2014 (10) TMI 850 - AT - Income Tax

TDS u/s 194C - disallowance u/s 40(a)(ia) - Held that - the second proviso to section 40(a)(ia) of the Act is retrospective in operation w.e.f. 1/4/2005. As per this newly inserted proviso, the assessee is required to file Form No.26A as per rule 31ACB of the IT Rules,1962 so as not to be held as an assessee in default as per the proviso to section 201 of the Act. As held in the decision of the co-ordinate bench in the case of S.M.Anand vs. ACIT (2014 (2) TMI 1206 - ITAT BANGALORE), since the assessee in the period under consideration i.e. assessment year 2005-06, could not have contemplated that such a compliance was to be made, we also in the case on hand, remit the matter to the file of the Assessing Officer. The Assessing Officer is directed to consider the allowance or otherwise of the expenditure claimed amounting to ₹ 1,53,78,795/- on account of payments to Shri Uday Kumar Shetty after affording the assessee adequate opportunity to file Form No.26A and verification of whether the said payee has reflected the payment/receipt in his books of account and offered the same to tax in the period under consideration. In these circumstances, we set aside the order of the ld.CIT(A) to the file of the Assessing Officer only for the limited purpose as directed above. - Decided in favour of assessee for statistical purposes.

Summary

Issues involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961 for non-deduction of tax at source.

Detailed Analysis:

Issue 1: Disallowance under section 40(a)(ia) of the Income Tax Act
The case involved the disallowance of payments made to a subcontractor for non-deduction of tax at source under section 194C of the Act. The CIT(Central) held the assessment order erroneous and prejudicial to revenue, directing disallowance of the payments. The Assessing Officer disallowed the entire amount, leading to an appeal by the assessee before the Tribunal. The Tribunal remitted the matter back to the Assessing Officer, who passed a fresh order. The CIT(A) upheld the disallowance, stating that section 40(a)(ia) covers amounts payable during the year, not just at year-end. The assessee contended that the subcontractor had accounted for the payments and paid taxes, thus no loss to revenue. The Tribunal considered the second proviso to section 40(a)(ia) inserted by Finance Act 2013, which mandates no disallowance if the recipient accounts for payments. Relying on precedents, the Tribunal held that the provision applied retrospectively from 2005. Consequently, the disallowance was not warranted, and the matter was remitted to the Assessing Officer for verification and consideration of the expenditure claimed.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A) order and remitting the matter to the Assessing Officer for further assessment based on the retrospective application of the second proviso to section 40(a)(ia) of the Act.

This detailed analysis provides a comprehensive overview of the legal judgment, focusing on the specific issue of disallowance under section 40(a)(ia) of the Income Tax Act, 1961.