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2015 (11) TMI 744 - AT - Income TaxTDS Sec.194C - disallowance u/s .40(a)(ia) - assessee has deducted the tax on payments made to sub-contractors but the same were paid belatedly in later years - Held that - In this case, assessee has placed on record evidence that constituents has filed the returns of income and claimed TDS, whatever is deducted by the assessee which was also duly allowed. In view of this, there is no dispute that constituents have accounted for the incomes and also paid taxes accordingly. We are of the opinion that the provisions of amendment brought in Finance Act, 2012 are to be considered as clarificatory and as assessee has deducted tax and also paid though belatedly, we are of the opinion that provisions of section 40(a)(ia) can be liberally interpreted so as to exclude the amounts from the purview of the above section. A.O. is directed to allow the expenditure as claimed. See Deputy Commissioner of Income-tax, Circle 1, Udupi Versus Ananda Marakala 2014 (12) TMI 613 - ITAT BANGALORE - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act. 2. Applicability of Section 194C to payments made by the assessee. 3. Timing of TDS payment and its implications. 4. Contractual relationship between the assessee and its constituents. 5. Retroactive application of amendments to Section 40(a)(ia). Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia): The assessee challenged the disallowance of Rs. 29,04,44,502 under Section 40(a)(ia) for failing to comply with TDS provisions. The Tribunal noted that the assessee deducted TDS on payments to sub-contractors but paid it belatedly. The Tribunal referenced the case of CTR-RAILONE-JV vs. ITO, which held that failure to deposit TDS on time invokes Section 40(a)(ia), leading to disallowance of the expenditure. The Tribunal upheld the disallowance, emphasizing that the provisions of Section 40(a)(ia) are additional measures to ensure timely TDS compliance. 2. Applicability of Section 194C: The assessee argued that Section 194C, which mandates TDS on payments to contractors, did not apply to payments made to its constituents. The Tribunal found that the assessee had a contractual relationship with its constituents, as evidenced by the TDS deducted on payments. The Tribunal held that Section 194C was applicable, and the assessee's failure to comply with it justified the disallowance under Section 40(a)(ia). 3. Timing of TDS Payment: The Tribunal examined whether the provisions of Section 40(a)(ia) could be invoked for the entire contract payments due to delayed TDS remittance. Citing the Bangalore Tribunal's decision in DCIT vs. Ananda Marakala, the Tribunal noted that amendments to Section 40(a)(ia) by the Finance Act, 2010, allowed deductions if TDS was paid by the due date specified in Section 139(1). The Tribunal concluded that the assessee's delayed TDS payment did not warrant disallowance since the tax was eventually paid. 4. Contractual Relationship: The Tribunal found that the assessee had a contractual relationship with its constituents, as it deducted and claimed TDS on the contract payments. This relationship mandated compliance with TDS provisions under Section 194C. The Tribunal cited the case of CTR-RAILONE-JV vs. ITO, where similar facts led to the conclusion that the assessee could not claim exemption from TDS obligations. 5. Retroactive Application of Amendments: The Tribunal considered whether amendments to Section 40(a)(ia) by the Finance Act, 2012, which provided relief if the payee filed returns and paid taxes, applied retroactively. Referring to the Delhi Tribunal's decision in ITO vs. Dr. Jaideep Kumar Sharma, the Tribunal held that the amendments were clarificatory and retrospective. The Tribunal concluded that since the assessee's constituents had filed returns and paid taxes, the disallowance under Section 40(a)(ia) should be excluded. Conclusion: The Tribunal allowed the assessee's appeal partly, directing the AO to allow the expenditure claimed, as the assessee had deducted and paid TDS, albeit belatedly. The Tribunal dismissed the stay application as infructuous. The order was pronounced in open court on 09.10.2015.
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