TDS Provision not applicable where no claim of expenditure was made by the assessee

TDS Provision not applicable where no claim of expenditure was made by the assessee and assessee suo motu made disallowance u/s 40(a)(ia) of the Income Tax Act

ABCAUS Case Law Citation:
ABCAUS 2051 (2017) (08) ITAT

Assessment Year :  2008-09 and 2010-11

Brief Facts of the Case:

A survey u/s 133A of the Income Tax Act, 1961 was carried out at the business premises of the assessee. During the survey certain discrepancies were found in the deduction of tax at source. The AO found that the assessee had not deducted TDS on on account of provisions for rent which were charged to profit and loss account.

The AO also observed that as per tax audit report Form No.3CD Part B serial no.17(f), the assessee had declared inadmissible expenses u/s 40(a)(ia) of the Act on account of rent since TDS payable under section 194-I had not been deducted and paid.

When, the AO asked the reasons for the same, the assessee replied that this was not actual rent paid but only provisions created towards rent which was never paid due to pending litigation with the landlord. The assessee during the pendency of the suit, on the advice  of the statutory auditors created the provision but suo motu disallowed the same while filing the return of income u/s 40(a)(ia) of the Act.

The AO rejected the contentions of the assessee by holding that the assessee was liable for u/s 194I of the Act by treating the assessee in default under the provisions of section 201 and 201(1A) of the Act and raised demand of TDS plus interest accordinly.

In the appellate proceedings, the CIT(A) also decided the issue against the assessee by observing that the rent debited to the profit and loss account was liable for TDS u/s 194-I.

Aggrieved by the order of the FAA, the assessee was in appeal before Tribunal.

Observations made by the Tribunal:

The ITAT opined that the provision of TDS are not applicable where there is no claim of expenditure made by the assessee and assessee has made suo motu disallowance u/s 40(a)(ia) of the Act.

The Tribunal observed that there was merit in the contentions of the assessee that he had already made suo motto disallowance u/s 40(a)(ia) of the Act at the time of filing the return of income and paid income tax accordingly without claiming any expenditure of lease rental on the ground that the provisions were of contingent nature and were never ever paid.

Held:

The ITAT set aside the order of the FAA and held that the provisions of section 194-I of the Act were not applicable where the assessee had not claimed the deduction of the expenses by suo motu making the disallowance u/s 40(a)(ia) of the Act.