2022 (2) TMI 916 - AT - Income Tax

Disallowance u/s. 40(a)(ia) - non-deduction of TDS under respective provisions of the Act - assessee claims that although it had not deducted TDS on those expenses which have been disallowed by the Assessing Officer, but payees have duly included sum paid by the assessee in return of income filed by them for relevant assessment year and also paid due taxes thereon - HELD THAT - Since, the assessee was not given sufficient time to file necessary details, including income-tax returns and certificate from payees to prove that payment made by the assessee is part of their income tax returns, to invoke second proviso to section 40(a)(ia) of the Act, the issue may be set aside to the file of the Assessing Officer. We find that an identical issue has been considered by the Tribunal in the case of M/s. Mani Nagappa Motors Madurai P. Ltd 1998 (5) TMI 6 - SUPREME COURT where under identical circumstances, the Tribunal set aside the issue to file of the Assessing Officer for verification of claim of the assessee that payees had duly offered payments in their income tax returns and paid due taxes thereon. In this view of the matter and consistent with the view taken by the co-ordinate Bench, we set aside order passed by the learned CIT(A) and restore the issue to file of the Assessing Officer and direct the Assessing Officer to reconsider the issue in light of claim of the assessee and also second proviso to section 40(a)(ia) - Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues:
1. Validity of reassessment order passed u/s. 144 r.w.s. 147 of the Act.
2. Disallowance of expenses u/s. 40(a)(ia) of the Act.

Validity of Reassessment Order:
The appeal challenged the order passed by the Commissioner of Income Tax (Appeals) for assessment year 2010-11. The appellant contended that the reassessment completed u/s. 144 read with section 147 of the Act was invalid and lacked proper justification. The appellant argued that jurisdiction under section 147 should not have been assumed after the search operation under section 132, and only assessment under section 153A should have been conducted. It was further contended that parallel assessment proceedings post-search were impermissible. The appellant asserted that the reassessment order was passed out of time, invalid, and unsustainable in law. However, the appellant did not press this legal ground during the hearing, leading to its dismissal by the Tribunal.

Disallowance of Expenses u/s. 40(a)(ia) of the Act:
The core issue revolved around the disallowance of expenses under section 40(a)(ia) for non-deduction of TDS. The appellant, a transport contractor, declared total income for the relevant assessment year and underwent assessment under section 143(3) initially. Subsequently, reassessment was conducted under section 144 r.w.s. 147, resulting in the disallowance of expenses amounting to ?3,33,166 for non-deduction of TDS. The appellant contended that although TDS was not deducted, the payees had included the payments in their income tax returns and paid due taxes. The appellant sought to demonstrate compliance with the provisions of the Act, specifically referring to the second proviso to section 40(a)(ia) and the first proviso to section 201. Citing a precedent, the Tribunal directed the issue to be reconsidered by the Assessing Officer to verify the appellant's claims regarding the payees' tax compliance. The Tribunal emphasized the importance of providing the appellant with an opportunity to substantiate their assertions with requisite documentary evidence.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the order of the Commissioner of Income Tax (Appeals) and directing a fresh assessment of the disallowance of expenses under section 40(a)(ia) by the Assessing Officer. The legal grounds challenging the validity of the reassessment order were dismissed as not pressed by the appellant.