2018 (3) TMI 1508 - AT - Income Tax

Rectification of mistake U/s 254(2) - addition u/s section 40(a)(ia) - Held that - As uphold the grievance of the assessee principally and direct that the AO shall give due and fair opportunity of hearing to the assessee and decide the matter afresh in accordance with law by way of a speaking order after carrying out necessary verification regarding impugned payments having been taken into account by the recipients in the computation of their respective income, regarding payment of taxes in respect of such income and regarding filing of related income tax return by the recipients. Hon ble Supreme Court in the case of Palam Gas Service Vs CIT (2017 (5) TMI 242 - SUPREME COURT) is not at all applicable to the facts of the assessee s case, therefore, the M.A. filed by the revenue has no merit and the same is dismissed. - Decided against revenue

Summary

Issues Involved:
1. Rectification of mistake under Section 254(2) of the Income Tax Act, 1961.
2. Applicability of TDS provisions under Section 194C of the Income Tax Act, 1961.
3. Interpretation of Section 40(a)(ia) regarding disallowance of expenditure due to non-deduction of TDS.

Issue-wise Detailed Analysis:

1. Rectification of Mistake under Section 254(2) of the Income Tax Act, 1961:
The revenue filed a Miscellaneous Application (M.A.) seeking rectification of an alleged mistake in the ITAT’s order dated 09/12/2016. The revenue argued that the ITAT’s decision to uphold the CIT(A)’s order was a mistake apparent from the record, especially in light of the Supreme Court’s decision in the case of Palam Gas Service Vs CIT. However, the ITAT found no merit in the revenue’s application and dismissed it.

2. Applicability of TDS Provisions under Section 194C of the Income Tax Act, 1961:
The CIT(A) had examined the assessee’s contention that the individual payments made to various parties did not exceed the threshold limits for TDS under Section 194C. The CIT(A) verified the details and found that the payments to M/s Kohinoor Publicity, M/s Hare Rama Advertisers, M/s Rajasthan Patrika, M/s Garima Advertising, M/s Bhagwati Publicity, and M/s Yash Advertising were within the permissible limits and thus not subject to TDS. The CIT(A) also noted that the payments to M/s Craftman Advertisement and M/s Ram Niwas Advertisers were accounted for in their respective income tax returns, and therefore, no disallowance should be made.

3. Interpretation of Section 40(a)(ia) Regarding Disallowance of Expenditure Due to Non-Deduction of TDS:
The CIT(A) relied on various judicial precedents, including the Delhi High Court’s decision in CIT Vs Rajinder Kumar, to interpret Section 40(a)(ia). The CIT(A) concluded that the provision should be interpreted in a fair, just, and equitable manner. The ITAT Delhi’s judgment in the case of A&A Earthmovers Pvt. Ltd. was also cited, emphasizing that the objective of Section 40(a)(ia) is to ensure that TDS provisions are implemented to augment tax recoveries. The CIT(A) held that the disallowance under Section 40(a)(ia) should not apply if the recipient has included the income in their tax returns and paid the due taxes. The ITAT Jaipur upheld this view, agreeing that the second proviso to Section 40(a)(ia) is declaratory and curative, and should be applied retrospectively from 1st April 2005.

The ITAT Jaipur found that the revenue did not provide any material to rebut the CIT(A)’s findings. Consequently, the ITAT dismissed the revenue’s appeal and upheld the deletion of the addition of ?21,82,015, while confirming the addition of ?5,58,962 for payments to M/s M.S. Advertisers and M/s Ma Bharti News, for which no explanation was provided.

Conclusion:
The ITAT Jaipur dismissed the revenue’s Miscellaneous Application for rectification under Section 254(2), upheld the CIT(A)’s order regarding the applicability of TDS provisions under Section 194C, and confirmed that the second proviso to Section 40(a)(ia) should be applied retrospectively. The ITAT found no merit in the revenue’s arguments and maintained that the disallowance under Section 40(a)(ia) should not apply if the recipient has duly accounted for the income and paid the taxes.