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2017 (4) TMI 906 - AT - Income TaxDisallowance u/s 40(a)(ia) - scope of amendments - Held that - 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. The Hon ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (I) Pvt.Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005. We therefore accept the submission on behalf of the Assessee are of the view that it would be sufficient if the order of the CIT(A) is set aside and the issue remanded to the AO for verification as to whether payees have included the receipts from the Assessee in their returns of income in terms of the decisions referred to above. In case the payees are not cooperating in providing details, the AO should call for the information u/s. 133(6) or 131 of the Act, for verification of the same. In this regard the Assessee should furnish all the details of assessment particulars of the recipients of payment from the Assessee to the AO to ensure that he does not have any difficulty in making the required verification. The other issues raised by the Assessee in its appeal are therefore left open without adjudication, for the present. - Appeal of the Assessee allowed for statistical purpose.
Issues Involved:
1. Legality of CIT(A)'s order. 2. Applicability of Section 194C and Section 40(a)(ia) of the Income Tax Act. 3. Verification of payees' tax declarations. 4. Retrospective application of amendments to Section 40(a)(ia). Issue-wise Detailed Analysis: 1. Legality of CIT(A)'s Order: The appellant (Assessee) challenged the order of the CIT(A) dated 20.5.2013, which confirmed the disallowance made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income Tax Act, 1961. The Assessee argued that the order was arbitrary, illegal, and bad in law. 2. Applicability of Section 194C and Section 40(a)(ia): The Assessee, a partnership firm engaged in civil construction, made payments totaling ?16,35,970/- to various parties without deducting tax at source as required under Section 194C. The AO disallowed these expenses under Section 40(a)(ia), adding the amount to the Assessee's total income for the assessment year 2006-07. The CIT(A) upheld this disallowance. The Assessee contended that there was no contract necessitating TDS under Section 194C and that payments were made to labor Sardars who distributed wages to laborers. 3. Verification of Payees' Tax Declarations: During the hearing, the Assessee's counsel proposed that the appeal could be resolved if the AO verifies whether the payees have declared the receipts in their income tax returns. If the payees have declared these receipts, the addition under Section 40(a)(ia) should be deleted. This suggestion was made in light of the amendment to Section 40(a)(ia) by the Finance Act, 2012, which introduced a second proviso effective from 1-4-2013. This proviso deems that the Assessee has deducted and paid the tax if the payee has declared the income and paid the tax. 4. Retrospective Application of Amendments: The Tribunal considered whether the amendment to Section 40(a)(ia) by the Finance Act, 2012, which introduced the second proviso, should be applied retrospectively from 1-4-2005. The Tribunal referred to the Supreme Court's decision in CIT Vs. Alom Extrusions Ltd., which held that amendments intended to remove hardship should be applied retrospectively. The Tribunal also cited the Delhi High Court's decision in CIT Vs. Ansal Land Mark Township (I) Pvt. Ltd., which supported the retrospective application of the second proviso to Section 40(a)(ia). Conclusion: The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO for verification of whether the payees have included the receipts from the Assessee in their tax returns. If the payees are uncooperative, the AO should use Sections 133(6) or 131 to obtain the necessary information. The Assessee is to provide all relevant details to facilitate this verification. Other issues raised by the Assessee were left open without adjudication. The appeal was allowed for statistical purposes. Order Pronounced: The appeal of the Assessee was allowed for statistical purposes, and the order was pronounced in the Court on 12.08.2016.
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