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Friday, August 31, 2012

TDS paid on or before the due date of filing return u/s. 139 (1), deduction in respect to the amount TDS is paid is allowable- Bench follows Jurisdictional Calcutta High Court Decision taken in the case of CIT vs. Virgin Creations


[Before Shri Pramod Kumar, AM & Shri Mahavir Singh, JM]

I.T.A No. 612Kol/2012

Assessment Year : 2007-08

M/s. Suresh Constructions (P) Ltd. Company
Commissioner of Income-tax,Kolkata-II

For the Appellant: Smt. Anumita Sarkar
For the Respondent: Shri A. Das

Date of hearing: 28.08.2012
Date of pronouncement: 28.08.201

Immediately upon conclusion of hearing of this appeal on 28th
August, 2012, the bench passed the following order:
“28th August, 2012
The appeal is allowed. Pronounced in the
open court. Reasoned order to follow.”


In accordance with the above, the reasoned order is now set out as follows:

Per Mahavir Singh, JM
This appeal by assessee is arising out of order of CIT, Kolkata-II Vide M. No. CIT Kol- II/U/s.263/C-12/2010-11/9497-9501 dated 14.02.2012. Assessment was framed by ITO, Ward- 5(1), Kolkata u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2007-08 vide his order dated 07.12.2009.

2. The only issue in this appeal of assessee is against the revision order passed by CIT, Kol-II in directing the AO to make disallowance by invoking the provisions of section 40(a)(ia) of the Act in respect of expenditure of Rs.1,25,66,577/- i.e. labour charges including payment to sub-contractors. For this, assessee has raised following ground:

“1. That the Hon’ble CIT has erred in directing Ld. A.O. to make disallowance of Rs.1,25,66,577/- u/s. 40(a)(ia) of the Income Tax Act, 1961 on account of late deposit of TDS, without considering the amended provision of sec.40(a)(ia) being clarificatory in nature brought with retrospective effect in Finance Act, 2010.”

3. We have heard rival submissions and gone through facts and circumstances of the case. We have gone through the revision order passed by CIT u/s. 263 of the Act and find that the only premise of CIT for revising the assessment order is as under:

“I have considered the argument and aIso gone throug a few appellate orders including that of ITAT, Ahmedabad Bench “B”, Ahmedabad in the case of Kanubhai Ramjibhai Makwana vs. ITO ITA No.3983/AHD/2008) on the similar dispute. There is no statutory provision that the amendment would be effective for Assessment Years prior to 2010-11. The very fact that the issue has gone beyond the revenue authorities for adjudication entails that the final word has to come from the Court(s). The law on this dispute is not settled as yet. So, we have to go by the letter on the statute book. The AO is directed to make disallowance u/s. 40(a)(ia) of the I. T. Act of Rs.1,25,66,577/- out of the total sum of Rs.2,70,49,115/- debited to P&L A/c. of the previous year (2006-07) relatable to the Assessment Year 2007-08 under the head “Labour Charges including payment to sub Contractors”. The assessment is revised accordingly.”

In such circumstances, the Ld. counsel for the assessee relied on the decision of Hon’ble Calcutta High Court in the case of CIT Vs. Virgin Creations in ITAT No.302 of 2011, GA No.3200/2011 dated 23.11.2011, wherein Hon’ble High Court has confirmed coordinate bench decision of ITAT in ITA No.267/K/2009 “A” Bench, in the case of Virgin Creations Vs. ITO dated 15.12.2010. Tribunal has considered the decisions of Mumbai Bench of this ITAT in the case of M/s. Bansal Parivahan (India) P. Ltd. Vs. ITO in ITA No.2355/Mum/10 and of Ahmedabad Bench “B” in ITA No. 3983/Ahd/2008 for AY 2005-06 dated 03.12.2010. Tribunal considered the amendment made in the provisions of section 40(a)(ia) of the Act by the Finance Act, 2010 as curative and remedial in nature by holding as under:

