No liability for TDS when buyers deducted commission and remit only net amount – ITAT quashed disallowance u/s 40(a)(ia)
ABCAUS Case Law Citation:
ABCAUS 3709 (2023) (04) ITAT
Important Case Laws relied upon:
CIT vs. Super Religare Laboratories Ltd. 133 taxmann.com 313 (Bombay)
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming disallowance u/s 40(a)(ia) of of the Income Tax Act, 1961 (the Act) for non-deduction of tax at source u/s 194H on commission expenses.
The Assessing Officer (AO) observed that the Tax Auditor had reported in Form 3CD that the appellant had not deducted TDS on the commission expenditure.
The appellant submitted that the transactions between the assessee and the parties to whom the commission expenditure was stated to have been paid were undertaken on principal to principal basis which does not come within the purview of section 194H of the Act. Therefore, the question of deduction of tax deducted at source did not arise.
It was further submitted that by inadvertence in the profit and loss account instead of showing the net receipts, gross receipts had been shown with commission as expenses.
However, the Assessing Officer did not accept the above contention and disallowed the commission expenditure.
Before the CIT(A), the assessee also contended that the payees of commission had already offered such income in their income-tax return and also filed the copies of certificates from the Chartered Accountant in terms of first proviso to sub-section 1 of section 201 of the Act.
Before the ITAT, the assessee contended that it had only received the net sale proceeds from the buyers and he had not received the entire gross receipts. The assessee had debited commission expenditure to the Profit & Loss Account and the gross sale proceeds were credited to Profit & Loss Account, but it had received only net of the commission expenditure.
Thus, it was submitted that there is neither credit to the parties’ account on account of commission expenditure nor actual payment by the appellant. Therefore, the question of deduction of TDS in terms of provisions of section 194H of the Act does not arise.
In support of this proposition, the assessee placed reliance on the decision of the Hon’ble High Court.
The Tribunal without going into the issue whether relationship between the appellant and the recipient of the commission was in the nature of principal to principal, noted that the appellant had received sale proceeds net of the expenditure like transport, labour, loading and unloading charges etc.. In other words, the appellant neither paid nor credited such income to the account of the payee.
The ITAT observed that in identical facts, the Hon’ble Jurisdictional High Court held that there was no obligation to deduct tax at source u/s 194H of the Act.
As a result, the appeal filed by the assessee was allowed.
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