TMI Blog2021 (10) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... s had rightly concluded that the correlating interest expenditure pertaining to the amount so overdrawn was liable to be disallowed u/s.36(1)(iii) - lower authorities had rightly concluded that the correlating interest expenditure pertaining to the amount so overdrawn was liable to be disallowed u/s. 36(1)(iii) - Decided against assessee. Disallowance of the entire amount of interest expenditure u/s. 40(a)(ia) - Assessee firm had during the year under consideration paid certain amounts to NBFC's for interest, prepayment charges and loan processing fees - benefit of the '2nd proviso' to Sec. 40(a)(ia) - scope of amendment - HELD THAT:- As the assessee would be eligible for the benefit of the '2nd proviso' to Sec. 40(a)(ia) of the Act, though subject to the satisfaction of the conditions therein contemplated. We, thus, in terms of our aforesaid deliberations restore the matter to the file of the A.O. with a direction to reconsider the disallowance u/s. 40(a)(ia) of the aforesaid amounts subject to the satisfaction by the assessee of the requisite conditions contemplated in the '2nd proviso' to Sec. 40(a)(ia) of the Act. At this stage, we may herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) She therefore ought to have deleted the disallowance of interest of ₹ 6,58,237 made u/s. 36(1)(iii) by the ld. ACIT. 2. Disallowance of interest of ₹ 62,89,250 u/s. 40(a)(ia) a) The ld. CIT(A) erred in confirming the disallowance @ 100% of interest of ₹ 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 erred in refusing to allow deduction in respect of interest of ₹ 56,81,215 (out of the said total amount of ₹ 62,89,250/- in the years of filing return of income by 3 parties as reflected in their respective Form 26A without appreciating that the second proviso to S. 40(a)(ia) inserted therein was curative in nature and hence also retrospective and also refusing to admit them 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 amend the above Grounds of appeal. 2. Briefly stated, the assessee firm which is engaged in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 were more than the amounts that were withdrawn by them, therefore, no disallowance of interest expenditure was called for in its hands. However, the aforesaid reply of the assessee did not find favor with the A.O. It was observed by the A.O. that the withdrawals made by the partners during the year under consideration were in excess of an amount of ₹ 68,13,621/- as against what was brought into by them in the firm. Backed by his aforesaid observations, the A.O. holding a conviction that the assessee fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 debit balances in their capital accounts at the beginning of the accounting year, which pursuant to the further withdrawals carried out by them during the year had resulted to a 'debit balance' in the capital account at end of the year too. It is also a matter of fact borne from the record, that the assessee did not have any interest free advances. In the backdrop of the aforesaid facts, we are of the considered view that now when the partners of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 012 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(a)(ia) would be applicable to the year under consideration i.e. A.Y. 2012-13. Admittedly, the '2nd proviso' to Sec. 40(a)(ia) had been made available on the statute vide the Finance Act, 2012, w.e.f. 01.04.2013. However, as Sec. 40(a)(ia) is not a penal provision, therefore, insertion of the '2nd proviso' being declaratory and curative in nature would have a retrospective effect from 01.04.2005 i.e. the date on which the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Section 40(a)(ia) by the Finance Act of 2010 was held by this Court to be retrospective in operation. The submission so made is not only baseless but is bereft of any logic. Neither the amendment made by the Finance (No. 2) Act, 2014 could be stretched anterior the date of its substitution so as to reach the assessment year 2005-2006 nor the said decision in Calcutta Export Company has any correlation with the case at hand or with the amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious 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 sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip 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 obtaining after 2008, where still remained one class of assessees who could not claim deduction for the TDS amount in the previous year in which the tax was deducted and who could claim benefit of such deduction in the next year only; and, after finding that the amendment of the year 2010 was intended to remedy this position, held that the said amendment, being curative in nature, is required to be given retrospective operation that is, from the date of insertion of Section 40(a)(ia). 19.4. Learned counsel for the appellant has only referred to the conclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 made in the provisions of section 40 (ia) by the Finance Act, 2010. *** *** *** 24. Thus, the Finance Act, 2010 further relaxed the rigors of section 40(a)(ia) of the Income-tax Act to provide that all TDS made during the previous year can be deposited with the Government by the due date of filing the return of income. The idea was to allow additional time to the deductors to deposit the TDS so made. However, the Memorandum Explaining the Provisions of the Finance Bill, 2010 expressly mentioned as follows: This amendment is proposed to take effect retrospectively fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 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 ₹ 20,000/- would provide him escape from the rigour of the provisions of the Act providing for disallowance. In either event, the appellant had not been a bona fide assessee who had made the deduction and deposited it subsequently. Obviously, the appellant could not have derived the benefits that were otherwise available by the curative amendments of 2008 and 2010. Having defaulted at every stage, the attempt on the part of assessee-appellant to seek some succor in the amendment of Section 40(a)(ia) of the Act by the Finance (No. 2) Act, 2014 could only be rejected as entirely baseless, rather preposterous. 19.7. Hence, Question No. 3 is also answered in the negative, i.e., against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 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 (-) ₹ 1,32,07,589/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act. 18. Assessment was framed by the A.O. vide his order u/s. 143(3), dated 16.11.2016, wherein the following disallowances were made in the hands of the assessee firm: Sr. No. Particulars Amount 1. Disallowance U/s. 36(1)(iii) ₹ 74,28,384/- 2. Disallowance U/s. 40(a)(ia) ₹ 57,14,354/- 19. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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