I deducted TDS during the year but paid it after 31 March, though before I filed my return — can the expense still be disallowed under section 40(a)(ia)?
No. The Supreme Court held on 24 April 2018 that the amendment to section 40(a)(ia) by the Finance Act 2010 is curative and operates retrospectively from 1 April 2005, when the clause was first inserted. So for any year from assessment year 2005-06 onwards, tax deducted at any time in the previous year and paid on or before the due date for filing the return under section 139(1) attracts no disallowance. The memorandum to the Finance Bill 2010 had said the amendment would apply from assessment year 2010-11; the Court held that a proviso supplying an obvious omission must be read back into the section.
Decided by the Supreme Court (Supreme Court of India; R.K. Agrawal and Abhay Manohar Sapre JJ, judgment delivered by R.K. Agrawal J) on 2018-04-24, reported as Civil Appeal Nos. 4339-4340 of 2018 (arising out of SLP (C) Nos. 24362-24363 of 2013) and connected appeals. It bears on section 40(a)(ia), section 139(1), section 200(1) of the Income Tax Act 1961, in Deductions & Disallowances and TDS Defaults matters.
Section 40(a)(ia) as enacted in 2005 disallowed the whole expenditure unless the tax was paid within the previous year, or, for March deductions, within seven days of the year end. The Finance Act 2008 fixed the March problem retrospectively; the Finance Act 2010 fixed the rest but was expressed to apply only from assessment year 2010-11. That left a large body of assessments for 2005-06 to 2009-10 in which the whole expense was disallowed for a delay of days, and the Tribunal was split — the Special Bench in Bharati Shipyard had gone the Revenue's way. This judgment closes that gap for every open year. It also states, in terms a practitioner can use elsewhere, that a compliance provision must not become an iron rod: where an amendment removes unintended hardship and supplies an obvious omission, it is curative and dates back, whatever the memorandum says about commencement.
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The assessee is a partnership firm at Kolkata manufacturing and exporting casting materials. For assessment year 2005-06 it returned income of Rs.4,18,17,910 and the assessment under section 143(3) was completed on 28 December 2007. By an order of 12 October 2009 the Assessing Officer disallowed export commission of Rs.40,82,089 paid to Steel Crackers Pvt Ltd. Tax had been deducted on that commission on 7 July, 7 September and 7 October 2004, but was deposited only on 1 August 2005 — after the end of the previous year on 31 March 2005. On section 40(a)(ia) as it then stood, that late deposit cost the firm the deduction, and the income was revised to Rs.4,58,99,999 with additional tax of Rs.23,88,832. The Commissioner (Appeals) allowed the firm's appeal on 1 August 2011, the Tribunal dismissed the Revenue's appeal on 29 February 2012, and the Calcutta High Court dismissed its further appeal on 3 September 2012. The Revenue appealed, pointing to the Special Bench decision in Bharati Shipyard Ltd. the other way.
The appeals were dismissed and the High Court's judgment left undisturbed, the parties bearing their own costs; all connected appeals, applications and the transferred case were disposed of in the same terms. The amended section 40(a)(ia) is to be interpreted liberally and equitably and applies retrospectively from the date the clause was inserted, that is from assessment year 2005-06, so that an assessee does not suffer unintended and deleterious consequences beyond what the object and purpose of the provision requires. The amendment being curative, it takes effect as if it had existed at the time of insertion. Since the tax here was paid on 1 August 2005, in accordance with the due date under section 139(1), the assessee is entitled to the benefit of the Finance Act 2010 amendment and to the deduction of the commission in assessment year 2005-06.
The Court traced the clause through its three versions. As inserted in 2005 it disallowed the expenditure unless the tax deducted was paid within the previous year, or, for deductions made in March, within the time under section 200(1) — seven days into April. The memorandum showed the object: to augment compliance with the deduction provisions. That object matters, because the clause does not confiscate the expenditure; it only shifts the year in which the deduction may be claimed. The 2008 amendment relieved the March cases by allowing payment up to the section 139(1) due date, and Parliament gave it effect from 1 April 2005, the date of substitution. But it split assessees into two classes and left the second — those who deducted in the first eleven months and paid after the year end but before filing — still exposed, though they had substantially complied. The 2010 amendment removed that anomaly by allowing all deductions of the year to be deposited by the section 139(1) due date. From this history the Court drew its conclusion. A provision whose purpose is to ensure compliance rather than to punish should not become an iron rod meting out punishment disproportionate to the default. A proviso inserted to remedy unintended consequences, to make a provision workable and to supply an obvious omission must be read into the section and treated as retrospective, so that the section as a whole bears a reasonable meaning. Allied Motors had said exactly that of the proviso to section 43B, and the same view was taken in Whirlpool of India, Amrit Banaspati and Alom Enterprises. Retrospectivity, the Court added, costs the Revenue little where rates are stable, while its absence falls hardest on marginal and medium taxpayers.
