Kant Associates, Nadiad vs Assessee

Date of hearing : 24-04-2015 Date of pronouncement : 30-04-2015 I.T.A No. 2429/Ahd/2011 & CO No. 226/Ahd/2011 A.Y. 2005-06 Page No 2 ACIT vs. M/s. Kanit Associates

आदे श/ORDER

PER : SHAILENDRA KR. YADAV, JUDICIAL MEMBER:-

Revenue has filed the appeal against the order of Ld. CIT(A)-IV, Ahmedabad dated 29th July, 2011 on following grounds:-

"1. The Ld. C1T(A) has erred in law and on facts in deleting the addition of Rs. 8,91,500/- made by the Assessing Officer by holding that amendment made in section 40(a)(ia) of the Income Tax Act by finance Act- 2010 have retrospective effect.

1.1 In the process, the Ld. CIT(A) failed to take cognizance of object clause of amendment effected in section 40(a)(ia) of I T. Act as mentioned in notes on clauses of finance Act, 2010 as well as memorandum explaining the provisions of finance Bill - 2010."

2. Cross Objection is filed by the assessee on the following ground:-

"1 On the facts and in the circumstances of the case, the CIT(A) erred in not upholding the Assessee's alternative contention also which was to the effect that the provisions of Section 40 are not at all attracted in this case insofar as the expenditure involved is not covered by any of the provisions of section 30 to 38 and hence the question of applying sub-clause (ia) of Clause

(a) of Section 40 does not arise."

3. In this case original assessment order was passed u/s. 143(3) of the Act on 29-03-2007. A disallowance of Rs. 11,07,132/- was made by invoking the provisions of Section I.T.A No. 2429/Ahd/2011 & CO No. 226/Ahd/2011 A.Y. 2005-06 Page No 3 ACIT vs. M/s. Kanit Associates 40(a)(ia) of the Act. Above amount was paid towards construction expenses to M/s. Dharnenedra Developers. Assessee deducted tax of Rs. 42,000/- on 31-03-2005 but deposited the same to Government Account on 28-05-2005. However, as per section 201 of the Act r.w. rule 30 of Income Tax rules, assessee was required to deposit such TDS to the Account latest by 07-04-2005. Therefore, invoking the provisions of section 40(a)(ia), disallowance of construction expenses at Rs. 11,07,132/- was made in first round.

3.1 Above disallowance was challenged before concerned CIT(A) wherein he vide order dated 11-09-2007 confirmed the addition, so made by AO.

3.2 Issue was challenged before ITAT wherein vide its order dated 19-02-2009 set aside the issue to the file of Assessing Officer with direction to verify the amounts of Dharnenedra Developers and decide the issue afresh. ITAT also directed to examine the issue of TDS in view of the amendment of section 40(a)(ia) by Finance Act, 2008 w.e.f. 01-04-2005.

3.3 Assessing Officer finalized the set aside assessment order as per direction of ITAT whereby making disallowance of Rs. 8,91,500/- in view of the amended provisions of section 40(a)(ia) effected w.e.f. 01-04-2005. As per amended provisions, no disallowance of expenditure is to be made if tax I.T.A No. 2429/Ahd/2011 & CO No. 226/Ahd/2011 A.Y. 2005-06 Page No 4 ACIT vs. M/s. Kanit Associates which was deductable and so deducted during the last month of the previous year is paid to the Government Account upto to the due date of filing of return of income. However, tax deductable and so deducted before moth of March, must have paid by end of March only so as to claim deduction of such related expenses. In view of this, AO disallowed the claim of construction of expanses amounting to Rs. 8,91,500/- made during the period prior to the March, 2005 for which tax was deducted but not paid by the end of previous year i.e. March, 2005 by invoking the amended provision of section 40(a)(ia).

3.4 The matter was again carried before First Appellate Authority wherein various contentions were raised on behalf of assessee and having considered the same CIT(A) granted relief to the assessee. Same stand has been opposed on behalf of revenue, interalia stating that CIT(A) erred in deleting the addition of Rs. 8,91,500/- made by AO. Accordingly, order of CIT(A) be set aside and that of Assessing Officer on the issue be restored. On the other hand, Ld. Authorized Representative supported the order of Ld. CIT(A)

4. After going through rival submission and material on record, we find that issue before us is whether assessee is entitled to get benefit of amended provisions of section 40(a)(ia) brought by Finance Act, 2010 w.e.f. 01-04-2010. As per this amended provision, no disallowance can be made if after I.T.A No. 2429/Ahd/2011 & CO No. 226/Ahd/2011 A.Y. 2005-06 Page No 5 ACIT vs. M/s. Kanit Associates deduction of tax through the previous year, same has been paid on or before due date of filing of the return of income. We find that ITAT in case of Kanubhai Ramjibhai Makwana held as under:-

"In view of the above discussion, following the case laws of Hon'ble Apex Court and of Hon'ble High Courts cited above, we are of the view that the provisions of section 40(a)(ia) as amended by the Finance Act, 2010 w.e.f 1-4-2010, which has newly been inserted by the Finance (No.2) Act, 2004, with effect from 1-4-2005 to section 40 of the Act is remedial in nature, designed to eliminate unintended consequences which may undue hardship to the taxpayers and which made the provision unworkable or a specific situation, and is of clarificatory nature and, therefore, has to be treated as retrospective with effect from 01-04-2005, the date on which section 40(a)(ia) has been inserted by the Finance (No.2) Act, 2004. Accordingly, this issue of the assessee's appeal is allowed."

5. Ld. Authorized Representative before us further pointed out that decision of Kanubhai Ramjibhai Makwana has been upheld by Hon'ble Gujarat High Court in tax appeal no. 819/Ahd/2011 vide order dated 10-12-13 holding that amendment to section 40(a)(ia) brought by Finance Act, 2010 w.e.f. 01-04-2010 is having retrospective effect w.e.f. 01-05- 2005 i.e. date on which section 40(a)(ia) introduced in IT Act. Since tax deducted at source has been paid before due date of filing of return, no disallowance could be made in view of further amended provisions of section 40(a)(ia) of the Act which is applicable retrospectively w.e.f. 01-04-2005. Accordingly, CIT(A) was justified in deleting the disallowance of I.T.A No. 2429/Ahd/2011 & CO No. 226/Ahd/2011 A.Y. 2005-06 Page No 6 ACIT vs. M/s. Kanit Associates 8,91,500/- made by AO, same is upheld. As a result, revenue's appeal is dismissed.

6. CO is nothing but supporting the order of CIT(A) which has been upheld by us. So, issue raised in Cross Objection goes infructuous and the same is dismissed.

7. As a result, both revenue's appeal as well as cross objection filed by assessee are dismissed.

Order pronounced in open court on the date mentioned hereinabove at caption page i.e. 30/04/2015

Sd/- Sd/-

(ANIL CHATURVEDI) (SHAILENDRA KR. YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 30/04/2015 ak

आदे श क ूितिल प अमे षत / Copy of Order Forwarded to:-

1. Assessee

2. Revenue

3. Concerned CIT

4. CIT (A)

5. DR, ITAT, Ahmedabad

6. Guard file.

By order/आदे श से,

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद