2019 (4) TMI 2015 - AT - Income Tax

Addition u/s 40(a)(ia) - assessee has not made TDS from the payment made towards legal and professional fee - applicability of second proviso to section 40(a)(ia) - HELD THAT - Hon ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P.) Ltd 2015 (9) TMI 79 - DELHI HIGH COURT has considered the applicability of second proviso to section 40(a)(ia) of the Act and held that the second proviso to section 40(a)(ia) is declaratory and curative and it has retrospective effect from 01/04/2005. Since the facts before me are similar, respectfully following the decision of Ansal Land Mark Township (P.) Ltd (supra), hold that without treating the assessee as an assessee in default the disallowance u/s 40(a)(ia) should not be made. The assessee s appeal is accordingly allowed.

Summary

Issues:
Assessment year 2009-10, Disallowance under section 40(a)(ia) of the Act, Second appeal before the Tribunal.

Analysis:
The case involves the appellant's appeal for the assessment year 2009-10 against the order of the CIT(A)-6, Hyderabad. The appellant, an individual deriving income from various sources, filed the return of income electronically, which was selected for scrutiny under CASS. The Assessing Officer disallowed a sum under section 40(a)(ia) of the Act for non-deduction of TDS on professional and legal fees. The CIT(A) upheld the AO's order, leading the appellant to file a second appeal before the Tribunal.

The appellant contended that before invoking section 40(a)(ia), the assessee should be declared as 'an assessee in default' under section 201(1) of the Act. The appellant relied on decisions of the Tribunal and the Delhi High Court, emphasizing the need for such declaration. The Departmental Representative supported the lower authorities' orders.

Upon considering the contentions and the legal provisions, it was noted that the appellant had not deducted TDS from the payments made towards legal and professional fees. Referring to the decision of the Delhi High Court, it was highlighted that the second proviso to section 40(a)(ia) is declaratory and curative with retrospective effect from 01/04/2005. The Court emphasized that as long as the payee has filed returns and paid tax on the income received, the appellant should not be treated as 'an assessee in default.'

Further, the Tribunal referenced the Agra Bench's analysis, emphasizing that the disallowance under section 40(a)(ia) aims to restrict deductions for income that remains untaxed due to TDS lapses. The Tribunal concurred with the Delhi High Court's decision, holding that without treating the assessee as 'an assessee in default,' the disallowance under section 40(a)(ia) should not be made. Consequently, the appellant's appeal was allowed.

In conclusion, the Tribunal allowed the appellant's appeal, following the legal principles established by the Delhi High Court and the Agra Bench. The decision highlighted the importance of considering the retrospective effect of the second proviso to section 40(a)(ia) and ensuring that the assessee is not penalized for TDS lapses when the payee has complied with tax obligations.