2012 (12) TMI 661 - AT - Income Tax

Invoking of provisions of sec 154 and disallowance u/s 40(a)(ia)- Held that - Provisions of Chapter XVII are relevant only for ascertaining the deductibility of the tax a source and not for the actual deduction and payment for attracting the provision of section 40(a)(ia). Since in the instant case, it is not in dispute that that the assessee deducted TDS which was not paid to the account of Central Govt. within the prescribed time, however, it was paid before the due date of filing the return specified in section 139(1), addition u/s. 40(a)(ia) cannot be made if the payment of tax deducted at source has been made before the due date of filing the return of income for the year under consideration. See CIT v. Virgin Creations 2011 (11) TMI 348 - CALCUTTA HIGH COURT Therefore, when the assessee s case was covered under the main provisions of existing law then there was no need to go to the issue of prospective or retrospective effect of the amendment in the provisions by the Finance Act, 2010 - in favour of assessee.

Issues Involved:
1. Legality of the order passed under Section 154 of the IT Act, 1961.
2. Applicability of Section 40(a)(ia) of the IT Act, 1961 for disallowance of expenses.

Detailed Analysis:

1. Legality of the Order Passed Under Section 154 of the IT Act, 1961:
The assessee contended that the Assessing Officer (AO) erred in passing the impugned order under Section 154 of the IT Act, 1961, and the CIT(A) erred in confirming the same. The assessee argued that there was no mistake apparent from the record that required rectification, making the order bad in law and liable to be quashed.

The brief facts indicate that the AO invoked Section 154 and issued a notice to the assessee, subsequently passing an order under this section, which included an addition of Rs. 6,46,690/- as disallowance under Section 40(a)(ia). The CIT(A) upheld the AO's action under Section 154. However, since the Tribunal decided the issue on merits in favor of the assessee, it did not delve into the jurisdictional issue, deeming it academic.

2. Applicability of Section 40(a)(ia) of the IT Act, 1961 for Disallowance of Expenses:
The core issue on merits was whether the provisions of Section 40(a)(ia) were correctly applied to disallow Rs. 6,46,690/-. The assessee had deducted tax at source in March 2005 and remitted it to the Government account on 10.05.2005, within the time prescribed for filing the return of income.

The Tribunal examined the case in light of previous decisions, notably:
- M. K. Gurumurthy (ITA No.717/Bang/2011): The Tribunal dismissed the Revenue's appeal, noting that TDS paid before the due date of filing the return under Section 139(1) should not attract disallowance under Section 40(a)(ia).
- CIT v. Virgin Creations (Calcutta High Court): The High Court held that the amendment in Section 40(a)(ia) has retrospective operation, indicating that TDS paid before the due date of filing the return should not be disallowed.

The Tribunal further referenced:
- Bapusaheb Nanasaheb Dhumal v. ACIT (40 SOT 361): It was held that if tax is deducted in the last month of the previous year and paid before the due date of filing the return, the deduction is allowable.
- Bharti Shipyard Ltd. v. DCIT (Special Bench, Mumbai): Although the Special Bench had a contrary view, the Tribunal followed the Calcutta High Court's decision, which prevails in the judicial hierarchy.

The Tribunal concluded that since the assessee had deducted and paid the TDS before the due date of filing the return, the disallowance under Section 40(a)(ia) was not warranted. Consequently, the Tribunal allowed the assessee's appeal on this ground.

Conclusion:
The Tribunal allowed the assessee's appeal, primarily focusing on the merits of the case under Section 40(a)(ia) and following the precedent set by the Calcutta High Court in CIT v. Virgin Creations. The issue regarding the legality of the order under Section 154 was deemed academic and not addressed in detail.

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