The Mumbai bench of the income tax appellate tribunal (ITAT) has passed an order in the case of one Piyush Mehta versus Asst Commissioner Income Tax in which it has been held that provisions of Section 40 (a) (ia) are retrospective in nature, according to an amendment made by the Finance Act 2010.

Whenever an assessee does not deposit TDS payment on the expenditure claimed by him, there is a provision to disallow the same fully under Section 40 (a) (ia). In this case, Mr Mehta deposited TDS on payments to a contractor after the end of financial year 2005, therefore the assessing officer and the CIT (appeals) disallowed expense incurred by the assessee.

However, the assessee contended before the Mumbai bench of Income Tax Appellate Tribunal (ITAT) that according to the amended provisions of Sec 40 (a) (ia) no disallowance of expenses to the contractor could be made, because he had already deposited TDS before the date of filing return on income.

The assessee also argued that the decision of the special bench of the Mumbai tribunal in the case of Bharti Shipyard could not be applied so as to confirm disallowance made by the AO because according to him the judgement of Kolkata High Court in the case of Virgin Creations was in the favour of the assessee and against the order of Bharti Shipyard.

Chartered accountant Bhupendra Shah explained, "Accepting Mehta's contention the Mumbai bench of ITAT decided two issues in favour of him-- Sec 40 (a) (ia) is retrospective in nature and the judgement of even the Kolkata High Court is to be preferred over the order of the special bench of the Mumbai ITAT in case of Bharti Shipyard. It thus has far-reaching consequences." (Economic Times)