2018 (2) TMI 1374 - HC - Income Tax

Tribunal Appeal Partially Allowed for Statistical Purposes, High Court Dismisses Error Claim

The High Court upheld the tribunal's decision to partly allow the appeal for statistical purposes. The court found no error in the tribunal's judgment and ... Disallowance u/s 40(a)(ia) - non deduction of tax at source on interest paid to financial institutions even when the appellant has paid the entire amount and no amount remains payable at the end of the year - Held that:- Taking into consideration, the decision rendered by the Delhi High Court in CIT vs. Ansal Land Mark Township Pvt. Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT) the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and has retrospective effect from 1st April 2005, merits acceptance which has been discussed by the tribunal in detailed, we are of the opinion that tribunal has not committed any error in allowing the appeal only for statistical purposes. No substantial question of law arises. Issues Involved:1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest paid.2. Retrospective application of the amendment to Section 40(a)(ia) effective from 1.4.2015.3. Inclusion of income by the recipient and payment of tax thereon.4. Disallowance of 5% of expenses claimed due to the probability of personal element.Issue-wise Detailed Analysis:1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest paid:The appellant contended that the tribunal erred in confirming the disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 due to non-deduction of TDS on interest paid to financial institutions, despite the entire amount being paid with no outstanding balance at the end of the year. The tribunal referred to the Supreme Court decision in Palam Gas Service, which clarified that the provisions of Section 40(a)(ia) apply even if the amount is fully paid during the year. The tribunal upheld the disallowance, emphasizing the necessity of TDS deduction irrespective of payment status.2. Retrospective application of the amendment to Section 40(a)(ia) effective from 1.4.2015:The appellant argued that the amendment to Section 40(a)(ia) made effective from 1.4.2015, which limits disallowance to 30% of the amount, should be applied retrospectively to remove undue hardship. The tribunal examined various judgments, including Allied Motors (P.) Ltd. vs. CIT, CIT vs. Alom Extrusions Limited, and others, which supported the retrospective application of curative amendments. However, the tribunal concluded that there was no legislative indication that the amendment should be applied retrospectively and upheld the disallowance of the entire amount.3. Inclusion of income by the recipient and payment of tax thereon:The appellant contended that the disallowance under Section 40(a)(ia) should not apply since the recipient included the income in their return and paid tax on it. The tribunal referred to the Delhi High Court decision in CIT vs. Ansal Land Mark Township Pvt. Ltd., which held that the second proviso to Section 40(a)(ia) has retrospective effect. The tribunal set aside the matter to the AO to verify the Chartered Accountant's certificate confirming the inclusion of the interest income by the recipient and the payment of taxes thereon. If verified, the AO was directed to allow the necessary relief to the assessee.4. Disallowance of 5% of expenses claimed due to the probability of personal element:The appellant challenged the disallowance of 5% of the expenses claimed, arguing that all expenses were fully vouched and detailed. The tribunal, however, upheld the disallowance, citing the probability of a personal element in such expenses. The tribunal's decision was based on the assessment that despite the expenses being vouched, there remained a likelihood of personal use, justifying the disallowance.Conclusion:The tribunal's decision to partly allow the appeal of the assessee for statistical purposes was upheld by the High Court. The High Court concluded that the tribunal had not committed any error in its judgment, particularly in light of the Delhi High Court's decision in CIT vs. Ansal Land Mark Township Pvt. Ltd. The appeal was dismissed, and no substantial question of law was found to arise from the tribunal's decision.