2019 (11) TMI 89 - AT - Income Tax

TDS u/s 194H - disallowance of salary expenditure by treating it as commission paid for selling goods - submission of the assessee rejected simply for the reason that the assessee had not maintained the salary register and appointment letters / agreements - HELD THAT - It is pertinent to mention that in small business houses such record are not normally maintained and they are not mandatory. The assessee has also produced the vouchers with respect to the payment made to his employees but, they were also rejected by the Ld. Revenue Authorities without valid reasons. Revenue Authorities have also not brought out anything on record from the details produced by the assessee to establish that the payments made to the individuals exceeded taxable limits. Addition made on the basis of presumption is not justifiable. When the assessee had furnished the details of the payment to his employees it cannot be simply rejected without verifying the facts. Therefore, we hereby direct the AO to delete the addition made invoking the provisions of section 194H and 40(a)(ia) . TDS u/s 194J - addition u/s 40 - Disallowance of accounting charges - HELD THAT - It is pertinent to mention that in small business houses such record are not normally maintained and they are not mandatory. The assessee has also produced the vouchers with respect to the payment made to his employee but, they were also rejected by the Ld. Revenue Authorities without valid reasons. Revenue Authorities have also not brought out anything on record from the details produced by the assessee to establish that the payments made to the individual exceeded taxable limits. Addition made on the basis of presumption is not justifiable. When the assessee had furnished the details of the payment to the Accountant towards accounting charges it cannot be simply rejected without verifying the facts. Direct the AO to delete the addition made invoking the provisions of section 194J and 40(a)(ia) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of salary expenditure as commission paid for selling goods under sections 194H and 40(a)(ia) of the Income Tax Act.
2. Disallowance of accounting charges under sections 194J and 40(a)(ia) of the Income Tax Act.

Analysis:

Issue 1: Disallowance of Salary Expenditure
The assessee, engaged in wholesale trade, filed its return for AY 2013-14, facing scrutiny where the AO disallowed salary expenditure of ?47,50,000 treating it as commission paid for selling goods under sections 194H and 40(a)(ia) of the Act. The CIT (A) upheld this decision. The assessee argued that the amount was paid to employees below taxable limits and thus tax deduction under section 192 was not applicable. The ITAT Hyderabad found that the rejection of the submission by revenue authorities, due to lack of salary registers and agreements, was unjustified. The ITAT directed the AO to delete the addition of ?47,50,000 as the expenditure was towards salary and not commission.

Issue 2: Disallowance of Accounting Charges
During scrutiny, the AO disallowed accounting charges of ?2,40,000 under sections 194J and 40(a)(ia) of the Act, treating it as salary paid to an accountant. The CIT (A) confirmed this decision. The assessee contended that the payment was salary below taxable limits, hence no TDS was applicable under section 192. The ITAT noted that the rejection of the assessee's submission due to lack of documentation was unjustified. The ITAT directed the AO to delete the addition of ?2,40,000 as the payment was for accounting services and not subject to TDS under section 194J.

In conclusion, the ITAT Hyderabad allowed the appeal of the assessee, directing the AO to delete the disallowed amounts of ?47,50,000 and ?2,40,000 under sections 194H and 40(a)(ia), and 194J and 40(a)(ia) respectively.