Second proviso to sec.40(a)(ia) of the IT Act is curative and it has retrospective effect w.e.f. 1st April, 2005

Brief of the Case: In the case of ITO Vs Bimal Biswas, ITAT of Kolkata set aside the issue to the file of AO and directed the assessee to produce the relevant evidence in respect payees of carriage charges whether they have included the carriage receipts in the respective returns of income and paid taxes on the said income, Accordingly the provision of sec 40(a)(ia) will apply.

Facts of the Case: The Assessee derives income from wholesale egg trading and truck plying business. During the year under consideration i.e. FY 2008-09 relevant to AY 2009-10, the assessee has debited a sum of Rs.44.33 lac on carriage hire charges for hiring of various trucks but did not deduct TDS on the payment of Rs.44.33 lac made to different truck owners for carrying goods. The assessee before the AO contended that there is no contract for carriage of goods between the suppliers and the lorry owners. But the AO was not convinced, and he made disallowance of carriage hire charges for non-deduction of TDS u/s. 194C of the IT Act by invoking provisions of section 40(a)(ia) of the IT Act.

Aggrieved, assessee preferred appeal before CIT(A), who deleted the disallowance by holding that there was not any contract between the truck owners and the assessee whether in written or oral, so the question of TDS on such payment u/s. 194 C of the IT Act cannot arise. Accordingly, the CIT(A) deleted the disallowance.

Aggrieved Revenue appealed before ITAT. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance of truck hire/carriage payment charges amounting to Rs.44.33 lac for non-deduction of TDS u/s. 194C of the IT Act by the AO thereby invoking the provisions of section 40(a)(ia) of the IT Act. For this, Revenue has raised following three grounds:

“1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Jalpaiguri was justified in law in allowing the appeal of the assessee on the ground that the trucks were not hired by the assessee as he had no scope to engage the truck owners.

2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A), Jalpaiguri was justified in deleting the entire addition of Rs.44,33,000/- without appreciating the fact that the AO had made the addition after being satisfied that the assessee had violated the provision of section 194C of the IT Act, 1961.

3. Whether the Ld. CIT(A), Jalpaiguri was justified in the ignoring the fact that the assessee could not produce any documentary evidence to substantiate his claim and could not offer plausible explanation both at the assessment and the appellate stage.”

Contention of the Revenue: Revenue referred a decision of Coordinate Bench in the case of DCIT Vs. Kamal Mukherjee & Co. (Shipping) (P) Ltd, wherein it was inter-alia held that TDS provisions will apply, for the purpose of invocation of the provisions of section 40(a)(ia) of the Act, only on the amounts remained payable at the end of financial year and not on the paid amounts. Accordingly, the AO was directed to recompute the disallowance accordingly.

Contention of the Assessee: Assessee made alternative argument that let the issue be set aside to the file of AO for applying the second proviso to section 40(a)(ia) of the IT Act as inserted by Finance Act, 2012. It was held that this proviso to be retrospective in the case of Santosh Kumar Kedia Vs. ITO, I.T.A. No.1905/Kol/2014 for Assessment Year: 2007-08 dated 04.03.2015, wherein the Tribunal finally directed the AO inter-alia include that the insertion of second proviso to sec.40(a)(ia) of the IT Act is curative and it has retrospective effect w.e.f. 1st April, 2005, being a date from which Sec. 40(a)(ia) of the IT Act was inserted by the Finance (No. 2) Act, 2004. In view of this, matter needs fresh adjudication in the light of the fact that the AO will carry out necessary verification in regard to related payments having been taken into account by the recipient in computation of its income and verification of payment of taxes in respect of such income and also filing of income tax return by the recipient. In term of the above, the second aspect argued is restored back to the file of the AO and assessee will provide all the details in terms of second proviso to sec. 40(a)(ia) of the IT Act.

Held by CIT (A): CIT(A) deleted the disallowance by holding that there cannot be any contract between the truck owners and the assessee whether written or oral, so the question of TDS on such payment u/s. 194 C of the IT Act cannot arise. Accordingly, the CIT(A) deleted the disallowance.

Held by ITAT: In terms of the decision of Coordinate Bench in the case of Santosh Kumar Kedia, supra, ITAT set aside the issue to the file of AO and directed the assessee to produce the relevant evidence in respect payees of carriage charges whether they have included the carriage receipts in the respective returns of their income and paid taxes on the said income. The AO will decide accordingly.

In the result, appeal of Revenue was allowed for statistical purposes.