MESERS SPEED SURYA MOVIES,JALANDHAR vs. DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-II, JALANDHAR

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ITA 417/ASR/2018Status: DisposedITAT Amritsar18 March 2022AY 2013-144 pages
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What did the Tribunal hold?

The Tribunal held that the amendment to Section 40(a)(ia) of the Income Tax Act, which restricts disallowance to 30% for non-deduction of TDS, is curative and retrospective. Therefore, the disallowance of laboratory expenses should be restricted to 30%.

What were the facts?

The assessee claimed laboratory expenses, but the Assessing Officer (AO) disallowed the entire amount due to non-deduction of TDS. The CIT(A) confirmed this disallowance. The assessee argued that the disallowance should be restricted to 30% based on an amendment to Section 40(a)(ia).

What were the issues?

Whether the disallowance for non-deduction of TDS under Section 40(a)(ia) should be restricted to 30% based on a retrospective amendment.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194A

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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR

Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE

Hearing: 03.03.2022Pronounced: 25.03.2022

ORDER Per Dr. M. L. Meena, AM:

This appeal is filed by the Assessee against the impugned order dated 21.05.2018, passed by Ld. Commissioner of Income Tax (Appeals)- 5, Ludhiana, in respect of the Assessment Year 2013-14.

2.

The assessee has raised the following grounds of appeal:

“1. That having regard to the facts and circumstances of the case, Hon’ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order u/s 143(3) r.w.s.263 and without Speed Surya Movies v. DCIT complying with the mandatory conditions u/s 143(3)/263 as envisaged under the lncome Tax Act, 1961.

2. That having regard to the facts and circumstances of the case, Hon’ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of laboratory expense amounting to Rs.21,59,500/- u/s 40(a)(ia) of Act, on account of non deduction of TDS, without considering the missions of the assessee and without observing the principles of natural justice.

3.

That in any case and in any view of the matter, action of Ld. CIT(A) in making disallowance of 100% of the laboratory expense and not restricting the same to b of the expenditure, is bad in law and against the facts and circumstances of base.

4.

That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”

3. The sole issue raised by the assessee is that the learned CIT appeal at confirming the disallowance of laboratory expense amounting to Rs.21,59,500/- on account of non-deduction of TDS, u/s194A read with section 40(a)(ia) of Act.

4. At the outset, learned counsel for the assessee stated that the Ld.CIT appeal has not been justified in confirming the disallowance of laboratory expenses amounting to � 2,159,500 under section 40(a)(ia) the act, on account of non-deduction of TDS, without considering the principles of natural justice and the missions of the assessee. He has explained the purpose of the amendment in the memorandum by referring to the budget speech of the finance Minister and stated that while introducing the amendment in para 207 of the budget speech it was clarified that the disallowances shall be restricted to 30% of the amount of such expenditure Speed Surya Movies v. DCIT claimed. He contended that the amendment made by the FA (no.2) Act,2014 w.e.f. 01.04.2015 was to remove unintended in undue hardship. He prayed that the disallowances made by the AO and confirmed by the learned CIT appeal may be restricted to 30%.

5.

The Ld. DR stands by the impugned order.

6.

We have heard the rival submissions and perused the materials available on record. In the present case, the expense claimed by the assessee toward laboratory expense amounting to Rs.21,59,500/- was disallowed on account of non-deduction of TDS, u/s194A read with section 40(a)(ia) of Act. The said disallowance made by the AO was subsequently confirmed by the learned CIT (A). Now, the issue for our consideration and the adjudication is whether the disallowance of the expense should be restricted to 30% by virtue of the amended provisions of section 40(a)(ia) of the Act which was brought in the statute by the Finance Act (No. 2) 2014. Admittedly, as per the provision of section 40(a)(ia) of the Act, the disallowance has to be restricted to the tune of 30% in respect of the expenses on which TDS was not deducted by the assessee. Such amendment was held as retrospective by the Delhi Tribunal in the case of “Muradul Haque vs. ITO”, reported in 184 ITD 58 by observing as under:

We find that Finance (No.2) Act has made amendment to section 40(a)(ia) of the Act w.e.f. 1-4-2015. Various benches of the Tribunals including the Delhi Benches of the Tribunal, have held the amendment made by Finance (No 2) Act to be curative in nature. We further finds the coordinate bench of the Tribunal in the case of R.H. International (supra) has held that disallowance u/s. 40(a)(ia) of the Act be restricted to 30% of the expenses paid as against 100% because amended provision is curative in nature and the provisions should be applied retrospectively.

Speed Surya Movies v. DCIT 7. Similarly, the Ahmedabad Tribunal in the cases of ‘Electronic Instrumentation & Control Pvt. Ltd. vs. ITO’, in and 3056/AHD/2013 and ‘DRAIPL-MSKEL(JV) vs. ITO’, in ITA No. 1499/AHD/2015 have held that the amendment brought under the provisions of section 40(a)(ia) of the Act by the Finance Act (No. 2) 2014 is applicable retrospectively.

8.

In view of the amended provisions, the expenses incurred by the assessee without deducting the TDS cannot be disallowed at 100%. Accordingly, such disallowance shall be restricted to the extent of 30% only. We, therefore, direct the AO to restrict the disallowance to the tune of 30% out of the laboratory expense, incurred by the assessee as discussed above. Thus, the ground of appeal

of the assessee is partly allowed. 9. In the result, the appeal is partly allowed. Order pronounced in the open court on 25.03.2022.

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