B has a far wider amplitude because it uses the words “notwithstanding anything contained in any other provisions of this Act”. Therefore, even assuming that the deduction is permissible or the deduction is deemed to have been allowed under any other provisions of this Act, still the control placed by the provisions of Sec. 43B in respect of the statutory liabilities still holds precedence over such allowance. This is because the dues to the crown has no limitation and has precedence over all other allowances and claims. In these circumstances, we are of the view that the disallowance made by the AO by invoking the provisions of Sec. 43B of the Act in respect of the statutory liabilities are in order even though the Assessee‟s income has been offered and assessed under the provisions of Sec. 44AF of the Act.

6. In respect of the addition representing the sundry creditors, admittedly the same cannot be made in the hands of the Assessee when applying the provisions of Sec. 44AF. This is because once the presumptive tax provision is applied, then, the books of accounts are deemed not to be available for the purpose of computation of the profit and gains of the business. Consequently, we are of the view that the addition representing the sundry creditors as made by the AO and as confirmed by the ld. CIT(A) is liable to be deleted and we do so.

7. Coming to the alternative argument raised by the ld. AR that if the additions are going to be sustained, then, the loss as per the books of accounts maintained by the Assessee was liable to be considered, as we have upheld the assessment made by applying the provisions of Sec. 44AF this argument no more survives.

8. In the result, the appeal of the Assessee is partly allowed.

Order pronounced in the open court on 15/06/2015.