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TMI Blog2018 (2) TMI 1374X X X X Extracts X X X X X X X X Extracts X X X X ..... ded hardship, only 30% of such amount should be disallowed as this amendment to the provision being curative in nature, its effect needs to be retrospective in operation? (C) Whether the ld. ITAT is correct in law in confirming the disallowance u/s 40(a)(ia) even when the receipt has included its income in its return and has paid tax thereon? (D) Whether under the facts and circumstances of the case and in law, the ld. ITAT was correct in confirming the order of CIT(A) confirming the disallowance of 5% of expenses claimed holding probability of personal element in such expenses inspite of all expenses being fully vouched and detailed? 3. The facts of the case are that the assessee an individual derives income from trading in machinery items mainly generator sets and engines. During the year, the assessee has declared gross profit of Rs. 3,04,73,702/- on total turnover of Rs. 29,11,38,336/- at the g.p. rate of 10.46% as against g.p. rate of 12.91% on total turnover of Rs. 21,51,45,871/- in the immediately preceding year. Thus, the assessee has declared low g.p. rate in the year under consideration as compared the preceding year. 4. Counsel for the appellant has taken us to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the First proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India and Ors. : [1991]189ITR70(Patna) . It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore that the first proviso to Section 43B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, "It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended." In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained. 4.2 In Commissioner of Income Tax Kolkata-III vs. Alom Extrusions Limited (2009) 319 ITR 306 wherein it has been held as under :- 15. We find no merit in these civil appeals filed by the Department for the following reasons: firstly, as stated above, Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed under the relevant Sales Tax law should be disallowed under Section 43B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984- 1985. The relevant accounting period ended on June 30, 1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section 43B which, as stated above, was inserted with effect from 1st April, 1984. It is also relevant to note that the first proviso which came into force with effect from 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Limited (supra). However, the assessee contended that even though the first proviso came to be inserted with effect from 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when Section 43B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Limited (supra). This Court, in Allied Motors (P) Limited (supra) held that when a provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be read as retrospective. It would, therefore', operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003. 4.3 In Commissioner of Income Tax vs. Harish Chand Ahuja 125 DTR 0184 (Raj.) wherein it has been held as under :- 11. A Division Bench of Gujarat High Court while examining a question in the terms that whether the Income Tax Appellate Tribunal was justified in deleting the addition of Rs. 23,13,933/-, relying upon the amendment made in Section 40[a](ia) of the Income Tax Act, 1961 by the Finance Act, 2010 and thereby giving it retrospective effect, after taking into consideration the facts noticed above arrived at conclusion that the amendment made in Section 40[a](ia) of the Income Tax Act, 1961 by the Finance Act, 2010 is retrospective in operation i.e. from the date of insertion of Section 40[a](ia) of the Act. The conclusion aforesaid was arrived by discussing the entire issue as under:- "16.5 Of course, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the filing of return. It is thus apparent that when the amendment introduced by the Finance Act, 2008 of relaxing the time for deposit of TDS was made retrospective from the year 2005 [1st April 2005], the amendment by Finance Act 2010 with regard to other limb of time limit for payment of TDS has to be held retrospective not from 1st April 2010 only. If we recall at this stage the speech of Finance Minister while introducing this provision by way of Finance Act, 2010, this amendment essentially has been brought for relaxing the current provision on disallowance of expenditure. The tax, if is deducted at any time during the financial year and paid before the date of filing of the return, the Legislature intended to allow deduction on such expenditure with an intention to permit additional time for most deductors upto September of the next financial year. 17.1 We draw further support from the fact that the rigor of payment of interest is also enhanced by increasing the interest charged on tax deducted, if any deposit by the specified date i.e., up to the filing of the return is not made, from 12% to 18% per annum in the provision of Section 201(1A). Prior to the said amendment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopting that we do not find any substantial question of law involved in this appeal. The same is, therefore, dismissed. 4.4 In Commissioner of Income Tax XIII vs. Naresh Kumar (2014) 326 ITR 0256 wherein it has been held as under:- 26. Principle of matching which is disturbed by Section 40(a)(ia) of the Act, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses as they have necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low G.P. rate and when expenditure which becomes subject matter of an order under Section 40(a)(ia) is substantial, can suffer severe adverse consequences as is apparent from the case of Naresh Kumar. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe off the adverse effect and the financial stress. Nevertheless the Section 40(a)(ia) has to be given full play keeping in mind the object and purpose behind the section. At the same time, the provision can be and should be interpreted liberally and equitable so that an assessee should not suffer unintended and deleter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 139 of the Act. 16.2 : One can notice that the object of bringing about provision of Section 40(a)(ia) in the year 2005 - 06 was to augment compliance of TDS provision. TDS either not deducted or deducted but not paid in respect of payment of interest, commission or brokerage etc., before the expiry of time prescribed under sub-section (1) of Section 200 and in accordance with the other provisions of Chapter XVII, such amount shall not be deducted in computing the 'income' chargeable under the head 'Profit & Gains' of business or profession. Such provision starts with non obstante clause which states that notwithstanding anything contained in Section 30 to 38 of the Income- tax Act, if the tax deducted at source is not paid within prescribed time [under Section 200 (1)], no amount could be deducted while computing the income, under Chapter IV of the 'computation of business income'. 