2019 (3) TMI 557 - AT - Income Tax

Mistake rectifiable u/s. 154 - payment was made to the contractor without deduction of tax at source and therefore, held that it was not an allowable expenditure in view of the provisions of section 40(a)(ia) - In view of the notice u/s 154 assessee submitted that the contractor company had shown the entire receipt in its turnover and had paid taxes as per I.T. Act therefore, in view of amendment to proviso to section 40(a)(ia), the assessee was not an assessee in default and provisions of section 40(a)(ia) were not applicable - HELD THAT - The proviso to section 40(a)(ia) has been held to be effective retrospectively and therefore, the findings of the Assessing Officer that it is to be held prospective from 01/04/2013 is not correct and therefore, also the disallowance was not warranted. Moreover, I find that the assessee has raised various arguments, such as not debiting the expenditure in the profit & loss account and taking the same in the stock figure and also nothing was payable as on 31/03/2012. These all are debatable issues for which the rectification u/s 154 cannot be allowed

Issues Involved:
1. Rectifiability of the assessment order under Section 154 of the Income Tax Act.
2. Applicability of Section 40(a)(ia) concerning non-deduction of TDS.
3. Debatability of issues under Section 154.
4. Treatment of expenses in the profit and loss account and closing stock.
5. Double taxation concerns due to disallowance.
6. Retrospective application of the second proviso to Section 40(a)(ia).

Detailed Analysis:

1. Rectifiability of the Assessment Order under Section 154:
The appellant challenged the CIT(A)'s action of confirming the Assessing Officer's order under Section 154, arguing that there was no mistake in the assessment order that warranted rectification under this section. The appellant contended that the issue of non-deduction of TDS was already considered during the assessment proceedings, making it outside the purview of Section 154.

2. Applicability of Section 40(a)(ia) Concerning Non-Deduction of TDS:
The Assessing Officer observed that the appellant had made a payment of ?34,71,938 to a contractor without deducting TDS, which led to the disallowance of the expenditure under Section 40(a)(ia). The appellant argued that the payment was capitalized and not claimed as an expense in the profit and loss account, thus TDS was not deductible. Additionally, the contractor had included the receipt in its income and paid taxes accordingly, supported by a certificate from the contractor.

3. Debatability of Issues under Section 154:
The appellant argued that the issues concerning the deduction of TDS and the applicability of Section 40(a)(ia) were highly debatable and thus not subject to rectification under Section 154. The CIT(A) upheld the addition, stating that the consideration of receipt as income by the payee was not relevant for the provisions of Section 40(a)(ia).

4. Treatment of Expenses in the Profit and Loss Account and Closing Stock:
The appellant contended that the expenditure was not claimed in the profit and loss account but was added to the closing stock. Therefore, the question of TDS deduction would arise only if the amount had been claimed as an expense in the profit and loss account.

5. Double Taxation Concerns Due to Disallowance:
The appellant argued that the disallowance would result in double taxation since the expenses were not claimed in the profit and loss account, but the disallowance was made on account of non-deduction of TDS.

6. Retrospective Application of the Second Proviso to Section 40(a)(ia):
The appellant cited the judgment of the Hon'ble Allahabad High Court in Ghanshyam Chaudhury vs. Pr. CIT, which held that the second proviso to Section 40(a)(ia) is retrospective and beneficial to the assessee. The Tribunal found that this judgment supports the appellant's case, indicating that the proviso should be applied retrospectively, thus the disallowance was not warranted.

Conclusion:
The Tribunal concluded that the issues raised by the appellant, including the non-deduction of TDS and the treatment of expenses, were indeed debatable and not suitable for rectification under Section 154. The Tribunal also agreed with the appellant's reliance on the Allahabad High Court judgment, which supports the retrospective application of the second proviso to Section 40(a)(ia). Consequently, the appeal was partly allowed, dismissing grounds 2 and 9 as not pressed.

(Order pronounced in the open court on 22/02/2019)

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