2013 (11) TMI 582 - AT - Income Tax

Disallowance under section 40(a)(ia) of the IT Act - Certain payments without making TDS were made by the assessee during the assessment years 2007-2008 to 2010-2011, and disallowance under section 40(a)(ia) were made in those years Held that - No material could be brought on record by the learned DR to show that there was any actual expenditure of freight claimed by the assessee, on which, though the assessee was liable to deduct tax, the assessee made default in deducting the required TDS during the years under consideration - Disallowance was made not on the basis of the any actual material found for the years under consideration, but was made by extrapolating the findings of the subsequent years, which is nothing but a mere guess work on the basis of suspicion and thereby the AO acted without satisfying the pre-requisite conditions. Before making disallowance under section 40(a)(ia) of the Act, the pre-requisite conditions are that the AO should bring material on record to show that the assessee was liable to deduct tax in respect of the expenditure specified in that section, the assessee actually defaulted in deducting TDS or defaulted in making payment of TDS after deduction, and the assessee claimed deduction in respect of such expenditure - In the instant case, the AO failed to discharge the burden which was on him under the law Decided against the Revenue.

Summary

Issues:
- Disallowance under section 40(a)(ia) of the IT Act based on TDS defaults.

Analysis:
1. Issue of Disallowance under Section 40(a)(ia):
- The appeals filed by the Revenue were against the CIT(A)'s order deleting the addition of Rs. 11,83,268 and Rs. 16,93,385, being 0.50% of the total freight payment, for the assessment years 2005-06 and 2006-07 respectively.

2. Facts and Observations:
- The AO observed TDS defaults in subsequent years after a search in the assessee's case and made disallowances under section 40(a)(ia) for those years. The AO estimated disallowances for the current years based on these findings.

3. Arguments and CIT(A)'s Decision:
- The assessee argued that the AO's estimation was unfounded as no material indicated TDS defaults during the relevant years. CIT(A) agreed, citing technical nature of disallowance under section 40(a)(ia) and the need for specific evidence of default.

4. Appellate Tribunal's Analysis:
- The Tribunal found that the disallowance was based on extrapolation from subsequent years without concrete evidence for the relevant years. The AO failed to establish the necessary conditions for disallowance under section 40(a)(ia).

5. Judgment and Dismissal of Appeals:
- The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of actual material supporting the disallowance for the years in question. The appeals of the Revenue were dismissed as the AO did not meet the legal requirements for disallowance under section 40(a)(ia).

This judgment highlights the importance of concrete evidence and meeting legal prerequisites for disallowances under tax laws, specifically under section 40(a)(ia) of the IT Act. The Tribunal's decision emphasizes the need for specific proof of default in the relevant assessment years rather than relying on extrapolations from unrelated periods.