2016 (10) TMI 169 - HC - Income Tax

Disallowance u/s 40(a)(ia) - tax deducted at source not deposited within the time allowed - assessee preferred a revision petition before the Commissioner under Section 264 wherein he did not grant the benefit of the deduction to the assessee during such assessment year provided directed the Assessing Officer to make necessary rectification in exercise of powers under Section 154 of the Act for the relevant years and give effect to the expenses so disallowed in the earlier year. Held that - The assessee having deducted tax at source deposited in the government only after the end of the year under consideration but before the due date for filing of the return. In view of the amended provision of Section 40(a)(ia) of the Act by virtue of amendment dated 01.04.2010, such expenditure would also be deductible during the same year. This provision was held to have retrospective effect by the judgement of the High Court in case of Omprakash R Chaudhary (2015 (2) TMI 150 - GUJARAT HIGH COURT). On the basis of such statutory change and the judgement of the High Court, the assessee was, as held by the Supreme Court in case of Assistant Commissioner of Income Tax vs. Saurashtra Kutch Stock Exchange Limited reported in 2008 (9) TMI 11 - SUPREME COURT , entitled to seek rectification. The Tribunal correctly granted such a relief which was denied by the Assessing Officer and Commissioner (Appeals). The Commissioner (Appeals) was not correct in holding that no appeal against the order passed by the Assessing Officer under Section 154 of the Act would be maintainable. The order of the Assessing Officer was passed dealing with the assessee s application for rectification under Section 154 of the Act in which, a specific prayer of the assessee was that the expenditure be recognized during the financial year in which the same was made. The anxiety of the counsel for the Revenue that the assessee may claim double deduction cannot be shared. The Tribunal, as noted in the impugned judgement, has made sufficient provision for withdrawal of the benefit of the expenditure in the later years if by virtue of the order of the Commissioner under Section 264 of the Act the same was already granted to the assessee. This direction the assessee has not challenged. Before us also no such request is made. The direction of the Tribunal, therefore, binds the assessee.

Summary

Issues:
1. Disallowance of expenditure under Section 40(a)(ia) of the Income Tax Act, 1961 for failure to deposit tax deducted at source within the allowed time.
2. Revision petition under Section 264 of the Act seeking rectification of disallowed expenditure.
3. Legislative amendment to Section 40(a)(ia) allowing deduction if tax deducted at source is deposited before the due date.
4. Appeal against rejection of rectification application under Section 154 by the Assessing Officer.
5. Appeal before the Tribunal challenging the rejection of rectification application.
6. Tribunal's decision allowing the appeal and granting relief to the assessee.
7. Challenge by the Revenue against the Tribunal's decision.

Analysis:
1. The appellant, the Revenue, filed an appeal regarding the disallowance of expenditure claimed by the assessee under Section 40(a)(ia) of the Income Tax Act, 1961, due to the delay in depositing tax deducted at source. The Assessing Officer disallowed the expenditure as the tax was deposited after the allowed time. The Commissioner under Section 264 directed rectification for subsequent years to avoid injustice to the assessee.

2. The amendment to Section 40(a)(ia) made the deduction available if tax was deposited before the due date. The assessee sought rectification for the assessment year in question based on this amendment and the retrospective nature of the change. The Assessing Officer rejected the application, leading to appeals and further proceedings.

3. The Tribunal allowed the appeal, considering the legislative change and the High Court's decision on the retrospective effect of the amendment. The Tribunal emphasized that the deduction should not result in double benefits and provided for withdrawal of the benefit in later years if necessary.

4. The High Court upheld the Tribunal's decision, noting that the assessee was entitled to seek rectification based on the statutory change and relevant judgments. The Court disagreed with the Revenue's concerns about double deduction, affirming the Tribunal's directions for withdrawal of benefits in later years if required. The appeal by the Revenue was dismissed.