2024 (8) TMI 1025 - HC - Income Tax

Disallowance u/s 40 (a) (ia) - amounts which were payable at any time during the year - Scope of amendment to Section 40 (a) (ia) with effect from 01.04.2015 - HELD THAT - It appears to be not in dispute that Section 40 (a) (ia), not only, as it stood prior to its amendment as inserted by the Finance (No. 2) Act, 2004, but also by the subsequent amendment to the said provisions by Finance Act 2010 and Finance Act, 2014 had fell for consideration of the Supreme Court in the case of Shree Choudhary Transport Co. vs. Income-tax Officer 2020 (8) TMI 23 - SUPREME COURT What was earlier held by the Supreme Court in the case of CIT vs. Calcutta Export Company 2018 (5) TMI 356 - SUPREME COURT the Supreme Court, considering the effect of amendment brought about by the Finance Act, 2010 to the provisions of Section 40 (a) (ia), observed that the amendment as brought about by Finance Act, 2010 was retrospective in operation, being curative in nature and hence the same would become applicable from the date of insertion of the provision of sub-clause (ia) of Section 40 (a) of the Act. The Supreme Court while examining the issue of law and taking such view held that insofar as the amendment brought about to Section 40 (a) (ia) of the Act by the Finance Act, 2014 was concerned, the position in law as laid down in Calcutta Export Company would not become applicable, as the amendment was not a curative amendment, relating to any procedural aspects concerning deposit of the deducted TDS, as the amendment was to the substantive provision. It was held that the assessee cannot escape from the rigour of the substantive provisions of the Act providing for disallowance. In similar circumstances as in hand, the Supreme Court observed that the benefit of amendment as inserted by the Finance Act, 2014 would not be available to the assessee and accepting the retrospective applicability of such provisions would be preposterous. In view of the position in law as laid down by the Supreme Court in Shree Choudhary Transport Co. 2020 (8) TMI 23 - SUPREME COURT it is absolutely clear that the approach of the Tribunal in the present case was fundamentally flawed inasmuch as what has been undertaken by the Tribunal is to give a retrospective application of the substantive provisions of law, which has been held to be not permissible as held in Shree Choudhary Transport Co. (supra). We may also observe that the logic and applicability of a curative amendment which was brought about by the Finance Act, 2010, was certainly not a situation in hand which was the case that had fell for consideration before the Supreme Court in Commissioner of Income-tax vs. Calcutta Export Company (supra).The question of law stands answered in favour of the Revenue and against the assessee.

Summary

Issues:
1. Interpretation of Section 40 (a) (ia) of the Income Tax Act, 1961.
2. Retrospective application of the amendment to Section 40 (a) (ia) as per the Finance Act, 2014.
3. Disallowance of expenses due to late deposit of TDS.
4. Assessment year 2006-07.

Analysis:

Interpretation of Section 40 (a) (ia):
The appeal before the Bombay High Court challenged the Tribunal's decision to grant the Respondent-Assessee benefit under Section 40 (a) (ia) of the Income Tax Act, 1961. The Tribunal held that the disallowance of expenses claimed by the Assessee would be restricted to 30% of the expenditure, deviating from the Assessing Officer's decision. The issue revolved around the timing of TDS deposits and the applicability of Section 40 (a) (ia) to the case.

Retrospective Application of Amendment to Section 40 (a) (ia):
The Respondent-Assessee contended that the amendment to Section 40 (a) (ia) with effect from 01.04.2015 was retrospective in nature, citing decisions from Delhi High Court and Tribunal precedents. They argued that the disallowance should be limited to 30% of the expenses where TDS was not deducted within the prescribed time limit. However, the Revenue argued that the amendment was prospective, relying on a Kerala High Court decision. The Tribunal accepted the retrospective nature of the amendment, leading to the reduction in the disallowance.

Disallowance of Expenses due to Late TDS Deposit:
The Assessing Officer disallowed expenses claimed by the Assessee due to late deposit of TDS, adding the amount to the Assessee's income. The CIT(A) upheld this decision, citing a CBDT circular and lack of evidence of TDS payment. The Tribunal, however, ruled in favor of the Assessee, noting that TDS was deposited before the due date, making Section 40 (a) (ia) inapplicable.

Assessment Year 2006-07:
The assessment year in question was 2006-07. The High Court addressed the issue of whether the Tribunal was correct in applying the provisions of Section 40 (a) (ia) retrospectively to this assessment year. The Court referred to a Supreme Court decision regarding the retrospective operation of amendments to Section 40 (a) (ia) and concluded that the Tribunal's approach was flawed. The High Court quashed the Tribunal's order, ruling in favor of the Revenue and against the Assessee.

In conclusion, the High Court's judgment focused on the interpretation of Section 40 (a) (ia), the retrospective application of the amendment, the disallowance of expenses due to late TDS deposit, and the specific assessment year of 2006-07.