TaxTMI 
TaxTMI 
2019 (1) TMI 1086
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....rivate Limited was disallowed and declared income was enhanced from Rs. 1,35,11,330/- to Rs. 18,35,31,330/- vide assessment order dated 7th March, 2014. 3. The addition was deleted by Commissioner of Income Tax (Appeals), which deletion has been affirmed by the Tribunal. The reasoning given by the Tribunal in the impugned order while dismissing the appeal of the Revenue reads as under:- "We have heard the Ld. DR and perused the relevant records, especially the impugned order. We find that TDS deducted by the assessee for Rs. 34,00,400/- on account of payment of Rs. 17,00,20,000/- to M/s Arch Infra Projects Nirman Private Ltd. was deposited in the government account on 03.10.2011, which in case of the assessee was beyond the due date of filing of Return of Income for A.Y. 2011-12, but then the rigor of the Act for disallowance of payment in such cases as mandated u/s. 40(a)(ia) have been softened in terms of first proviso to section 201 of the I.T. Act (with effect from 01.07.2012) read with second proviso to section 40(a)(ia) (with effect from 01.04.2013). We further note that these amendments are strictly speaking not relatable to assessment year 2011-12, to which the case of th....
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....rpose in mind. It is not basically a penal provision as when the TDS is deposited, the amount on which deduction was made is allowed as an expenditure incurred in previous year in which the payment of TDS is made. Thus, it results in shifting of the year in which the expenditure can be claimed, even if payment has been made to the recipient and is to be allowed as expenditure in another year. Principle of matching i.e. matching of receipts with expenditure to the extent indicated in Section 40(a)(ia), therefore, gets affected. The provision can work harshly and may be very stringent in some cases as is apparent from these facts stated in the case of Naresh Kumar. Strict compliance of Section 40(1)(ia) may be justified keeping in view the legislative object and purpose behind the provision but a provision of such nature should not be allowed to be converted into an iron rod provision which metes out stern punishment and results in malevolent results, disproportionate to the offending act and aim of the legislation. Legislative purpose and the object is to ensure payment and deposit of TDS with the Government. TDS results in collection of tax. Legislature can and do experiment and in....
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....are decisions, which hold that process of litigation or enforcement of law is procedural. Similarly, machinery provision for collection of tax, rather than tax itself is procedural. Read in this context, it can be strongly argued that Section 40(a)(ia) at least to the extent of the amendment is procedural as by enacting Section 40(a)(ia)the Legislature did not want to impose a new tax but wanted to ensure collection of TDS and the amendments made streamline and remedy the anomalies noticed in the said procedure by allowing deduction in the year when the expenditure is incurred provided TDS is paid before the due date for filing of the return. Remedial statutes are normally not retrospective, on the ground that they may affect vested rights. But these statutes are construed liberally when justified and rule against retrospectivity may be applied with less resistance [See Bharat Singh v. Management of New Delhi Tuberculosis Centre, (1986) 2 SCC 614 and Workmen of Messrs Firestone Tyre & Rubber Company of India (P) Ltd. v. Management, AIR 1973 SC 1227]." Other paragraphs of the said judgment are equally relevant, but to avoid prolixity are not being reproduced. 5. Ratio expressed by....
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....tion so that a reasonable interpretation can be given to the Section as a whole. 28) The purpose of the amendment made by the Finance Act, 2010 is to solve the anomalies that the insertion of section 40(a)(ia) was causing to the bona fide tax payer. The amendment, even if not given operation retrospectively, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses and necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low gross product rate and when expenditure which becomes subject matter of an order under Section 40(a)(ia) is substantial, can suffer severe adverse consequences if the amendment made in 2010 is not given retrospective operation i.e., from the date of substitution of the provision. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe off the adverse effect and the financial stress. Such could not be the intention of the legislature. Hence, the amendment made by the Finance Act, 2010 being curative in nature required to be given retrospective operation i.e., from the date of ....
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....ner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax. 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: "On a conceptual note, primary justification for such a dis....
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....the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004." 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Ac....