2021 (10) TMI 176 - HC - Income Tax

Disallowance u/s 40a(ia) - non deduction of TDS on provisions made in respect of expenses pertaining to the year under consideration - CIT(A) concluded that the respondent s claim for provision of expenses was allowable as deduction since provision was pertaining to the liability crystallized during the year - As per ITAT when payments were made by respondent to third parties, TDS has been deducted has not been disputed by the revenue and it is nobody s case that any payment has been made subsequently without deduction of tax source and even excess amount of provisions has been written back and hence there is no loss to revenue, thus reused to interfere - HELD THAT - CIT(A) was correct in deleting the disallowance made under Section 40a(ia) of the Act and the view of CIT (A) that respondent could not have deducted TDS on provisions made in respect of expenses pertaining to the year under consideration is correct. Moreover, it is not disputed that in subsequent years when actual payments were made TDS has been deducted. Tribunal has not committed any perversity or applied incorrect principles to the given facts - no substantial question of law. - Decided against revenue.

Summary

Issues:
Impugning an order confirming deletion of disallowance under Section 40a(ia) of the Income Tax Act, 1961 despite failure to deduct tax at source.

Analysis:
The respondent, engaged in providing internet access services, faced disallowance of deductions by the Assessing Officer due to various reasons, including provision of expenses on an estimate basis, unascertained liabilities, and failure to deduct tax at source. The CIT(A) overturned this decision, stating that the provisions were made for actual expenses incurred during the year, even though bills were pending. CIT(A) held that the liability for such expenses crystallized during the year, and provisions were required to be allowed as a deduction. The CIT(A) emphasized that since only a provision was made for expenses of the year, without actual invoices, there was no need for TDS deduction.

The appellant challenged the CIT(A)'s decision before the ITAT, which observed that TDS had been deducted when payments were made to third parties and excess provisions were written back in subsequent years, ensuring no loss to revenue. The ITAT upheld the CIT(A)'s decision, leading to the appeal before the High Court.

The High Court analyzed the facts and orders of the CIT(A) and ITAT, concluding that the CIT(A) was correct in deleting the disallowance under Section 40a(ia) of the Act. The Court agreed with the CIT(A) that TDS could not have been deducted on provisions made for expenses of the relevant year. Additionally, the Court noted that TDS had been deducted in subsequent years when actual payments were made. Finding no perversity or incorrect application of principles by the Tribunal, the High Court dismissed the appeal, deeming it devoid of merits and not raising any substantial question of law.