2011 (12) TMI 422 - AT - Income Tax

Tribunal allows appeal, deletes disallowance under section 40(a)(ia)

The tribunal allowed the appeal of the assessee, directing the deletion of the disallowance of Rs. 24,60,844 under section 40(a)(ia). The tribunal ... Disallowance under section 40(a)(ia) - TDS u/s 194C - Held that:- Disallowance under section 40(a)(ia) only when the provisions of section 194C are applied to consider the hardship faced by the assessees has been totally ignored by the Assessing Officer and the learned Commissioner of Income-tax (Appeals) in so far as it was never the case of the assessee to claim expenditure of ₹ 33,898 being disallowed by the Assessing Officer merely because the amount paid by the assessee was on May 12, 2008. We are inclined to find the contention of learned counsel for the assessee appropriate for raising the alternate submissions in so far as learned counsel for the assessee has tried to analyse the interpretation of various decisions of the Tribunal and the High Courts relating to the issue regarding the due date of payment whether has to be considered in accordance with the amended provisions with effect from April 1, 2010 and whether the deduction of tax on payments without having entered into contracts have been subjected to TDS which has to be considered first for proceeding for disallowance under section 40(a)(ia). The disallowance under section 40(a)(ia) in the present case, is not justified and as such we direct the deletion of the said disallowance by allowing the appeal of the assessee. Issues Involved:1. Confirmation of disallowance under section 40(a)(ia) of the Income-tax Act, 1961.2. Applicability of section 194C regarding TDS on payments made to sub-contractors.3. Retrospective application of the amendment to section 40(a)(ia) by the Finance Act, 2010.4. Consideration of judicial precedents and previous tribunal decisions.Issue-wise Detailed Analysis:1. Confirmation of Disallowance under Section 40(a)(ia):The assessee challenged the disallowance of Rs. 24,60,844 made by the Assessing Officer (AO) under section 40(a)(ia) for the assessment year 2008-09. The AO noted that the assessee made sub-contract payments of Rs. 53,83,035 from April 2007 to February 2008, on which TDS of Rs. 67,345 was deducted and deposited on March 27, 2008, and May 12, 2008. The AO disallowed payments amounting to Rs. 24,60,844 for which TDS of Rs. 33,898 was paid on May 12, 2008, as it was not deposited before March 31, 2008.2. Applicability of Section 194C Regarding TDS on Payments Made to Sub-contractors:The assessee argued that there were no oral or written contracts with the parties to whom payments were made, and these payments were made on a day-to-day requirement basis for various services like welding, carriage of goods, security services, etc. Therefore, the payments did not qualify as sub-contracts under section 194C. The AO's disallowance was based on a misconception, as the payments were not made to sub-contractors but for various services required for the business.3. Retrospective Application of the Amendment to Section 40(a)(ia) by the Finance Act, 2010:The assessee contended that the amendment to section 40(a)(ia) by the Finance Act, 2010, which allowed TDS payments to be deposited before the due date of filing the return, should be considered retrospective from April 1, 2005. The Commissioner of Income-tax (Appeals) (CIT(A)) upheld the AO's action, stating that retrospectivity is not to be lightly inferred unless specifically stated. The assessee relied on various judicial pronouncements and decisions of the Supreme Court, arguing that remedial amendments should be applied retrospectively to avoid undue hardship.4. Consideration of Judicial Precedents and Previous Tribunal Decisions:The assessee cited several judicial precedents, including:- ITO v. Rama Nand and Co. [1987] 163 ITR 702 (HP)- Mythri Transport Corporation v. Asst. CIT [2010] 1 ITR (Trib) 290 (Vishakapatnam)- CIT v. United Rice Land Ltd. [2010] 322 ITR 594 (P&H)- CIT v. Ram Narain Goel [1997] 224 ITR 180 (P&H)- Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi [1979] 118 ITR 507 (SC)- Mahaveerprasad Jain v. CIT [1988] 172 ITR 331 (MP)The assessee also referred to similar cases decided by the ITAT Cuttack Bench in favor of the assessee, such as Ankul Bhandar, National Transport, Gurudev Singh, R. R. Carrying Corporation, Chandrakant Thacker, and Nabin Kumar Sahoo.Tribunal's Decision:The tribunal considered the arguments and judicial precedents presented by the assessee. It held that the controversy regarding the due date of TDS payment was settled by the Special Bench of the ITAT, Mumbai, which recognized the hardship faced by assessees due to the non-retrospective application of the amendment. The tribunal found that the AO and CIT(A) misdirected themselves by not considering the applicability of section 194C and the retrospective nature of the amendment. The tribunal directed the deletion of the disallowance of Rs. 24,60,844 under section 40(a)(ia), allowing the appeal of the assessee.Conclusion:In conclusion, the tribunal allowed the appeal of the assessee, directing the deletion of the disallowance of Rs. 24,60,844 under section 40(a)(ia). The tribunal recognized the retrospective application of the amendment to section 40(a)(ia) and found that the payments made by the assessee did not qualify as sub-contracts under section 194C. The decision was based on the consideration of various judicial precedents and the facts presented by the assessee.