TaxTMI 
TaxTMI 
2010 (9) TMI 552
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.... Rs. 15,87,868. According to the Assessing Officer, the said expenditure thus was hit by provisions of section 40A(3) and invoking the said provision, he disallowed the said expenditure to the extent of Rs. 3,17,575 being 20 per cent of Rs. 15,87,868. The matter was carried before the ld. CIT(A) and it was submitted on behalf of the assessee before him that the particular entries in the ledger account noted by the Assessing Officer as expenditure incurred by the assessee in respect of which payments had been made in cash were actually entries for cash received on account of freight charges. It was contended that the provisions of section 40A(3) thus were not applicable and disallowance made by the Assessing Officer by invoking the said provisions was not sustainable. This contention of the assessee, however, was not found acceptable by the ld. CIT(A) on the ground that there was a specific finding given by the Assessing Officer to the effect that the relevant entries in the ledger account were on account of running expenditure incurred by the assessee in cash in sums exceeding Rs. 20,000. He therefore confirmed the disallowance made by the Assessing Officer under section 40A(3). 4....
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.... 28-2-2006 amounting to Rs. 8,06,64,465. He also noted that the tax so deducted which had remained outstanding upto 31-3-2006 was actually paid by the assessee in the months of July and August, 2006. According to the Assessing Officer, the expenditure incurred by the assessee on account of freight charges payable to sub-contractor was not deductible as per the provisions of section 40(a)(ia) as the tax deducted by the assessee from the said charges during the period 1-4-05 to 28-2-06 had not been paid by it on or before the last day of the previous year i.e., 31-3-2006. He therefore, invoked the said provision and disallowed the freight charges incurred by the assessee to the extent of Rs. 8,06,64,465. 7. The disallowance made by the Assessing Officer on account of freight charges by invoking the provisions of section 40(a)(ia) was challenged by the assessee in an appeal filed before the ld. CIT(A) and the following submissions were made on behalf of the assessee before the ld. CIT(A) in support of its stand that the said disallowance made by the Assessing Officer was not sustainable :- "As regards addition of Rs. 8,06,64,465 made by the learned Income-tax Officer on account of d....
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....ontracts. During the year under consideration, the appellant has deducted tax of Rs. 10,60,902 for the period 1-4-2000 to 31-3-2006. Out of this Rs. 9,03,442 was deducted for the payments made related to freight charges paid upto 28-2-2006 on sum of Rs. 8,06,64,465. However, the same was not deposited in the government account within the stipulated date. The Assessing Officer has given opportunity to the appellant to explain why the provisions of section 40(a)(ia) may not be effected and the addition of Rs. 8,06,64,465 not be made. After considering the reply of the appellant and giving effect to the amendment made by the Finance Act, 2008 with effect from 1-4-2005, the Assessing Officer had held that the appellant has failed to deposit TDS of Rs. 9,03,442 in the government account within a stipulated period, hence by attracting section 40(a)(ia) disallowance of Rs. 8,06,64,465 was made. Before me, the appellant has relied on the decision of Hon'ble Tribunal in case of Satish Aggarwal & Co. [ITA No. 448(ASR.)] 2008. I have gone through the facts of this case which are distinguishable to the facts of the present case, because in that case the assessee hired the trucks belonging to t....
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....ch is not covered by the amended provisions. From the facts of the case, it is clear that provisions of section 194C are clearly applicable to the present case. There is no dispute that the TDS was not deductible but the dispute is that it was not deposited in the government account within the stipulated period." 9. For the reasons given above and relying on the cases of Rakesh Kumar & Co v. Union of India [2009] 178 Taxman 481 (Punj. & Har.), Satellite Television Asian Region Ltd. v. Dy. CIT [2006] 99 ITD 91(Mum.) and Dyes Medical UP Private Ltd. v. Union of India [2009] 316 ITR 445 (All.), the ld. CIT(A) held that the provisions of section 40(a)(ia) were squarely applicable to the facts of the assessee's case and the disallowance made by the Assessing Officer on account of freight charges by invoking the said provisions was confirmed by him. 10. The ld. Counsel for the assessee submitted that the provisions of section 194C(2) are not applicable in the present case at all as the assessee in his capacity as a contractor had not entered into any contract with a sub-contractor for carrying out whole or any part of work undertaken by it. He submitted that there is nothing on record ....
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....e ld. D.R., on the other hand, submitted that the very fact that transport work was carried out by the sub-contractors for the assessee is sufficient to show that there was a contract between the assessee and the sub-contractors to carry out the said work on specific terms and conditions agreed with them. He submitted that it is not necessary that such contract has to be in writing and even if there is an oral agreement between the assessee and the concerned sub-contractors for carrying out the transportation work, it is sufficient to attract the provisions of section 194C making the assessee liable to deduct the tax at source from the payments made to the sub- contractors. He submitted that the ld. CIT(A) has already dealt with this aspect of the matter in detail in his impugned order and strongly relied upon the same in support of the Revenue's case on this issue. 13. The ld. D.R. further submitted that the provisions of section 40(a)(ia) may cause hardship to the assessees in some cases like the assessee in the present case as explained by the ld. Counsel for the assessee. He submitted that the said provisions, however, are very specific and clear and as held by the Hon'ble Sup....
