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2015 (2) TMI 113 - AT - Income TaxRevision u/s 263 - AO has not made disallowance of 170 payments towards professional fees and contract charges on which tax had not been deducted at source - Retrospective v/s prospective - Whether to follow the decision of the Hon ble Special bench Bharati Shipyard Ltd. 2011 (9) TMI 258 - ITAT MUMBAI taking the view that Amendment to Sec.40(a)(ia) is prospective or the decision of the Hon ble Calcutta High Court 2011 (11) TMI 348 - CALCUTTA HIGH COURT taking a contrary view? - Held that - Considering the decision of Tej International (P) Ltd. v. Dy. CIT (2000 (9) TMI 215 - ITAT DELHI-A ) wherein it was held that in the hierarchical judicial system that we have in India, the wisdom of the court below has to yield to the higher wisdom of the Court above, and therefore, once an authority higher than this Tribunal has expressed its esteemed views on an issue, normally, the decision of the higher judicial authority is to be followed. The Bench has further held that the fact that the judgment of the higher judicial forum is from a non-jurisdictional High court does not really alter this position, as laid down by the Hon'ble Bombay High Court in the case of CIT v. Godavaridevi Saraf (1977 (9) TMI 24 - BOMBAY High Court). Amendment to the provisions of Sec.40(a)(ia) of the Act, by the Finance Act, 2010 was held to be retrospective from 1.4.2005. If the amendment is considered as retrospective from 1.4.2005, the effect will be that payments of TDS to the credit of the Government on or before the last date for filing return of income u/s.139(1) of the Act for the relevant AY have to be allowed as deduction. Admittedly in the case of the Assessee payments were so made before the said due date and in terms of the decision of the Hon ble Calcutta High Court in COMMISSIONER OF INCOME TAX, KOL-XI, KOL Versus VIRGIN CREATIONS 2011 (11) TMI 348 - CALCUTTA HIGH COURT no disallowance could be made by the AO u/s. 40(a)(ia) of the Act. Admittedly in the present case, the Assessee had deposited the tax deducted at source on or before the due date for filing return of income u/s.139(1) of the Act and therefore the impugned disallowance deserves to be deleted. Decided in favour of assessee.
Issues Involved:
1. Validity of the CIT's order under Section 263 of the Income Tax Act. 2. Application of Section 40(a)(ia) regarding disallowance for non-deduction of tax at source. 3. Retrospective applicability of the amendments to Section 40(a)(ia) by the Finance Act, 2010. Issue-Wise Detailed Analysis: 1. Validity of the CIT's Order under Section 263 of the Income Tax Act: The CIT exercised his powers under Section 263 of the Income Tax Act, considering the Assessing Officer's (AO) order erroneous and prejudicial to the interests of the revenue. The AO had not disallowed a sum of Rs. 29,95,170, which comprised 170 payments towards professional fees and contract charges on which tax had not been deducted at source. The CIT observed that TDS was made on a single date, 31.03.2006, for payments spread throughout the previous year, and the tax was paid to the Central Government on 18.08.2006, before the due date for filing the return of income for AY 2006-07. 2. Application of Section 40(a)(ia) Regarding Disallowance for Non-Deduction of Tax at Source: The CIT's view was based on the provisions of Section 194C/194H/194J, which mandate the deduction of tax at the time of payment or credit, whichever is earlier. The CIT argued that the assessee postponed the deduction of tax until March 2006, violating the provisions of Section 40(a)(ia). The CIT held that the AO should have disallowed the deduction of Rs. 29,95,170, as the tax was not deducted at the time of payment or credit but was instead deducted later and paid on 18.08.2006. The CIT's observations emphasized that the TDS should have been deducted throughout the year and not deferred to the end of the financial year. 3. Retrospective Applicability of the Amendments to Section 40(a)(ia) by the Finance Act, 2010: The Tribunal noted that Section 40(a)(ia) underwent amendments by the Finance Act, 2010, with retrospective effect from 1st April 2010. This amendment dispensed with the earlier two categories of defaults and extended the time for payment of TDS up to the due date specified under Section 139(1). The Tribunal referenced several judicial precedents, including the decision of the ITAT Kolkata in Virgin Creations and the Hon'ble Calcutta High Court, which held that the amendment is retrospective from 1.4.2005. Consequently, if the tax deducted at source is paid on or before the due date for filing the return of income, no disallowance under Section 40(a)(ia) can be made. The Tribunal also referred to the Karnataka High Court's judgment, which upheld the Tribunal's view that the amendment by the Finance Act, 2010, operates retrospectively. The Tribunal concluded that since the assessee had deposited the tax deducted at source before the due date for filing the return of income, the disallowance made by the CIT under Section 263 could not be sustained. Conclusion: The Tribunal quashed the CIT's order under Section 263, holding that the amendment to Section 40(a)(ia) by the Finance Act, 2010, is retrospective from 1.4.2005. Therefore, any payment of TDS made before the due date for filing the return of income under Section 139(1) should be allowed as a deduction. The appeal by the assessee was allowed, and the disallowance made by the CIT was deleted.
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