2014 (4) TMI 473 - AT - Income Tax

Amendment to Tax Law Applied Retrospectively, Assessee's Deduction Valid

The Tribunal dismissed the revenue's appeal and cross-objection, confirming that the amendment to Section 40(a)(ia) by the Finance Act, 2010, is ... Deletion of Additions u/s 40(a)(ia) - CIT(A) deleted addition made by AO invoking provisions of section 40(a)(ia) of Act for assessee's failure to deduct tax at source in respect of payments towards contract, commission and professional fee – Held that:- Following decision of Calcutta High Court, Bangalore Bench of Tribunal in case of ACIT v. M.K. Gurumurthy [2012 (6) TMI 293 - ITAT, Bangalore] held that tax deducted at source, if it is paid on or before due date for filing return of income, will not attract disallowance u/s. 40(a)(ia) of the Act - In said case order of CIT(A) has to be upheld - Delhi High court in case of Rajinder Kumar [2013 (7) TMI 454 - DELHI HIGH COURT] dated 01.07.2013 has also taken a similar view - Order of the CIT(Appeals) does not call for any interference – Decided against Revenue. Issues Involved:1. Applicability of Section 40(a)(ia) of the Income-tax Act, 1961.2. Retrospective or prospective nature of the amendment to Section 40(a)(ia) by the Finance Act, 2010.3. Validity of the CIT(A)'s decision to delete the addition made by the AO.Issue-wise Detailed Analysis:1. Applicability of Section 40(a)(ia) of the Income-tax Act, 1961:The Assessee, a partnership firm manufacturing fire extinguishers, was scrutinized by the Assessing Officer (AO) for not deducting tax at source on payments totaling Rs. 29,18,873. The AO invoked Section 40(a)(ia) of the Income-tax Act, 1961, which disallows deductions for certain expenses if tax is not deducted or paid within the prescribed time. The AO noted that while the Assessee had deducted the tax, it was deposited only on 26.9.2009, beyond the stipulated deadline of 31.3.2009 for the assessment year 2009-10. The AO's decision was influenced by the Special Bench of the ITAT, Mumbai's ruling in Bharati Shipyard Ltd., which emphasized the need for timely tax payment to avoid disallowance under Section 40(a)(ia).2. Retrospective or Prospective Nature of the Amendment to Section 40(a)(ia) by the Finance Act, 2010:The Finance Act, 2010 amended Section 40(a)(ia) to allow deductions if the tax deducted at source was paid on or before the due date specified under Section 139(1) of the Act. This amendment aimed to alleviate the hardships caused by the earlier stringent requirements. The ITAT Kolkata Bench in Virgin Creations held that this amendment was remedial and curative, thus retrospective from 1st April 2005. This view was upheld by the Hon'ble Calcutta High Court, which cited Supreme Court precedents in Allied Motors Pvt. Ltd. and Alom Extrusions Ltd. to support the retrospective application of remedial provisions.3. Validity of the CIT(A)'s Decision to Delete the Addition Made by the AO:The CIT(A) deleted the addition made by the AO, relying on the ITAT Bangalore Bench's decision in M.K. Gurumurthy, which followed the Calcutta High Court's ruling in Virgin Creations. The ITAT Bangalore Bench had concluded that the Finance Act, 2010's amendment to Section 40(a)(ia) was retrospective from 1st April 2005, thus allowing deductions for taxes paid by the due date under Section 139(1). The revenue's appeal against the CIT(A)'s decision was primarily to keep the issue alive, pending a higher court's decision. The Tribunal upheld the CIT(A)'s order, noting that similar views had been taken by the Delhi High Court in Rajinder Kumar.Conclusion:The Tribunal dismissed the revenue's appeal and the cross-objection, affirming that the amendment to Section 40(a)(ia) by the Finance Act, 2010, is retrospective from 1st April 2005. Consequently, the Assessee's deduction of Rs. 29,18,873 was valid as the tax was paid before the due date for filing the return of income, thereby not attracting disallowance under Section 40(a)(ia).