2014 (11) TMI 554 - HC - Income Tax

Disallowance u/s 40(a)(ia) Non-deduction of TDS voluntarily admitted by assessee or not Held that - AO passed an order against the assessee alleging failure to deduct and deposit TDS - The assessee filed an appeal and during appellate proceedings, filed an application for additional evidence appending therewith evidence to prove that requisite TDS had been deducted and deposited - assessee also filed form 16-A in support of this assertion - The argument that additional evidence could not have been allowed at the appellate stage, disregards the fact that the revenue did not controvert the assessee s assertion regarding deduction and deposit of TDS nor did it contest the correctness of form 16-A - the assessee had in fact deducted TDS from the payments of commission and service charges to Shri J.C.Arora by treating the same as salary and that the amount has been remitted to the government the order of the Tribunal is upheld Decided against revenue. Allowability of deduction u/s 14A of the Act Interest liability out of other income Held that - Following the decision in COMMISSIONER OF INCOME TAX Versus M/s LAKHANI MARKETING INCL 2014 (7) TMI 44 - PUNJAB AND HARYANA HIGH COURT - unless and until, there is receipt of exempted income for the concerned AYs (dividend from shares), Section 14A of the Act cannot be invoked - revenue has not dispelled the findings of the CIT(A), nor the statement of the assessee before AO that assessee is not in receipt of any dividend income - the AO has erred in invoking Section 14A of the Act, to disallow various interest payments on capital account, security deposits and unsecured loans - the expenditure relating to the exempted income can be disallowed and not otherwise - the entire income is found to be taxable, no disallowance can be made u/s 14A of the Act Decided against Revenue.

Summary

Issues involved:
1. Disallowance of TDS under section 40(a)(ia)
2. Disallowance under section 14A of the Income Tax Act, 1961

Detailed analysis:
1. Disallowance of TDS under section 40(a)(ia):
The High Court was presented with an appeal by the revenue challenging the order of the Income Tax Appellate Tribunal (ITAT) dismissing an appeal filed by the revenue against the order of the Commissioner of Income Tax (Appeals) regarding disallowance of TDS. The revenue contended that the ITAT erred in upholding the decision of the CIT(A) in deleting the disallowance of a specific amount as the assessee had admitted during assessment proceedings that TDS was not deducted on these payments. The revenue argued that the CIT(A) erred in allowing additional evidence to prove TDS deduction. However, the High Court observed that the ITAT had found that the assessee had indeed deducted TDS and remitted it to the government, a fact not contested by the revenue. Consequently, the High Court upheld the order of the CIT(A) and dismissed the appeal, ruling in favor of the assessee.

2. Disallowance under section 14A of the Income Tax Act, 1961:
The revenue also challenged the deletion of disallowance under section 14A of the Income Tax Act, 1961. The revenue contended that the deletion of disallowance was contrary to the Act as dividend income did not form part of the assessee's total income. The revenue argued that the expenditure incurred for acquiring shares should have been proportionately disallowed under section 14A. The High Court noted that the revenue failed to distinguish a previous judgment where a similar question was answered against the revenue. Citing the precedent, the High Court ruled against the revenue on this issue as well, dismissing the appeal accordingly.

In conclusion, the High Court ruled in favor of the assessee on both issues, upholding the decisions of the lower authorities regarding the disallowance of TDS and under section 14A of the Income Tax Act, 1961.