2020 (11) TMI 648 - AT - Income Tax

TDS u/s 195 - additions made u/s 40(a)(ia) - non-deduction of tax at source on payments made to tribals and non-tribals - violation of provisions of section 197(1) - HELD THAT - Considering the binding decision of Hon'ble Jurisdictional Tribunal on identical issue in KOMORRAH LIMESTONE MINING CO. LEARNED 2019 (6) TMI 1558 - ITAT GAUHATI disallowances of payment to tribals whose incomes are exempt u/s 10(26) is to be reversed. In respect of payment to non-tribals, assessee claim is that the recipients disclosed the payments in their respective returns of income. But no documentary evidence in this regard was filed. The non-tribals payees have to satisfy the condition laid down in first proviso to sub-section(l) of section 201. Since no evidence in this regard was furnished, the payments to non-tribals have to be disallowed. We decline to interfere with the order of Id. CIT(A) in deleting the aforesaid addition in respect of payments made to individuals who are specified as Schedule Tribes and confirmed the addition in case of payments to Non-Schedule Tribes. His order on this issue is therefore upheld and the grounds of appeal of the Revenue are dismissed. Disallowance on account of non-deduction of tax at source on payments made to non-tribals as sustained by ld CIT(A) - HELD THAT - If above payees have included the receipts in their books of accounts and have offered for taxes then the disallowance on account of non- deduction of TDS will not arise. That is, if these payees have included the receipts in computation of the total income and return of income then it would be sufficient compliance of TDS provisions and no disallowance should be made under section 40(a)(ia) of the Act. Therefore, we direct the Assessing Officer to examine whether these above noted payees had included the receipts in their books of accounts/computation of total income. If they had included the receipts in the books of accounts/ computation total income, then in that situation, no any disallowance should be made. However, if these payees did not include the receipts in their books of accounts/ computation of total income, then the Assessing Officer may make the disallowance in accordance with law. Therefore, we restore this issue to the file of the Assessing Officer for statistical purposes.

Summary

Issues Involved:

1. Relief granted by CIT(A) on additions made under section 40(a)(ia) for violation of section 197(1) of the Income Tax Act.
2. Applicability of section 195(1) versus section 197(1) in the context of the case.
3. Disallowance of expenses due to non-deduction of tax at source on payments made to non-tribals.
4. Cross-objections by the assessee regarding the inclusion of payments in the return of income by non-tribal payees.

Issue-wise Detailed Analysis:

1. Relief granted by CIT(A) on additions made under section 40(a)(ia) for violation of section 197(1) of the Income Tax Act:

The Revenue challenged the CIT(A)'s decision to allow relief of ?2,18,67,711/- on additions made under section 40(a)(ia) by the Assessing Officer (AO) for violation of section 197(1). The CIT(A) had deleted the addition pertaining to payments made to members of Scheduled Tribes, whose incomes were exempt under section 10(26) of the Act, arguing that there was no occasion for deduction of tax at source when the income was not chargeable to tax.

2. Applicability of section 195(1) versus section 197(1) in the context of the case:

The Revenue contended that the CIT(A) erred by basing his decision on a case involving section 195(1) (related to non-residents) instead of section 197(1). The Tribunal noted that the CIT(A) relied on the Supreme Court's judgment in GE India Technology Centre P. Ltd Vs. CIT, which clarified that no tax deduction at source is required if the income is not chargeable under the Act. This principle was applied to the payments made to Scheduled Tribes, exempt under section 10(26).

3. Disallowance of expenses due to non-deduction of tax at source on payments made to non-tribals:

The CIT(A) partially upheld the AO's addition, sustaining a disallowance of ?30,89,162/- for non-deduction of tax at source on payments made to non-tribals. The Tribunal agreed with the CIT(A)'s findings, noting that the assessee failed to provide evidence that the non-tribal payees had included the payments in their returns of income. Therefore, the disallowance was upheld for payments to non-tribals.

4. Cross-objections by the assessee regarding the inclusion of payments in the return of income by non-tribal payees:

The assessee filed cross-objections, arguing that the disallowance should not be made if the payees had included the payments in their returns of income. The Tribunal directed the AO to verify whether the non-tribal payees had included the receipts in their books of accounts and returns of income. If they had, no disallowance should be made; otherwise, the AO could proceed with the disallowance as per law. This issue was remitted back to the AO for fresh adjudication.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to delete the addition for payments made to Scheduled Tribes but sustained the disallowance for payments to non-tribals due to non-deduction of tax at source. The cross-objections by the assessee were allowed for statistical purposes, directing the AO to verify the inclusion of payments in the returns of income by non-tribal payees. The order was pronounced on 18.11.2020.