No concealment penalty-non disclosure of disallowance 40(a)(ia) in computation of income as the issue is debatable due to HC decisions

No concealment penalty-non disclosure of disallowance 40(a)(ia) in computation of income as the issue is debatable due to High Court decisions

ABCAUS Case Law Citation:
ABCAUS 1076 (2016) (12) ITAT

Assessment Year: 2008-09
Date of Judgment: 01-12-2016

Brief Facts of the Case:
During the scrutiny proceedings of the assessee, a disallowance was made u/s 40(a)(ia) on account of non-deduction of TDS by the assessee on interest payment to parties.

It was held that the assessee was liable to deduct tax u/s 194C of the Income Tax Act, 1961 on credit/payment of interest made to two companies. However, the assessee has not deducted the TDS and therefore, failed to comply with the statutory provisions of the IT Act.

The Assessing Officer (AO) observed that that payments  made to parties without deduction of tax at source and claimed as expenses by the assessee were clearly hit by the provisions of Section 40(a)(ia). However, the assessee having failed to add back the above amount in the computation of income, became liable to penalty u/s 271(1)(c). Accordingly the penaltyof Rs.1,94,920/-  was imposed.

On appeal by the assessee, CIT(A) also upheld the penalty.

Observations made by the Tribunal:
The ITAT observed that admittedly the assessee had not deducted TDS on interest payments. The authorities below had opined that the transaction was hit by Section 40(a)(ia) and by not disallowing the same in its computation of income, the assessee had invited rigors of provision of Section 271(1)(c) of the Act.

The Tribunal observed that disallowance for non deduction of tax on payments, which had already been made (i.e. payments which are not outstanding at the year end), has been held by several High Courts to be not necessary. The Tribunal observed that in several decisions of High Courts, It had been held that only where the payments are outstanding, then the provisions of Section 40(a)(ia) can be invoked if TDS has not been deducted.

The Tribunal opined that the disallowance u/s 40(a)(ia) itself is debatable. Therefore, It could not be said that the assessee’s conduct of not disallowing the in the computation of income itself u/s 40(a)(ia) attracted the provision of Section 271(1)(c) of the Act for concealment of income and/or furnishing inaccurate particulars of income. The Provision of Section 271(1)(c) are not attracted if the assessee’s conduct is not found to be contumacious.

Held:
The order of the CIT(A) and AO was set aside and the penalty was deleted.

Authors Note:
The issue is however not debatable as the SLP of the Revenue against the judgment of Allahabad High Court in Vector Shipping Case has been dismissed by the Supreme Court and the issue is now settled that disallowance u/s 40(a)(ia) apply to payments outstanding as at the year end