Addition u/s 40(a)(ia) in rectification proceedings u/s 154 upheld as issue was not debatable

Addition u/s 40(a)(ia) in rectification proceedings u/s 154 upheld as question of second proviso being prospective was not debatable in view of jurisdiction High Court decision

ABCAUS Case Law Citation:
ABCAUS 2983 (2019) (06) ITAT

Important Case Laws Cited/relied upon by the parties:
CIT vs. Ansal Landmark Townships (P) Ltd.
CIT vs. Shraddha & S.S. Kale, Joint Venture (377 ITR 635)
CIT vs. Alom Extrusions Ltd. (319 ITR 306)
Thomas George Muthoot (235 246)

The assessee firm had not deducted TDS from the labour charges paid for AY 2006-07. On noticing it, the Assessing Officer (AO) completed the assessment proceedings u/s 154 of the Income Tax Act, 1961 (the Act) and made the impugned addition on account of disallowance of labour charges u/s. 40(a)(ia) of the Act.

On appeal, the CIT(A) rejected the appeal. He observed that the assessee relied on the second proviso to the section 40(a)(ia) which provides that when the assessee is not deemed to be an assessee in default unser the first proviso of section 201(1), no disallowance shall be made.

The claim of the assessee was that the second proviso is applicable retrospectively from 01/04/2005. In support of his contentions, the assessee  relied on various decisions of non-jurisdictional Tribunals and High Courts.

However the CIT(A) observed that the jurisdictional High Court had held that a statutory provision, unless otherwise expressly stated to be retrospective or by intendment shown to be retrospective, is always prospective in operation.

The Hon’ble High Court had held that Finance Act, 2012 shows that the second proviso to section 40(a)(ia) has been introduced with effect from 01/04/2013. Reading of the second proviso does not show that it was meant or intended to be curative or remedial in nature.

The Hon’ble High Court opined that by this proviso, an additional benefit was conferred on the assesses. Such a provision could only be prospective.

Before the Tribunal, the assessee contended that the issue in dispute was a debatable issue and cannot be dealt by the Assessing Officer vide proceedings u/s. 154 of the Act.

The assessee submitted that judgment of the Delhi High Court was the subject matter of litigation before the Supreme Court wherein the Supreme Court granted leave. As such, the issue was a debatable issue and the Assessing Officer should not have dealt the issue in dispute u/s. 154 of the Act.   

The assessee also relied on the judgment of the Supreme Court wherein it was held that the omission of the second proviso to section 43B of the Income Tax Act, 1961 by the Finance Act, 2003, operated, retrospectively.

The Tribunal opined that the instant issue was considered by the Jurisdictional High Court and therefore the issue in dispute could not be said to be a debatable issue.

The Tribunal held that the AO was justified in making addition u/s. 40(a)(ia) of the Act vide rectification proceedings u/s 154 of the Act.

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