2022 (6) TMI 595 - AT - Income Tax

TDS u/s 194J - disallowing purchase expenses treating that as royalty payments and accordingly non-deduction of TDS - Addition u/s 40(a)(ia) - assessee only argued that in view of proviso added by way of amendment in section 40(a)(ia) and insertion of second proviso which provides that in case the recipient has included the receipts in their income, no disallowance u/s. 40(a)(ia) - HELD THAT - As assessee made statement at bar that the recipient has included the receipts in their return of income in regard to these expenses on which assessee has not deducted TDS, in term of second proviso to section 40(a)(ia) we remit the matter back to the file of AO, who will consider the claim of assessee after taking relevant evidences.

Summary

Issues:
1. Tax effect below Rs. 50 lakhs - Maintainability of appeal
2. Disallowance of purchase expenses as royalty payments - Non-deduction of TDS

Issue 1: Tax effect below Rs. 50 lakhs - Maintainability of appeal
The appeal before the ITAT Chennai involved cross-appeals arising from the order of the Commissioner of Income Tax (Appeals)-2, Coimbatore for the assessment year 2011-12. The tax effect in one of the appeals was below Rs. 50 lakhs, leading the assessee to argue for dismissal based on CBDT Circular No. 17/2019. The circular stated that no appeal should be filed before the Tribunal if the tax effect is Rs. 50 lakhs or less, applicable retrospectively to all pending appeals. Consequently, the Revenue's appeal was dismissed by the Tribunal.

Issue 2: Disallowance of purchase expenses as royalty payments - Non-deduction of TDS
The second appeal involved the disallowance of purchase expenses as royalty payments due to non-deduction of TDS under section 194J of the Income Tax Act. The Assessing Officer (AO) disallowed the expenses and invoked section 40(a)(ia) of the Act. The assessee contended that royalty is part of purchase cost and VAT was charged on it. However, the AO maintained the disallowance, leading to an appeal before the CIT(A) and subsequently before the Tribunal. The assessee argued that the second proviso to section 40(a)(ia) exempts disallowance if the recipient includes the receipts in their income. The Senior DR claimed lack of evidence regarding this inclusion. The Tribunal remitted the matter back to the AO for consideration with relevant evidence, allowing the appeal filed by the assessee for statistical purposes while dismissing the Revenue's appeal.

In conclusion, the ITAT Chennai addressed the maintainability of the appeal based on tax effect and the disallowance of purchase expenses as royalty payments due to non-deduction of TDS, providing a detailed analysis and decision for each issue.