Business expenditure: Disallowance u/s. 40(a)(ia): A. Y. 2007-08: Amendment by Finance Act, 2010 permitting TDS payment till due date for filing return of income is retrospective:

For the A. Y. 2007-08, the Assessing Officer found that TDS on the expenses of Rs. 78,51,800/- paid in the month of March 2007 was deposited in April 2007. The Assessee contended that the said expenditure should be allowed since the TDS has been deposited within the due date. The Assessing Officer disallowed the said amount of Rs. 78,51,800/- relying on the provisions of section 40(a)(ia) of the Income-tax Act, 1961 on the ground that TDS has been deposited after March 2007. The Tribunal allowed the assessee’s claim relying on the decision of the Calcutta High Court in the case of CIT vs. Vergin Creations, ITA No. 302/11, G.A. No. 3200/11 dated 23/11/2011, wherein it has been held that the proviso to section 40(a)(ia) of the Act, amended by the Finance Act, 2010 has retrospective effect. On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under: “i) The intention behind section 40(a)(ia) is to ensure that TDS is deducted and paid. The object of introduction of section 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assesee when payment has been made within the time stated.

ii) Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/paid and the Respondent who is following cash system of accountancy has made actual payment to the third party for services rendered.

iii) Also, section 40(a)(ia), prior to the insertion of the proviso by the Finance Act, 2010, was not free from interpretative difficulties and problems. The amended provisions are clear and free from any ambiguity and doubt and help curtail litigation. The amended provision clearly support the view that the expression “said due date” used in clause A of proviso to the unamended section refers to the time specified in section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statutes when stipulates that deductions made in the first eleven months of the previous year but paid before the due date for filing of the return, will constitute sufficient compliance.