2014 (4) TMI 276 - HC - Income Tax

Disallowance u/s 40(a)(ia) of the Act TDS not deducted Held that - The Tribunal rightly was of the view that the expenses cannot be disallowed to the assessee if MGEPL has deducted and paid TDS on behalf of the assessee without violating the condition mentioned in section 40(a)(ia) - the assessee has proved that amount was paid on behalf of the assessee by its agent - there was sufficient evidence to show and as a matter of fact the Tribunal has recorded that the assessee had proved that MGEPL was acting as an agent thus, as such no substantial question of law arises for consideration Decided against Revenue.

Summary

Issues:
Violation of provisions of Chapter XVII-B of the Income-tax Act, 1961 - Disallowance under section 40(a)(ia) - Appeal before Commissioner of Income-tax (Appeals) - Tribunal's opinion - Application for condonation of delay.

Analysis:
The Assessing Officer disallowed an amount paid to Malhotra Global Eximp Pvt. Ltd. for not deducting tax at source, citing a violation of Chapter XVII-B of the Income-tax Act, 1961, under section 40(a)(ia). The Assessing Officer rejected the argument that Malhotra Global Eximp Pvt. Ltd. was a group concern and the payments were for advertisements arranged on behalf of the assessee, emphasizing that separate entities engaging in transactions must have a profit motive. The Commissioner of Income-tax (Appeals) reversed the Assessing Officer's order, leading to the matter being taken to the Tribunal by the Revenue.

The Tribunal held that if Malhotra Global Eximp Pvt. Ltd. (MGEPL) had deducted and paid TDS on behalf of the assessee, the expenses could not be disallowed under section 40(a)(ia). The Tribunal found no fault with the Commissioner of Income-tax (Appeals)'s decision to allow a portion of the disallowed amount, as the assessee demonstrated that MGEPL acted as an agent for them. The Revenue, dissatisfied with the Tribunal's decision, appealed once more.

In the subsequent proceedings regarding an application for condonation of delay, the delay period was contested between the Revenue and the assessee. The senior advocate for the Revenue did not oppose the condonation of delay, leading to the matter being heard. The Court reiterated the rejection of the Assessing Officer's views by the appellate authority and the Tribunal, emphasizing that the assessee had provided sufficient evidence to establish MGEPL's agency role. The Court referenced Section 185 of the Contract Act, stating that no consideration is necessary to create an agency. Consequently, the Court concluded that no substantial legal question was present, disposing of the appeal accordingly.