2024 (6) TMI 1198 - AT - Income Tax

Revision u/s 263 - assessee had not deducted tax at source on part of the salary and on account of non-deduction of tax on commission / brokerage payment - As per CIT AO did not made disallowance u/s 40(a)(ia) - HELD THAT - We are in agreement with the contentions of assessee that once the recipient of income has offered the income on which no taxes were deducted by the assessee at source and paid due taxes thereon, in view of Second Proviso to Section 40(a)(ia) of the Act, the assessee is deemed to have deducted and paid taxes on such sum and the assessee is not an assessee in default . In the instant case, it has been argued before us that so far as salary and commission is concerned, the recipient has offered such income in their respective returns of income and have paid due taxes thereon. However, the Ld. PCIT has omitted to consider and analyze these arguments during the course of 263 proceedings. Accordingly, in so far as the issue of non-deduction of TDS on aforesaid two payments are concerned, we are of the considered view that the assessee was not could not be held to an assessee in default once the recipient of income has offered such income in their return of income and paid due taxes thereon. With respect to the disallowance of commission is concerned, the assessee has himself agreed for disallowance before Ld. PCIT during the course of 263 proceedings. Accordingly, in so far as TDS on commission the aforesaid amount is liable to be disallowed and added to the income of the assessee for the impugned assessment year. Accordingly, it is so directed that the aforesaid amount may be added to the income of the assessee during the impugned assessment year. Appeal of the assessee is allowed.

Summary

Issues:
- Appeal against order passed by Ld. Principal Commissioner of Income Tax under Section 263 of the Act.
- Assessment order challenged on grounds of being erroneous and prejudicial to the interest of revenue.
- Disallowance under Section 40(a)(ia) of the Act.
- Non-deduction of tax at source on salary and commission payments.
- Interpretation of Second Proviso to Section 40(a)(ia) of the Act.

Analysis:
The appeal was filed against the order passed by the Ld. Principal Commissioner of Income Tax under Section 263 of the Act, challenging the assessment order on the grounds of being erroneous and prejudicial to the interest of revenue. The issues raised by the assessee included the timeliness of the order under Section 263, the jurisdiction of the Ld. PCIT, and the necessity of fulfilling the conditions for invoking Section 263. The Ld. PCIT initiated proceedings based on non-deduction of tax at source on salary and commission payments, invoking Section 40(a)(ia) of the Act.

The assessee contended that the non-deduction of tax on the salary payment did not result in any loss to the revenue as the recipient had filed returns and paid due taxes on the income. Similarly, regarding the commission payment, it was argued that since it was not claimed as an expense, there was no basis for disallowance under Section 40(a)(ia). The recipient of the commission income had also filed returns and paid taxes, indicating no loss to the revenue. The Ld. PCIT was criticized for not considering these arguments during the proceedings.

Upon review, the Tribunal agreed with the assessee's contentions. It held that if the recipient had offered the income and paid taxes, the assessee was not in default. The Tribunal directed the disallowance of a specific commission amount as agreed by the assessee during the proceedings. Consequently, the appeal of the assessee was allowed, and the Tribunal pronounced the order in open court on 17/01/2024.