2021 (8) TMI 817 - AT - Income Tax

Addition u/s 40(a)(ia) - TDS amount paid before the due date or not? - HELD THAT - CIT(A) is admitting that TDS has been deducted by the concerned party while crediting the account of the assessee and deposited into government account as per 26AS of the assessee. The assessee has made TDS payment before the due date of filing of the return under Section 139(1). The decision of the Hon ble Delhi High Court in case of Rajnder Kumar 2013 (7) TMI 454 - DELHI HIGH COURT and the decision of the Tribunal 2020 (2) TMI 457 - ITAT DELHI relied by the Ld. AR are applicable in the present case as the assessee has paid the TDS amount before the due date i.e. before the date on which return of Income u/s 139(1) of the Act has to be filed. Thus, Section 40(a)(ia) will not be applicable in the present case. Therefore, Ground Nos. 4, 7(c) and (d) are allowed. Disallowance of expenses to the extent of 1/10th - AR submitted that all the staff welfare, convenience expenses, general expenses as well as telephone expenses are either below ₹ 20,000 or ₹ 40,000/- and, therefore, some payments were made in cash or through vouchers.- HELD THAT - It is pertinent to note that the Assessing Officer has simply rejected all these expenses stating in the Assessment order that the assessee could not produce proper vouchers. But from the perusal of the records which was before the Assessing Officer, it can be seen that the assessee has given all the vouchers and the relevant details of these expenses which was not at all taken into consideration by the Assessing Officer. Thus, merely on assumption basis the Assessing Officer disallowed 1/10th of these expenses which are not just and proper.

Summary

Issues:
1. Disallowance of service tax payable
2. Disallowance of TDS and professional tax
3. Disallowance of certain expenses
4. Invocation of Section 40(a)(ia) and Section 43B
5. Assessment order validity

Issue 1: Disallowance of service tax payable:
The appeal was filed against the addition of service tax payable as on a specific date. The appellant argued that as the service tax payable entries were not routed through the Profit & Loss account and accounts were maintained under the cash system of accounting, no addition should be made to the returned income. The appellant contended that since service tax payable was not routed through the profit and loss account, the provisions of Section 43B were not applicable. The appellant sought to disallow the addition made by the Assessing Officer and CIT(A) in this regard.

Issue 2: Disallowance of TDS and professional tax:
The Assessing Officer disallowed and added sums related to TDS payable on others, TDS on salary, and professional tax to the returned income. The appellant argued that statutory liabilities covered under Section 43B were paid before the filing of the Tax Return, rendering Section 40(a)(ia) inapplicable. The appellant relied on relevant judicial decisions to support their stance against the disallowance of these amounts.

Issue 3: Disallowance of certain expenses:
Various expenses incurred by the appellant were disallowed by the Assessing Officer, including staff welfare expenses, car maintenance expenses, general expenses, and telephone expenses. The appellant contested these disallowances, claiming that the expenses were incurred for business purposes and were essential. The appellant argued that the disallowance was excessive and not supported by evidence.

Issue 4: Invocation of Section 40(a)(ia) and Section 43B:
The appellant argued that the provisions of Section 43B of the Income Tax Act 1961 should override, irrespective of whether the accounts were maintained under the cash system or mercantile system of accounting. The appellant sought relief based on the application of Section 43B and challenged the invocation of Section 40(a)(ia) by the Assessing Officer.

Issue 5: Assessment order validity:
The appellant challenged the assessment order, claiming it was bad in law and factually incorrect. The appellant sought relief from the disallowances and additions made by the Assessing Officer, emphasizing the lack of specific defects or deficiencies in the accounts. The appellant argued that the disallowances were unreasonable considering the nature of the business and its income.

This judgment involved a detailed analysis of various issues raised by the appellant against the assessment order. The Tribunal considered arguments related to the disallowance of service tax payable, TDS, professional tax, and certain expenses. The Tribunal examined the applicability of Section 40(a)(ia) and Section 43B in the context of the appellant's accounting methods. Ultimately, the Tribunal partially allowed the appeal, providing relief to the appellant on certain grounds while dismissing others. The judgment highlighted the importance of proper documentation and adherence to statutory provisions in determining the allowability of expenses and tax liabilities.