2019 (9) TMI 1317 - AT - Income Tax

Prior period expenditure - cash basis of accounting - Deduction of tax deducted at source from rent professional fees et cetera and paid to the central government before the due date of the filing of the return of income disallowed - HELD THAT - According to the income tax act itself the above amount of tax deducted at source is deemed to have been received by the recipient of the income. Thus it cannot be said that the assessee has not paid the amount of tax deducted at source to the recipient of the income from whose payments the tax have been deducted. Tax deduction at source is a liability cast upon the assessee to deduct the sum from the recipient of such income. In fact the moment assessee deducts the tax at source from the sums paid to the other person it becomes the liability of the assessee who can be held to be an assessee in default for the above sum as well as liable to pay interest and penalty also. The amount of tax deducted at source is always considered as the sum paid by the assessee on behalf of the recipient of the income. Therefore it cannot be said that the above sum has not been paid by the assessee even while following the cash system of accounting. Further the action of the learned CIT A in invoking the provisions of section 40 (a) (i) is also devoid of any merit in view of the decision of M/S CALCUTTA EXPORT COMPANY 2018 (5) TMI 356 - SUPREME COURT where the assessee has paid the above tax deduction at source to the credit of the government within the prescribed time. Accordingly the appeal of the assessee on the solitary issue of the disallowance is allowed.

Summary

Issues:
Deduction of tax deducted at source disallowed by assessing officer.

Analysis:
The appeal was filed against the order of the CIT(A)-20, New Delhi for the Assessment Year 2013-14. The primary issue raised by the assessee was the disallowance of INR 2,49,381 representing tax deducted at source from various expenditures, despite the tax being paid to the Central Government before the due date for filing the return of income. The assessing officer disallowed this amount, stating that as the assessee follows the cash method of accounting, only payments made during the year can be claimed as deductible expenditure. The AO considered the tax deduction at source, which had not been paid by the assessee, as non-deductible. The CIT(A) upheld this disallowance, emphasizing that expenses not paid cannot be claimed as deductible under the cash system of accounting.

The assessee contended that the tax deducted at source was deposited on time and should be considered as a liability of the assessee, discharged on behalf of the income recipients. The authorized representative argued for the deletion of the disallowance. However, the departmental representative supported the lower authorities' findings, stating that since the tax deducted at source had not been paid to the government, it was rightfully disallowed.

Upon careful consideration, the ITAT Delhi noted that tax deducted at source is deemed to be the income received by the recipient, as per the provisions of the Income Tax Act. Therefore, the tax deducted at source is considered as paid by the assessee on behalf of the income recipients. The tribunal held that the tax deduction at source is a liability of the assessee, and the amount is deemed to have been paid by the assessee, even under the cash method of accounting. Referring to a Supreme Court decision, the ITAT allowed the appeal, stating that the tax deduction at source was paid to the government within the prescribed time. Consequently, the disallowance of INR 2,49,381 was overturned, and the appeal by the assessee for the assessment year 2013-14 was allowed.

In conclusion, the ITAT Delhi ruled in favor of the assessee, allowing the appeal and directing the deletion of the disallowed sum representing tax deducted at source.