2022 (8) TMI 1036 - AT - Income Tax

Addition to the returned income on account of TDS payable - Cash basis of accounting - Provision versus Payable - HELD THAT - Tax Authorities below have not discussed as to what were the payments which were made giving rise to TDS. It appears that Ld. AO was carried by the fact that the assessee is following cash system of accounting, therefore, the TDS being one part of expenses debited in P L Account therefore, to the extent of TDS the expenses being not actually incurred and paid in the relevant financial year, have to be disallowed. The Bench is of considered opinion that such an opinion of Tax Authorities below is not sustainable because the assessee has shown the expenditure as a whole in his accounts having been paid. What remains in the hands of assessee is not on account of any payment due to such persons but the tax deducted at source is left to be deposited to the Government in accordance with the relevant provisions. It was for the purpose of accounting that the amount has been shown in the form of provision not as payable on any account to any creditor or on a contingency but held merely to be deposited in due course. Even otherwise, the heads of expenses against which the payments were made when stand allowed through P L account, some part of it, being TDS, cannot be left standing alone, by holding it as still payable. As relying on M/S DELOITTE HASKINS SELLS VERSUS THE ASST. CIT, CIRCLE-37 (1) , NEW DELHI. 2021 (1) TMI 738 - ITAT DELHI case the appeal is allowed with direction to delete the impugned addition.

Summary

Issues:
1. Disallowance of TDS payable as statutory liability.
2. Interpretation of provisions related to deduction and deposit of tax at source.
3. Disallowance of expenditure towards taxes collected at source.

Analysis:

Issue 1: Disallowance of TDS payable as statutory liability
The appeal was filed against the order regarding the disallowance of Rs. 69,76,701/- shown in the balance sheet as statutory liability on account of TDS payable. The assessee argued that TDS payable is a statutory liability and should not have been disallowed under Section 145 of the Income Tax Act, 1961. The Tribunal noted that the Tax Authorities below did not discuss the nature of the payments giving rise to TDS. It was observed that the TDS amount was shown in the form of a provision, not as payable to any creditor, but to be deposited to the Government. The Tribunal held that the TDS amount, being part of the expenses debited in the Profit and Loss Account, cannot be disallowed solely on the basis of following the cash system of accounting. The decision was supported by a previous case where it was established that TDS is deemed to be the income received by the recipient, and the TDS amount is considered as paid by the assessee. Therefore, the Tribunal allowed the grounds raised by the assessee and directed to delete the disallowed addition of TDS payable.

Issue 2: Interpretation of provisions related to deduction and deposit of tax at source
The assessee contended that the provisions relating to the responsibility for deduction and deposit of tax at source were part of the provision for collection and recovery of tax, not of computing the total income. The Tribunal observed that the Tax Authorities below did not provide a detailed analysis of the nature of the payments leading to TDS. The Tribunal held that the TDS amount, being part of the expenses debited in the Profit and Loss Account, cannot be disallowed solely based on following the cash system of accounting. The Tribunal referred to a previous case to support its decision that TDS is deemed to be the income received by the recipient, and the TDS amount is considered as paid by the assessee. Therefore, the Tribunal allowed the grounds raised by the assessee and directed to delete the disallowed addition of TDS payable.

Issue 3: Disallowance of expenditure towards taxes collected at source
The appeal challenged the disallowance of the portion of expenses taken towards the liability for taxes collected at source. The assessee argued that the expenses were already accepted and debited to the Profit and Loss Account as professional expenditure. The Tribunal found that the Tax Authorities below did not provide a detailed analysis of the nature of the expenses and the TDS component within them. The Tribunal held that the TDS amount, being part of the expenses debited in the Profit and Loss Account, cannot be disallowed solely based on following the cash system of accounting. The Tribunal referred to a previous case to support its decision that TDS is deemed to be the income received by the recipient, and the TDS amount is considered as paid by the assessee. Therefore, the Tribunal allowed the grounds raised by the assessee and directed to delete the disallowed addition of TDS payable.

In conclusion, the Tribunal allowed the appeal and directed to delete the disallowed addition of TDS payable, emphasizing that TDS is deemed to be the income received by the recipient and considered as paid by the assessee, even when following the cash system of accounting.