2017 (8) TMI 1322 - HC - Income Tax

Disallowance of expenditure under section 40(a)(ia) - Non deduction of tds - whether payee has paid the tax? - Held that - Quite apart from the assessee s legal contention that appropriate tax as prescribed under the law was deducted from time to time, the Tribunal in the impugned judgement referred to the decision of the Delhi High Court in case of Commissioner of Income-Tax vs. Ansal Land Mark Township (P) Ltd vs. reported in 2015 (9) TMI 79 - DELHI HIGH COURT and held that if the payee has paid the tax, disallowance under section 40(a)(ia) would not be applicable. For verification of full details in this regard the Tribunal placed the matter back before the Assessing Officer. We notice that Delhi High Court in the said judgement had referred to the newly inserted proviso to section 40(a)(ia) and considered in light of the proviso to sub-section (1) of section 201 of the Act with effect from 01.07.2012. It was noticed that such provisos were added to obviate the difficulties of an assessee who, though may not have deducted tax at source while making certain payments, can establish that the payee had furnished the return of income and also paid the tax due on such income. In such a case, the assessee would not be treated as assessee in default. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Act for failure to deduct tax at source.

Analysis:
The High Court was presented with an appeal by the Revenue against the Income Tax Appellate Tribunal's decision. The main issue revolved around the disallowance of expenditure under section 40(a)(ia) of the Act due to the assessee's failure to deduct tax at source. The Tribunal referred to a judgment by the Delhi High Court in the case of Commissioner of Income-Tax vs. Ansal Land Mark Township (P) Ltd, where it was held that if the payee has paid the tax, disallowance under section 40(a)(ia) would not be applicable. Consequently, the Tribunal sent the matter back to the Assessing Officer for further verification.

The Delhi High Court's judgment was crucial in this case as it considered the newly inserted proviso to section 40(a)(ia) and the proviso to sub-section (1) of section 201 of the Act, effective from 01.07.2012. These provisos aimed to address situations where an assessee failed to deduct tax at source but could prove that the payee had filed the return of income and paid the due tax. In such instances, the assessee would not be considered in default.

Ultimately, the High Court found no grounds to interfere with the Tribunal's decision. It was concluded that no question of law arose in this matter, leading to the dismissal of the tax appeal.