The amendment made by the Finance Act, 2010 being curative in nature required to be given retrospective operation i.e., from the date of insertion of the said provision.
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held on 24 April 2018 that the amendment to section 40(a)(ia) by the Finance Act 2010 is curative and operates retrospectively from 1 April 2005, when the clause was first inserted. So for any year from assessment year 2005-06 onwards, tax deducted at any time in the previous year and paid on or before the due date for filing the return under section 139(1) attracts no disallowance. The memorandum to the Finance Bill 2010 had said the amendment would apply from assessment year 2010-11; the Court held that a proviso supplying an obvious omission must be read back into the section. This was decided by the Supreme Court (Supreme Court of India; R.K. Agrawal and Abhay Manohar Sapre JJ, judgment delivered by R.K. Agrawal J) and bears on section 40(a)(ia), section 139(1), section 200(1) of the Income Tax Act 1961. It is reported as Civil Appeal Nos. 4339-4340 of 2018 (arising out of SLP (C) Nos. 24362-24363 of 2013) and connected appeals. Section 40(a)(ia) as enacted in 2005 disallowed the whole expenditure unless the tax was paid within the previous year, or, for March deductions, within seven days of the year end. The Finance Act 2008 fixed the March problem retrospectively; the Finance Act 2010 fixed the rest but was expressed to apply only from assessment year 2010-11. That left a large body of assessments for 2005-06 to 2009-10 in which the whole expense was disallowed for a delay of days, and the Tribunal was split — the Special Bench in Bharati Shipyard had gone the Revenue's way. This judgment closes that gap for every open year. It also states, in terms a practitioner can use elsewhere, that a compliance provision must not become an iron rod: where an amendment removes unintended hardship and supplies an obvious omission, it is curative and dates back, whatever the memorandum says about commencement. If it applies to you, the first step is this: For any open assessment from 2005-06 onwards, check the date the tax was actually paid against the section 139(1) due date, not against 31 March, and press for deletion of the disallowance if it was paid in time.
The assessee is a partnership firm at Kolkata manufacturing and exporting casting materials. For assessment year 2005-06 it returned income of Rs.4,18,17,910 and the assessment under section 143(3) was completed on 28 December 2007. By an order of 12 October 2009 the Assessing Officer disallowed export commission of Rs.40,82,089 paid to Steel Crackers Pvt Ltd. Tax had been deducted on that commission on 7 July, 7 September and 7 October 2004, but was deposited only on 1 August 2005 — after the end of the previous year on 31 March 2005. On section 40(a)(ia) as it then stood, that late deposit cost the firm the deduction, and the income was revised to Rs.4,58,99,999 with additional tax of Rs.23,88,832. The Commissioner (Appeals) allowed the firm's appeal on 1 August 2011, the Tribunal dismissed the Revenue's appeal on 29 February 2012, and the Calcutta High Court dismissed its further appeal on 3 September 2012. The Revenue appealed, pointing to the Special Bench decision in Bharati Shipyard Ltd. the other way. The matter was decided on 2018-04-24 by the Supreme Court (Supreme Court of India; R.K. Agrawal and Abhay Manohar Sapre JJ, judgment delivered by R.K. Agrawal J). On those facts the Supreme Court held as follows. The appeals were dismissed and the High Court's judgment left undisturbed, the parties bearing their own costs; all connected appeals, applications and the transferred case were disposed of in the same terms. The amended section 40(a)(ia) is to be interpreted liberally and equitably and applies retrospectively from the date the clause was inserted, that is from assessment year 2005-06, so that an assessee does not suffer unintended and deleterious consequences beyond what the object and purpose of the provision requires. The amendment being curative, it takes effect as if it had existed at the time of insertion. Since the tax here was paid on 1 August 2005, in accordance with the due date under section 139(1), the assessee is entitled to the benefit of the Finance Act 2010 amendment and to the deduction of the commission in assessment year 2005-06.
The Court traced the clause through its three versions. As inserted in 2005 it disallowed the expenditure unless the tax deducted was paid within the previous year, or, for deductions made in March, within the time under section 200(1) — seven days into April. The memorandum showed the object: to augment compliance with the deduction provisions. That object matters, because the clause does not confiscate the expenditure; it only shifts the year in which the deduction may be claimed. The 2008 amendment relieved the March cases by allowing payment up to the section 139(1) due date, and Parliament gave it effect from 1 April 2005, the date of substitution. But it split assessees into two classes and left the second — those who deducted in the first eleven months and paid after the year end but before filing — still exposed, though they had substantially complied. The 2010 amendment removed that anomaly by allowing all deductions of the year to be deposited by the section 139(1) due date. From this history the Court drew its conclusion. A provision whose purpose is to ensure compliance rather than to punish should not become an iron rod meting out punishment disproportionate to the default. A proviso inserted to remedy unintended consequences, to make a provision workable and to supply an obvious omission must be read into the section and treated as retrospective, so that the section as a whole bears a reasonable meaning. Allied Motors had said exactly that of the proviso to section 43B, and the same view was taken in Whirlpool of India, Amrit Banaspati and Alom Enterprises. Retrospectivity, the Court added, costs the Revenue little where rates are stable, while its absence falls hardest on marginal and medium taxpayers. In the words reproduced by the source cited on this page: "The amendment made by the Finance Act, 2010 being curative in nature required to be given retrospective operation i.e., from the date of insertion of the said provision."
