2017 (1) TMI 732 - AT - Income Tax

Tribunal rules Finance Act 2012 amendment applies retrospectively

Punjab Goods Transport Pvt. Ltd. Kolkata Versus I.T.O., Ward-12 (3), Kolkata

The Tribunal held that the amendment to Section 40(a)(ia) by the Finance Act, 2012, is retrospective from 1-4-2005. The Tribunal set aside the CIT(A)'s ... Disallowance u/s.40(a)(ia) - whether the amendment made is prospective or retrospective w.e.f. 1.4.2005 when the provisions of Sec.40(a)(ia) were introduced? - As argued on behalf of the revenue that the existing provisions allow deduction in the year of payment and to that extent there is no hardship - Held that:- The reasoning of the Hon’ble Supreme Court in the case of Alom Extrusions Ltd (2009 (11) TMI 27 - SUPREME COURT) will equally to the amendment to Sec.40(a)(ia) of the Act whereby a second proviso was inserted in sub-clause (ia) of clause (a) of Section 40 by the Finance Act, 2012, w.e.f. 1-4-2013. The provisions are intended to remove hardship. It was . We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. The Hon’ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (I) Pvt.Ltd.,[2015 (9) TMI 79 - DELHI HIGH COURT ] has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005. It is of the view that it would be sufficient if the order of the CIT(A) is set aside and the issue remanded to the AO for verification as to whether payees have included the receipts from the Assessee in their returns of income in terms of the decisions referred to above. Issues Involved:1. Legitimacy of disallowances made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income Tax Act, 1961 for non-deduction of tax at source.2. Retrospective applicability of the amendment to Section 40(a)(ia) by the Finance Act, 2012.Detailed Analysis:1. Legitimacy of Disallowances under Section 40(a)(ia):The Assessee, a company engaged in providing transport services, filed its return of income for the Assessment Year (AY) 2006-07. The AO issued notices under Sections 143(2) and 142(1) of the Income Tax Act and requested various details, which the Assessee duly provided. The AO completed the assessment and determined the total income of the Assessee at Rs. 33,13,300 against the returned income of Rs. 2,27,130. The AO made disallowances of Rs. 30,00,000 as commission and Rs. 84,090 as freight paid under Section 40(a)(ia) for non-deduction of tax at source in violation of Section 194H of the Act.2. Retrospective Applicability of the Amendment to Section 40(a)(ia):On appeal, the CIT(A) upheld the AO's order. The Assessee then appealed to the Tribunal. The Tribunal considered whether the disallowance under Section 40(a)(ia) could be made if the payees had declared the receipt in their return of income and paid the tax due. The Tribunal referred to the amendment introduced by the Finance Act, 2012, which inserted a second proviso to Section 40(a)(ia) effective from 1-4-2013. This proviso states that if an assessee fails to deduct tax but the payee has declared the income in their return and paid tax, the assessee should be deemed to have deducted and paid the tax on the date of the payee's return filing.The Tribunal noted that the amended provisions of Section 40(a)(ia) are linked to Section 201, which includes a similar proviso. The Tribunal emphasized that these provisions aim to ensure compliance with tax deduction at source, facilitating revenue collection without undue hardship to the assessee. The Tribunal cited the Supreme Court's decision in CIT Vs. Alom Extrusions Ltd., which held that amendments intended to remove hardship should be applied retrospectively. The Tribunal also referenced the Delhi High Court's decision in CIT Vs. Ansal Land Mark Township (I) Pvt. Ltd., which held that the second proviso to Section 40(a)(ia) is retrospective from 1-4-2005.Conclusion:The Tribunal concluded that the amendment to Section 40(a)(ia) by the Finance Act, 2012, is retrospective and applies from 1-4-2005. The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO for verification of whether the payees had included the receipts from the Assessee in their returns of income. The other issues raised by the Assessee were left open without adjudication. The appeal was allowed for statistical purposes.Order Pronouncement:The order was pronounced in the Court on 02.09.2016.