TaxTMI Login
AI OCR ✕Convert scanned orders, printed notices, PDFs and images into clean, searchable, editable text within seconds. Starting at 2 Credits/page
Try Now →Just a moment...
AI OCR ✕Convert scanned orders, printed notices, PDFs and images into clean, searchable, editable text within seconds. Starting at 2 Credits/page
Try Now →
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) Whether the disallowance made by invoking section 40A(2)(b) of the Income-tax Act, 1961 was justified; (ii) Whether the amendment to section 40(a)(ia) of the Income-tax Act, 1961 was clarificatory and retrospective so as to permit deduction where TDS was deposited before the due date under section 139(1).
Issue (i): Whether the disallowance made by invoking section 40A(2)(b) of the Income-tax Act, 1961 was justified.
Analysis: The payments under dispute were found to be identical to those considered in the assessee's earlier years. The disallowance had been made on an ad hoc basis without earmarking any specific payment as excessive or unreasonable and without cogent material showing tax avoidance through such payments. The provision requires a reasoned determination of excessiveness or unreasonableness, not a blanket addition.
Conclusion: The disallowance under section 40A(2)(b) was not sustainable and was deleted in favour of the assessee.
Issue (ii): Whether the amendment to section 40(a)(ia) of the Income-tax Act, 1961 was clarificatory and retrospective so as to permit deduction where TDS was deposited before the due date under section 139(1).
Analysis: The amended provision was read as a remedial and declaratory change intended to remove hardship caused by the earlier wording. The legislative history, notes on clauses, and memorandum to the Finance Bill showed that the object was to align the disallowance rule with deposit of TDS before the return-filing due date. Such curative amendments are treated as retrospective when they explain or supply an obvious omission in the prior law.
Conclusion: The amendment to section 40(a)(ia) was held to be clarificatory and retrospective from 1 April 2005, and the disallowance was deleted in favour of the assessee.
Final Conclusion: The appeal succeeded in full, and the additions made by the lower authorities were set aside.
Ratio Decidendi: An ad hoc disallowance under section 40A(2)(b) cannot stand without objective material showing excessiveness or unreasonableness, and a curative or clarificatory amendment intended to remove hardship is ordinarily retrospective in operation.
TaxTMI 
TaxTMI 
