2021 (9) TMI 842 - AT - Income Tax

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 ... Application of second proviso to section 40(a)(ia) - Retrospective or prospective effect - assessee has submitted that the recipients have already offered the entire payments made by the assessee in their returns of income and therefore, as per second proviso to section 40(a)(ia) of the Act, the assessee cannot be considered as assessee in default for not deducting TDS - HELD THAT:- We find that the assessee has neither filed the details before the Assessing Officer in respect of the recipients offering the entire income for taxation nor before the ld. CIT(A) or even filed before the ITAT. However, we are of the opinion that the ld. CIT(A) has correctly decided the legal issue i.e., the application of second proviso to section 40(a)(ia) of the Act is retrospective in nature. On very same issue in the case of Smt. Manimegalai Ganesan v. DCIT [2021 (8) TMI 1147 - ITAT CHENNAI] held that the application of second proviso to section 40(a)(ia) of the Act is retrospective Application of second proviso to section 40(a)(ia) of the Act is retrospective in nature and directed the Assessing Officer to provide an opportunity to the assessee to furnish Form 26A from the recipients of the payments made without TDS and to delete the addition to the extent the recipients have offered the above payments in their respective returns of income - assessee is directed to file all the details in respect of the payments made to various parties and offering the same by all the recipients in their returns of income before the Assessing Officer and the Assessing Officer shall decide the issue in view of our findings stated hereinabove.- Decided against revenue. 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.