Section 40(a)(ia) — Disallowance of expenditure on account of non-deduction of TDS — Non-deduction was on account of non-allotment of TAN — Whether the disallowance was justified — Held, No.

For non-deduction of tax at source the AO disallowed the sum of Rs.4.62 lakh paid by the assessee towards brokerage and commission. The non-payment was on account of the non-receipt of TAN. The assessee pointed out that he had immediately applied for TAN when the bank refused to accept tax payment without TAN. However, till 31-3-2005 TAN was not allotted. Hence, he again applied for TAN which was finally allotted on 15- 4-2005 and the tax was paid on 25-4-2005. Since the tax was not paid by the year-end, the amount paid by way of brokerage and commission was disallowed by the AO u/s.40(a)(ia). On appeal, the CIT(A) confirmed the order of the AO.

Held:

The Tribunal noted that the assessee was depositing TDS in time up to 7-12-2004. He had also applied for TAN and since the bank refused to accept TDS without TAN, he was unable to pay tax. Thus, according to it, the assessee was prevented from performing his obligations under the law despite his bona fide efforts and he cannot be regarded as defaulter. For the purpose, it also relied on the decisions of the Calcutta High Court in the case of Modern Fibotex India Ltd. & Another v. DCIT, (212 ITR 496) which was approved by the Apex Court in the case of CIT v. Hindustan Electro Graphites Ltd., (243 ITR 48) and also on the Hyderabad Tribunal decision in the case of ACIT v. Jindal Irrigation Systems Ltd., 56 ITD 164 and Nagpur Bench of Tribunal decision in the case of Canara Bank v. ITO, (121 ITD 1). The Tribunal further noted that the provisions of section 40(a)(ia) are amended by the Finance Act, 2010 w.e.f. 1-4-2010 to provide that the expenditure shall not be disallowed if TDS is paid on or before the due date specified in section 139(1). According to it, if the amendment is curative or is intended to remedy unintended consequences or to render the statutory provisions workable, the amendment was to be construed to relate back to the provisions in respect of which it applies to the remedy. It referred to the following decisions where it was held that the amendments were retrospective though such retrospectivity was not mentioned by the Legislature while introducing the provisions.

The cases relied on were:

•  Allied Motors Pvt. Ltd. v. CIT, (139 CTR 364) (SC);

•  CIT v. Alom Extrusion Ltd., (319 ITR 306) (SC);

•  CIT v. Podar Cements Pvt. Ltd., (226 ITR 625) (SC); and

•  CIT v. Gold Coin Health Food Pvt. Ltd., (304 ITR 308) (SC).

Further, relying on the decisions of the Ahmedabad Tribunal in the case of Kanubhai Ramjibhai v. ITO, (135 ITD 364) and of the Mumbai Tribunal in the case of Bansal Parvahan India Pvt. Ltd. v. ITO, (137 TTJ 319), where it was held that the amendment in section 40(a)(ia) was curative in nature, it allowed the appeal of the assessee.