2nd Proviso to Section 40(a)(ia) of Income Tax has retrospective effect: ITAT

The Income Tax Appellate Tribunal (ITAT) in the matter of Assistant Commissioner of Income Tax (ACIT) v/s M/s. Positive Print Sign Graphics has retreated the judgment passed by the Hon’ble Delhi High Court in the case of Dr. Jaydeep Sharma 52 taxman.com 420 (Delhi) that 2nd Proviso to Section 40(a)(ia) of the Act is having retrospective effect from 01.04.2005.

The case of the assessee is this that the 2nd Proviso to Section 40(a)(ia) of the Act r.w. Proviso to Section 201(1) of the Act prescribes no disallowance of expenses under Section 40(a)(ia) of the Act can be made unless the assessee has been treated as assessee in default under Section 201(1) of the Act for its failure to deduct tax at source from the payment made on account of interest.

It was further the case of the assessee is this that in the event if the amount paid by payer have been included by the payee in its return of income for the relevant assessment year, filed under Section 139 of the Act and has paid the tax due on the income declared in such return, to the extent recipient from such assessee is included the sum in his return of income and filed the same, no disallowance under Section 40(a)(ia) of the Act can be made by the Ld. AO in view of the 2nd Proviso to Section 40(a)(ia) r.w.s. First Proviso to Section 201(1) of the Act.

Apart from that it was contended by the assessee that the 2nd Proviso to Section 40(a)(ia) of the Act inserted by Finance Act, 2012 and on furnishing of certificate in Form 26A as prescribed under Proviso to Section 201(1) r.w. Rule 31ACB of IT Rules, no disallowance under Section 40(a)(ia) of the Act can be made. In fact, the 2nd Proviso to Section 40(a)(ia) of the Act has been inserted in the statute by the Finance Act, 2012 w.e.f. 01.04.2013 having retrospective effect from 01.04.2005.

Keeping in view of this particular aspect of the matter, the Ld. CIT(A) passed the order in favor of the Assessee while deleting the addition made by the Ld. Assessing Officer. The same was now affirmed by Tribunal and as a result, Revenue’s appeal was dismissed.

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