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2017 (1) TMI 172 - AT - Income TaxDisallowance under section 40 (a) (ia) - discount purportedly allowed by the appellant on sale of prepaid products to its distributors - Held that:- Respectfully following the decision of the Hon’ble Bombay High Court in CIT versus Kotak securities limited (2011 (10) TMI 24 - Bombay High Court ) we also hold that disallowance under section 40 (a)( ia) cannot be made in this case in view of the old practice of not deducting tax at source which has been accepted by the revenue and existence of bonafide belief of the assessee for non-deductibility of tax at source on such payments. However the above direction is subject to verification by the Ld. assessing officer that recipient of the income has discharged their own tax liability. In view of this we set aside this ground of appeal to the file of the Ld. assessing officer for verification that recipient of the income has discharged their tax liability and if found so to delete the addition accordingly. The other argument of the assessee was that if the payee has included the above sum and discharged the tax liability no disallowance should be made in the hands of the assessee in view of the amendment made by the finance act 2012 by insertion of the 2nd proviso to the provisions of section 40 (a) (ia) of the act. The coordinate bench in the Shri Kumar Roy versus income tax officer in [2016 (3) TMI 588 - ITAT KOLKATA] has held that above proviso inserted by the finance act 2012 can be said to be declaratory and curative in nature and therefore, should be given retrospective effect from 1-4-2005. No other contrary decision was pointed out by the learned departmental representative. In view of this we accept the argument of the assessee that the 2nd proviso inserted by the finance act 2012 should be given retrospective effect from 01/04/2005. Therefore this argument of the appellant is also set aside to the file of the ld. assessing officer with a direction to give the benefit of the above proviso to the appellant in case the 1st contention of bonafide belief of the assessee does not survive on any amount. Non-deduction of tax at source on discount on prepaid Sim cards - Held that:- When there is a bonafide belief about non-deduction of tax then if the payee has discharge its liability no disallowance is called for under section 40() (ia) of the income tax act. We have further held that that the 2nd proviso inserted in the above section effect from finance act 2012 applies retrospectively and directed the learned assessing officer to grant benefit of the same. In view of this we also hold accordingly that there is a bonafide belief for non-deduction of tax at source on discount on prepaid Sim cards to the dealers and therefore no disallowance can be made in the hands of the assessee for non-deduction of tax at source, provided the assessee proves to the satisfaction of the Ld. assessing officer that recipient of that income has discharged their tax liability. Therefore we set aside this ground of appeal to the file of the assessing officer for the above verification. The Ld. assessing officer is further directed to grant benefit of 2nd proviso to the above section while calculating the disallowance. He is further directed that in case the deduction of tax has been made by the assessee in subsequent year then the claim of the assessee for deduction of those expenses is also allowable in subsequent year.
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