2018 (1) TMI 1647 - AT - Income Tax

Disallowance u/s 40(a)(ia) - whether the second proviso to section 40(a)(ia) takes effect from 01.04.2013 is applicable to the assessee or not ? - HELD THAT - After considering the decision in the case of Star Investments Pvt. Ltd 2016 (6) TMI 1428 - ITAT CHENNAI , this tribunal in the assessee s own case in 2017 (6) TMI 1354 - ITAT CHENNAI Revenue s appeal is dismissed.

Summary

Issues:
- Disallowance of TDS on business promotional expenses paid by the assessee to the holding company.
- Applicability of the second proviso to section 40(a)(ia) from 01.04.2013.
- Benefit of Supreme Court decision in the case of Hindustan Coca Cola Beverages (P) Ltd vs CIT[2007] 293 ITC 226(SC) and subsequent amendments in the Financial Act, 2012.

Detailed Analysis:
1. The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of TDS on business promotional expenses paid by the assessee to the holding company without deduction of tax at source. The assessee argued that the expenses did not fall under the ambit of tax deduction as per various sections governing TDS. The Assessing Officer held that non-deduction of TDS on the payment was against section 40(a)(ia) and disallowed it. The CIT(A) allowed the appeal based on the holding company's accounting treatment and payment of taxes on the amount received.

2. The Revenue challenged the CIT(A)'s decision on grounds that the assessee was liable to deduct TDS on the payments made as business promotion expenses. They argued that the provisions of section 40(a)(ia) were applicable, especially considering the related party transaction and past non-compliance by the assessee. The Revenue also contended that the second proviso to section 40(a)(ia) could not absolve the assessee from TDS obligations. The CIT(A) relied on various tribunal decisions and the Finance Act, 2012 amendment to support the assessee's position.

3. The tribunal analyzed the CIT(A)'s order and previous tribunal decisions in similar cases. They found that the holding company had included the payment in its total income, paid taxes on it, and filed the return of income. The tribunal deliberated on the applicability of the second proviso to section 40(a)(ia) from 01.04.2013 to the assessee's case. Relying on precedent and the assessee's favorably decided tribunal cases, the tribunal dismissed the Revenue's appeal, stating that there was no change in facts or law to warrant a different decision. The tribunal upheld the CIT(A)'s decision in favor of the assessee regarding the disallowance of TDS on business promotional expenses.

4. The tribunal's decision highlighted the importance of the holding company's tax treatment and filing of returns, ultimately leading to the allowance of the assessee's appeal. The tribunal emphasized the relevance of precedent and consistent application of legal provisions in determining the outcome of tax-related disputes. The judgment showcased the significance of proper accounting practices and compliance with tax laws to avoid disallowances and disputes related to TDS obligations.