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2022 (10) TMI 341 - AT - Income TaxDisallowance u/s 40(a)(i) - TDS u/s 195 - marginal delay in deposit of TDS, deducted from payment to non-residents u/s 40(a)(i) - Scope of extended time limit for payment of tax deducted from payments made to non-residents - marginal delay in deposit of tax - HELD THAT - As in respect of the amount disallowed for assessment year commencing on or before 1st day of April 2014, the deduction for the whole of the amount disallowed under section 40(a)(ia) of the Income-tax Act, shall be allowed under the first proviso to section 40(a)(ia) in the previous year in which tax deducted at source has been paid. Provisions of section 40(a)(ia) of the Income-tax Act, prior to its amendment by the Act, provided that certain payments such as interest, commission, brokerage, rent, royalty fee for technical services and contract payment made to a resident shall not be allowed as deduction for computing business income if tax on such payments was not deducted, or after deduction, was not paid within the time specified under the said section. Chapter XVII-B of the Income-tax Act mandates deduction of tax from certain other payments such as salary, directors fee, which were not specified in section 40(a)(ia) of the Income-tax Act. The payments on which tax is deductible under Chapter XVII-B but not specified under section 40(a)(ia) of the Income-tax Act may also be claimed as expenditure for the purposes of computation of income under the head Profits and gains from business or profession Respectfully following the judgment of Vatika Township Private Limited 2014 (9) TMI 576 - SUPREME COURT the amendment brought in by Finance (No.2) Act of 2014 in Section 40(a)(ia), the same is held to be retrospective in nature. Violation made by the appellant is marginal delay in deposit of tax which has resulted in hundred percent disallowance of the said expenditure. However, once tax has been deposited with the due interest etc. further disallowance of hundred percent expenditure is against the intent of law. Legislative intent is to foster compliance of tax deduction provisions and inculcate discipline in the deductors. In present facts tax has been deducted and has been deposited which is not called in question. Only marginal delay in deposit of tax deducted at source has attracted hundred percent disallowance of the concerned expenditure which is not in accordance with context of provisions of section 40(a)(i) of the act. Even otherwise since the appellant is also engaged in the business of providing uplinking and down linking services, stated disallowance of expenditure pertaining to transmission and uplinking expenses, being directly and inextricably connected with the receipts being direct and overriding costs, may not be disallowed under section 40(a)(i). Further, genuineness of the expenditure is never called in question. In present facts the belief harboured by the appellant is not doubted as in genuine and same is clearly bona fide supported by similar provision in section 40(a)(ia) of the act. On the issues framed above when for resident recipients has extended time limit for deposit of tax deducted at source similar time limit should be available for non-resident recipients, on principle of equality and secondly the amendment made by Finance No. 2 Act 2014 is clearly curative and clarificatory in nature and hence applicable to present year also - also supported by decision by theory of doubtful penalisation which is highlighted below by Hon'ble Delhi High Court in its decision in case of JDS Apparels 2014 (11) TMI 732 - DELHI HIGH COURT Thus disallowance made by the assessing officer under section 40(a)(i) cannot be sustained. - Decided in favour of assessee. Disallowance invoking the provisions of Section 14A read with Rule 8D - HELD THAT - We find that the Ld. CIT(A) has given a finding that the assessee has not earned or received any dividend in the year under appeal, therefore, no disallowance could be made. The finding of the Ld. CIT(A) is in accordance with the binding precedent of the Hon ble Delhi High Court rendered in the case of CIT Vs. Interglobe Enterprises Ltd. 2016 (9) TMI 552 - DELHI HIGH COURT . Therefore, we do not see any reason to disturb the finding of the Ld. CIT(Appeals) and the same is hereby affirmed. Thus, Ground raised by the Revenue are dismissed.
Issues Involved:
1. Deletion of disallowance of Rs. 2,22,64,353/- on account of 'non-deposit of TDS' deducted from payment to Non-Residents u/s 40(a)(i) r.w. section 195 of the Income Tax Act, 1961. 2. Deletion of disallowance of Rs. 6,57,572/- u/s 14A of the Income Tax Act. 3. Application of Rule 8D of the Income Tax Rule, 1962 to compute quantum of disallowance u/s 14A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Deletion of Disallowance of Rs. 2,22,64,353/- on Account of 'Non-Deposit of TDS': The Revenue contended that the Ld. CIT(A) erred in deleting the disallowance of Rs. 2,22,64,353/- made by the AO due to non-deposit of TDS deducted from payments to non-residents. The AO had disallowed this amount under section 40(a)(i) read with section 195 of the Income Tax Act, 1961, citing the assessee's failure to deposit the deducted tax before filing the return of income. The Ld. CIT(A) considered the submissions and various case laws, including the CBDT Circular No. 01/2015 and the memorandum explaining the provisions of Finance No. 2 Act, 2014. The Ld. CIT(A) noted that the amendment to section 40(a)(i) was intended to provide a similar extended time limit for payment of TDS for non-residents as available for residents under section 40(a)(ia). The Ld. CIT(A) concluded that the amendment was curative and clarificatory in nature and should be applied retrospectively. The Tribunal upheld the Ld. CIT(A)'s decision, stating that the Revenue could not controvert the findings and that the Ld. CIT(A) relied on binding precedents. Thus, the Tribunal dismissed Ground No. 1 raised by the Revenue. 2. Deletion of Disallowance of Rs. 6,57,572/- u/s 14A: The AO had disallowed Rs. 6,57,572/- under section 14A read with Rule 8D of the Income Tax Rules, 1962. The Ld. CIT(A) deleted this disallowance, noting that the assessee had not earned or received any dividend income during the assessment year. The Ld. CIT(A) relied on the binding precedent of the Hon'ble Delhi High Court in the case of CIT Vs. Interglobe Enterprises Ltd. The Tribunal affirmed the Ld. CIT(A)'s finding, stating that no disallowance could be made under section 14A if no exempt income was earned or received during the year. Thus, Ground Nos. 2 and 3 raised by the Revenue were dismissed. 3. Application of Rule 8D to Compute Quantum of Disallowance u/s 14A: The Revenue argued that the Ld. CIT(A) was incorrect in not holding that the application of Rule 8D to compute the quantum of disallowance under section 14A was mandatory. The Ld. CIT(A) had deleted the disallowance by stating that no exempt income was earned by the assessee during the year. The Tribunal upheld the Ld. CIT(A)'s decision, reiterating that no disallowance under section 14A could be made in the absence of exempt income. Thus, Ground Nos. 2 and 3 were dismissed. Conclusion: The Tribunal dismissed the appeal of the Revenue, upholding the Ld. CIT(A)'s order in deleting the disallowances made by the AO. The Tribunal affirmed that the Ld. CIT(A) had relied on binding precedents and that the Revenue could not provide sufficient grounds to disturb the findings. The appeal was dismissed in its entirety.
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