2017 (5) TMI 1627 - AT - Income Tax

Addition u/s 40(a)(ia)- non deduction of TDS on payment of job work - second proviso to section 40(a)(ia) applicability - retrospective or prospective effect - Held that - Referring to diversified judgments on the issue it is settled law that if two views in regard to the interpretation of a provision are possible the Court would be justified in adopting that construction which favours the assessee. See COMMISSIONER OF INCOME TAX-1 VERSUS ANSAL LAND MARK TOWNSHIP (P) LTD. 2015 (9) TMI 79 - DELHI HIGH COURT Thus held that the second proviso to section 40(a)(ia) of the Act is retrospective in nature. The Ld. CIT(A) accordingly correctly allowed the appeal of the assessee and deleted the disallowance on this issue. - Decided in favour of assessee.

Summary

Issues:
Revenue's appeal against deletion of addition under section 40(a)(ia) of the Income-tax Act, 1961.

Analysis:

1. Issue of Deletion of Addition under Section 40(a)(ia):
- The Revenue contested the deletion of an addition of ?95,31,276 made by the Assessing Officer under section 40(a)(ia) of the Income-tax Act, 1961. The CIT(A) had allowed the appeal of the assessee, leading to the Revenue's appeal before the ITAT Chandigarh. The core argument revolved around the non-deduction of TDS on payment of job work amounting to ?95,31,276. The CIT(A) based the decision on the second proviso to section 40(a)(ia) of the Act, which the assessee claimed should prevent disallowance. The CIT(A) relied on a Tribunal decision and the retrospective nature of the second proviso to support the assessee's case.

2. Retrospectivity of the Second Proviso to Section 40(a)(ia):
- The main issue before the ITAT Chandigarh was the retrospectivity of the second proviso to section 40(a)(ia) of the Act. The Revenue argued that the proviso inserted w.e.f. 1.4.2013 was prospective, citing a decision by the Hon'ble Kerala High Court. In contrast, the CIT(A) relied on the decision of the Hon'ble Delhi High Court, which held the proviso to be declaratory and curative with retrospective effect from 1.4.2005. The ITAT Chandigarh noted conflicting views from different High Courts on this matter, emphasizing the importance of choosing an interpretation that favors the assessee when faced with multiple possible views.

3. Legal Precedents and Interpretation:
- The ITAT Chandigarh referred to various legal precedents to support its decision, including the decision of the Hon'ble Delhi High Court in the case of 'CIT Vs. Ansal Land Mark Township (P) Ltd', emphasizing the retrospective effect of the second proviso. Additionally, the ITAT Chandigarh highlighted the principle of adopting an interpretation favoring the assessee when faced with ambiguity, citing relevant decisions by the Hon'ble Supreme Court and other High Courts. The ITAT Chandigarh dismissed the Revenue's appeal, upholding the CIT(A)'s decision based on the retrospective nature of the second proviso to section 40(a)(ia) and the legal principles guiding the interpretation of tax provisions.

4. Final Decision:
- Ultimately, the ITAT Chandigarh dismissed the Revenue's appeal, affirming the deletion of the addition under section 40(a)(ia) made by the Assessing Officer. The decision was based on the retrospective application of the second proviso to section 40(a)(ia) and the legal principle favoring the assessee in cases of interpretational ambiguity. The ITAT Chandigarh's order was pronounced on 26.05.2017, concluding the legal proceedings in this matter.