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.... per the provisions of section 40(a)(ia) read with the proviso thereto as existed in the statute at the relevant time, freight charges claimed by the assessee were not deductible. The Finance Act, 2010 has made amendments to the provisions of section 40(a)(ia) and as per the amendments, if the tax has been deducted in the relevant previous year and the same has been paid on or before the due date of filing of return of income for the said previous year as specified in section 139(1), the corresponding amount from which such tax has been deducted shall be allowed as deduction. Although, the said amendments have been made by the Finance Act, 2010 w.e.f. 1-4-2010, the learned counsel for the assessee has claimed relief to the assessee relying on the said amendments by contending that the same being of curative/remedial nature are applicable retrospectively. As explained by the Hon'ble Supreme Court in the case of Allied Motors (P.) Ltd. v. CIT 224 ITR 677, the remedial amendment is the one which is designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. In the case of Alom E....
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....erest, royalty, fees for technical services or any other sum which is payable outside India, or in India to a non-resident or to a foreign company or failure to make payment to the account of the Central Government, attracts disallowance of such payments in the hands of the payer. Deduction of such sum, is however, allowed in the computation of income if tax is deducted, or after deduction, paid in any subsequent year in computing the income of that year. With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40a(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents and payments to a resident contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B. It is also proposed to provide that where in respect of payment of any sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, ....
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....us year : [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted- (A) during the last month of the previous year but paid after the said due date; or (B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.]" 20. The above amendments made by the Finance Act, 2008 thus provided that no disallowance under section 40(a)(ia) shall be made in respect of the expenditure incurred in the month of March if the tax deducted at source on such expenditure has been paid before the due date of filing of the return. While proposing this amendment, it was explained by the Finance Minister that the tax payer will now get a time period of six months for depositing the tax deducted at source in respect of expenditure incurred in the month of March so as to escape the disallowance of the said expenditure under section 40(a)(ia). The Finance Minister also made it clear that this proposed amendment has to be given retrospective effect from assessment year 2005-06. The assessees thu....
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....ed to the assessees as under:- "Section 40(a)(ia) provides for disallowance of the expenses incurred in the nature of interest, commission, brokerage, fees for professional services as well as payment to contractors if the tax has either not been deducted or if deducted not paid within the due date. This harsh provision brought on the statute book by the finance Act, 2004 with effect from assessment year 2005-06. For a small default of not paying 1 per cent of the TDS to the Government the intention of the Legislature to disallow the whole of the expenditure which in turn will lead to levy of tax @ 33.99 per cent plus interest and penalty is unheard of in the world. The provision is a confiscatory in as much as that at times when the amount of TDS involved is only 1 per cent of the expense the additional tax liability comes to 33.99 per cent of the sum which is further increased by levy of interest under section 234B and 234C. In most of the cases the total tax and interest liability comes to somewhere between 44 per cent to 46 per cent of the amount in question. It will be appreciated that such disproportionate burden on the assesses for not collecting the tax from a third part....
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....ent, for carrying out any work (including supply of labour for carrying out any work) on which tax is deductible at source under Chapter XVII and such as has not been deducted or after deductions, [has not been paid on or before the due date specified in sub-section (1) of section 139]. [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid." 24. While proposing the aforesaid amendments to section 40(a)(ia), Hon'ble Finance Minister stated in para 137 of his Budget Speech delivered in the Parliament on 26th February, 2010 as reported in [321 ITR (St.) 1 at 24, page 34] as under: "Relaxing the current provisions on disallowance of expenditure, I propose to allow deduction of such expenditure, if tax has been deducted at any time during the financial year and paid before the due date of filing the return. This will allow most deductors additional time up to September of the next financial year. At the same ti....
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....ection as a whole. It was further held that the first proviso to section 43B was curative in nature and hence retrospective in operation w.e.f. Ist April, 1988. In this background, it was noted by the Hon'ble Supreme Court that by the Finance Act, 2003, not only the second proviso was deleted but even the first proviso was sought to be amended by bringing about uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. It was held by the Hon'ble Supreme Court that the judgment in the case of Allied Motors (P) Ltd. (supra) was a binding precedent and following the same, it was held that even the amendment made to section 43B of the Finance Act, 2003 w.e.f. 1-4-04 was retrospective in operation. 26. In the case of Alom Extrusions Ltd. (supra), it was contended on behalf of the Revenue that amendments made by the Finance Act, 2003 to section 43B consciously w.e.f. 1-4-2004 should be read as amendatory and not as curative (retrospective). The Hon'ble Supreme Court, however, did not accept the said contention keeping in view the hardship and the invidious discrimination which would be caused to the assessees if the same w....
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....uly and August, 2006. However, such deduction would only result in a huge loss keeping in view that the total income of the assessee for the year under consideration was only Rs. 11,35,560 and even if the same is expected to increase gradually in the subsequent years, it will require many years for the assessee firm to carry forward and set-off of the resultant loss. As a result of the provisions of section 40(a)(ia) as were prevalent at the relevant time, huge demand of Rs. 3.69 crores thus was raised against the assessee having an annual income in the range of Rs. 10 to 15 lakhs by making a disallowance of freight charges and the said freight charges were allowed to him in the subsequent year which resulted in the huge loss that the assessee could not have taken benefit of for many years to come. Thus, for a small default of delay in payment of TDS amounting to Rs. 9 lakhs which was only 1.12 per cent of the freight charges, the assessee was made to pay additional tax liability of about Rs. 3.79 crores i.e., nearly 46 per cent of the freight charges. Such disproportionate burden on the assessee for not collecting the tax from third party is undoubtedly unreasonable as more partic....