“After hearing the rival submissions and on careful perusal of the materials available on record, keeping in view of the fact that though the Ld. D.R. submitted that the decisions of the Coordinate Benches are not binding and the Kolkata benches may take a different view, since Mumbai Bench after analyzing the provisions of section 40(a)(ia) since its inception and various amendments made to the same including the suggestion made by the Industry in the form of representation in their pre-budget memorandum to the Hon’ble Finance Minister and by applying the decision of the Hon’ble Apex Court in the case of Alom Extrusions Ltd., has observed that  “The provisions of section 40(a)(ia) as stood prior to the amendments made by the Finance Act 2010 thus were resulting into unintended consequences and causing grave and genuine hardships to the assessees 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 u/s 139(1). In order to remedy this position and to remove the hardships which was being caused to the assessees belonging to such category, amendments have been made in the provisions of section 40(a)(ia) by the Finance Act 2010. The said amendments, in our opinion, thus are clearly remedial/curative in nature as held by Hon’ble Supreme Court in the case of Allied Motors Pvt. Ltd. (supra) and Mom Extrusions Ltd. (supra) and the same therefore would apply retrospectively w.e.f. 1st April, 2005. In the case of R.B. Jodha Mal Kuthiala 82 ITR 570, it was held by the Hon’ble Supreme Court that a proviso which is inserted to remedy unintended consequences and to make the provision workable, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. In the present case, the amount of tax deducted at source from the freight charges during the period 01/04/2005 to 28/02/2006 was paid by the assessee in the months of July and August 2006 i.e. well before the due date of filing of its return of income for the year under consideration. This being the undisputed position, we hold that the disallowance made by the A.O. and confirmed by the learned CIT(A) on account of freight charges by invoking the provisions of section 40(a)(ia) is not sustainable as per the amendments made in the said provisions by the Finance Act, 2010 which, being remedial/curative in nature, have retrospective application”, we find no reason to deviate from the decisions of the ITAT’s Mumbai Bench and Ahmedabad Bench, in the absence of a contrary view, except the other benches decision or any other High Court. Therefore, respectfully following the decision of the Coordinate Benches (supra), we allow the ground nos. 1 to 3 of the assessee’s appeal.”

4. We find that the above view of this Tribunal was confirmed by Hon’ble Calcutta High Court in the case of Virgin Creations (supra) by holding as under:

“We have heard Mr. Nizamuddin and gone through the impugned judgment and order. We have also examined the point formulated for which the present appeal is sought to be admitted. It is argued by Mr. Nizamuddin that this court needs to take decision as to whether section 40(A) (ia) is having retrospective operation or not. The learned Tribunal on fact found that the assessee had deducted tax at source from the paid charges between the period April 1, 2005 and April 28, 2006 and the same were paid by the assessee in July and August 2006, i.e. well before the due date of filing of the return of income for the year under consideration. This factual position was undisputed. Moreover, the Supreme Court, as has been recorded by the learned Tribunal, in the case of Allied Motors Pvt. Ltd. and also in the case of Alom Extrusions Ltd., has already decided that the aforesaid provision has retrospective application. Again, in the case reported in 82 ITR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well. In view of the authoritative pronouncement of the Supreme Court, this court cannot decide otherwise. Hence we dismiss the appeal without any order as to costs.

5. Once the issue is decided by Hon’ble jurisdictional High Court that the amendment in the provisions of section 40(a)(ia) of the Act by Finance Act, 2010 is remedial and curative in nature and TDS paid on or before the due date of filing of return u/s. 139(1) of the Act, deduction in respect to the amount on which TDS is so paid, is allowable. In the present case the assessee deducted tax and the same was deposited on 28.05.2007 for the AY 2007-08 that means the TDS was paid before due date of filing of return u/s. 139(1) of the Act by the assessee, hence, we allow the claim of assessee and quash the revision order passed by CIT. This issue of assessee’s appeal is allowed.

6. In the result, appeal of assessee is allowed.

7. Order pronounced in open court.


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