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2017 (9) TMI 1519 - AT - Income TaxDisallowance u/s 40(a)(ia) - Held that - As brought to our notice that in the light of the decision in the case of Palam Gas Service vs. CIT (2017 (5) TMI 242 - SUPREME COURT) the judgment of the jurisdictional High Court in the case of Janpriya Engineering Syndicate (2015 (5) TMI 309 - ANDHRA PRADESH HIGH COURT ) is no longer a good law and hence section 40(a)(ia) is not applicable even with respect to the payments already made by the assessee. In other words, section 40(a)(ia) can be applied if the amount is paid or payable to any resident on which if the tax is deductible at source but it has not been deducted. Having regard to the binding decision of the Apex Court we are of the view the disallowance made by the A.O. u/s 40(a)(ia) of the Act is in accordance with law and therefore we partly modify the order of the Ld. CIT(A) and hold that irrespective of whether the amount is paid or payable, so long as there is default in deduction of tax at source, provisions of section 40(a)(ia) has to be invoked. - Decided in favour of revenue.
Issues:
Invocation of provisions of section 40(a)(ia) of the Act by the Assessing Officer. Analysis: The judgment pertains to two appeals against the order passed by Ld. CIT(A)-3, Hyderabad for the assessment year 2012-2013, focusing on the invocation of provisions of section 40(a)(ia) of the Act by the Assessing Officer. The assessee, engaged in Theatre Advertisement business, declared a total income of &8377; 38,29,621/-, which was scrutinized by the A.O. leading to disallowances and an assessment of total income of &8377; 86,49,430/-. The primary issue revolves around the disallowance of &8377; 45,41,272/- u/s 40(a)(ia) of the Act. The A.O. observed that certain payments made by the assessee attracted TDS provisions, but the assessee argued that as the payments were offered to tax in the recipients' hands, no disallowance should be made u/s 40(a)(ia) of the Act. The A.O. invoked the provisions of section 40(a)(ia) due to non-furnishing of certificates like Form No. 26AS, leading to the disallowance of the mentioned expenditure. The assessee contended before the Ld. CIT(A) that since the payments were already offered to tax in the recipients' hands, TDS need not be deducted. The Ld. CIT(A) observed discrepancies in the actual payments made by the assessee and the disallowance by the A.O. Further, the Ld. CIT(A) referred to specific cases and decisions to support the contention that for payments already made, the provisions of section 40(a)(ia) of the Act should not be applicable. The disallowance was thus restricted to &8377; 7,14,128/- based on the cited decisions. The appeals filed by both the Revenue and the assessee raised various grounds challenging the Ld. CIT(A)'s order. During the hearing, it was highlighted that based on the Apex Court's decision in Palam Gas Service vs. CIT, the judgment of the jurisdictional High Court in the case of Janpriya Engineering Syndicate is no longer valid law. Consequently, it was concluded that section 40(a)(ia) can be applied if there is a default in deduction of tax at source, regardless of whether the amount is paid or payable. The Tribunal allowed the appeal filed by the Revenue and dismissed the appeal filed by the assessee, upholding the disallowance under section 40(a)(ia) of the Act. In summary, the judgment emphasizes the strict application of section 40(a)(ia) of the Act concerning the deduction of tax at source, even if the amount is paid or payable, in cases of default. The decision underscores the importance of complying with TDS provisions and the legal implications of non-deduction, as highlighted by the Apex Court's ruling.
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