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Amendment in Section 40(a)(ia) of Income Tax Act is Retrospective in Nature: Karnataka HC [Read Order]

By Mariya Paliwala -

The High Court of Karnataka held that the amendment made by the Finance Act, 2010 in the provisions of Section 40(a)(ia) of the Income-tax Act, 1961 is retrospective in operation.

The assessee, M/S. A.Y. Garments International Private Ltd. is a private limited company carrying on the business of manufacture and export of ready-made garments. The assessee for the Assessment year filed the return of income declaring loss.

The return of income was processed under Section 143(1) of the Act and thereafter the case was selected for scrutiny and notice under Section 143(2) of the Act was issued. The assessing officer by an order passed under Section 143(3) of the Act disallowed a sum of Rs.55,17,037/- being expenditure incurred, by invoking provisions of Section 40(a)(ia) of the Act.

Being aggrieved, the assessee filed an appeal before the CIT(A). The  CIT(A) by an order held that amendment brought about in the Finance Act, 2010 in Section 40(a)(ia) of the Act is retrospective in nature and deleted the addition made by the assessing officer.

However, in an appeal by the revenue, the ITAT held that the provisions of Section 40(a)(ia) of the Act as amended by Finance Act, 2010 are not retrospective in nature and reversed the order of the CIT (A) and allowed the appeal preferred by the revenue.

The assessee contended that the Supreme Court in the case of CIT vs. Calcutta Export Company held that amendment in Section 40(a)(ia) brought about by Finance Act, 2010 is curative in nature and has a retrospective operation.

The division bench of Justice Alok Aradhe and Justice M. Nagaprasanna held that the amendment made by the Finance Act, 2010 in the provisions of Section 40(a)(ia) of the Income-tax Act, 1961 is retrospective in operation.

To Read the full text of the Order CLICK HERE