2024 (4) TMI 353 - AT - Income Tax

Application u/s 154 - benefit of the second proviso to Section 40(a)(ia) - seeking rectification to the effect that the disallowance u/s 40(a)(ia) on payment made without deduction of tax at source be allowed in terms of the second proviso to Section 40(a)(ia) which proviso undeniably was brought on the statute much after the impugned assessment year before us - HELD THAT - Assessee has demonstrated before us that the in the case of Arvind Lifestyle Brands Ltd. 2018 (8) TMI 1714 - ITAT AHMEDABAD had categorically held that the said amendment/second proviso to Section 40(a)(ia) to have retrospective effect finding it to be curative in nature. The Revenue has not controverted this position of law as laid down by the Hon ble jurisdictional High Court. The law as interpreted by the Hon ble High court has binding force within its jurisdiction and is the final word on law in its particular jurisdiction until overturned by a contrary decision of the hon ble apex court. Therefore the decision of the Hon ble jurisdictional High Court in the case of Arvind Lifestyle Brands Ltd. (supra) holding second proviso to Section 40(a)(ia) of the Act to have retrospective effect was the interpretation of law in the jurisdiction of Gujarat as it always was. The assessee was well within its right to have sought the benefit of this second proviso for the impugned year i.e. AY 2005-06 as it was applicable for the impugned year also as per the decision of the Hon ble jurisdictional High Court. The application therefore filed by the assessee seeking the benefit of the second proviso therefore clearly pointed out a mistake which was apparent from record on account of the denial of benefit of the said proviso to the assessee. As rightly pointed out by assessee courts have repeatedly held that if an assessee under a mistake/misconception is over-assessed the authorities under the Act are required to assist him and ensure that only the legitimate taxes due are collected S.R Koshti 2004 (12) TMI 62 - GUJARAT HIGH COURT - The application therefore filed by the assessee u/s 154 of the Act seeking the benefit of the second proviso to Section 40(a)(ia) of the Act needed to be entertained and allowed since the assessee had pointed out a mistake apparent from record. As relying on Jigna Construction 2016 (10) TMI 169 - GUJARAT HIGH COURT we hold the application filed by the assessee is maintainable u/s 154 of the Act and restore the issue back to the AO to consider the same on merits regarding the quantum of the benefit allowable to the assessee under the second proviso to Section 40(a)(ia) of the Act. Decided in favour of assessee.

Summary

Issues Involved:
1. Ex-parte decision by CIT(A)-NFAC.
2. Non-decision on merits by CIT(A)-NFAC.
3. Rectification of order u/s 154.
4. Confirmation of addition u/s 40(a)(ia).
5. Confirmation of demand including interest u/s 234B and u/s 234D.

Summary:

1. Ex-parte Decision by CIT(A)-NFAC:
The assessee contended that the CIT(A)-NFAC erred in deciding the appeal ex-parte without appreciating that the business was closed since COVID-19, leading to non-communication of notices to the partners. The Tribunal noted that no representation was made by the assessee before the CIT(A), leading to the dismissal of the appeal for non-prosecution.

2. Non-decision on Merits by CIT(A)-NFAC:
The assessee argued that the CIT(A)-NFAC failed to decide the appeal on merits as per Section 250(6) r.w.s. 251(1)(a). The Tribunal observed that the CIT(A) did not address the merits of the case due to the ex-parte decision.

3. Rectification of Order u/s 154:
The core issue was the rectification sought by the assessee u/s 154, which was rejected by the Assessing Officer and CIT(A) on the grounds that it did not relate to a mistake apparent from the record. The rectification pertained to the disallowance u/s 40(a)(ia) amounting to Rs. 2,30,59,781/-. The Tribunal noted that the second proviso to Section 40(a)(ia), inserted by Finance (2) Act, 2012, with effect from 01.04.2013, was held to be retrospective by various High Courts, including the jurisdictional High Court. The Tribunal held that the assessee was entitled to the benefit of this proviso and that the non-allowance constituted a mistake apparent from the record, making the rectification application maintainable.

4. Confirmation of Addition u/s 40(a)(ia):
The Tribunal observed that the assessee had already been granted relief by the ITAT to the extent of Rs. 32,18,58,199/- for the same assessment year under the first proviso to Section 40(a)(ia). For the remaining disallowance of Rs. 2,30,59,781/-, the assessee sought rectification based on the second proviso. The Tribunal directed the Assessing Officer to consider the quantum of benefit allowable under the second proviso.

5. Confirmation of Demand Including Interest u/s 234B and u/s 234D:
The Tribunal did not specifically address the issue of interest u/s 234B and u/s 234D, as the primary focus was on the rectification application and the applicability of the second proviso to Section 40(a)(ia).

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the rectification application u/s 154 was maintainable and directed the Assessing Officer to consider the merits regarding the quantum of benefit under the second proviso to Section 40(a)(ia). The appeal was allowed in favor of the assessee.