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2019 (4) TMI 830 - AT - Income TaxDisallowance u/s 40(a)(ia) - default u/s 201(1) - scope of amendment - whether second proviso to Section 40(a)(ia) is prospective in application or is to be applied retrospectively? - HELD THAT - We have the benefit of guidance from the order of Hon ble Delhi High Court, in the case of CIT vs. Ansal Land Mark Township (P.) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT in which held that second proviso to Section 40(a)(ia) of I.T. Act is declaratory and curative and it has retrospective effect from 01.04.2005. Revenue s Special Leave Petition against this order of Hon ble Delhi High Court has been dismissed by Hon ble Supreme Court in CIT vs. Ansal Landmark Township (P.) Ltd. 2016 (8) TMI 1281 - SUPREME COURT OF INDIA The view that second proviso of Section 40(a)(ia) of I.T. Act is declaratory and curative in nature and has retrospective effect from 01.04.2005 was also taken in Rajeev Kumar Agarwal vs. Addl. CIT 2014 (6) TMI 79 - ITAT AGRA and and Hindustan Plywood Company vs. ITO 2016 (3) TMI 1062 - ITAT DELHI . The issue in question is squarely covered in favour of the assessee, in view of these precedents. Thus second proviso to Section 40(a)(ia) of I.T. Act is curative in nature and has retrospectively. Accordingly, in the fitness of things, and also as both sides agree, the disputed addition U/s 40(a)(ia) of I.T. Act is remanded to the Assessing Officer for fresh order on this limited issue after necessary verification, having regard to Section 40(a)(ia) of I.T. Act, read with first proviso to Section 201(1) of I.T. Act and also read with Rule 31 ACB of Income Tax Rules, 1961 ( I.T. Rules , for short). - Appeal of the assessee is allowed for statistical purposes.
Issues:
- Disallowance of interest expenses under Section 40(a)(ia) of the Income Tax Act, 1961 - Retrospective application of the second proviso to Section 40(a)(ia) of the Income Tax Act Analysis: - Issue 1: Disallowance of interest expenses under Section 40(a)(ia) of the Income Tax Act, 1961 - The Assessing Officer disallowed the assessee's claim on interest expenses paid to a finance company and added it to the income due to non-deduction of TDS under Section 194A of the Income Tax Act. - The assessee argued for retrospective application of the proviso inserted in Section 201 by the Finance Act, 2012, but the AO rejected it, stating that the effect of a law is applied from the specified date unless mentioned otherwise. - The CIT(A) upheld the AO's decision, citing that the second proviso to Section 40(a)(ia) was not retrospective based on previous judicial decisions. - The ITAT, considering precedents, held that the second proviso to Section 40(a)(ia) is declaratory and curative, with retrospective effect from 01.04.2005, and remanded the matter to the AO for verification and a fresh order. - Issue 2: Retrospective application of the second proviso to Section 40(a)(ia) of the Income Tax Act - The ITAT referred to the Delhi High Court's decision that the second proviso to Section 40(a)(ia) is curative and retrospective from 01.04.2005. - Precedents like Rajeev Kumar Agarwal vs. Addl. CIT and Hindustan Plywood Company vs. ITO supported the retrospective nature of the provision. - The ITAT concluded that the second proviso is curative and retrospective, remanding the matter to the AO for further verification and a fresh order. - The ITAT clarified that its opinion was limited to the second proviso to Section 40(a)(ia) and not other provisions under the Income Tax Act. In conclusion, the ITAT allowed the appeal for statistical purposes, directing the AO to re-examine the disallowance under Section 40(a)(ia) in light of the retrospective application of the second proviso. The judgment emphasized the curative and retrospective nature of the provision, following established legal precedents.
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