TaxTMI 
TaxTMI 
2021 (10) TMI 450
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....rest of Rs. 6,58,237 of u/s. 36(1) (iii) made by the ld. ACIT. b) She erred in confirming the disallowance without considering the appellants submissions, much less showing why they were not acceptable. c) She failed to appreciate that:- i. the fund flow analysis revealed that the borrowed funds were utilized for business purposes: ii. there was no nexus between borrowing of funds and withdrawals of the partners or their negative capital balances; iii. the capitals introduced/withdrawn by the partners ought to be considered over a larger time frame rather than confining it only to the year under consideration. d) She therefore ought to have deleted the disallowance of interest of Rs. 6,58,237 made u/s. 36(1)(iii) by the ld. ACIT. 2. Disallowance of interest of Rs. 62,89,250 u/s. 40(a)(ia) a) The ld. CIT(A) erred in confirming the disallowance @ 100% of interest of Rs. 62,89,250 instead of restricting it to 30% of the said amount as per the amended provisions of S. 40(ia) as the amendment was made for removal of undue hardship faced by assessees and is therefore retrospective in nature. b) She further e....
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....ance of the assessee that the CIT(A) had erred in law and facts of the case in sustaining the disallowance of the interest expenditure pertaining to the capital that was overdrawn by the partners. As is discernible from the assessment order, it was observed by the A.O. that the assessee firm during the year under consideration had claimed deduction of interest expenditure amounting to Rs. 82,08,363/- pertaining to the interest bearing funds raised by it. It was observed by the A.O. that the partners of the assessee firm had "debit balances" in their capital accounts at the beginning of the year under consideration. Also, it was noticed by the A.O. that as the partners had made further withdrawals from the firm during the year in question, therefore, the capital balances remained to be overdrawn at the end of the year under consideration. On being queried as to why the correlating interest expenditure pertaining to the capital overdrawn by the partners may not be disallowed u/s. 36(1)(iii) of the Act, it was the claim of the assessee that as the aggregate of the amounts that were brought in the business by all the partners during the period i.e. financial year 2009-10 to 2011-12 wer....
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....ized for the purpose of the assessee's business, therefore, no part of the correlating interest expenditure was liable to be disallowed u/s. 36(1)(iii) of the Act. 8. Per contra, the ld. Departmental Representative (for short 'D.R') relied on the orders of the lower authorities. 9. We have given a thoughtful consideration to the aforesaid issue before us and are unable to persuade ourselves to subscribe to the contentions advanced by the ld. A.R. As observed by us hereinabove, the ld. A.R. had tried to dissect the negative balances appearing in the partners capital account. Bypassing the accumulated losses, the ld. A.R. had tried to impress upon us that a cumulative consideration of the net amount of capital introduced by the partners over the years revealed that there was no overdrawing of the respective capital accounts. In fact, the ld. A.R. had tried to project that the partners had brought in more funds than what they have withdrawn in the last three years. In our considered view the aforesaid explanation of the assessee is devoid and bereft of any reasoning. As is discernible from the records, it is a matter of fact that the partners of the assessee firm had....
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....ricted to 30% of the amount in question. Apropos the assessee's claim that no disallowance as per '2nd proviso' to Sec. 40(a)(ia) was called for in its hands as the amounts in question had already subjected to tax in the hands of the respective payees, the same was rejected by the lower authorities, for the reason, that as the said '2nd proviso' to Sec. 40(a)(ia) was made available on the statute vide the Finance Act, 2012 w.e.f. 01.04.2013, therefore, the same was not applicable to the year under consideration in the case of the present assessee i.e. A.Y. 2012-13. 12. We have given a thoughtful consideration and find substance in the aforesaid claim of the ld. A.R. Now when the respective payees had taken into account the amounts in question in their respective returns of income filed u/s. 139 of the Act and had subjected the same to tax, therefore, as per the '2nd proviso' to Sec. 40(a)(ia) of the Act no disallowance of the said amounts would be warranted in the hands of the assessee. Controversy in respect of the said issue lies in a narrow compass i.e. as to whether or not the benefit/concession contemplated in the '2nd proviso' to Sec. 40....
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....sport Company Ltd. Vs. ITO (2020) 426 ITR 289 (SC) had, inter alia, held, that the amendment by the Finance (No. 2) Act, 2014 limiting the disallowance u/s. 40(ia) to 30% of the sum payable cannot be stretched anterior the date of its substitution so as to reach the assessment year 2005-06. It was observed by the Hon'ble Apex Court that the amendment by the Finance (No. 2) Act, 2014 was specifically made applicable w.e.f. 01.04.2015 and clearly represented the will of the legislature as to what is to be deducted or what percentage of deduction is not to be allowed for a particular eventuality from the assessment year 2015-16. For the sake of clarity the observations of the Hon'ble Apex Court in respect of the aforesaid issue in hand are reproduced as under: "19. In yet another alternative attempt, learned counsel for the appellant has argued that by way of Finance (No. 2) Act, 2014, disallowance under Section 40(a)(ia) has been limited to 30% of the sum payable and the said amendment deserves to be held retrospective in operation. This line of argument has been grafted with reference to the decision in Calcutta Export Company (supra) wherein, another amendment of S....
