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2015 (3) TMI 564 - AT - Income TaxTDS on commission and interest expenses - assessee failed to pay the tax on or before the last day of the previous year - Tribunal deleted addition to held that the amendment to the provisions of Sec.40(a)(ia) whereby it was laid down that if the tax deducted at source is paid on or before the due date for filing the return of income u/s.139(1) no disallowance can be made u/s.40(a)(ia) is retrospective in operation and operates from 1.4.2005 though it is said to be retrospective only from 1.4.2010 - Held that - Tax deducted at source by the Assessee which have admittedly been paid on or before the due date for filing the return of income for AY 07-08, have to be considered as having been paid within time and therefore the provisions of Sec.40(a)(ia) of the Act cannot be invoked to disallow the payments. As laid down in COMMISSIONER OF INCOME TAX, KOL-XI, KOL Versus VIRGIN CREATIONS 2011 (11) TMI 348 - CALCUTTA HIGH COURT Amendment to the provisions of Sec.40(a)(ia) of the Act, by the Finance Act, 2010 is retrospective from 1.4.2005. Consequently, any payment of tax deducted at source during previous years relevant to and from AY 05-06 can be made to the Government on or before the due date for filing return of income u/s.139(1) of the Act. If payments are made as aforesaid, then no deduction u/s.40(a)(ia) of the Act can be made. 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. Disallowance of commission expenses under Section 40(a)(ia) of the Income Tax Act, 1961. 2. Disallowance of interest expenses under Section 40(a)(ia) of the Income Tax Act, 1961. 3. Retrospective application of the amendment to Section 40(a)(ia) by the Finance Act, 2010. Issue-wise Detailed Analysis: 1. Disallowance of Commission Expenses under Section 40(a)(ia): The assessee, a partnership firm engaged in arecanut trading, paid a commission totaling Rs. 21,29,379, with Rs. 10,88,339 pertaining to the last quarter. The Assessing Officer (AO) noted that the tax deducted at source (TDS) for this amount was paid to the Central Government before September 30, 2008, the due date for filing the return of income under Section 139(1). However, the AO disallowed the commission expenses under Section 40(a)(ia) because the TDS was not paid on or before the last day of the previous year (March 31, 2008), as required by the provisions applicable for the assessment year 2008-09. 2. Disallowance of Interest Expenses under Section 40(a)(ia): Similarly, the assessee credited interest of Rs. 12,22,334 to various creditors and deducted TDS, which was also paid before September 30, 2008. The AO applied the same reasoning as with the commission expenses and disallowed the interest expenses under Section 40(a)(ia) due to the TDS not being paid by March 31, 2008. 3. Retrospective Application of the Amendment to Section 40(a)(ia) by the Finance Act, 2010: The CIT(A) deleted the disallowances made by the AO, holding that if the TDS is paid on or before the due date for filing the return of income under Section 139(1), no disallowance under Section 40(a)(ia) should be made. The CIT(A) relied on the amendment to Section 40(a)(ia) by the Finance Act, 2010, which allows for the deduction of expenses if the TDS is paid by the due date for filing the return of income. This amendment was considered retrospective from April 1, 2005, despite being effective from April 1, 2010. The Tribunal upheld the CIT(A)'s decision, referencing the case of Sri Santosh Kumar Shetty, where it was held that the amendment to Section 40(a)(ia) by the Finance Act, 2010, operates retrospectively from April 1, 2005. The Tribunal cited the legislative history of Section 40(a)(ia) and various judicial precedents, including the Hon'ble Calcutta High Court's decision in the case of Virgin Creations, which affirmed the retrospective application of the amendment. The Tribunal noted that the amendment aimed to remedy unintended consequences and hardships caused by the earlier provisions. By aligning with the decisions of higher judicial authorities, the Tribunal confirmed that TDS paid on or before the due date for filing the return of income under Section 139(1) should not result in disallowance under Section 40(a)(ia). Consequently, the Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order, allowing the assessee's claim for commission and interest expenses. Conclusion: The Tribunal concluded that the amendment to Section 40(a)(ia) by the Finance Act, 2010, is retrospective from April 1, 2005. Therefore, any TDS paid on or before the due date for filing the return of income under Section 139(1) should not lead to disallowance of expenses under Section 40(a)(ia). The appeal by the Revenue was dismissed, and the order of the CIT(A) was confirmed.
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