THE COMMISSIONER OF INCOME TAX FARIDABAD vs. M/S FOREMOST INTERNATIONAL PVT. LTD.

Facts

The Revenue (Commissioner of Income Tax, Faridabad) appealed against an order of the Income Tax Appellate Tribunal (ITAT), Delhi Bench. The ITAT had allowed the appeal of the assessee, M/s Foremost International Pvt. Ltd., for assessment year 2005-06. The dispute arose when the Assessing Officer disallowed expenditure due to late deposit of Tax Deducted at Source (TDS). The assessee had deducted TDS but deposited it after the due date of deduction but before the due date for filing the return of income. The CIT(A) had allowed part of the deduction and disallowed the rest. The ITAT, following the Calcutta High Court's decision in CIT Vs. Virgin Creations, allowed the assessee's appeal, holding that if TDS is paid before the due date of filing the return under Section 139(1), no addition can be made under Section 40(a)(ia).

Held

The High Court held that the amendment to Section 40(a)(ia) of the Income Tax Act, 1961, introduced by the Finance Act, 2010, is retrospective. The Court agreed with the ITAT's finding that if the payment of TDS is made before the due date of filing the return as envisaged under Section 139(1), no addition can be made under Section 40(a)(ia). The Court also referred to a Delhi High Court judgment in Commissioner of Income tax versus Naresh Kumar, which held the amendment to be retrospective and answered the question posed against the revenue. The revenue was unable to distinguish these judgments or provide any legal basis to differ. Therefore, the High Court affirmed the ITAT's decision that the Assessing Officer erred in disallowing the expenditure as the assessee had deposited TDS before the date of filing the return. The appeal was dismissed.

Key Issues

1. Whether the amendment to Section 40(a)(ia) of the Income Tax Act, 1961, introduced by the Finance Act, 2010, with effect from 1.4.2010, is applicable to the assessment year 2005-06, thereby disallowing expenditure where TDS was deposited late but before the due date of filing the return. Assessee's Contention: The assessee argued that the ITAT's decision was correct. They relied on the ruling of the Calcutta High Court in CIT Vs. Virgin Creations, which held that if TDS is paid before the due date of filing the return as per Section 139(1), no addition under Section 40(a)(ia) can be made. Since the balance TDS was paid in June 2005, before the due date for filing the return, the addition was not justified. Revenue's Contention: The revenue contended that the amendment to Section 40(a)(ia) by the Finance Act, 2010, is not applicable to the assessment year 2005-06. They argued that the impugned order of the ITAT was without jurisdiction and should be set aside.