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2016 (3) TMI 1316 - AT - Income TaxScope of amendment to Section 40(a)(ia) - amendment by the Finance Act, 2012 w.e.f. 01.04.2013 is prospective and by holding so the assessee is aggrieved by the disallowance of interest expenditure - Held that - The reliance on the Circular by the D.R. is misplaced as that Circular refers to the decision of the Tribunal Special Bench, Vishakhapatnam in the case of Merilyn Shipping & Transports vs. Addl. CIT 2012 (4) TMI 290 - ITAT VISAKHAPATNAM . The Circular also refers to the decision of the Hon ble High Court of Gujarat, High Court of Allahabad which all relates to the issue relating to paid or payable whereas the issue before us relates to the amendment of second proviso to Section 40(a)(ia) which has been held to have a retrospective effect by the Hon ble High Court of Delhi in the case of Ansal Landmark Township Pvt. Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT In the interest of justice and fair play, we restore this issue to the files of the A.O. The assessee is directed to furnish necessary evidences to show that the payee has filed returns and offered the sum received to tax. The A.O is directed to verify the same and decide the issue fresh.
Issues:
Appeals against CIT(A) orders related to prospective amendment to Section 40(a)(ia) by Finance Act, 2012. Analysis: The appeals by two different assessees were directed against separate orders of the ld. CIT(A)-II, Surat dated 06.10.2015. Both appeals involved common issues and were heard together for convenience. The main grievance in both appeals was regarding the prospective nature of the amendment to Section 40(a)(ia) by the Finance Act, 2012, effective from 01.04.2013, leading to the disallowance of interest expenditure. During scrutiny, the Assessing Officer (A.O) observed that the assessees had taken loans for property purchase and car loans from specific entities, making interest payments without deducting tax at source. The A.O sought explanations on why disallowance under Section 40(a)(ia) should not be made. The assessees argued that if payees had declared income and paid taxes, the provision of Section 40(a)(ia) should not apply due to the amendment. However, the A.O disagreed, applying the amendment prospectively from A.Y. 2013-14 and disallowed the interest. The assessees appealed to the CIT(A) without success. The assessees' counsel argued that the issue was settled by the Hon’ble High Court of Delhi, holding that the second proviso to Section 40(a)(ia) had a retrospective effect. In contrast, the Departmental Representative (D.R.) referred to a CBDT Circular supporting the disallowance upheld by the A.O and CIT(A). Upon careful consideration, the Tribunal found the D.R.'s reliance on the Circular misplaced, as it pertained to different issues. The Tribunal noted that the issue at hand, concerning the amendment to Section 40(a)(ia), was held to have a retrospective effect by the Hon’ble High Court of Delhi in a specific case. In the interest of justice, the Tribunal directed the A.O to verify if the payees had filed returns and offered the received sum for taxation, following the Delhi High Court's ruling. As a result, both appeals by the assessees were treated as allowed for statistical purposes, and the issue was restored to the A.O for further examination based on the Delhi High Court's decision. (Order pronounced in Open Court on 16 - 03 - 2016)
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