PR. COMMISSIONER OF INCOME TAX -24, MUMBAI vs. ASPHALT INDIA CORPORATION

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1721 OF 2018 Pr. Commissioner of Income Tax-24, Mumbai Piramal Chambers, Lalbaugh, Parel, Mumbai – 400 012. …. Appellant Vs. M/s. Asphalt India Corporation 1-B,Vimal Apartments, A-Wing, Juhu Lane, Andheri (W), Mumbai – 400 058 …. Respondent _________ Mr. Suresh Kumar a/w. Ms. Leedia Panicker for Appellant. Mr. Dharmesh Shah a/w. Mr. Dhaval Shah for Respondent. _________

CORAM : G. S. KULKARNI & SOMASEKHAR SUNDARESAN, JJ. DATE : 3 JULY, 2024 ORAL JUDGMENT: (G.S. KULKARNI, J.) 1. This appeal of the Revenue under Section 260A of the Income Tax Act, 1961 (“the Act”) challenges an Order dated 24th May, 2017 passed by the Income Tax Appellate Tribunal, Mumbai (“Tribunal”), whereby the Respondent-Assessee’s Appeal against an Order passed by the Commissioner of Income Tax (Appeals) (“CIT- A”) has been allowed, thereby granting to the Respondent-Assesses Page 1 of 9 3 July, 2024 Aarti Palkar AARTI GAJANAN PALKAR Digitally signed by AARTI GAJANAN PALKAR Date: 2024.08.17 17:34:59 +0530 CNR No : HCBM020262092017 Uploaded on - 17/08/2024 Downloaded on - 31/10/2026 00:33:22

2024:BHC-OS:12565-DB

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benefit under Section 40(a)(ia) as amended by the Finance Act, 2014. The effect being that the Tribunal has held that the disallowance as considered by the Assessing Officer and as confirmed by the CIT-A would not be the full amount of expenditure as claimed by the Respondent-Assessee, it would be restricted to 30% of such expenditure. 2. The assessment year in question is assessment year 2006- 07. Briefly the facts are:- The Assessee who is in the business of hot mix plant, road construction and hiring of equipment and vehicles had filed return of income declaring total income of Rs.24,29,729/- which was filed on 3rd March, 2007. The return of income was duly processed and thereafter the case was selected for scrutiny by issuance of notices under Section 143(b) and 141(1) of the Act. The Respondent- Assessee furnished explanation as also the books of accounts, bills, vouchers were produced for verification. The Assessing Officer in such scrutiny and more particularly after considering the TDS return filed by the Respondent-Assessee found that the TDS on various heads of expenses was deposited in the Governments’ account after the due date. The details of the gross amounts on Page 2 of 9 3 July, 2024 Aarti Palkar Uploaded on - 17/08/2024 Downloaded on - 31/10/2026 00:33:22

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which the TDS was deducted and the date of payment are set out in Paragraph 5.1 of the assessment order. The grand total of such expenditure was of an amount of Rs.7,86,16,246/- and the TDS amount as deducted was of Rs.10,03,749/-. The Assessing Officer observed that the assessee deposited the TDS amount beyond the stipulated date, that is such amount was deposited with the Government in the subsequent years and after the expiry of assessment year 2010-11 as per Section 200(1) of the Act. Hence, applying the provisions of Section 40(a)(ia), the expenses claimed by the assessee were being disallowed and added back to the assessee’s total income. The Assessing Officer recorded that considering the contract and professional expenses, the expenses of Rs.7,86,16,246/- were disallowed and added the same to the assessee’s income. He further observed that however the assessee had made the payment in the subsequent year and that such expenses could be allowed in the year in which the amounts were deposited into the Governments’ account. The Assessing Officer also recorded that as in this regard the tax audit report was silent and although late payment of TDS, after the prescribed date was being disallowed under Section 40(a)(ia) of the Act in the computation of income, it would be required to be held that the Page 3 of 9 3 July, 2024 Aarti Palkar Uploaded on - 17/08/2024 Downloaded on - 31/10/2026 00:33:22

