2024 (7) TMI 883 - AT - Income Tax

TDS u/s 195 - disallowing expenses paid to various non-resident parties for non-deduction of TDS - addition u/s 40(a)(i) - HELD THAT - The assessee before us now stated that the Tribunal again and again has restored the matter back to the file of the CIT(A) or AO but none of the authorities have looked into the details given regarding the fact that these parties have declared the income in their respective returns of income and once the assessee has provided the details in respect of recipient parties that they have declared the respective income in their return of income, no disallowance u/s. 40(a)(i) of the Act is to be made in view of second proviso for the reason that this issue has been settled in the assessee of Ansal Land Mark Township (P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT As against the same, the CIT(A)-NFAC for rejection relied on the decision of Prudential Logistics and Transports 2015 (2) TMI 847 - KERALA HIGH COURT and Thomas George Muthoot 2015 (7) TMI 810 - KERALA HIGH COURT We noted that when there was contrary decision of two High Courts that is of non-jurisdictional High Court, beneficial to the assessee is to be applied and adopted. For this proposition of ours, we are relying on the decision of Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT - Assessee is entitled for claim of deduction being amount paid to non-resident for expenses for the reason that the recipient parities have already declared the above receipts in their respective return of income and assessee has filed complete details before us and hence, the same cannot be disallowed by invoking the provisions of section 40(a)(i) of the Act. Appeal filed by the assessee is allowed.

Summary

Issues:
1. Disallowance of expenses paid to non-resident parties for non-deduction of TDS under section 40(a)(i) of the Income Tax Act.
2. Proper opportunity provided to the assessee during the assessment process.

Analysis:
1. The appeal before the ITAT Chennai centered on the disallowance of expenses paid to non-resident parties due to the non-deduction of TDS under section 40(a)(i) of the Income Tax Act. The AO disallowed a sum of Rs. 2,26,73,426/- for payments made to non-residents without TDS deduction. The Tribunal remanded the matter back to the AO to examine the applicability of the second proviso to section 40(a)(ia) in light of the decision of the Delhi High Court. The AO, in the giving effect order, confirmed the disallowance citing the Finance Act, 2012, and the pending appeal at the Supreme Court. The CIT(A)-NFAC upheld the disallowance, citing divergent views on the retrospective operation of the proviso and judicial precedents from the Kerala High Court.

2. The assessee raised concerns regarding proper opportunity during the assessment process. The Tribunal noted that despite multiple remands, the authorities did not consider the details provided by the assessee regarding the income disclosure by the non-resident parties. The assessee contended that once the recipient parties had declared the income in their returns, no disallowance under section 40(a)(i) should be made. The Tribunal considered conflicting decisions of non-jurisdictional High Courts and applied the principle favoring the assessee as per the Supreme Court decision in CIT vs. Vegetable Products Ltd. Consequently, the Tribunal allowed the claim of the assessee and reversed the order of the CIT(A)-NFAC.

3. Since the Tribunal adjudicated the main issue on merits, other jurisdictional issues raised by the assessee were not addressed as they had become academic. The appeal filed by the assessee was allowed, and the order was pronounced in an open court on 27th June 2024 at Chennai.