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2016 (2) TMI 153 - AT - Income TaxDisallowance u/s 40(a)(ia) - prospective or retrospective effect of amendment of provisions of Sec.40(a)(ia) - Held that - Reasoning of the Hon ble Supreme Court in the case of Alom Extrusions Ltd (2009 (11) TMI 27 - SUPREME COURT ) will equally to the amendment to Sec.40(a)(ia) of the Act whereby a second proviso was inserted in sub-clause (ia) of clause (a) of Section 40 by the Finance Act, 2012, w.e.f. 1-4-2013. The provisions are intended to remove hardship. It was argued on behalf of the revenue that the existing provisions allow deduction in the year of payment and to that extent there is no hardship. We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. It is of the view that the order of CIT(A) on the issue challenged in this appeal should be set aside and the matter be remanded to the AO for fresh consideration for the limited purpose of the receipts from the assessee after declaring the same received from the assessee in their return of income. The plea of the assessee is supported by the decision referred to by the ld. Counsel for the assessee. AO shall afford adequate opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act. 2. Retrospective application of the amendment to Section 40(a)(ia) by the Finance Act, 2012. Issue-Wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) of the Income Tax Act: The assessee, a company engaged in civil contracting, faced an addition of Rs. 19,78,986.19 by the Assessing Officer (AO) under Section 40(a)(ia) for non-deduction of tax at source on certain expenditures. These expenditures included: - Carriage Inward: Rs. 7,07,510.00 (with detailed disallowances for various carriers) - Site Security Expenses: Rs. 8,75,660.19 (with detailed disallowances for various security services) - Hire Charges: Rs. 3,95,816.00 (with detailed disallowances for various service providers) The CIT(A) confirmed the AO's order. The assessee contended that the recipients of these payments were income tax assessees who had declared these receipts in their returns and paid taxes accordingly. The assessee relied on the ITAT Kolkata Bench's decision in the case of Santosh Kumar Kedia vs. ITO, which held that the proviso to Section 40(a)(ia) inserted by the Finance Act, 2012, was retrospective. The assessee requested that the issue be remanded to the AO for fresh consideration to establish the fact of tax payment by the recipients. 2. Retrospective Application of the Amendment to Section 40(a)(ia) by the Finance Act, 2012: The amendment introduced a second proviso to Section 40(a)(ia) by the Finance Act, 2012, effective from 1-4-2013. This proviso stated that if the assessee fails to deduct tax but the payee has filed a return, included the sum in their income, and paid the tax, the assessee would be deemed to have deducted and paid the tax on the date of furnishing the return by the payee. The memorandum explaining the Finance Bill, 2012, justified this amendment to rationalize disallowance provisions where the payee has paid the tax. The provisions of Section 40(a)(ia) ensure compliance with tax deduction at source. However, disallowing legitimate business expenses despite tax payment by the payee would result in unjust enrichment for the government. The amendment aimed to remove this anomaly. The question was whether this amendment was prospective or retrospective from 1.4.2005, the date of the original provision's introduction. The ITAT held that the amendment was declaratory and curative, thus retrospective from 1st April 2005. This view was supported by the Supreme Court's reasoning in CIT Vs. Alom Extrusions Ltd., which held that curative amendments should be applied retrospectively. The ITAT concluded that the CIT(A)'s order should be set aside, and the matter remanded to the AO to verify if the recipients had declared the payments in their returns and paid the taxes. The AO was directed to provide the assessee with adequate opportunity to present evidence. Conclusion: The ITAT allowed the assessee's appeal for statistical purposes, remanding the matter to the AO for fresh consideration. The AO was instructed to verify the tax payments by the recipients and provide the assessee with an opportunity to present evidence. The judgment emphasized the retrospective application of the amendment to Section 40(a)(ia) by the Finance Act, 2012, to avoid unjust enrichment and ensure fair tax treatment.
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