2012 (4) TMI 449 - AT - Income Tax

Disallowance of ₹ 58,05,328/- u/s 40(a)(ia) Held that - Decided by the Hon ble Calcutta High Court in the case of CIT vs. Virgin Creators (2011 - TMI - 210395 - CALCUTTA HIGH COURT) confirming retrospective effect of section 40(a)(ia) on tax deducted at source and paid before the due date of filing of the return of income in favour of assessee.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Act for non-deposit of TDS before the due date.
2. Interpretation of retrospective application of the amendment to section 40(a)(ia) by the Finance Act, 2010.

Issue 1: Disallowance under section 40(a)(ia) of the Act for non-deposit of TDS before the due date:
The case involved an appeal against the order of the CIT(A) sustaining the addition of Rs. 60.91 lakhs under section 40(a)(ia) of the Act for non-deposit of TDS before the due date. The AO observed that the assessee did not deduct tax at source or deposit it before 31-03-2006 for payments made to various parties. The CIT(A) confirmed the addition, stating that TDS should have been deposited before March 2006. The assessee argued that the tax was deducted and deposited before filing the return, citing a retrospective amendment by the Finance Act, 2010. The Tribunal referred to a similar case and held that the disallowance under section 40(a)(ia) was not justified. The Tribunal relied on a decision by the Calcutta High Court and overruled the CIT(A)'s order, directing the AO to delete the disallowance.

Issue 2: Interpretation of retrospective application of the amendment to section 40(a)(ia) by the Finance Act, 2010:
The Tribunal considered the retrospective application of the amendment to section 40(a)(ia) by the Finance Act, 2010. The assessee argued that the amendment, effective from 1-4-2010, should be applied retrospectively from 1-4-2005 based on a decision by the ITAT Ahmedabad. However, the Tribunal noted a conflicting view by the Special Bench of the ITAT Mumbai, stating that the amendment was prospective and not retrospective. The Tribunal followed the decision of the Calcutta High Court, holding that the amendment was prospective and allowed the assessee's appeal, directing the deletion of the disallowance under section 40(a)(ia) amounting to Rs. 58,05,328.

This judgment addressed the issues of disallowance under section 40(a)(ia) of the Act and the retrospective application of the amendment by the Finance Act, 2010. The Tribunal ruled in favor of the assessee, highlighting the conflicting interpretations regarding the retrospective nature of the amendment. The decision provided clarity on the application of the law in similar cases, emphasizing the importance of compliance with TDS provisions and the significance of retrospective amendments in tax laws.