2019 (1) TMI 1086 - HC - Income Tax

Disallowance u/s 40(a)(ia) - failure to deposit tax deducted at source on or before due date of filing of the income tax return - scope of amendment to second proviso to Section 40(a)(ia) - retrospectivity - Held that - The assessee had filed documents in evidence on which remand report was obtained to show that M/s Arch Infrastructure Projects Nirman Private Limited in their return of income filed under Section 139 for the Assessment Year 2011-12 had included payment/receipts of ₹ 17,00,20,000/- in their total income and had paid taxes thereon. The said position was affirmed and accepted after reluctance by the Assessing Officer before the Commissioner of Income Tax (Appeals). Last date for filing of return for the Assessment Year 2011-12 was 30th September, 2011, which was Friday and a bank holiday. Banks were also closed on 1st and 2nd October being Saturday and Sunday. 2nd October was also a national holiday. On 3rd October, 2010 respondent-assessee had deposited tax at source accordingly. Assessee had also paid interest for the delay in deposit of TDS of two days. This is also not denied and disputed. In these circumstances, the Revenue should have exercised its discretion and accepted the order of the Tribunal given the peculiar facts of the present case for every infraction of provision, when there is substantive compliance, need not be made a subject matter of challenge before the High Court. At best the disallowance of expenditure under Section 40(1)(a) in this year would have been allowed in the next assessment year. In view of the aforesaid position, as the issue is already covered against the Revenue by decision of this Court in Ansal Landmark Township (P) Limited 2015 (9) TMI 79 - DELHI HIGH COURT , no substantial question of law arises for consideration.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act for failure to deposit tax deducted at source (TDS) on or before the due date of filing the income tax return.
2. Retrospective application of the second proviso to Section 40(a)(ia) of the Income Tax Act.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Failure to Deposit TDS:
The Revenue challenged the order of the Income Tax Appellate Tribunal (Tribunal) which had affirmed the deletion of disallowance made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income Tax Act, 1961. The AO had disallowed an expenditure of ?17,00,20,000/- paid by the respondent-assessee to M/s Arch Infrastructure Projects Nirman Private Limited due to the failure to deposit TDS of ?34,00,400/- on or before the due date of filing the income tax return. The Tribunal noted that the TDS was deposited on 03.10.2011, beyond the due date for the assessment year 2011-12. However, it held that the amendments to Section 40(a)(ia) and Section 201 of the Act, which are beneficial in nature, should be given retrospective effect from 01.04.2005. The Tribunal relied on the case of Rajeev Kumar Agarwal vs. ACIT and confirmed that the recipient, M/s Arch Infrastructure Projects Nirman Private Limited, had accounted for the receipts in their return of income and paid taxes accordingly. Therefore, the addition made by the AO was rightly deleted by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Retrospective Application of the Second Proviso to Section 40(a)(ia):
The High Court upheld the Tribunal's reasoning, agreeing that the amendments to Section 40(a)(ia) and Section 201 of the Act should be treated as retrospective. The Court referred to its earlier decision in Commissioner of Income Tax-XIII versus Naresh Kumar, which held that the insertion of the words “has not been paid on or before the due date specified in subsection (1) to Section 139” to Section 40(a)(ia) by the Finance Act, 2010 should be given retrospective effect. The Court emphasized that the legislative intent behind these provisions was to ensure the deposit of TDS and not to penalize the taxpayer disproportionately. The Supreme Court in the case of M/s Calcutta Export Company also affirmed this view, stating that the amendments were curative and should be applied retrospectively to avoid undue hardship to taxpayers.

Additional Considerations:
The High Court noted that the respondent-assessee had deposited the TDS on 03.10.2011, after the due date for filing the return, which was extended due to bank holidays. The assessee also paid interest for the delay. Given these circumstances, the Court observed that the Revenue should have exercised discretion and accepted the Tribunal's order, as the delay was minimal and the substantive compliance was achieved. The Court concluded that no substantial question of law arose for consideration and dismissed the appeal, affirming that the issue was already covered by the decision in Ansal Landmark Township (P) Limited.

Conclusion:
The High Court dismissed the Revenue's appeal, upholding the Tribunal's decision to delete the disallowance under Section 40(a)(ia). The Court affirmed that the amendments to Section 40(a)(ia) and Section 201 of the Income Tax Act are curative and should be applied retrospectively, ensuring that the legislative intent to avoid undue hardship to taxpayers is honored. The appeal was dismissed without any order as to costs.