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assessee had furnished the inaccurate particulars of income. Hence, penalty proceedings under Section 271(1) were being separately initiated. 3. In the aforesaid circumstances, such expenditure being disallowed, the Assessee assailed the assessment order before CIT- A who upheld the assessment order passed by the Assessing Officer. It was observed that Circular No.10/DV/2013 dated 16th December, 2023 issued by the CBDT had clarified the position that the provisions of Section 40(a)(ia) of the Act would also cover the amounts which were payable at any time during the year. It was held that in the present case the appellant had not been able to furnish any evidence of the TDS payment before the Assessing Officer with reference to the amount of Rs.78,27,445/-. 4. Being aggrieved by such order, the Respondent-Assessee approached the Tribunal in an appeal. The Tribunal by the impugned order has allowed the assessee’s appeal as noted by us. The Respondent-Assessee had deposited the TDS before the due date of filing of the return for the assessment year and hence the provisions of Section 40(a)(ia) were not applicable to the facts of the case in the Revenue’s case. In support of such case, the assessee referred the decision of Delhi High Court in the case of Page 4 of 9 3 July, 2024 Aarti Palkar Uploaded on - 17/08/2024 Downloaded on - 31/10/2026 00:33:22

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Commissioner of Income Tax Vs. Ansal Landmark Township Pvt. Ltd. and orders of the Tribunal in M/s. Amruta Quarry Works Vs. Income-tax Officer, Sabarkantha. The assessee contended that the amendment to section 40(a) was retrospective in nature and that the payee had offered the sum received from the assessee for taxation and hence the disallowance made by the AO was not justified. On the other hand, the Department Representative (DR) stated that amendment to the said provision was prospective and in this context, the decision of the Kerala High Court in the case of Thomas Vs. Commissioner of Income Tax1 was relied before the Tribunal. 5. The assessee also argued that the amendment to Section 40(a)(ia) with effect from 01.04.2015 was introduced, to reduce hardship caused to the assessee’s and that the Tribunal in the case of Amruta Quarry Works (supra) had held that amendment to Section 40(a)(ia) of the Act with effect from 01.04.2015 was retrospective in nature. It was argued that, hence the disallowance must be restricted to 30% of the expenses on which tax was not deducted by the assessee within the time limit prescribed under the Act. Accordingly, applying the decision in Rajendra Singh 1 2015 63 Taxman 99 (Kerala) Page 5 of 9 3 July, 2024 Aarti Palkar Uploaded on - 17/08/2024 Downloaded on - 31/10/2026 00:33:22

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Yadav Vs. Income Tax Officer, Bhilwara and Amruta Quarry Works (supra), the Tribunal held that the provisions of Section 40(a)(ia) were retrospective in nature and consequently, the disallowance under the said provisions would be required to be reduced to 30% of the expenditure in question, as urged on behalf of the assessee, found acceptance of the Tribunal. 6. On the above backdrop, we have heard learned counsel for the parties. We have also perused the orders passed by the Assessing Officer, CIT(A) and the impugned order passed by the Tribunal. The following question of law is raised by the Revenue:- “Whether in the fasts and circumstances of the case, the Tribunal was correct in coming to the conclusion that the provisions of Section 40(a)(ia) as amended by Finance Act, 2013 would have retrospective application for the appellant’s case which is in regard to the assessment year 2006-07 so as to restrict the disallowance to 30% of the expenditure in question.” 7. From the submissions as urged at the bar, it appears to be not in dispute that Section 40(a)(ia), not only, as it stood prior to its amendment as inserted by the Finance (No. 2) Act, 2004, but also by the subsequent amendment to the said provisions by Finance Act 2010 and Finance Act, 2014 had fell for consideration of the Supreme Court in the case of Shree Choudhary Transport Co. vs. Income-tax Officer2. One of the question which fell for 2[2020] 426 ITR 289 (SC) Page 6 of 9 3 July, 2024 Aarti Palkar Uploaded on - 17/08/2024 Downloaded on - 31/10/2026 00:33:22

