2014 (9) TMI 1227 - AT - Income Tax

Disallowance u/s 40(a)(ia) - payments so made in respect of commission paid to sub-franchisees and retailers, on recharge vouchers, and other commission paid to retailers - HELD THAT - As relying on Rajeev Kumar Agarwal 2014 (6) TMI 79 - ITAT AGRA we consider it appropriate to remit the matter to the file of the Assessing Officer for fresh examination, on the same lines and in the light of the above legal position. The assessee is directed to furnish all the relevant information and co-operate in expeditious disposal of remanded proceedings. Payments which consist of amounts less than the threshold limit for invoking section 40(a)(ia), this aspect of the matter is essentially a factual aspect which needs to be examined by the Assessing Officer. We direct him to do so, and in case it is actually found that the provisions of section could not have been invoked on these amount, the very foundation of disallowance under section 40(a)(ia) will cease to hold good in law. Let this aspect also be examined afresh in the above light.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for non-deduction of tax at source.
2. Disallowance under section 40(a)(ia) for payments below the threshold limit.

Analysis:
1. The appeal was filed against the order passed by the Commissioner of Income tax (Appeals) confirming the disallowance under section 40(a)(ia) for not deducting tax at source from payments made to sub-franchisees and retailers. The appellant argued that as long as the recipients included the payments in their taxable income and filed income tax returns, the disallowance should not apply. Reference was made to a previous decision supporting this argument. The Departmental Representative contended that the disallowance was justified as per section 194H. The Tribunal referred to a previous case and concluded that section 40(a)(ia) was not intended to be a penal provision but a compensatory deduction restriction. The matter was remitted to the Assessing Officer for further examination based on this interpretation.

2. Regarding the disallowance of payments below the threshold limit under section 40(a)(ia), the appellant argued that since the payments were less than the prescribed amount, section 194H did not apply. The Tribunal directed the Assessing Officer to reexamine this factual aspect. If it is found that the provisions of section 40(a)(ia) could not have been invoked for these amounts, the disallowance would not hold good in law. The appeal was allowed for statistical purposes, and the matter was remitted to the Assessing Officer for fresh adjudication based on the legal interpretations provided.