16.3 : Thereafter, by way of amendment of Finance Act, 2008, further amendment was made whereby TDS deductible and deducted in the last month of previous year if was not paid till the due date of filing of return under subsection (1) of Section 139 and in any other case, on o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he core issue as to whether the amendment made by the Finance Act 2010 to Section 40[a](ia) of the Act is retrospective from the date of insertion of the provision i.e., 1st April 2005 therefore needs to be answered in affirmation. It can be seen that the amendment made by the Finance Act 2010 allows additional time upto the due date of filing of the return in respect of even those instances where TDS has been deducted during the first eleven months of the previous year. The additional time till the due date of filing of the return, in case of TDS made during the last month of the previous year was already available by the amendment made by Finance Act 2008. Thus, it is apparent that the relaxation made by the amendment made under the Finance Act, 2010 brings the law in parity with the aforementioned situation and accordingly, for the TDS deducted all throughout the year, time is extended from payment till the filing of return. It is thus apparent that when the amendment introduced by the Finance Act, 2008 of relaxing the time for deposit of TDS was made retrospective from the year 2005 [1st April 2005], the amendment by Finance Act 2010 with regard to other limb of time limit for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s answered in favour of the assesse and against the revenue. 4.6 In Commissioner of Income Tax-1 vs. Ansal Land Mark Township (P) Ltd. (2015) 377 ITR 635 wherein it has been held as under :- 9. It is seen that the second proviso to Section 40(a)(ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-Section (1) of Section 201 of the Act, then, in such event, "it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso". 11. The first proviso to Section 210(1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a Government undertaking, the taxes may be presumed to have been paid lastly by the due date of filing of the return of income and, therefore, the liability of the assessee to pay interest on the amount which was to be deducted as TDS ends with the due date of filing of the return by the Airport Authority of India. 4.8 In Commissioner of Income Tax-XIII vs. Rajinder Kumar (2014) 362 ITR 241 wherein it has been held as under :- 23. Section 43B deals with statutory dues and stipulates that the year in which the payment is made the same would be allowed as a deduction even if the assessee is following the mercantile system of accountancy. The proviso, however, stipulates that deduction would be allowed where the statutory dues covered by Section 43B stand paid on or before the due date of filing of return of income. Section 40(a)(ia) is applicable to cases where an assessee is required to deduct tax at source and fails to deduct or does not make payment of the TDS before the due date, in such cases, notwithstanding Sections 30 to 38 of the Act, deduction is to be allowed as an expenditure in the year of payment unless a case is covered under the exceptions carved out. The amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present case. The question of law is accordingly answered in negative, i.e., in favour of the respondent-assessee and against the Revenue. The appeal is accordingly disposed of. No costs. 4.9 In Commissioner of Income Tax, Ajmer vs. Asian Construction Company DBITA 26/2012 decided on 30.08.2017 wherein it has been held as under :- 11. Taking into consideration the observations made by the Tribunal as reproduced hereinabove and in view of the decision of this court as referred (supra), the view taken by the Tribunal is required to be confirmed. 5. Counsel for the appellant has taken us to the order of the tribunal wherein it has been observed as under:- "4.4 Without prejudice to above, it is submitted that the amendment to Section 40(a)(ia) made by FA, 2014 w.e.f. 01.04.2015 provides that 30% of any payable to a resident shall be disallowed if tax is not deducted at source under Ch. XVIIB as against the 100% presently made. The purpose of this amendment was explained in the memorandum as under:- "the disallowance of whole of the amount of expenditure results into undue hardship and therefore In order to reduce the hardship, it is proposed that in case of non-deduction or non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.5 In respect of the payments made to Shri Gaurav Agrawal, it is submitted that the payment is made towards processing charges of bank loan as per the standing instructions of the Bank. This payment is not a payment of legal expense and therefore, Section 194J is not applicable. This is also evident from the ledger account. Thus, the disallowance confirmed by the Ld. CIT(A) be directed to be deleted." 6. We have heard Mr. Gunjan Pathak, counsel for the appellant and gone through the order of the tribunal. 7. While considering the matter, the tribunal has held as under:- 5. We have heard the rival contentions and pursued the material available on record. In view of Hon'ble Delhi High Court decision in case of CIT vs. Ansal Land Mark Township Pvt. Ltd (supra) wherein the second proviso to section 40(a)(ia) has been held to have a retrospective effect, the same will be applicable in the instant case. Accordingly, in case of Reliance Capital Limited, where the assessee contends that it has filed a certificate from Chartered Accountant certifying that the interest paid by the assessee has been included by the recipient of income in their return of income and tax is paid thereon, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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