2022 (6) TMI 1338 - AT - Income Tax

Disallowance u/s 40(a)(ia) - tds u/s 194I - non-deduction of tax at source on go-down rent expenses - non-submission of details regarding payment of the above mentioned amount to different professionals - Scope of amendment brought in by the Finance Act (No. 2) 2014 effective from 01/04/2015 made in the provisions of Section 40(a)(ia) for 100% disallowance of expenditure the disallowance u/s 40(a)(ia) of the Act was limited to the extent of 30% of such expenditure - hardships caused to the assessee due to 100% disallowance of the expenditure claimed by the assessee in case of non-deduction of TDS - CIT-A Confirmed by holding that the assessee failed to bring any cogent evidence suggesting that the rent was paid to three co-owners instead of one as alleged by the AO - HELD THAT - As regards the 1st contention of the assessee that the rent was paid to three different parties amounting to Rs.1, 20, 000 per person and therefore there is no violation of the provisions of section 194-I read with section 40(a)(ia) of the Act appears to be devoid of any merit. It is for the reason that the assessee has not discharged the onus by furnishing the necessary details about the payees to whom the rent was paid. The assessee has not furnished any agreement for the rent or any other document suggesting that the rent was paid by the assessee to three different parties. Thus in the absence of any other document supporting the contention of the assessee we do not find any reason to interfere in the finding of the authorities below. Alternate contention of the assessee that the disallowance should be restricted to the tune of 30% of the rent paid under the provisions of section 40(a)(ia) read with section 194-I of the Act we find force in the argument. The amendment was brought by the Finance Act (No. 2) 2014 effective from 1-4-2015 whereas the year before us relates to the assessment year 2012-13. The Finance Act 2014 brought an amendment to the first proviso to the section 40(a)(ia) of the Act. In the case of Neena Kaul 2019 (5) TMI 1697 - ITAT MUMBAI assessee contended that said provisions have been amended in order to ease the hardships caused to the assessee due to 100% disallowance of the expenditure claimed by the assessee in case of non-deduction of TDS. Assesse also submitted that it has been mentioned in the para 14.3 that withholding of taxes is a mode of collection of tax and does not result into final discharge of tax liability. As in the case of Amruta Quarry works 2016 (7) TMI 1246 - ITAT AHMEDABAD it was contended by the assessee that Since the amendment has been brought to remove the hardship caused to the assessee the amendment assumes the character of being clarificatory in nature and is retrospectively applicable. Reliance is placed on Five Members Constitution Bench of Supreme Court in the case of CIT v. Vatika Township (P.) Ltd 2014 (9) TMI 576 - SUPREME COURT wherein it has been observed that in case the amendment is brought to remove the hardship caused to the assessee the same assumes the character of being clarificatory in nature. Hon ble Tribunal upheld this contention and allowed appeal in favour of the assessee restricting disallowance to 30%. In view of the above we hold that the disallowance on account of non- deduction of TDS should be limited to the extent of 30% of the rent expenses incurred by the assessee. Thus the ground of appeal of the assessee is partly allowed.

Summary

Issues:
1. Disallowance of rent expenses on account of non-deduction of TDS under sections 194-I and 40(a)(ia) of the Income Tax Act, 1961.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of rent expenses due to non-deduction of TDS under sections 194-I and 40(a)(ia) of the Income Tax Act for the Assessment Year 2012-13. The assessee contended that the rent was shared among three co-owners, falling below the threshold for TDS deduction. However, the Assessing Officer (AO) disagreed, stating that a single payment indicated it was paid to one person, thus TDS should have been deducted. The Commissioner upheld this decision, citing lack of evidence supporting the assessee's claim of multiple payees.

Regarding the applicability of the amendment under section 40(a)(ia) limiting disallowance to 30% of expenses, the Tribunal noted the Finance Act, 2014 amendment was prospective from 1-4-2015, not applicable to the assessment year in question. The Tribunal analyzed the rationale behind the amendment, aiming to reduce hardships faced by taxpayers. Citing precedents, the Tribunal discussed the retrospective nature of the amendment, emphasizing that it aimed to alleviate hardships for taxpayers. Relying on previous judgments, the Tribunal directed the AO to restrict the disallowance to 30% of the total expenses, allowing the appeal partly.

In conclusion, the Tribunal partially allowed the appeal, limiting the disallowance on account of non-deduction of TDS to 30% of the rent expenses incurred by the assessee. The judgment highlighted the retrospective nature of amendments aimed at reducing hardships for taxpayers, emphasizing the need for proper documentation and compliance with TDS provisions to avoid disallowances.