2014 (11) TMI 1154 - HC - Income Tax

Disallowance of expenditure on account of non-compliance with TDS provisions - delay in depositing TDS - Held that - It is not in dispute that the TDS amount was deposited by the assessee prior to the due date of filing return. An amendment to Section 40 a (ia) of the Act of 1961 was introduced by the Finance Act, 2010 and that was applied w.e.f. 01.4.2010. The Assessing Officer while passing the assessment order impugned was of the view that the TDS was not paid before the due date specified in Sub-Section (1) of Section 139 and amendment to Section 40 a (ia) came into force on 01.4.2010, therefore, no question was there for disallowance of expenditure on account of non-compliance with TDS provisions. - Decided in favour of assessee.

Summary

Issues Involved:
1. Correctness of the judgment passed by the Income Tax Appellate Tribunal.
2. Application of the amended provisions of Section 40[a](ia) of the Income Tax Act, 1961.
3. Retrospective effect of the amendment made by the Finance Act, 2010.

Issue-wise Detailed Analysis:

1. Correctness of the judgment passed by the Income Tax Appellate Tribunal:
The appeal was filed under Section 260-A of the Income Tax Act, 1961, challenging the judgment dated 27.6.2013 by the Income Tax Appellate Tribunal, Jodhpur Bench, which affirmed the order passed by the Commissioner of Income Tax (Appeals), Udaipur on 31.3.2011. The Tribunal upheld the Commissioner's decision that the provisions of Section 40[a](ia) as amended by the Finance Act, 2010 are remedial/curative in nature and thus apply retrospectively. The Tribunal held that if TDS is deducted in time and deposited before filing the return, no disallowance could be made.

2. Application of the amended provisions of Section 40[a](ia) of the Income Tax Act, 1961:
The assessee, a proprietor of two firms, filed a return of income for Rs. 64,25,434/- on 31.10.2007, and the assessment was completed on 30.12.2009. The Assessing Authority assessed the income at Rs. 4,94,14,649/- with a disallowance of TDS amounting to Rs. 4,26,65,256/- for not being deposited within the prescribed time. The Commissioner of Income Tax (Appeals) set aside this assessment, holding that the amended provisions of Section 40[a](ia) applied retrospectively. The Revenue's argument was that the TDS, though deposited before filing the return, should not have been excluded from the income of the assessment year concerned because the amendment was effective from 01.4.2010.

3. Retrospective effect of the amendment made by the Finance Act, 2010:
The court considered the relevant provisions and found no merit in the Revenue's argument. It was undisputed that the TDS amount was deposited before the due date of filing the return. The amendment to Section 40[a](ia) introduced by the Finance Act, 2010, effective from 01.4.2010, was deemed curative in nature. The court referred to the notes on clauses and the memorandum explaining the amendment, which indicated that the amendment was intended to be retrospective to avoid hardship and discrimination. The Gujarat High Court's Division Bench had similarly concluded that the amendment was retrospective from the date of insertion of Section 40[a](ia) of the Act, stating that the amendment was curative and should be applied retrospectively to serve its intended purpose.

The Finance Minister's speech while introducing the Finance Bill, 2010, also supported the retrospective application, emphasizing that the amendment aimed to relax the provisions on disallowance of expenditure if tax was deducted during the financial year and paid before the due date of filing the return. The court adopted the reasoning of the Gujarat High Court, affirming that the amendment was retrospective and dismissing the appeal for lack of a substantial question of law.