2015 (8) TMI 753 - AT - Income Tax

Disallowance u/s 40(a)(ia) - non deduction of TDS on commission and service charges - Held that - As relying on case of Rajeev Kumar Agarwal vs. ACIT 2014 (6) TMI 79 - ITAT AGRA once it is proved that the deductee has paid taxes on the commission received from the assessee, the assessee shall be deemed to have deducted and paid taxes of such sum on the date of furnishing the return of income. In the light of this proposition, we are of the view that no disallowance under section 40(a)(ia) of the Act can be made if it is established that the deductee has paid tax on the commission received and for its verification the matter has to be restored back to the file of the Assessing Officer. We accordingly set aside the order of the ld. CIT(A) and restore the matter to the file of the Assessing Officer for making necessary verification and if it is established that the deductees have made payment of tax on the commission received, no disallowance under section 40(a)(ia) of the Act shall be made - Decided in favour of revenue for statistical purposes.

Summary

Issues:
1. Disallowance of expenses under section 40(a)(ia) for non-deduction of TDS on commission and service charges.

Analysis:
The appeal was filed by the Revenue against the order of the ld. CIT(A) regarding the disallowance of an amount under section 40(a)(ia) of the Income-tax Act, 1961, for not deducting TDS on commission and service charges. The Assessing Officer had disallowed Rs. 25,00,484 due to non-deduction of TDS. The ld. CIT(A) deleted the addition, stating that the entire amount had been paid before the end of the financial year, relying on relevant case laws. The Revenue contended that TDS was not deducted, hence the disallowance was justified. The Tribunal considered various judgments and provisions, including the second proviso to section 40(a)(ia) introduced in 2013, which deemed tax deduction if the payee had paid taxes. The Tribunal emphasized the need for verification if the deductees had paid taxes, and if so, no disallowance under section 40(a)(ia) should be made. The matter was remanded to the Assessing Officer for verification, and the appeal of the Revenue was allowed for statistical purposes.

This case involved a crucial interpretation of section 40(a)(ia) regarding the disallowance of expenses due to non-deduction of TDS. The Tribunal highlighted the importance of verifying if the deductees had paid taxes on the amounts received, as per the introduced proviso. The judgment emphasized the retrospective effect of the proviso and the necessity of documentary evidence to support claims of tax payment by deductees. The decision underscored the significance of compliance with TDS provisions and the implications on expense disallowances under the Income-tax Act, 1961.