TMI Blog2023 (5) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No.620/Coch/2022 - - - Dated:- 20-1-2023 - Smt. Beena Pillai, Judicial Member And Ms. Padmavathy S., Accountant Member For the Assessee : Mr. Shameem Ahamed, Advocate For the Revenue : Smt. J M Jamuna Devi, Sr. AR ORDER PER PADMAVATHY S, ACCOUNTANT MEMBER: This appeal is against the order of the CIT(A), National Faceless Appeal Centre, Delhi [NFAC], dated 23.2.2022 for the assessment year 2009-10. 2. The assessee is carrying on business as builder/developer of residential and commercial complexes. The assessee filed the return of income for AY 2009-10 on 30.9.2009 declaring a total income of Rs.98,41,018. The case was selected for scrutiny and assessment was completed u/s. 143(3) assessing an income of Rs.1,03,48,780. Subsequently, the CIT, Kozhikode, set aside the order of assessment u/s. 263 with a direction to make fresh assessment on the ground that the tax deducted at source by the assessee during the period from 1.10.2008 to 28.2.2009 was credited to the Govt. account during May, 2009 to July, 2009 only and the AO did not make any disallowance u/s. 40(a)(ia). The AO subsequently passed an order u/s. 143(3) read with section 263 disallowing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Income. On such facts and circumstances the appellant submits that the provisions of section 40(a)(ia) cannot be invoked and the disallowance made is unjustified. 5. The appellant has relied on the reasoning and conclusion of the Hon'ble Delhi High Court in CIT vs. Rajendra Kumar [(2014) 362 ITR 241 (Delhi)] (Judgment dated July 1st 2013) and CIT vs. Naresh Kumar [(2014) 362 ITR 256 (Delhi)] (Judgment dated September 6, 2013) in particular the observations of the Hon'ble High Court in the concluding paras 25 86 26 of the judgment in Rajedra Kumar's case. Without prejudice to the above contention that section 40(a)(ia) has no application on the facts of the appellant case, the appellant is advised to submit that provisions of section 40(a)(ia) of the Act would apply only to the amounts which remain payable at the end of the relevant financial year (i.e. 31.03.2009) and cannot be invoked to disallow the amounts which had actually been paid during the previous year as held in Merlyn Shipping and Transports vs. Additional CIT [(2012) 16 ITR(Trib.) 1 (SB) (Vishakhapatnam)] affirmed in CIT vs. Vector Shipping Services (P) Ltd. [(2013) 357 ITR 642(All)]. 6. That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. C. That both the Assessing Officer as well as the 1st Appellant authority had failed to appreciate that, the amendments made to section 40 (a) (ia) by the Finance Act 2010 are curative in nature and was indented to address the concerns of those, assessees who had deposited tax with the government in the subsequent year, though could not deposit such tax before the prescribed period. D. That as per the amended provisions of Sec 40(a)(ia) of the IT Act, where TDS is deductible at source under Chapter XVIIB 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, the expenses can be disallowed. E. That both the Assessing Officer and the 1st Appellate Authority had failed to appreciate that the amendment made to section 40 (a) (ia), being curative in nature will have retrospective operation and will take effect from 1.04.2005 i.e, the date of original insertion of section 40 (a) (ia) as held by the Honourable Supreme Court in the case of Commissioner of Income Tax Calcutta, Vs Calcutta Export Company reported in (2018) (2016) SCC 686 . F. That since the amendments made to Sec 40 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lcutta Export Co.(supra) has considered the issue of retrospective effect of amendment to section 40(a)(ia) and held that 13. The dispute in the present case revolves around the fact that whether the amendment made by the Finance Act, 2010 to the provisions of Section 40 (a) (ia) of the IT Act is retrospective in nature so as to apply to the present case or not. If it is so, then the tax duly paid by the assessee on 01.08.2005 is well in accordance with law and the assessee is allowed to claim deduction for the tax deducted and paid to the government, in the previous year in which the tax was deducted. 14. For deciding as to the retrospective effect of the amendment made by Finance Act, 2010, it is required to see the Section as it stands before and after the amendment made through the Finance Act, 2010 and the purpose of such insertion or amendment to the said provisions. The provisions of Section 40(a)(ia) came into force in the year 2005 which stood as under: 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 gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year in which the TDS was deducted. However, when the amount deducted in the form of TDS was deposited with the government after the expiry of period allowed for such deposit then the deductions can be claimed for such deposited TDS amount only in the previous year in which such payment was made to the government. 17. However, it has caused some genuine and apparent hardship to the assesses especially in respect of tax deducted at source in the last month of the previous year, the due date for payment of which as per the time specified in Section 200 (1) of IT Act was only on 7th of April in the next year. The assessee in such case, thus, had a period of only seven days to pay the tax deducted at source from the expenditure incurred in the month of March so as to avoid disallowance of the said expenditure under Section 40(a)(ia) of IT Act. 18. With a view to mitigate this hardship, Section 40(a)(ia) was amended by the Finance Act, 2008 and the provision so amended read as under: 40. 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 profit and gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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 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 har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ensure payment and deposit of TDS with the Government. 27. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the Section, is required to be read into the Section to give the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act should be interpreted liberally and equitable and applies retrospectively from the date when Section 40(a)(ia) was inserted i.e., with effect from the Assessment Year 2005-2006 so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. As the developments with regard to the Section recorded above shows 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. Since the assessee has filed its returns on 01.08.2005 i.e., in accordance with the due date under the provisions of Section 139 IT Act, hence, is allowed to claim the benefit of the amendment made by Finance Act, 2010 to the provisions of Section 40(a)(ia) of the IT Act. 31. In light of the forgoing discussion, we are of the view that judgment of the High Court does not call for any interference and, hence, the appeals are accordingly dismissed. In view of the above, all the connecting appeals, interlocutory applications, if any, transferred cases as well as diary numbers are disposed off accordingly. Parties to bear cost on their own. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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