2015 (3) TMI 770 - AT - Income Tax

Disallowance u/s.40(a)(ia) - CIT(A) deleting the disallowance holding that TDS disallowance applies only to amounts payable as on 31st March and not to amounts already paid during the year - Held that - There is no dispute to the fact that the assessee has not deducted TDS on an amount of ₹ 58,81,847/- for which the Assessing Officer applying the provisions of section 40(a)(ia) made addition of the above amount. We find the Ld.CIT(A) deleted the addition made by the Assessing Officer on the ground that provisions of section 40(a)(ia) are not applicable since no amount is payable at the end of the year. While doing so, he relied upon the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport ( 2012 (4) TMI 290 - ITAT VISAKHAPATNAM ). The Coordinate Bench in the case of Vinay Ashwinikumar Joneja ( 2013 (11) TMI 1243 - ITAT PUNE) has already taken a view that provisions of section 40(a)(ia) are applicable even if no amount is payable at the end of the year. Therefore, the order of the CIT(A) has to be reversed. However, the assessee has made a new legal argument that the Finance Act, 2010 has amended the first proviso to section 40(a)(ia) w.e.f. 01-04-2010 and it has been held by various judicial authorities that such amendment is retrospective in nature. It is the submission of the Ld. Counsel for the assessee that the second proviso to section 40(a)(ia) was inserted by the Finance Act, 2012 w.e.f. 01-04-2013 wherein it is stated that disallowance u/s.40(a)(ia) of the Act need not be made if the assessee is not deemed to be an assessee in default under the first proviso to section 201(1) of the I.T. Act., therefore, this should also be held as retrospective since it has been introduced to eliminate unintended consequences which may cause undue hardship to the tax payers. We find some force in the above argument of the Ld. Counsel for the assessee. We find the Cochin Bench of the Tribunal in the case of Antony D. Mundackal 2013 (12) TMI 67 - ITAT COCHIN relied on by Ld. Counsel for the assessee, had an occasion to decide an issue in the light of the above argument and has restored the issue to the file of the Assessing Officer with certain directions. the assessee is that the second proviso to sec, 40(a)(ia) of the Act, inserted by the Finance Act, 2012 with effect from 1.4.2013 is clarificatory in nature and hence the benefit of the same should be applied retrospectively. However, the correctness of this contention has not been examined by the tax authorities. Hence, in the interest of natural justice, we are of the view that this contention of the assessee requires examination at the end of the assessing officer - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961 concerning TDS on amounts paid versus payable.
2. Interpretation of retrospective application of amendments to Section 40(a)(ia) introduced by the Finance Act, 2010 and 2012.

Issue-wise Detailed Analysis:

1. Applicability of Section 40(a)(ia) on Amounts Paid vs. Payable:

The primary issue in this case is whether the disallowance under Section 40(a)(ia) of the Income Tax Act, 1961, applies only to amounts 'payable' as on 31st March or also to amounts already 'paid' during the year. The Assessing Officer disallowed an amount of Rs. 58,81,847/- under Section 40(a)(ia) because the assessee failed to deduct TDS on labour charges. The CIT(A) deleted this addition, relying on the Special Bench decision in the case of Merilyn Shipping and Transport, which held that Section 40(a)(ia) applies only to amounts payable as on 31st March and not to amounts already paid.

The Revenue's appeal argued that the Pune Bench of the Tribunal in Vinay Ashwinikumar Joneja vs. ITO held that Section 40(a)(ia) applies even if no amount remains payable at the end of the year if TDS was not deducted on amounts paid. The Tribunal acknowledged this conflicting interpretation but leaned towards the view that Section 40(a)(ia) applies to both amounts paid and payable, thus necessitating a reversal of the CIT(A)'s order.

2. Retrospective Application of Amendments to Section 40(a)(ia):

The assessee introduced a new argument that the amendments to Section 40(a)(ia) by the Finance Act, 2010, and the Finance Act, 2012, should be applied retrospectively. The Finance Act, 2010, amended the first proviso to Section 40(a)(ia), and judicial authorities have held this amendment to be retrospective. The Finance Act, 2012, introduced the second proviso to Section 40(a)(ia), effective from 01-04-2013, stating that disallowance need not be made if the assessee is not deemed to be in default under the first proviso to Section 201(1). The assessee argued this should also be applied retrospectively to avoid undue hardship.

The Tribunal found merit in this argument but noted that the tax authorities had not examined the correctness of this contention. Referring to the Cochin Bench decision in Antony D. Mundackal vs. ACIT, which restored a similar issue to the Assessing Officer for examination, the Tribunal decided to follow this approach. The issue was thus remanded to the Assessing Officer to examine the applicability of the second proviso to Section 40(a)(ia) retrospectively and decide the matter afresh, giving the assessee an opportunity to be heard.

Conclusion:

The appeal by the Revenue was allowed for statistical purposes, with the Tribunal directing the Assessing Officer to re-examine the issue in light of the retrospective application of amendments to Section 40(a)(ia). The Tribunal emphasized the need for a fresh decision after considering the new legal arguments and ensuring due process. The judgment highlights the ongoing judicial debate on the interpretation and application of tax provisions, particularly concerning TDS and the timing of disallowances under Section 40(a)(ia).