2012 (4) TMI 317 - AT - Income Tax

Tax deducted at source - Grossing up of TDS - AO disallowed the assessee s claim of TDS without actually deducting the same from the payments and added it back held that - From the literal reading of the above provision, it is clear that the provision for grossing up of the tax can be made only if the same forms part of the income concerned, where there is an agreement or arrangement to pay the income-tax by the prayer itself. In the case before us, the assessee has not stated anywhere that the labour charges to be paid are agreed to be paid tax free or that the assessee has to bear the taxes. Deposit of TDS before due date of filing of return - Held that - Assessee has made the provision for such payment of tax at the end of the year, it is to be presumed that there is an arrangement for paying tax free income to the labourers tax deducted at source at the end of the year can be deposited before the due date of filing of the return of income as decided in co-ordinate Bench of the Tribunal at Mumbai in the case of Bapu Saheb Nanasaheb Dhumal v. ACIT (2010 - TMI - 204337 - ITAT MUMBAI ) given a finding that Sec.40(a)(ia) cannot be invoked if the assessee remitted the TDS within the due date of filing of the return prescribed u/s 139(1) of the IT Act - appeal of the revenue dismissed.

Summary

Issues:
Revenue's appeal for the assessment year 2008-09 - Disallowance of tax deduction, Sec.40(a)(ia) applicability, Provision for TDS, CIT(A)'s decision.

Analysis:
The revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 18,80,085 made by the AO due to belated tax deduction. The AO disallowed the claimed tax deduction as the assessee failed to deduct tax from payments made before March 1, 2008. The AO held that provisions of Sec.40(a)(ia) were attracted as the assessee did not deduct tax on time. The CIT(A) allowed the appeal, citing the assessee's provision for TDS before the due date of filing the return under Sec.139(1) and a precedent ruling. The revenue contended that tax should be deducted at the time of payment, not provision, as per Secs.194C, 194H, and 194J. The assessee argued that the provision for TDS was valid under Sec.195A and supported by legal precedents.

The CIT(A) observed that the assessee had made payments to contractors without deducting tax at source, but provisioned for TDS before the due date of filing the return. The issue was whether the assessee could provision for TDS from their income or only deduct from payments to contractors. The provision of Sec.195A was examined, allowing for grossing up of tax if agreed upon in the income arrangement. The CIT(A) relied on a precedent ruling and the absence of a written agreement for tax-free income. The decision hinged on whether the tax deducted at the end of the year could be deposited before the return filing due date. The CIT(A) followed the precedent ruling's findings, dismissing the revenue's appeal for lack of contradictory evidence.

In conclusion, the appeal by the revenue was dismissed based on the CIT(A)'s decision, which found the provision for TDS before the return filing due date acceptable under Sec.195A and supported by a precedent ruling. The issue of tax deduction timing and provision for TDS was thoroughly analyzed, leading to the rejection of the revenue's appeal.