No disallowance u/s 40(a)(ia) even if payee files return belatedly if other conditions are complied with – ITAT

No disallowance u/s 40(a)(ia) even if payee files return belatedly u/s 139(4) if payment is considered in tax computation and CA certificate is furnished as per proviso to section  201(1)-ITAT

ABCAUS Case Law Citation:
ABCAUS 2333 (2018) (05) ITAT

The appellant assessee had claimed an expenditure under the head ‘Labour & Fabrication Charges’ during the relevant assessment year. The Assessing Officer (AO) noticed that the assessee had short deducted tax at source (TDS) and disallowed the same u/s 40(a)(ia) of the Act.

Before the CITA, the assessee submitted a certificate in Form 26A from a chartered accountant that the payee had considered the amount paid in his return of income filed and accordingly in view of the second proviso to section 40(a)(ia) read with section 201, which had been held to be retrospective in operation, the assessee should not be treated as assessee in default and consequentially no disallowance u/s 40(a)(ia) of the Act could be inflicted on him.

The CIT-A observed that since the payee had filed the return of income belatedly u/s 139(4) which was beyond the due date u/s 139(1) of the Act, the conditions laid down in proviso to section 201(1) of the Act were not satisfied and accordingly upheld the disallowance made by the AO.

The Tribunal observed that the CIT-A had considered the assessee as assessee in default despite the chartered accountant’s certificate. The CIT-A had held that since the return was filed belatedly u/s 139(4) of the Act by the payee, the conditions prescribed in proviso to section 201(1) of the Act were not satisfied and accordingly the assessee was to be treated as assessee in default.

The Tribunal observed that a bare reading of the conditions prescribed in proviso to section 201(1) of the Act shows it is no where provided that the payee should furnish his return of income u/s 139(1) of the Act. The condition prescribed refers to only section 139 and does not mention section 139(1) of the Act.

It was further observed that the return filed within the time limit prescribed u/s 139(4) of the Act is also a valid return as that leverage has been provided in the statute itself. It was undisputed that the payee had duly considered the payment made by the assessee in the return of income filed u/s 139(4) of the Act and had taken into account such sum for computing the income and had paid the taxes due on the income declared by him in the return of income. Thus, all the three conditions prescribed were duly satisfied.

The Tribunal held that the assessee had furnished requisite evidences to prove that the payee had duly considered the receipt in his return of income and hence no disallowance u/s 40(a)(ia) of the Act could be made in the hands of the assessee payer.

Accordingly, the Tribunal allowed the ground of appeal and directed deletion of the disallowance.

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