Court denies stay on IT Act provision, directs tax return submission for assessment year 2007-08.

The court declined to grant a stay on the constitutionality of Clause (ia) of Section 40(a) of the IT Act introduced by the Finance (No. 2) Act of 2004. However, the petitioners were directed to submit self-assessment returns including the amount for which tax was deducted at source for the assessment year 2007-08. The respondents were instructed to accept the returns, and the petitioners were required to pay tax on the self-assessment income. The court restrained the Department from taking penal action until the filing of the counter affidavit. The filing of returns and tax payment were considered provisional, with the option to file modified returns and pay additional tax if necessary.

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Issues involved: Challenge to constitutionality of Clause (ia) of Section 40(a) of IT Act introduced by Finance (No. 2) Act of 2004 and seeking stay on its operation.

Summary:

Constitutionality Challenge: The petitioner challenged the constitutionality of Clause (ia) of Section 40(a) of IT Act, introduced by the Finance (No. 2) Act of 2004, as ultra vires. The clause stated that expenses for which tax is not deducted at source or paid to the Government within the specified time under Section 200 would not be deductible in computing income.

Stay Application: The petitioner sought a stay on the operation of Clause (ia) of Section 40(a) of IT Act and requested a direction to accept the petitioner's return for the assessment year 2007-08 without applying the said clause.

Court Decision: The court noted the presumption in favor of the statute and declined to grant a stay on the amended provision. However, the court directed the petitioners to submit self-assessment returns including the amount for which tax was deducted at source. The respondents were instructed to accept the returns for the year 2007-08. The petitioners were required to pay tax on the self-assessment income, and the Department was restrained from taking penal action until the filing of the counter affidavit.

Provisional Nature of Returns: The filing of returns and tax payment based on such returns was deemed provisional. The petitioners were liable to file modified returns and pay any additional tax if necessary in case of failure in the proceedings.

Further Directions: The learned Counsel for the petitioner was directed to serve private notice on the respondents for further proceedings.

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