2016 (3) TMI 588 - AT - Income Tax

TDS u/s 194C - disallowance u/s 40(a)(ia) - whether the amendment made as above is prospective or retrospective w.e.f. 1.4.2005 when the provisions of Sec.40(a)(ia) were introduced? - Held that - Reasoning of the Hon ble Supreme Court in the case of Alom Extrusions Ltd (2009 (11) TMI 27 - SUPREME COURT) will equally to the amendment to Sec.40(a)(ia) of the Act whereby a second proviso was inserted in sub-clause (ia) of clause (a) of Section 40 by the Finance Act, 2012, w.e.f. 1-4-2013. The provisions are intended to remove hardship. It was argued on behalf of the revenue that the existing provisions allow deduction in the year of payment and to that extent there is no hardship. We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. Hon ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Towship (I) Pvt.Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005 Disallowance of carriage expenses for want of vouchers - Held that - As submitted that the vouchers could not be produced earlier because the issue was argued on legal grounds before CIT(A) and the counsel for the Assessee in the proceedings before the lower authorities did not think it fit to file the vouchers, though they were available. In view that the vouchers now sought to be filed by the Assessee as additional evidence is required to be admitted as additional evidence as they are material for deciding the issue in the appeal. Since, the additional evidence requires verification by the AO, deem it fit and proper to remand the issue to the AO for fresh consideration in the light of the additional evidence now filed. The AO will afford opportunity of being heard to the Assessee before deciding the issue.

Summary

Issues Involved:
1. Justification of addition under Section 40(a)(ia) read with Section 194C.
2. Applicability of the second proviso to Section 40(a)(ia).
3. Disallowance of expenses due to lack of vouchers.

Detailed Analysis:

1. Justification of Addition under Section 40(a)(ia) read with Section 194C:
The Assessee, engaged in the business of distributing Kerosene Oil, claimed a deduction of Rs. 13,70,500/- for carriage charges. The Assessing Officer (AO) disallowed Rs. 4,93,650/- under Section 40(a)(ia) because the Assessee did not deduct tax at source as required by Section 194C. The AO's decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], leading to the Assessee's appeal to the Tribunal.

2. Applicability of the Second Proviso to Section 40(a)(ia):
The Assessee argued that the second proviso to Section 40(a)(ia), introduced by the Finance Act, 2012, should be applied retrospectively. This proviso states that if the payee has declared the income and paid the tax, the Assessee should not be considered in default. The Tribunal agreed, citing the Supreme Court's decision in CIT Vs. Alom Extrusions Ltd., which held that amendments intended to remove hardship should be applied retrospectively. The Tribunal also referenced the Delhi High Court's decision in CIT Vs. Ansal Land Mark Township (I) Pvt. Ltd., which supported the retrospective application of the second proviso to Section 40(a)(ia) from 1st April 2005. Consequently, the Tribunal directed the AO to verify if the payees had declared the income and paid the taxes, and if so, to delete the addition.

3. Disallowance of Expenses Due to Lack of Vouchers:
The AO disallowed Rs. 6,60,150/- of the claimed carriage charges due to a lack of supporting vouchers and a potential violation of Section 194C. The Assessee sought to admit additional evidence (vouchers) under Rule 29 of the ITAT Rules, arguing that the vouchers were available but not submitted earlier due to the legal nature of the arguments before the CIT(A). The Tribunal admitted the additional evidence and remanded the issue to the AO for fresh consideration, instructing the AO to verify the vouchers and afford the Assessee an opportunity to be heard.

Conclusion:
The Tribunal allowed the Assessee's appeal for statistical purposes, directing the AO to verify the payees' tax declarations and the additional evidence (vouchers) before making a final decision. The Tribunal emphasized the retrospective application of the second proviso to Section 40(a)(ia) to ensure fairness and prevent unjust enrichment of the government.