It was decided by the Supreme Court on 2018-04-24 and is reported as Civil Appeal Nos. 4339-4340 of 2018 (arising out of SLP (C) Nos. 24362-24363 of 2013) and connected appeals. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 40(a)(ia), section 139(1), section 200(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were dismissed and the High Court's judgment left undisturbed, the parties bearing their own costs; all connected appeals, applications and the transferred case were disposed of in the same terms. The amended section 40(a)(ia) is to be interpreted liberally and equitably and applies retrospectively from the date the clause was inserted, that is from assessment year 2005-06, so that an assessee does not suffer unintended and deleterious consequences beyond what the object and purpose of the provision requires. The amendment being curative, it takes effect as if it had existed at the time of insertion. Since the tax here was paid on 1 August 2005, in accordance with the due date under section 139(1), the assessee is entitled to the benefit of the Finance Act 2010 amendment and to the deduction of the commission in assessment year 2005-06. It arises in Deductions & Disallowances and TDS Defaults matters, on section 40(a)(ia), section 139(1), section 200(1) of the Income Tax Act 1961, and was decided by Supreme Court of India; R.K. Agrawal and Abhay Manohar Sapre JJ, judgment delivered by R.K. Agrawal J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the disallowance has already been made and the deduction shifted to a later year, claim it back in the correct year and withdraw the shifted claim, so the same expenditure is not allowed twice. When arguing that an amendment is retrospective, build the case the way the Court did: show the unintended hardship, show that the amendment removes it, and cite Allied Motors and the section 43B line. Do not be put off by a commencement clause in the memorandum to the Finance Bill; the Court gave the 2010 amendment effect from 2005 despite it saying assessment year 2010-11.
Still good law. One hundred and five later decisions cite this judgment, twenty-nine of them from the High Courts, the most recent a Chennai Tribunal order of 26 September 2025. It has been applied by three High Courts on the very point: the Karnataka High Court in CIT v M/s Rajmahal Silks (1 September 2020), which held the question 'is covered by a decision of the Supreme Court in Calcutta Exports Company'; the Madras High Court in CIT v Shri Vummudi Amarendran (28 September 2020), endorsing that the amendment 'being curative in nature was held to be retrospective'; and the Bombay High Court in PCIT-28 v Crescent Construction Co (29 July 2022). Nothing doubting, overruling or refusing to follow it has been found among the High Court and Supreme Court decisions citing it. Some Tribunal orders hold it inapplicable on their own facts, which is a fact distinction and not a challenge to the holding. Two qualifications go to the use of the decision rather than to its authority. Whether section 40(a)(ia) has since been further amended has not been checked here, and the extent of the disallowance under that clause has been the subject of later legislative change; read the clause as it stood for your own year before the argument is put. And the decision is about the timing condition only. It says nothing about whether the payment attracted deduction at all, about the rate, or about the consequences under section 201, and it cannot be used to cure a failure to deduct as distinct from a delay in depositing what was deducted. For a year governed by the Income-tax Act 2025 the successor of section 40(a)(ia) and of the section 139(1) due date should be identified before the decision is relied on; that correspondence has not been established here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two slips in the text are worth flagging. The case is titled "Commissioner of Income Tax Kolkata XII" in some listings while the cause title inside the judgment reads "Commissioner of Income Tax Kolkata X"; which is right has not been resolved, and the name is given here without the number. And paragraph 30 says "the assessee has filed its returns on 01.08.2005", whereas the facts in paragraph 3(a) give 1 August 2005 as the date the tax deducted at source was deposited - the reasoning only works on the second reading, which is how it is stated above. No reporter citations are given for this judgment here; the appeal numbers come from the judgment's own first pages. The judgment does not address how the retrospective operation interacts with any later amendment restricting the extent of the disallowance. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed and the High Court's judgment left undisturbed, the parties bearing their own costs; all connected appeals, applications and the transferred case were disposed of in the same terms. The amended section 40(a)(ia) is to be interpreted liberally and equitably and applies retrospectively from the date the clause was inserted, that is from assessment year 2005-06, so that an assessee does not suffer unintended and deleterious consequences beyond what the object and purpose of the provision requires. The amendment being curative, it takes effect as if it had existed at the time of insertion. Since the tax here was paid on 1 August 2005, in accordance with the due date under section 139(1), the assessee is entitled to the benefit of the Finance Act 2010 amendment and to the deduction of the commission in assessment year 2005-06.
TaxSphere, “CIT v Calcutta Export Co”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-calcutta-export-co/ (validity last checked 2026-08-29)
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