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2017 (6) TMI 518 - AT - Income TaxRetrospectivity of the second proviso to Section 40(a) (ia) - Held that - Matter was reconsidered at the level of the AO. The AO shall verify the fact of the payment of taxes on filing return of income by the above parties, in the light of the decision of Hon ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township P. Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT . AO shall give reasonable sufficient opportunity of being heard to the assessee. Disallowance of Car Expenses and Telephone Expenses for personal use - Held that - Assessee firm declared income of ₹ 65,820/- therefore disallowance of 1/6 of these expenditures is excessive. Accordingly set aside and modify order of the authorities below and direct the AO to restrict the disallowance on these expenses to 1/10 of the total expenditure claimed instead of 1/6. AO shall re-workout the addition accordingly.
Issues: Disallowance under section 40(a)(ia) for non-deduction of TDS on processing fee and hire charges.
The judgment pertains to an appeal against the order of the Ld. CIT(A)-1, Ludhiana for the Assessment Year 2011-12. The Assessing Officer disallowed processing fee and hire charges under section 40(a)(ia) of the Income Tax Act due to non-deduction of TDS. The Ld. CIT(A) upheld the disallowance. The appellant did not press certain grounds, leading to their dismissal. The appellant argued that payments were made to parties who declared the amounts in their returns and paid taxes, supported by a Chartered Accountant certificate. Reference was made to a similar case before the ITAT Chandigarh Bench, which remanded the matter for verification. The appellant cited a Delhi High Court decision emphasizing that as long as the payee files returns and pays taxes, no disallowance should be made under section 40(a)(ia). The Tribunal allowed the appeal for statistical purposes, directing the AO to verify tax payments by the parties. Regarding the disallowance of a portion of car and telephone expenses for personal use, the appellant contended that the disallowance was excessive and suggested a lower percentage. The Tribunal found the disallowance to be excessive considering the firm's declared income and directed the AO to restrict the disallowance to 1/10 of the total expenditure claimed instead of 1/6. As a result, the appeal was partly allowed. The judgment highlights the importance of verifying tax payments by payees and ensuring proportionate disallowance of expenses for personal use, based on the firm's income.
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