Curative provisos under tax law can prevent Section 40(a)(ia) disallowance when the payee has complied with disclosure requirements.

Section 40(a)(ia) disallowance was considered in light of the second proviso to that provision and the first proviso to Section 201(1) of the Income-tax Act, 1961. The assessee produced additional evidence that the resident payee had disclosed the receipts in its profit and loss account and obtained the requisite certificate under Section 201(1). The Court reiterated its earlier view that both provisos are curative and operate retrospectively from 01.04.2005, and that where the statutory conditions are satisfied the assessee is not treated as in default for disallowance purposes. The matter was remanded to the Assessing Officer for fresh decision after considering the additional evidence.

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Issues: Whether the disallowance under Section 40(a)(ia) required fresh adjudication in light of the second proviso to Section 40(a)(ia) and the first proviso to Section 201(1) of the Income-tax Act, 1961.

Analysis: The assessee produced additional evidence showing that the resident payee had reflected the receipts in its profit and loss account and had obtained the requisite certificate under the first proviso to Section 201(1). The Court noted its earlier view that the second proviso to Section 40(a)(ia) and the first proviso to Section 201(1) are curative and operate retrospectively from 01.04.2005, and that where the statutory conditions are met, the assessee is not to be treated as in default for the purpose of disallowance.

Conclusion: The matter was remanded to the Assessing Officer for fresh decision on the disallowance under Section 40(a)(ia) after hearing the assessee and considering the additional evidence.

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