2013 (3) TMI 510 - HC - Income Tax

Disallowance U/s 40(a)(ia) - Non deposit of TDS amount within due date - Penalty U/s 271(1)(c)- Amendment which was brought about to section 40(a)(ia) by the Finance Act of 2010 - Held that - The Tribunal in the course of its decision took the view that the issue was covered by the decision in Bansal Parivahan 2010 (9) TMI 552 - ITAT, MUMBAI and sustained the deletion of the penalty only on that ground. As we have noted earlier, the submission which has been urged on behalf of the assessee in this case is that since the appeal arises not out of the quantum proceedings, but on the issue of penalty, the correctness of the view in Bansal Parivahan would not be determinative, strictly speaking of the issue as to whether a penalty should be imposed under section 271(1)(c). The Tribunal subsequent to its decision in Bansal Parivahan has reconsidered the amendment which was brought about to section 40(a)(ia) by the Finance Act of 2010 with effect from April 1, 2010. In Bharati Shipyard 2011 (9) TMI 258 - ITAT MUMBAI , the Special Bench of the Tribunal has held that the amendment was not retrospective. Matter remanded back.

Summary

Issues:
- Whether the Income-tax Appellate Tribunal was correct in deleting the levy of penalty under section 40(a)(ia) in the case of addition of Rs. 1,05,50,000?
- Whether the amendment to section 40(a)(ia) by the Finance Act of 2010 has retrospective effect?
- Whether a penalty under section 271(1)(c) should be imposed on the assessee?

Analysis:

Issue 1:
The case involved the question of whether the Income-tax Appellate Tribunal was justified in deleting the penalty imposed under section 40(a)(ia) in relation to an addition of Rs. 1,05,50,000 to the income of the assessee for the assessment year 2006-07. The Assessing Officer added back this amount due to the failure of the assessee to deposit tax deducted at source by the due date. However, the Commissioner of Income-tax (Appeals) observed that the claim of expense was correct, and the penalty was deleted based on the deeming provisions under section 40(a)(ia). The Tribunal upheld the deletion of the penalty, citing its own decision in a similar case. The appellant argued that a subsequent Special Bench decision held that the amendment to section 40(a)(ia) by the Finance Act of 2010 was not retrospective, challenging the sustainability of the Tribunal's decision.

Issue 2:
The debate centered around the retrospective effect of the amendment made to section 40(a)(ia) by the Finance Act of 2010. The Revenue contended that the Special Bench decision post the Tribunal's ruling indicated that the amendment was not remedial or curative and thus not retrospective. On the other hand, the assessee argued that the issue was debatable, as evidenced by the need for a Special Bench to resolve the matter. The assessee highlighted the timing aspect of the deeming fiction under section 40(a)(ia) and emphasized that no concealment could be alleged as the claim was made after disallowance in the subsequent year through a revised return. Additionally, the payment of interest under section 234B was presented as a factor against imposing a penalty under section 271(1)(c).

Issue 3:
The question of whether a penalty under section 271(1)(c) should be imposed on the assessee was also discussed. The Tribunal's decision heavily relied on its previous ruling in a similar case, overlooking other submissions made by the assessee. The High Court, considering the various arguments presented by both sides and the need for a comprehensive reconsideration of the case, remitted the proceedings back to the Tribunal for fresh consideration. The High Court refrained from expressing a conclusive opinion on the legal question raised, indicating that a more thorough review was necessary.

In conclusion, the High Court's judgment highlighted the complexities surrounding the imposition of penalties under tax laws, the interpretation of amendments, and the importance of considering all relevant factors before making a decision. The case underscores the need for a detailed examination of legal provisions and factual circumstances to ensure a just and fair outcome in tax penalty cases.