Assessee gets Section 154 rectification for Section 40(a)(ia) second proviso benefit on non-TDS payments with retrospective effect

ITAT Ahmedabad allowed assessee's application u/s 154 seeking rectification for benefit of second proviso to Section 40(a)(ia) regarding disallowance on payments made without TDS deduction. The tribunal held that the second proviso has retrospective effect based on jurisdictional HC decision in Arvind Lifestyle Brands Ltd., making it applicable to AY 2005-06. The denial of this benefit constituted a mistake apparent from record. The application was maintainable u/s 154 and the matter was restored to AO for considering quantum of benefit allowable under the second proviso.

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Issues Involved:
1. Ex-parte decision by CIT(A)-NFAC.
2. Non-decision on merits by CIT(A)-NFAC.
3. Rectification of order u/s 154.
4. Confirmation of addition u/s 40(a)(ia).
5. Confirmation of demand including interest u/s 234B and u/s 234D.

Summary:

1. Ex-parte Decision by CIT(A)-NFAC:
The assessee contended that the CIT(A)-NFAC erred in deciding the appeal ex-parte without appreciating that the business was closed since COVID-19, leading to non-communication of notices to the partners. The Tribunal noted that no representation was made by the assessee before the CIT(A), leading to the dismissal of the appeal for non-prosecution.

2. Non-decision on Merits by CIT(A)-NFAC:
The assessee argued that the CIT(A)-NFAC failed to decide the appeal on merits as per Section 250(6) r.w.s. 251(1)(a). The Tribunal observed that the CIT(A) did not address the merits of the case due to the ex-parte decision.

3. Rectification of Order u/s 154:
The core issue was the rectification sought by the assessee u/s 154, which was rejected by the Assessing Officer and CIT(A) on the grounds that it did not relate to a mistake apparent from the record. The rectification pertained to the disallowance u/s 40(a)(ia) amounting to Rs. 2,30,59,781/-. The Tribunal noted that the second proviso to Section 40(a)(ia), inserted by Finance (2) Act, 2012, with effect from 01.04.2013, was held to be retrospective by various High Courts, including the jurisdictional High Court. The Tribunal held that the assessee was entitled to the benefit of this proviso and that the non-allowance constituted a mistake apparent from the record, making the rectification application maintainable.

4. Confirmation of Addition u/s 40(a)(ia):
The Tribunal observed that the assessee had already been granted relief by the ITAT to the extent of Rs. 32,18,58,199/- for the same assessment year under the first proviso to Section 40(a)(ia). For the remaining disallowance of Rs. 2,30,59,781/-, the assessee sought rectification based on the second proviso. The Tribunal directed the Assessing Officer to consider the quantum of benefit allowable under the second proviso.

5. Confirmation of Demand Including Interest u/s 234B and u/s 234D:
The Tribunal did not specifically address the issue of interest u/s 234B and u/s 234D, as the primary focus was on the rectification application and the applicability of the second proviso to Section 40(a)(ia).

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the rectification application u/s 154 was maintainable and directed the Assessing Officer to consider the merits regarding the quantum of benefit under the second proviso to Section 40(a)(ia). The appeal was allowed in favor of the assessee.

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