Tribunal: 2nd proviso to sec 40(a)(ia) applies retrospectively

The Tribunal affirmed the ld. CIT(A)'s order, holding that the second proviso to section 40(a)(ia) of the Income Tax Act applies retrospectively. The Assessing Officer's disallowance of payments for failure to deduct TDS was overturned, following the principle that recipients offering the payments in their returns absolved the assessee of default. The Tribunal cited relevant case law and a Delhi High Court decision supporting this interpretation. The Revenue's appeal was dismissed, and the Cross Objection by the assessee was deemed irrelevant.

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Issues:
Whether the second proviso section 40(a)(ia) of the Income Tax Act, 1961 applies retrospectively or only prospectively from the date of insertion i.e., 01.04.2013.

Analysis:
The appeal by the Revenue challenges the order of the ld. Commissioner of Income Tax (Appeals) concerning the assessment year 2011-12. The main issue is whether the second proviso to section 40(a)(ia) of the Act applies retrospectively or only from 01.04.2013. The Assessing Officer disallowed various payments made by the assessee for failing to deduct TDS. The ld. CIT(A) directed the Assessing Officer to allow the payments if the recipients offered them in their income tax returns. The Revenue appealed, arguing in favor of the Assessing Officer's decision.

Upon review, the Tribunal found that the ld. CIT(A) correctly interpreted the law, holding the second proviso to section 40(a)(ia) applies retrospectively. Citing relevant case law, the Tribunal noted that the recipients offering the payments in their returns absolved the assessee of default. The Tribunal referenced a recent decision by a Coordinate Bench supporting this interpretation. The ld. CIT(A) directed the Assessing Officer to verify Form 26A from recipients and delete the disallowed amounts if offered in their returns.

The Tribunal considered conflicting judgments on the retrospective application of the second proviso. Notably, the Hon'ble Delhi High Court held it to be retrospective, aligning with the assessee's argument. Following legal principles favoring the assessee, the Tribunal reversed the disallowance made by the Assessing Officer and confirmed by the ld. CIT(A). The Tribunal upheld the ld. CIT(A)'s decision, dismissing the Revenue's appeal and rendering the Cross Objection by the assessee irrelevant.

In conclusion, the Tribunal affirmed the ld. CIT(A)'s order, emphasizing the retrospective application of the second proviso to section 40(a)(ia) and directing the Assessing Officer to consider the recipients' tax filings. The appeal by the Revenue was dismissed, and the Cross Objection by the assessee was also dismissed.

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