2015 (5) TMI 357 - AT - Income Tax

Disallowance u/s 40(a)(ia) - amount paid towards construction expenses - Non deduction of TDS - whether assessee is entitled to get benefit of amended provisions of section 40(a)(ia) brought by Finance Act, 2010 w.e.f. 01-04-2010 - Held that - no disallowance can be made if after deduction of tax through the previous year, same has been paid on or before due date of filing of the return of income - Since tax deducted at source has been paid before due date of filing of return, no disallowance could be made in view of further amended provisions of section 40(a)(ia) of the Act which is applicable retrospectively w.e.f. 01-04-2005. Accordingly, CIT(A) was justified in deleting the disallowance of 8,91,500/- made by AO, same is upheld. - Decided against Revenue.

Summary

Issues involved:
1. Disallowance of expenses under section 40(a)(ia) of the Income Tax Act.
2. Interpretation of retrospective effect of the amendment to section 40(a)(ia) by Finance Act, 2010.

Issue 1: Disallowance of expenses under section 40(a)(ia) of the Income Tax Act:
The case involved an appeal by the Revenue against the order of the Ld. CIT(A)-IV, Ahmedabad, regarding the deletion of an addition of Rs. 8,91,500 made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act. The disallowance was related to construction expenses paid to a developer, where the tax deducted at source (TDS) was not deposited within the specified time frame. The CIT(A) confirmed the addition initially, but the ITAT directed a reassessment considering the amended provisions of section 40(a)(ia) by the Finance Act, 2010. The Assessing Officer disallowed Rs. 8,91,500 based on the amended provisions, which required TDS to be paid before the due date of filing the return of income to claim deduction for related expenses. The CIT(A) granted relief to the assessee, leading to the Revenue's appeal.

Issue 2: Interpretation of retrospective effect of the amendment to section 40(a)(ia) by Finance Act, 2010:
The main issue before the ITAT was whether the assessee could benefit from the amended provisions of section 40(a)(ia) introduced by the Finance Act, 2010, with effect from 01-04-2010. The ITAT referred to a previous case, Kanubhai Ramjibhai Makwana, where it was held that the amendment was remedial and clarificatory in nature, designed to eliminate unintended consequences and provide relief to taxpayers. The ITAT considered the retrospective application of the amendment from 01-04-2005, the date when section 40(a)(ia) was inserted in the IT Act. The decision in Kanubhai Ramjibhai Makwana was upheld by the Hon'ble Gujarat High Court, affirming that the amendment had a retrospective effect from 01-04-2005. Consequently, since the TDS was paid before the due date of filing the return, no disallowance could be made under the amended provisions of section 40(a)(ia). Therefore, the CIT(A) was justified in deleting the disallowance, and the Revenue's appeal was dismissed.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the disallowance of expenses under section 40(a)(ia) based on the retrospective effect of the amendment introduced by the Finance Act, 2010. The case highlighted the importance of timely compliance with TDS provisions and the interpretation of tax laws to provide relief to taxpayers in certain situations.