2017 (5) TMI 1705 - AT - Income Tax

Disallowance 40(a)(ia) on account of late payment of TDS, interest suspense account and sundry creditors - AR submitted that the assessee had paid tax deducted at source before the due date of filing of return that the provisions of section 40(a)(ia) were not applicable - HELD THAT - We find that the assessee itself had admitted that taxes were paid in the subsequent AY. In the cases of Rajendra Yadav ( 2016 (3) TMI 358 - ITAT JAIPUR ) and Amruta Quarry Works ( 2016 (7) TMI 1246 - ITAT AHMEDABAD ) the Tribunal had held that amendment to section 40(a)(ia) was retrospective in nature that the amount to be disallowed under the said section had to be restricted to 30% of the impugned expenditure. Respectfully following the above orders of the Tribunal we hold that disallowance should be restricted to 30% effective Ground of appeal is decided in favour of the assessee in part. As the appeal for the subsequent AY.is not before us we are not passing any order in that regard.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for late payment of TDS, interest suspense account, and sundry creditors.
2. Applicability of section 40(a)(ia) to the case.
3. Retrospective nature of the amendment to section 40(a)(ia) in 2014.
4. Disallowance restriction to 30% of the expenses.

Issue 1 - Disallowance under section 40(a)(ia):
The Assessee challenged the order of the CIT (Appeals) regarding disallowances made by the Assessing Officer (AO) under section 40(a)(ia) for late payment of TDS, interest suspense account, and sundry creditors. The AO disallowed significant amounts totaling to &8377; 7.86 crores, &8377; 15.91 lakhs, and &8377; 41.84 lakhs, respectively. The First Appellate Authority (FAA) upheld these additions. However, the Tribunal later restored the issue back to the AO for reevaluation.

Issue 2 - Applicability of section 40(a)(ia):
The Assessee argued that the provisions of section 40(a)(ia) were not applicable to its case as it had paid the tax deducted at source before the due date of filing the return. The Assessee referred to relevant judgments and orders to support its claim that the disallowance made by the AO was not justified. The Departmental Representative (DR) contended that the amendment to the section was prospective, citing a specific case in support.

Issue 3 - Retrospective nature of the amendment:
The Assessee further argued that the amendment to section 40(a)(ia) in 2014 was introduced to reduce hardship and should be considered retrospective. Referring to previous Tribunal decisions, the Assessee emphasized that the disallowance should be restricted to 30% of the expenses on which tax was not deducted within the prescribed time limit. The Tribunal agreed with this argument, holding that the amendment was retrospective and limited the disallowance to 30%.

Issue 4 - Disallowance restriction to 30%:
Based on the arguments presented and previous Tribunal decisions, the Tribunal decided in favor of the Assessee, partially allowing the appeal. It held that the disallowance should indeed be restricted to 30% of the expenses, following the precedent set by previous cases. However, as the appeal for the subsequent assessment year was not before the Tribunal, no order was passed in that regard.

In conclusion, the Tribunal partially allowed the appeal of the Assessee, restricting the disallowance under section 40(a)(ia) to 30% of the expenses and following the retrospective nature of the amendment to the section as established by previous Tribunal decisions.