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Amendment of 40(i)(ia) - Disallowance of expenses - TDS not remitted.Budget 2008

Started by vyakul, September 28, 2008, 09:02:58 AM

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Finance Act 2008 has amended  the provision  40(i)(ia) of the I T Act.
This amendment relates to expenses being disallowed for not remitting the TDS on or before the specified date.

The specified date is amended during this 2008.
The  amended section provides for the following
1) TDS for March month shall be remitted on or before the due date of filing the return of income.
2) This is amended for the AY commencing from 2005-2006.

Prior to the amendment The provision provided the specified due date as
For all expenses booked on 31st March the time limit is 31st May,
For all expenes booked for march other than 31st is 7th April.

The following question arose because of the retrospective amendment.

This is more relevant for the FY 2004-2005. For this FY 2004-2005, There are more possibilities wherein the assessee would not have remitted the TDS before 31st May 2005 but before due date of filing the return of income.  The question is more relevant for all the Assessments that got completed for this AY 2005-2006. The statutory date for completing the assessment is  31-12-2007

1) Self assessment cases: The assessee by themselves would have disallowed such expenses based on the earlier provision. As per amended provision the assessee neednot disallow such expenses. In such a cases, Should the Assessee file a revised return?
2) Scrutiny assessment: If the assessee didnot disallow such expenses,The assessing officers would have disallowed.This is not a mistake and may not invoke provision 154. In such cases what is the remedy?. Should the assessee file a revised return?

In both cases Can the revised return be filed after the due date of assessment i.e. 31-12-2007?

I am reproducing the extract of the provision for immediate reference.

any interest, commission or brokerage, rent, royalty, fees for profes­sional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid,—

    * (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or
    * (B) in any other case, on or before the last day of the previous year:

Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted—

    * (A) during the last month of the previous year but paid after the said due date; or
    * (B) during any other month of the previous year but paid after the end of the paid previous year,

such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.

Hope to get some light.

sivaiah G

Since it is not possible to file a revised return at this juncture, it may be presumed that it can be taken up under the provisions of Sec. 154. Please refer to the decision of Apex court reported in 251 ITR 200 wherein it is held that retrospective amendments will have its own effect though the return filed is correct as per the existing law as on the date of filing. Since retrospective amendment is brought into statute, the assessee, in any way should not be punished. It should be allowed either under 154 or under 264 or some other provision which apparently not found. In my opinion Courts will definitely allow reliefs in this regard.

Hope you will accept my argument.


Hi Vyakul and Sivaiah,

I agree with Sivaih.

A retrospective amendment always creates a mistake that is apparant from the record. This law was laid down way back in Venkatachalam vs. Bombay Dyeing 34 ITR 143 (SC) and holds the field to day.

The fact that the assessee voluntarily disallowed the expenditure on the basis of the then-existing law makes no difference to the position. There is no estoppel against a statute - so what the assessee did or did not do cannot be held against his entitlement under the law.

Revision u/s 264 is another option.

The assessee is definitely entitled to the deduction and the procedure cannot come in the way. In the recent judgement of the SC in Saurashtra Kutch it was held that non-consideration of a binding judgement is a mistake apparant from the record.

It was held:

"Rectification of an order stems from the fundamental principle that justice is above all. It is exercised to remove the error and to disturb the finality.

Justice is a virtue which transcends all barriers. Neither the rules of procedure nor technicalities of law can stand in its way."




Dear Mr.Probal and Siviah
Thanks for the citation and the doubts got clarified. :)