2015 (7) TMI 644 - AT - Income Tax

Disallowance under section 40(a)(ia) - late deposit of TDS into the Government account - CIT(A) deleted disallowance by holding that the relevant amendment made to section 40(a)(ia) by Finance Act, 2010 was applicable with retrospective effect - Held that - The issue involved in this appeal of the Revenue is squarely covered in favour of the assessee by the decision of CIT vs. Virgin Creations (2011 (11) TMI 348 - CALCUTTA HIGH COURT ) as well as the various decisions of the Coordinate Benches of this Tribunal as cited on behalf of the assessee before the Ld. CIT(A) wherein it was held that the relevant amendment made to section 40(a)(ia) by the Finance Act, 2010 being retrospective in nature, no disallowance under section 40(a)(ia) can be made if the corresponding TDS amount is paid by the assessee before the due date of filing of the return of income for the relevant year. In the present case, the TDS amount was duly paid by the assessee into the Government account on 31.05.2007 and 29.10.2007 i.e., before the due date of filing of return of income for the year under consideration and this being the undisputed position, we uphold the impugned order of the Ld. CIT(A) deleting the disallowance made by the A.O. under section 40(a)(ia). - Decided against revenue.

Summary

Issues:
Disallowance under section 40(a)(ia) - Retrospective application of amendment made by Finance Act, 2010.

Analysis:

Issue 1: Disallowance under section 40(a)(ia)
The appeal was filed by the Revenue against the Order of Ld. CIT(A)-IV, Hyderabad, which deleted the disallowance of Rs. 96,39,767 made by the A.O. under section 40(a)(ia). The A.O. disallowed the amount as the tax deducted by the assessee from payments to sub-contractors was paid after the due date specified in the law. The assessee argued that the relevant amendment to section 40(a)(ia) by the Finance Act, 2010 should be applied retrospectively from 01.04.2005. The Ld. CIT(A) agreed with the assessee's submission, citing the decision of the Hon'ble Kolkata High Court and various ITAT benches, and deleted the disallowance. The Tribunal upheld the Ld. CIT(A)'s decision, stating that if the TDS amount is paid before the due date of filing the return of income, no disallowance under section 40(a)(ia) can be made. Since the TDS amount was paid before the due date in this case, the disallowance made by the A.O. was deleted.

Issue 2: Retrospective application of amendment
The key point of contention was whether the amendment made by the Finance Act, 2010 to section 40(a)(ia) should be applied retrospectively from 01.04.2005. The assessee argued that the provision should be treated as retrospective based on decisions of various courts and ITAT benches. The Ld. CIT(A) accepted this argument, following the decision of the Hon'ble Kolkata High Court in the case of CIT vs. Virgin Creations. The Tribunal also agreed with this interpretation, emphasizing that if the TDS amount is paid before the due date for filing the return of income, no disallowance should be made under section 40(a)(ia). This retrospective application of the amendment was crucial in determining the tax treatment of the payments made by the assessee to sub-contractors.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, upholding the decision of the Ld. CIT(A) to delete the disallowance under section 40(a)(ia) based on the retrospective application of the relevant amendment made by the Finance Act, 2010. The judgment clarified the importance of timely payment of TDS in avoiding disallowances under the specified provisions of the Income Tax Act.