TDS payable as at year end is allowable expenditure in cash basis of accounting. it can not be said that the above sum had not been paid by the assessee
ABCAUS Case Law Citation:
ABCAUS 3152 (2019) (09) ITAT
In the instant case, an appeal was filed by the assessee against the order of the CIT(A) in sustaining disallowance representing the amount of tax deducted at source (TDS) in March from various expenditure despite the fact that the tax was paid to the Central Government before the due date for filing the return of income as required under section 43(l)(ia) of the Income-tax Act, 1961 (the Act).
The assessee was a partnership firm deriving income from the profession of law under the head business or profession and income from other sources. The firm was following cash method of accounting.
The firm filed its return of income and the assessment was completed u/s 143(3) of the act. The Assessee filed an application u/s 154 of the act which was rectified and the order impugned was passed.
The Assessing Officer (AO) noted that in the balance sheet the assessee had shown statutory liability on account of tax deduction at source payable. It was noted that these liability was payable as a part of the expenses which the assessee had claimed as allowable expenditure in his profit and loss account.
As the assessee was following cash system of accounting, whereby only payments which have been made during the year can be claimed as deductible expenditure, therefore, the assessing officer was of the view that above tax deduction at source, which had not been paid by the assessee, out of the various expenditure could not be allowed as a deduction of expenses.
Thus the AO disallowed the TDS. He also rejected the contention of the assessee that in earlier years the assessing officer had allowed the deduction in respect of tax deducted at source even though it was not paid in the financial year but paid before the due date of filing of the return of income.
It was further stated that outstanding tax deduction at source liability was not on account of the persons to whom the expenses had been paid but was on the account of the liability of the assessee himself. By collecting/deducting tax at source the assessee discharged, the recipient of the income from the payment of the above tax and above sum was collected by the assessee from them to be deposited on their behalf to the credit of the government.
Consequently the AO made the impugned addition.
The said addition was challenged before the CIT-A. The CIT-A noted that assessee was following the cash system of accounting and therefore whatever was paid by the assessee can only be allowed as a deductible expenditure.
As these expenses had not been paid to the extent of tax deduction at source the CIT was of the view that it could not be allowed as an expenses. The CIT-A further justified the above disallowance holding that as the appellant itself showed the income which had been received by the assessee only even though the income had accrued to the assessee. Therefore, the addition made by the AO was confirmed.
The Tribunal observed that admittedly, the assessee was following the cash method of accounting and therefore generally whatever was the cash outflow, the assessee was entitled to claim the same as a deductible expenditure.
The Tribunal also noted that in the present case the assessee had made cash payment to the various parties after deducting tax at source. The portion of the amount paid to them was already allowed to the assessee as a deductible expenditure.
However, the issue was whether the amount of tax deducted at source from the payment made to the recipient of such income can be said to be the amount of expenditure incurred by the assessee and paid during the year and therefore it was allowable to the assessee as business expenditure.
The Tribunal found that according to the provisions of section 198 of the income tax act, tax deducted in accordance with the provisions of the income tax act is deemed to be the income received by the recipient of the above income. Therefore, according to the income tax act itself the above amount of TDS is deemed to have been received by the recipient of the income.
Thus, the Tribunal opined that it could not be said that the assessee had not paid the amount of tax deducted at source to the recipient of the income from whose payments the tax had been deducted.
Further the Tribunal opined that TDS is a liability cast upon the assessee to deduct the sum from the recipient of such income. The moment assessee deducts the tax at source from the sums paid to the other person it becomes the liability of the assessee who can be held to be an assessee in default for the above sum as well as liable to pay interest and penalty also.
Thus, the Tribunal held that the amount of TDS is always considered as the sum paid by the assessee on behalf of the recipient of the income. Therefore, it could not be said that the above sum had not been paid by the assessee even while following the cash system of accounting.
Further the Tribunal noted that the action of the CIT-A in invoking the provisions of section 40(a)(i) was also devoid of any merit in view of the decision of the honourable Supreme Court where the assessee had paid the TDS to the credit of the government within the prescribed time.
Accordingly the appeal of the assessee was allowed.
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