2022 (4) TMI 1067 - AT - Income Tax

Disallowance u/s 40(a)(ia) - assessee's claim for deduction of construction expense that were payable by the assessee whether or not the 2nd proviso to Section 40(a)(ia) of the Act is to be given a retrospective effect? - disallowing the construction expenses on the ground that no taxes were deducted at source from contractual payments related to said expenses despite the fact that the partnership firm which received the said payments (i) had furnished its return of income for the year u/s. 139(ii) had taken into account aforesaid payment in the computation of income in such return and (iii) had paid tax due on the income declared by it in the said return - HELD THAT - We find that the issue is settled in PERFECT CIRCLE INDIA PVT LTD 2019 (1) TMI 1532 - BOMBAY HIGH COURT held as the insertion of the 2nd proviso to section 40(a)(ia) of the Act was declaratory and curative in nature, therefore, the same would have a retrospective effect from 01.04.2005 i.e., the date of insertion of Section 40(a)(ia) - even in absence of the 2nd proviso to Section 40(a)(ia) of the Act, had held, that where a payee had already paid the tax, then, in such circumstances, the payer/deductor can only be asked to pay the interest qua the delay in depositing of the tax - See M/S. HINDUSTAN COCA COLA BEVERAGE PVT. LTD VERSUS COMMISSIONER OF INCOME TAX 2007 (8) TMI 12 - SUPREME COURT As in the present case before us, the payee, viz. M/s. BRED had duly included the aforementioned amount in its return of income that was filed within the stipulated time period and had paid the taxes on the same, therefore, the said amount could not have been disallowed under section 40(a)(ia) in the hands of the assessee. In order to support her claim that having cumulatively satisfied the conditions contemplated in the 1st proviso to Section 201(1) of the Act, she could not be held as an assessee-in-default, the assessee had placed on our record a certificate dated 29.11.2017 in Form No. 26A from a Chartered Accountant, evidencing the fact that the payee, viz. M/s. BRED had included the aforementioned amount of ₹ 29,00,838/- (supra) in its return of income for the year under consideration that was e-filed on 15.09.2012 and had paid the corresponding taxes on the same. Thus we are of the considered view, that the assessee having cumulatively satisfied the conditions contemplate in the 1st proviso to Section 201(1) of the Act, thus, could not have been held as an assessee-in-default, and resultantly, the aforesaid amount in question could not have been disallowed under Section 40(a)(ia) - Decided in favour of assessee.

Summary

Issues: Disallowance of construction expenses under section 40(a)(ia) of the Income-Tax Act, 1961 for Assessment Year 2012-13.

Analysis:
1. The appeal challenges the disallowance of construction expenses of ?29,00,838/- under section 40(a)(ia) by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)). The primary contention is that the payee, M/s. Buildtech Real Estate Developers (BRED), included the amount in its income tax return and paid the corresponding taxes, hence the disallowance was unwarranted. The appellant relied on the 2nd proviso to Section 40(a)(ia) inserted by the Finance Act 2012. The A.O. rejected this claim citing the proviso's applicability from 01.04.2013 onwards and disallowed the expenses.

2. The CIT(A) upheld the A.O.'s decision, stating the proviso applied prospectively from 01.04.2013. The appellant then appealed to the ITAT. The ITAT analyzed whether the 2nd proviso to Section 40(a)(ia) should have retrospective effect. Referring to the judgment in Pr. CIT vs. Perfect Circle India Pvt. Ltd., the ITAT concluded that the proviso was declaratory and curative, with retrospective effect from 01.04.2005. Additionally, the ITAT cited the Delhi High Court's ruling in CIT vs. Ansal Landmark Township Pvt. Ltd., emphasizing that even without the proviso, if the payee had paid the taxes, the payer's liability was limited to interest for delayed tax deposit.

3. Considering the above legal precedents and the fact that M/s. BRED had included and paid taxes on the disputed amount in its timely filed return, the ITAT held that the disallowance was unjustified. The ITAT noted the appellant's compliance with the conditions of the 1st proviso to Section 201(1) of the Act, absolving them from default status. Supported by a certificate from a Chartered Accountant confirming M/s. BRED's tax compliance, the ITAT set aside the CIT(A)'s order, vacating the disallowance of ?29,00,838/-. Consequently, the appeal was allowed.

4. The ITAT's decision rested on the retrospective applicability of the proviso, aligning with judicial interpretations and statutory provisions. By fulfilling the necessary tax obligations and demonstrating due diligence, the appellant successfully refuted the disallowance of construction expenses, emphasizing adherence to tax laws and precedents.