Benefit of 30% Disallowance u/s 40(a)(ia) prior to 2015 amendment be given to assessee – ITAT

Benefit of 30% Disallowance u/s 40(a)(ia) prior to 2015 amendment be given to assessee else AO should confirm if parties have deposited tax or not – ITAT

ABCAUS Case Law Citation:
ABCAUS 1252 (2017) (05) ITAT

The Grievance:
The appellant assessee had challenged the order passed by the Commissioner of Income Tax  (Appeals) confirming the action of the Assessing Officer (‘AO’) making disallowance on account of non deduction of TDS u/s 40(a)(ia) of the Income tax Act, 1961 (‘the Act’)

Assessment Year : 2012-13
Date/Month of Pronouncement: May, 2017

Important Case Laws Cited/relied upon:
Shri Rajendra Yadav vs. ITO
P.M.S. Diesels
Smt. Sonu Khandelwal vs. ITO

Brief Facts of the Case:
The Assessing Officer noted the during the year assessee was running a propriety business of travelling agency, had hired buses and paid hire charges without deducting tax at source. The entire amount was therefore disallowed.

The CIT(A) dismissed the appeal of assessee because assessee has failed to deduct any TDS on this expenditure.

Contentions of the appellant assessee:
The assessee restricted his argument to one point only that the addition may be restricted to 30% of the total addition as per amendment in section 40(a)(ia) of the Act. In support of its contention, the assessee relied upon order of the ITAT, Jaipur bench.

Observations made by the Tribunal:
The Tribunal noted that the ITAT, Jaipur Bench had held as under:

“6.1 Recently in the matter of P.M.S. Diesels 2015 59 taxmann.com 100 (Punjab & Haryana), Hon’ble Punjab & Haryana High Court had elaborately discussed the judgment passed by the Hon’ble Calcutta High Court and Hon’ble Gujarat High Court, Hon’ble Allahabad High Court and other judgments as available and thereafter has come to the conclusion that the provisions of section 40(a)(ia) are mandatory in nature and non compliance / non deduction of tax attracts disallowance of the entire amount . Having said so, we will be failing in our duty if we do not discuss the amendment brought in by the Finance (No.2) Act 2014 with effect from 1.4.2015 by virtue of which proviso to section 40(a)(ia) has been inserted, which provides that if any such sum taxed has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub- section (1) of section 139, such sum shall be allowed as a deduction in computing the income of previous year, such sum shall be allowed as a deduction in computing the income of previous year, and further, section 40(a)(ia) has been substituted wherein the 30% of any sum payable to a resident has been substituted. In the present case, the authorities below has added the entire sum of Rs. 7,51,322/- by disallowing the whole of the amount. Though the substitution in section 40 has been made effective with effect from 1.4.2015, in our view the benefit of the amendment should be given to the assessee either by directing the Assessing Officer to confirm from the contractors, namely, M/s. Garvit Stonex, M/s. Chanda Marbles and M/s. Nidhi Granites as to whether the said parties have deposited the tax or not and further or restrict the addition to 30% of Rs. 7,51,322/-. In our view, it will be tied of justice if the disallowance is only restricted to 30% of Rs. 7,51,322/-. Accordingly, the appeal of the assessee is partly allowed in the above said manner.

7. In the result, appeal of the assessee is partly allowed.”

The Tribunal found that issue was covered in favour of the assessee by order of ITAT Jaipur Bench. In those orders it was held that the disallowance u/s 40(a)(ia) to be restricted to 30% of the addition. In these orders the ITAT Jaipur Bench had considered the amended provisions of section 40(a)(ia) of the Act.

The Tribunal observed that in the said orders, the assessment year’s involved were 2007-08 and 2008-09 which were prior to date when the amendment was made effective, similarly in the appeal in hand, the assessment year was 2012-13 which was also prior to AY 2015-16. Therefore the Tribunal found that the facts were identical.

Held:
In this view of the facts and following the decisions of Jaipur Bench, the ITAT set aside and modified the orders of the authorities below and directed the AO to restrict the addition to 30% of the total addition made on account of deduction of TDS u/s 40(a)(ia) of the Act.