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....th of the previous year, on or before the due date specified in sub-section (1) of section 139; or (B) in any other case, on or before the last day of the previous 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. *** *** ***" (ii) After the amendment by Finance Act, 2010 "40. Amounts not deductible. - Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee- *** *** *** (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or s....
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....d amendment by the Finance (No. 2) Act of 2014 was specifically made applicable w.e.f. 01.04.2015 and clearly represents the will of the legislature as to what is to be deducted or what percentage of deduction is not to be allowed for a particular eventuality, from the assessment year 2015-2016. 19.3. On the other hand, in the case of Calcutta Export Company (supra), this Court noticed the aforesaid two amendments to Section 40(a)(ia) of the Act by the Finance Act, 2008 and by the Finance Act, 2010, which were intended to deal with procedural hardship likely to be faced by the bona fide tax payer, who had deducted tax at source but could not make deposit within the prescribed time so as to claim deduction. In paragraph 17 of judgment in Calcutta Export Company, this Court took note of the case of genuine hardship, particularly of the assessees who had deducted tax at source in the last month of previous year; and observed in paragraph 18 that the said amendment of the year 2008 was brought about with a view to mitigate such hardship. After reproducing the said amendment of the year 2008 and after noticing its retrospective operation, this Court delved into the position obt....
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....the expiry of the previous year. The net effect is that the assessee could not claim deduction for the TDS amount in the previous year in which the tax was deducted and the benefit of such deductions can be claimed in the next year only. 21. The amendment though has addressed the concerns of the assesses falling in the first category but with regard to the case falling in the second category, it was still resulting into unintended consequences and causing grave and genuine hardships to the assesses who had substantially complied with the relevant TDS provisions by deducting the tax at source and by paying the same to the credit of the Government before the due date of filing of their returns under section 139(1) of the Income-tax Act. The disability to claim deductions on account of such lately credited sum of TDS in assessment of the previous year in which it was deducted, was detrimental to the small traders who may not be in a position to bear the burden of such disallowance in the present assessment year. 22. In order to remedy this position and to remove hardships which were being caused to the assessees belonging to such second category, amendments have been....
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....the Finance Act, 2010 being curative in nature is required to be given retrospective operation, i.e., from the date of insertion of the said provision." 19.5. A bare look at the extraction aforesaid makes it clear that what this Court has held as regards "retrospective operation" is that the amendment of the year 2010, being curative in nature, would be applicable from the date of insertion of the provision in question i.e., sub-clause (ia) of Section 40(a) of the Act. This being the position, it is difficult to find any substance in the argument that the principles adopted by this Court in the case of Calcutta Export Company (supra) dealing with curative amendment, relating more to the procedural aspects concerning deposit of the deducted TDS, be applied to the amendment of the substantive provision by the Finance (No. 2) Act, 2014. 19.6. We may in the passing observe that the assessee-appellant was either labouring under the mistaken impression that he was not required to deduct TDS or under the mistaken belief that the methodology of splitting a single payment into parts below Rs. 20,000/- would provide him escape from the rigour of the provisions of the Act pr....
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....d the disallowance of interest of Rs. 74,28,384 made u/s. 36(1)(iii) by the ld. ACIT. 2. Disallowance of interest of Rs. 57,14,354 u/s. 40(ia): a) The ld. CIT(A) erred in confirming the disallowance @ 100% of interest of Rs. 57,14,354 instead of restricting it to 30% of the said amount as per the amended provisions of S. 40(a)(ia) as the amendment was made for removal of undue hardship faced by assessees and is therefore retrospective in nature. b) She further erred in refusing to allow deduction in respect of interest of Rs. 56,95,502.58 (out of the said total amount of Rs. 57,14,354) in the year of filing return of income concerned party as reflected in its Form 26A by refusing to admit it as additional evidence on technical grounds. 3. Each of the above Grounds is without prejudice to one another. 4. The appellant craves to add to, alter, vary modify, and amend the above grounds of appeal." 17. Briefly stated, the assessee firm had e-filed its return of income for A.Y. 2014-15 on 26.07.2014, declaring a loss of (-) Rs. 1,32,07,589/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act.....