2024 (11) TMI 1102 - AT - Income Tax

Disallowance u/s. 40(a)(ia) - Sum actually been paid by the assessee to the Maharashtra Government - HELD THAT - Such payment would not get covered under the TDS Provisions. In so far as payment to Village Level Entrepreneurs is concerned, the assessee has furnished before us documentary evidence to demonstrate that in the year under consideration neither the amount in dispute was paid nor credited to the concerned vendors. Assessee has further demonstrated that as and when, the amount was paid in subsequent years, TDS provisions have been fully complied with. In so far as the amount alleged to have been paid towards various expenses/outsourcing of cost DOP. The assessee has demonstrated before us that though the provision was made for the amount in dispute, however, it was never paid or credited. On the contrary, the provision made was subsequently reversed. No contrary evidence has been brought on record by the Revenue to controvert the aforesaid factual position. In view of the aforesaid, we have no hesitation in holding that the payments made do not attract the TDS provisions in the year under consideration. Therefore, the disallowance made u/s. 40(a)(ia) of the Act is unsustainable. Non deduction of tax at source on payments alleged to have been made on factual verification it is observed that out of the said amount, the assessee has made payment of Rs. 5,000/- only towards payment of telephone bill, whereas, the balance amount was never paid. Thus, in our view, no disallowance even in respect of payment made can be made u/s. 40(a)(ia) - Thus, the AO is directed to delete the disallowance - This ground is allowed.

Summary

Issues:
Challenge of disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.

Detailed Analysis:
The appeal was filed against the order passed by the National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2017-18. The assessee raised two grounds in the appeal, with Ground No.2 being a general ground not requiring adjudication. Ground No.1 challenged the disallowance of Rs. 31,34,633 under Section 40(a)(ia) of the Income Tax Act, 1961. The Assessing Officer disallowed this amount as the assessee failed to comply with TDS provisions on certain payments made during the year. The assessee contested this disallowance before the First Appellate Authority but was unsuccessful.

The assessee argued that certain payments made to the Government of Maharashtra and other vendors were not subject to TDS provisions. The counsel referred to a similar case decided in favor of the assessee by the Tribunal. Regarding specific payments, the assessee demonstrated that some amounts were not paid or credited in the year under consideration and TDS provisions were complied with when payments were made in subsequent years. The Tribunal found that payments made to the Maharashtra Government were not subject to TDS provisions. Additionally, for other disputed payments, the assessee provided evidence that the amounts were either never paid or the provisions were reversed subsequently, thus not requiring TDS deduction. The Tribunal held that the disallowance made under Section 40(a)(ia) was unsustainable.

Furthermore, the Tribunal observed that out of the disputed amount of Rs. 15,596, only a portion was actually paid towards a telephone bill, and the balance amount was never paid. Therefore, no disallowance could be made under Section 40(a)(ia) for this amount. The Tribunal directed the Assessing Officer to delete the disallowance of Rs. 31,34,633. An additional ground raised by the assessee regarding double disallowance of a provision was also admitted by the Tribunal for consideration. The Tribunal directed the Assessing Officer to verify whether the provision had been reversed for the balance amount of Rs. 10,596. The appeal of the assessee was partly allowed, and the order was pronounced on 22/11/2024.