M/S. JAGANNATH CONSTRUCTION,RAYAGADA vs. ITO, RAYAGADA WARD, RAYAGADA

Shri J.M.Pattnaik and Subit Sahu, J.M.Pattnaik and Subit Sahu, ld ARs appeared for appeared for the assessee and Shri S.C.Mohanty, Sr. S.C.Mohanty, Sr. DR appeared for the revenue. DR appeared for the revenue.

It was submitted by ld AR that the only issue in the assessee’s It was submitted by ld AR that the only issue in the assessee’s It was submitted by ld AR that the only issue in the assessee’s appeal was against the disallowance of 100% under section 40(a)(ia) of appeal was against the disallowance of 100% under section 40(a)(ia) of appeal was against the disallowance of 100% under section 40(a)(ia) of P a g e 1 | 4 the Act in respect of payment to sub-contractors to an extent of Rs.76,19,465/-. It was the submission that originally, the Co-ordinate Bench of this Tribunal had held the issue in favour of the assessee and the Revenue had filed a miscellaneous application and the same came to be disposed off vide an order in M.A.No.34/CTK/2017 dated 24.6.2022. It was the submission that originally, the Co-ordinate Bench of this Tribunal had followed the decision in the case of Victor Shipping Services Pvt Ltd., (2013) 357 ITR 642 (All) and subsequently on the reversal of the same by the decision of the Hon’ble Supreme Court in the case of Palam Gas vs CIT,(2017) 81 taxmann.com 43(SC) order dated 9th May, 2017, the revenue had filed M.A. and the order of the Tribunal had been recalled. It was the submission that now the issue was squarely covered by the decision of the Co-ordinate bench of this Tribunal in the case of Om Sri Nilamadhab Builders (P) Ltd in order dated 14.11.2022, wherein, in para 6, following the decision of the Hon’ble Supreme Court in the case of Vatika Township (P) Ltd., (2014) 49 taxmann.com 249(SC), it was held that the disallowance under section 40(a)(ia) is to be restricted to 30%.

In reply, ld Sr DR relied upon the decision of the Hon’ble Supreme Court in the case of Shree Choudhary Transport Company (2020) 426 ITR 289 (SC). Ld Sr DR drew our attention to paras 19 to 19.6 of the said judgement of the Hon’ble Supreme Court to submit that the amendment to P a g e 2 | 4 the provisions of section 40(a)(ia) of the Act by the Finance (No.2) Act did not have retrospective effect and the disallowance was to be at 100% itself.

We have considered the rival submissions. A perusal of the decision of the Co-ordinate Bench of this Tribunal in the case of Om Sri Nilamadhab Builders (P) Ltd(supra) clearly shows that the decision of the Hon’ble Supreme Court in the case of Choudhary Transport Company (supra) had been considered and after that in paras 5 & 6 held that the disallowance was to be restricted at 30% under section 40(a)(ia) of the Act and that the amendment by the Finance (No.2) Act, 2014 was to be given retrospective effect. The Co-ordinate Bench in paras 5 & 6 has held as follows:

We have heard the rival submissions. In respect of the amendments which have brought into by the various Finance Act, wherein the amendment is brought in to remove the hardship caused to the assessee, the same is clarificatory in nature. This principle is as per the decision of the Hon’ble Supreme Court in the case of Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249 (SC). A perusal of the amendment by the Finance (No.2) Act, 2014 made to the provision of Section 40(a)(ia) of the Act clearly shows that the amendment has been brought to remove hardship caused to the assessee. It must be understood that the disallowance of 100%, by the said amendment was restricted to 30%, thus, clearly the amendment was brought in to remove the hardship caused to the assessee. In these circumstances, respectfully following the decision of the various coordinate benches of the Tribunal on this issue, referred to supra, as also the principle laid down by the Larger Bench P a g e 3 | 4

In the result, appeal of the assessee stands partly allowed .