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consideration of the Supreme Court in the context of Section 40(a) of the Act was as follows:- “As to whether sub-clause (ia) of section 40(a) of the Act, as inserted by the Finance (No. 2) Act, 2004 with effect from April 1, 2005 is applicable only from the financial year 2005-06 and, hence, is not applicable to the present case relating to the financial year 2004-05; and, at any rate, whole of the rigour of this provision cannot be applied to the present case?” 8. In answering such issue and in the context of what was earlier held by the Supreme Court in the case of CIT vs. Calcutta Export Company3, the Supreme Court, considering the effect of amendment brought about by the Finance Act, 2010 to the provisions of Section 40(a)(ia), observed that the amendment as brought about by Finance Act, 2010 was retrospective in operation, being curative in nature and hence the same would become applicable from the date of insertion of the provision of sub-clause (ia) of Section 40(a) of the Act. The Supreme Court while examining the issue of law and taking such view held that insofar as the amendment brought about to Section 40(a)(ia) of the Act by the Finance Act, 2014 was concerned, the position in law as laid down in Calcutta Export Company would not become applicable, as the amendment was not a curative amendment, relating to any procedural aspects concerning deposit of the deducted TDS, as the 3[2018] 404 ITR 654 (SC) Page 7 of 9 3 July, 2024 Aarti Palkar Uploaded on - 17/08/2024 Downloaded on - 31/10/2026 00:33:22

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amendment was to the substantive provision. It was held that the assessee cannot escape from the rigour of the substantive provisions of the Act providing for disallowance. In similar circumstances as in hand, the Supreme Court observed that the benefit of amendment as inserted by the Finance Act, 2014 would not be available to the assessee and accepting the retrospective applicability of such provisions would be preposterous. The relevant observations of the Supreme is required to be noted, which reads thus: “19.5 A bare look at the extraction aforesaid makes it clear that what this Court has held as regards “retrospective operation” is that the amendment of the year 2010, being curative in nature, would be applicable from the date of insertion of the provision in question, i.e., sub-clause (ia) of section 40(a) of the Act. This being the position, it is difficult to find any substance in the argument that the principles adopted by this court in the case of Calcutta Export Company (supra) dealing with curative amendment, relating more to the procedural aspects concerning deposit of the deducted TDS, be applied to the amendment of the substantive provision by the Finance (No. 2) Act, 2014. 19.6 We may in the passing observe that the assessee- appellant was either labouring under the mistaken impression that he was not required to deduct TDS or under the mistaken belief that the methodology of splitting a single payment into parts below Rs.20,000/- would provide him escape from the rigour of the provisions of the Act providing for disallowance. In either event, the appellant had not been a bona fide assessee who had made the deduction and deposited it subsequently. Obviously, the appellant could not have derived the benefits that were otherwise available by the curative amendments of 2008 and 2010. Having defaulted at every stage, the attempt on the part of assessee-appellant to seek some succour in the amendment of section 40(a)(ia) of the Act Page 8 of 9 3 July, 2024 Aarti Palkar Uploaded on - 17/08/2024 Downloaded on - 31/10/2026 00:33:22

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by the Finance (No. 2) Act, 2014 could only be rejected as entirely baseless, rather preposterous.” 9. In view of the position in law as laid down by the Supreme Court in Shree Choudhary Transport Co. (supra), it is absolutely clear that the approach of the Tribunal in the present case was fundamentally flawed inasmuch as what has been undertaken by the Tribunal is to give a retrospective application of the substantive provisions of law, which has been held to be not permissible as held by the Supreme Court in Shree Choudhary Transport Co. (supra). We may also observe that the logic and applicability of a curative amendment which was brought about by the Finance Act, 2010, was certainly not a situation in hand which was the case that had fell for consideration before the Supreme Court in Commissioner of Income-tax vs. Calcutta Export Company (supra). 10. In this view of the matter, in our opinion, the appeal deserves to succeed. The impugned order passed by the Tribunal is quashed and set aside. The question of law stands answered in favour of the Revenue and against the assessee. 11. No costs. [SOMASEKHAR SUNDARESAN, J.] [ G. S. KULKARNI, J. ] Page 9 of 9 3 July, 2024 Aarti Palkar Uploaded on - 17/08/2024 Downloaded on - 31/10/2026 00:33:22 Powered by TCPDF (www.tcpdf.org)