2017 (11) TMI 1050 - AT - Income Tax

Disallowance under section 40(a)(ia) - assessee in default - Insertion of second proviso w.e.f. 01.04.2013 to section 40(a)(ia) - prospectivity OR retrospectivity - Held that - As in the case of Aditya Construction Company India Pvt. Ltd. 2014 (11) TMI 1150 - ITAT HYDERABAD the Tribunal has considered the decision of the hon ble Supreme Court in the case of Hindustan Coca Cola Beverage P. Ltd. v. CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA wherein it was held that if the payees have admitted the receipt of income, there is no need for the payee to deduct the TDS and in such circumstances, the assessee cannot be treated as as assessee-in-default and consequently the second proviso to section 40(a)(ia) also comes into operation even though the said proviso was introduced from April 1, 2013. Thus we deem it fit and proper to admit the additional ground of appeal and remand the issue to the file of the Assessing Officer for verification as to whether the recipient of the legal fee has offered the income in its return of income for the respective financial year. Thus, grounds of appeal 5, 9 and 10 are treated as allowed for statistical purposes. Whether the provisions of section 40(a)(ia) would apply to the expenditure which is payable as on 31st March of every year and not to the amounts which is already paid during the previous year? - Held that - This Ground is rejected in view of the judgment of the hon ble Supreme Court in the case of Palam Gas Service v. CIT 2017 (5) TMI 242 - SUPREME COURT dated May 3, 2017 wherein, the hon ble court has held that section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid.

Summary

Issues:
Appeal against disallowances under section 40(a)(ia) of the Income-tax Act for the assessment year 2012-13.

Detailed Analysis:

1. Disallowance under section 40(a)(ia):
The assessee challenged the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act, which was confirmed by the Commissioner of Income-tax (Appeals). The primary contention was that the provisions of section 40(a)(ia) should apply to expenditure payable as of March 31 of each year, not to amounts already paid during the previous year. The assessee argued that the second proviso to section 40(a)(ia) has retrospective effect. The Tribunal examined various decisions and found that if the payees have offered the income to tax in their returns and paid taxes, the disallowance under section 40(a)(ia) cannot be made. The Tribunal also considered the retrospective applicability of the second proviso to section 40(a)(ia) from April 1, 2005. The Tribunal allowed the additional grounds of appeal related to this issue, remanding it to the Assessing Officer for verification.

2. Treatment as an assessee-in-default:
The assessee contended that since they were not treated as an "assessee-in-default" under section 201(1) of the Act regarding the payment in question, the disallowance under section 40(a)(ia) was not sustainable. The Tribunal referred to various decisions in favor of the assessee, emphasizing that if the recipient had offered the income and paid taxes, the assessee cannot be deemed as an assessee-in-default. The Tribunal allowed the grounds related to this issue and remanded it to the Assessing Officer for further consideration.

3. Carry forward of loss:
The assessee raised the issue of the Assessing Officer not allowing the carry forward of loss claimed in the return of income. Despite the Commissioner of Income-tax (Appeals) failing to adjudicate on this matter, the Tribunal remanded the issue to the Assessing Officer for verification and directed to allow the carry forward of loss if found to be in order. The Tribunal treated this issue separately and provided directions for proper examination and allowance in accordance with the law.

4. Other grounds of appeal:
Certain other grounds of appeal were not necessary to be adjudicated upon by the Tribunal, and hence, the assessee's appeal was treated as partly allowed. The Tribunal made a comprehensive analysis of the issues raised, considered relevant legal precedents, and provided clear directions for further verification and allowance where applicable.

This detailed analysis of the judgment highlights the key issues, arguments presented, legal interpretations, and the Tribunal's decisions on each aspect of the appeal against the disallowances under section 40(a)(ia) of the Income-tax Act for the assessment year 2012-13.