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2014 (6) TMI 430 - AT - Income TaxDisallowance made u/s 40(a)(ia) of the Act – Applicability of section 194A of the Act – Held that:- Following Rajeev Kumar Agarwal Versus Additional Commissioner of Income Tax [2014 (6) TMI 79 - ITAT AGRA] - The underlying objective of section 40(a)(ia) was to disallow deduction in respect of expenditure in a situation in which the income embedded in related payments remains untaxed due to non-deduction of tax at source by the assessee - deductibility of expenditure is made contingent upon the income, if any, embedded in such expenditure being brought to tax, if applicable - a deduction for expenditure is not allowed to the assessees, in cases where assessees had tax withholding obligations from the related payments, without corresponding income inclusion by the recipient. Section 40(a)(ia) cannot be seen as intended to be a penal provision to punish the lapses of non-deduction of tax at source from payments for expenditure- particularly when the recipients have taken into account income embedded in the payments, paid due taxes thereon and filed income tax returns in accordance with the law - declining deduction in respect of expenditure relating to the payments of this nature cannot be treated as an “intended consequence” of Section 40(a)(ia) - it cannot be 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 - 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 – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Disallowance of cash payment for purchase of land – Held that:- Following Jamir Mondal, Kolkata vs. ACIT, Circle-53, Kolkata [2014 (6) TMI 245 - ITAT KOLKATA] - Rule 6DD of the Rules clearly lays down the conditions or exceptions under which the rigor of the provisions of section 40A(3) of the Act may be relaxed and there is no discretion on either of the parties to extend the condition or relax the condition at will. Even the existence, demand or necessity or business expediency does not fall under the provisions of Rule 6DD of the Rules - it cannot be said that the assessee has immunity from the provisions of section 40A(3) of the act - the considerations of business expediency are no longer relevant but this is precisely what constitutes foundation of assessee’s defence – the order of the CIT(A) is upheld – Decided against Assessee.
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