TaxTMI 
TaxTMI 
2022 (8) TMI 144
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.... Hon'ble Tribunal was correct in holding that the disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 cannot be made in assessment year under consideration i.e. A.Y. 2005-06 as the assessee paid TDS within the due date prescribed u/s 139(1) of the Income Tax Act, 1961 without appreciating that the amendment to section 40(a)(ia) of the Income Tax Act, 1961 by Finance Act, 2010 w.e.f. 01.04.2010 was prospective and is not applicable for A.Y. 2005-06? c. Whether on the facts and circumstances of the case and in law, the Hon'ble Tribunal was correct in not appreciating the fact that the assessee was granted relief of Rs.3,97,76,005/- u/s 40(a)(ia) of the Income Tax Act, 1961 in A.Y. 2006-07 based on the provision applicable for A.Y. 2005-06 and accordingly, an amount of Rs.3,97,76,005/- was required to be disallowed u/s 40(a)(ia) of the Income Tax Act, 1961 in A.Y. 2005-06?" 2. Earlier, before the Tribunal, the assessee as well as the revenue filed cross appeals against the order of the CIT (Appeals). The assessee challenged the reopening of the assessment whereas the revenue challenged the deletion of the disallowance/addition made under section 40(a)(ia) of the Act by the CIT (....
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....held the decision of the CIT (appeals) and dismissed the appeal of the revenue. The addition of Rs.5,30,91,745/- made by the Assessing Officer under section 40(a)(ia) of the Act was legitimate in view of the amendment to section 40(a)(ia) and its first proviso by the Finance Act, 2010 with effect from 1st April, 2010. 4. Now therefore do the questions as proposed raise any substantial question(s) of law. 5. A brief background would be useful. The assessee had made payment on account of sub-contracting, expenses, transporters, machine hiring charges etc.. Out of the payments to sub-contractors, the Assessing Officer found that tax deducted at source (TDS) was deposited beyond due dates prescribed under chapter XVII-B but before the due date of furnishing of return of income. The Assessing Officer disallowed a total of Rs.5,30,91,742/- on various accounts under section 40(a)(ia) of the Act. The disallowance was stated to be in view of the decision of the Tribunal in the case of Bharati Vs. Deputy CIT 142 ITD 53. 6. When the matter came up before the CIT(A), the CIT(A), observing that there was no dispute that the assessee had incurred certain expenses on which it shall liable to d....
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....posited prior to filing of the return then there shall be no disallowance. The Supreme Court in the case of Commissioner of Income Tax Vs. Calcutta Export Company (2018) 302 CTR (SC) 201 has clearly observed that the amended provision of section 40(a)(ia) should be interpreted liberally and equitably and applied retrospectively from the date when section 40(a)(ia) with effect from assessment year 2005-06 so that an assessee should not suffer unintended and deleterious consequences beyond the object and purpose of the provision mandates. The Apex Court observed that as the developments with regard to the section show that the amendment was curative in nature, it should be given retrospective operation as if the amended provision existed even at the time of its insertion. In the facts of that case, it was held that since the assessee filed its return on 1st August, 2005 i.e. in accordance with the due date under the provisions of section 139, the claim of the benefit of the amendment made by Finance Act, 2010 to the provisions of section 40(a)(ia) was allowed. The following paragraphs of the decision of the Apex Court are relevant and are quoted as under :- "18) With a view to miti....
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....nth of the previous year has been paid on or before the last day of filing of return in accordance with the provisions of Section 139(1) of the IT Act for the said previous year. In case, the assessees are falling under the second category, no disallowance under Section 40(a)(ia) of IT Act where the tax was deducted before the last month of the previous year and the same was credited to the government before 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 IT Act. The disability to claim deductions on account of ....
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....he government. Strict compliance of Section 40(a)(ia) may be justified keeping in view the legislative object and purpose behind the provision but a provision of such nature, the purpose of which is to ensure tax compliance and not to punish the tax payer, 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. Legislature can and do experiment and intervene from time to time when they feel and notice that the existing provision is causing and creating unintended and excessive hardships to citizens and subject or have resulted in great inconvenience and uncomfortable results. Obedience to law is mandatory and has to be enforced but the magnitude of punishment must not be disproportionate by what is required and necessary. The consequences and the injury caused, if disproportionate do and can result in amendments which have the effect of streamlining and correcting anomalies. As discussed above, the amendments made in 2008 and 2010 were steps in the said direction only. Legislative purpose and the object of the said amendments were to ensur....