2015 (2) TMI 1231 - AT - Income Tax

TDS u/s 194C - Disallowance made u/s 40(a)(i) - payment of fee made to project manager - Held that - Clearly, the revenue authorities fell in error in interpreting the relevant provision of the Act, i.e. the provision on which the authorities lay their case pertained to clause (k), which in the relevant assessment year was not in the statute, which came in only via the Finance Act, 2007, w.e.f. 01.06.2007. Hence the rigors of section 194C did not attract. We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to delete the disallowance made u/s 40(i)(ia) of the Act. - Decided in favour of assessee.

Summary

Issues:
Disallowance made u/s 40(a)(i) - Interpretation of relevant provisions of the Act - Exemption under proviso to section 194C(1) for payment by individual or HUF.

Analysis:
The appeal was filed by the assessee against the order of CIT(A)-23, Mumbai, concerning the disallowance made u/s 40(a)(i). The assessee, a builder engaged in construction projects, paid fees to a project manager without deducting tax at source. The AO disallowed the amount under section 40(a)(ia) as tax was not deducted. The CIT(A) upheld the disallowance, stating that the payment was to be treated in accordance with section 194C, and the assessee was liable to deduct tax. The assessee contended that the payment was exempted under the proviso to section 194C(1) for individuals or HUFs. The ITAT found an error in the interpretation of the relevant provision, clarifying that the clause (k) relied upon by the authorities was not applicable in the assessment year, as it was introduced later. Therefore, the rigors of section 194C did not apply, leading to the direction to delete the disallowance made by the AO.

The ITAT's decision was based on the understanding that the provision cited by the revenue authorities was not in force during the relevant assessment year. The ITAT clarified that the clause (k) relevant to the case was introduced through the Finance Act, 2007, effective from 01.06.2007, and was not applicable earlier. Consequently, the ITAT set aside the CIT(A)'s order and directed the AO to delete the disallowance made under section 40(a)(ia) amounting to Rs. 1,81,29,209. The ITAT allowed the appeal filed by the assessee, emphasizing that the payment made by the individual was exempted under the proviso to section 194C(1) during the relevant period, thereby negating the need for tax deduction at source.

In conclusion, the ITAT's decision focused on the incorrect interpretation of the relevant provision by the revenue authorities, leading to the erroneous disallowance of the amount under section 40(a)(ia). The ITAT's analysis highlighted the exemption available to individuals or HUFs for certain payments under the proviso to section 194C(1) during the assessment year in question. As a result, the ITAT directed the deletion of the disallowance, emphasizing the absence of the applicability of section 194C due to the specific clause not being in force during the relevant period.