2019 (5) TMI 616 - AT - Income Tax

Disallowance u/s 40(a)(ia) on payment of salary - TDS deducted but not deposited - HELD THAT - The A.O. in the assessment order noted that as regards Section 192B, the amount on which TDS is to be deducted comes to ₹ 29,01,190/- on which, TDS of ₹ 2,90,119/- have been deducted but was not paid by assessee. Learned Counsel for the Assessee rightly contended that the amount in question relates to payment of salary and according to Section 40(a)(ia), the word Salary have not been incorporated in the Act. Therefore, assessee would not be in default of TDS u/s 40(a)(ia) because such provision is not attracted in this Section. Therefore, Section 40(a)(ia) is not application on such transaction. This addition is, therefore, liable to be deleted. We, accordingly, set aside the Orders of the authorities below and delete the addition of ₹ 29,01,190/-. This ground of appeal of assessee is allowed. Disallowance u/s 40(a)(ia) - TDS u/s 194C,194I 194J - Tax paid by deductees - amendments by the Finance Act, 2014, w.e.f. 01.04.2015 - HELD THAT - The provision contained in second proviso to Section 40(a)(ia) is not applicable to the case of the assessee because assessee had fully deducted the TDS, but, did not deposit the same into the Government account. However, assessee explained reasonable cause for failure to comply with such provision, on which, CIT(A) admitted the additional evidences. In case the deductees have also paid the taxes on such receipts and offered the amount for taxation, it would certainly amount to double taxation in the hands of the assessee as well as the deductee of the same amount. Further, the assessee has raised this issue for the first time, therefore, it requires reconsideration at the level of assessing officer. Set aside the orders of the authorities below and restore this issue to the file of assessing officer with a direction to verify if the deductees have offered the amount of ₹ 4.92 crores for taxation and paid the taxes thereon. It is clear that assessee has ultimately deposited the TDS amount in question to the account of the Government. According to explanation of assessee, deductees have also paid the taxes on the same income, therefore, as per provisions of Section 40(a)(ia) the benefit of same shall have to be granted to assessee by the assessing officer, in the year, in which, such tax have been deposited. We, accordingly, direct the assessing officer to verify the claim of assessee and allow deduction of the TDS amount paid by assessee subsequently in computation of income of the previous year, in which, such tax has been paid. This Ground is allowed for statistical purposes.

Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act.
2. Applicability of the first and second proviso to section 40(a)(ia).
3. Retrospective applicability of amendments to section 40(a)(ia).
4. Incorrect disallowance of remuneration paid to directors.
5. Double taxation due to disallowance under section 40(a)(ia).

Issue-wise Detailed Analysis:

1. Disallowance under section 40(a)(ia) of the Income Tax Act:
The assessee challenged the disallowance of ?5,72,34,330/- made under section 40(a)(ia) for non-depositing TDS within the prescribed time. The assessee argued that they were prevented by sufficient cause due to the illness and subsequent death of a director, which caused the remaining directors to be preoccupied. The Ld. CIT(A) admitted the additional evidence but upheld the disallowance, noting that the TDS was not deposited before the due date specified under section 139(1).

2. Applicability of the first and second proviso to section 40(a)(ia):
The assessee contended that even if the relief was granted under the first proviso, it would not be an effective remedy due to the significant tax liability. The second proviso was argued to be applicable as the assessee had deducted the tax but not deposited it on time. The Ld. CIT(A) held that the second proviso is applicable to cases of non-deduction or short deduction of tax, not to cases where tax was deducted but not deposited.

3. Retrospective applicability of amendments to section 40(a)(ia):
The assessee argued that the amendments brought by the Finance (No. 2) Act 2014, which reduced the disallowance to 30% from 100%, should be applied retrospectively. The Tribunal agreed with this view, referencing the ITAT Jaipur Bench decision, and directed that the disallowance should be restricted to 30%.

4. Incorrect disallowance of remuneration paid to directors:
The assessee contended that the disallowance of ?24,00,000/- paid as remuneration to directors was incorrect as it was not subject to TDS. The Tribunal found merit in this argument and deleted the disallowance, noting that section 40(a)(ia) does not apply to salary payments.

5. Double taxation due to disallowance under section 40(a)(ia):
The assessee provided evidence that the deductees had filed their returns and paid taxes on the income received. The Tribunal acknowledged that disallowance under section 40(a)(ia) would result in double taxation and directed the assessing officer to verify the claims and ensure no double taxation occurs. The Tribunal also directed the assessing officer to allow the deduction in the year the TDS was paid and to permit the carry forward of any resultant losses.

Conclusion:
The appeal was partly allowed. The Tribunal directed the deletion of the disallowance related to salary payments, restricted the disallowance to 30% for other payments, and mandated verification to prevent double taxation. The assessing officer was also instructed to allow deductions in the year of TDS payment and to address any carry-forward of losses.

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