2010 (11) TMI 1033 - AT - Income Tax

Summary

Issues involved: Disallowance of transportation charges u/s.40(a)(ia) of the Income-tax Act, 1961.

Issue 1: Disallowance of transportation charges
The assessee contested the disallowance of Rs. 15,76,351 as transportation charges paid to truck owners in March'2005, arguing that tax was deducted and deposited before the due date u/s.139(1) of the IT Act, 1961. The amended sec.40(a)(ia) effective from 1.4.2005 specifies the timeline for tax deduction and payment. The Assessing Officer and CIT(A) misunderstood the payment date, as TDS was deducted in March'2005 and deposited on 25.4.2005, before the due date for filing returns u/s.139(1).

Issue 2: Non-consideration of evidence
The appellant provided details of transportation charges payments for February 2005 made in March 2005, but both the Assessing Officer and CIT(A) failed to consider this evidence before disallowing the amount, which was deemed unjust and against natural justice principles.

Issue 3: Interpretation of law
The appellant argued that the amendment aimed to alleviate hardships for assessees following the mercantile system of accounting, allowing them to pay deducted amounts before the due date u/s.139(1). The law was amended to permit payment of outstanding deductions before filing returns, applicable to the entire amount, not partially.

Issue 4: Legal interpretation
The Departmental Representative contended that the rectification under u/s.154 raised a debatable legal issue, emphasizing that expenses claimed in February could not include tax deducted and deposited after 31st March of the Assessment Year.

Judgment:
After considering the arguments and evidence, the Tribunal concluded that the mistake in record needed rectification in its entirety to prevent misinterpretation of legislative intent. The retrospective amendment clarified that deductions should be paid under the mercantile system until the due date for filing returns, allowing the assessee to claim the entire expense in the Assessment Year. The claim was deemed justifiable under Section 154, directing the Assessing Officer to allow the deduction u/s.40(a)(ia) as requested by the assessee. The CIT(A)'s order was overturned, and the assessee's appeal was upheld, resulting in the allowance of the appeal.