2014 (11) TMI 1150 - AT - Income Tax

Insertion of second proviso w.e.f. 01.04.2013 to section 40(a)(ia) - prospectivity OR retrospectivity - Held that - CIT(A) directed assessee to furnish necessary certificates as per principles laid down by Hon ble Supreme Court 2007 (8) TMI 12 - SUPREME COURT OF INDIA in the case of Hindustan Coca Cola Beverages P. ltd. (supra) wherein it was held that if the payees have admitted the receipt of income there is no need for the payee to deduct the TDS. Since the provisions of section 201(1) allow such assessee to be not an assessee in default consequently the second proviso to section 40(a)(ia) also comes into operation even though the said provision was introduced from 01.04.2013. Since it is for removal of hardship that may also be applied for pending proceedings. Moreover the directions of Ld. CIT(A) are also categorical. In case there is failure on the part of assessee to furnish such certificates disallowance stands confirmed. Since it has to be examined by A.O. we are of the opinion that Revenue appeal is not maintainable on the facts of the case and ground raised by Revenue is dismissed.

Summary

Issues:
- Interpretation of the second proviso to section 40(a)(ia) of the Income Tax Act regarding its prospective or retrospective nature.

Analysis:
The judgment by the Appellate Tribunal ITAT Hyderabad involved a Revenue appeal against the order of Ld. CIT(A)-II, Hyderabad dated 12.05.2014, focusing on the interpretation of the second proviso to section 40(a)(ia) of the Income Tax Act. The Revenue raised the issue that the insertion of the second proviso w.e.f. 01.04.2013 to section 40(a)(ia) is only prospective and not retrospective. The assessee, engaged in real estate and construction business, faced disallowances under sections 40(a)(ia) and 40A(3) concerning interest payments to various financial institutions. The Ld. CIT(A) directed the assessee to provide certificates following principles laid down by the Supreme Court in Hindustan Coca Cola Beverages P. Ltd. case, emphasizing that if payees admit income receipt, TDS deduction may not be necessary.

The Tribunal found no merit in the Revenue's appeal, upholding the Ld. CIT(A)'s decision. It was noted that the principles from the Hindustan Coca Cola Beverages case apply, allowing the assessee not to be considered an "assessee in default" under section 201(1) if payees acknowledge income receipt. Consequently, the second proviso to section 40(a)(ia) was deemed applicable, even though introduced from 01.04.2013, to alleviate hardships in pending proceedings. The Tribunal emphasized that the Ld. CIT(A)'s directions were clear: failure to provide necessary certificates would result in disallowance. As the assessment of certificates falls under the A.O.'s purview, the Tribunal concluded that the Revenue's appeal lacked merit in the case, leading to the dismissal of the appeal.

In conclusion, the Appellate Tribunal ITAT Hyderabad dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s decision regarding the interpretation and application of the second proviso to section 40(a)(ia) of the Income Tax Act. The judgment highlighted the importance of following established principles and providing necessary certificates to avoid disallowances, in line with the Supreme Court's rulings on income receipt acknowledgments and TDS obligations.