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2021 (1) TMI 153 - AT - Income TaxDeduction of expenditure representing TDS amount as deducted but not deposited following the Cash Basis of accounting - the assessee had shown statutory liability on account of TDS payable - AO disallowed the same on the ground that TDS part of the amount was not paid before the end of the financial year and therefore, he added it back to the income of the assessee - HELD THAT - As decided in own case 2019 (9) TMI 1317 - ITAT DELHI according to the income tax act itself the above amount of tax deducted at source is deemed to have been received by the recipient of the income. Thus, it cannot be said that the assessee has not paid the amount of tax deducted at source to the recipient of the income from whose payments the tax have been deducted. Tax deduction at source is a liability cast upon the assessee to deduct the sum from the recipient of such income. In fact the moment assessee deducts the tax at source from the sums paid to the other person it becomes the liability of the assessee who can be held to be an assessee in default for the above sum as well as liable to pay interest and penalty also. The amount of tax deducted at source is always considered as the sum paid by the assessee on behalf of the recipient of the income. Therefore, it cannot be said that the above sum has not been paid by the assessee even while following the cash system of accounting. - Decided in favour of assessee.
Issues:
Challenging disallowance of TDS payable claimed as expenditure in the Profit & Loss Account under cash system of accounting. Analysis: The appellant, a Law firm, contested the disallowance of TDS payable shown in the balance sheet for assessment years 2015-16 and 2016-17. The Assessing Officer disallowed the TDS amount as it was not paid before the end of the financial year, adding it back to the assessee's income. The ld. CIT(A) upheld the disallowance. The appellant argued that the TDS amount was paid to the Central Government within the specified time under Rule 30(2)(a) of the Income-tax Rules, thus challenging the additions made by the authorities. The appellant pointed out that a similar issue was decided in their favor by a co-ordinate Bench of the Tribunal for the assessment year 2013-14, citing the decision in the case of CIT v. Calcutta Export Company. The appellant emphasized that the Tribunal had deleted the addition in the previous case, supporting their stance for the current appeals. On the other hand, the ld. DR argued that under the cash system of accounting followed by the assessee, only payments made during the year could be claimed as expenditure. The DR contended that since the TDS amount was not paid during the relevant financial year, the Assessing Officer's addition was justified. Upon review, the Tribunal noted that the appellant followed the cash method of accounting, allowing cash outflows as deductible expenditure. The Tribunal analyzed the nature of tax deducted at source, deeming it as income received by the recipient of the income. It emphasized that the tax deducted at source represents a liability on the assessee, who is obligated to deduct and pay the sum to the government. The Tribunal referenced the provisions of section 198 of the Income Tax Act and the decision in CIT v. Calcutta Export Company to support its findings. Considering the precedent set by the co-ordinate Bench for the assessment year 2013-14, where a similar issue was decided in favor of the assessee, the Tribunal found it appropriate to follow the same view. Consequently, the Tribunal allowed both appeals of the assessee, ruling in their favor based on the previous decision and the legal provisions discussed in the judgment. In conclusion, the Tribunal granted relief to the appellant, emphasizing the applicability of the cash system of accounting, the nature of tax deducted at source, and the precedent established by the co-ordinate Bench in a similar case. The judgment highlights the importance of following legal provisions and judicial decisions to determine the treatment of TDS payable under the Income Tax Act.
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