2013 (8) TMI 380 - AT - Income Tax

Tribunal allows appeal on tax deduction liability, remands non-adjudicated grounds for reassessment

The Tribunal allowed the appeal for statistical purposes, directing a reevaluation of the disallowance under section 40(a)(ia) in light of the legal ... Disallowance under section 40(a)(ia) - tax deduction at source - amount payable on the last day of previous year - reimbursement versus commission - remand for factual verificationDisallowance under section 40(a)(ia) - amount payable on the last day of previous year - reimbursement versus commission - tax deduction at source - Whether the disallowance under section 40(a)(ia) is leviable in respect of the payments made to consignees which were claimed as reimbursements, or only in respect of amounts remaining payable as on the last day of the previous year - HELD THAT: - The Tribunal noted that the assessee contended, relying on the I.T.A.T. Special Bench, Visakhapatnam, that section 40(a)(ia) is attracted only to amounts remaining payable on the last day of the previous year and not to payments actually made during the year. The Assessing Officer and CIT(A) treated the fixed reimbursements as effectively commissions and applied section 40(a)(ia) for non-deduction of tax at source. The Tribunal found that the question turns on factual verification whether the amounts were actually paid during the year or remained payable at the year-end and, in view of the Special Bench ruling, factual determination was necessary. Consequently the Tribunal did not decide the issue on merits but directed that the Assessing Officer verify the relevant facts, apply the Special Bench principle, and decide the matter afresh after affording the assessee an opportunity of hearing. [Paras 7]Issue remanded to the Assessing Officer for factual verification and fresh decision in accordance with the Special Bench ruling after giving the assessee an opportunity of hearing; appeal allowed for statistical purposes.Final Conclusion: The Tribunal has not decided the substantive question on applicability of section 40(a)(ia) on the merits but has remitted the matter to the Assessing Officer for factual verification and fresh adjudication in accordance with the I.T.A.T. Special Bench view; appeal disposed of as allowed for statistical purposes. Issues:1. Disallowance under section 40(a)(ia) of the Income Tax Act for non-deduction of tax at source on payments made.2. Interpretation of section 40(a)(ia) regarding the timing of payments and applicability on amounts payable on the last day of the previous year.3. Adjudication of grounds raised before the CIT(A) but not addressed.Analysis:Issue 1: Disallowance under section 40(a)(ia) for non-deduction of tax at sourceThe appellant contested the disallowance of Rs. 14,93,965 made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act. The Assessing Officer found that the appellant had not deducted tax on payments made to consignees, considering it as reimbursement of expenses. However, it was concluded that these payments were fixed commissions unrelated to actual expenses. The CIT(A) upheld the disallowance, stating that the expenses reimbursed did not correlate with actual expenses incurred by consignee agents, and therefore, the appellant was liable to deduct tax at source. The appellant argued that the disallowance was unwarranted as the payments were made throughout the year and not payable on the last day of the previous year.Issue 2: Interpretation of section 40(a)(ia) regarding timing of paymentsThe appellant contended that section 40(a)(ia) is applicable only when the amount is payable on the last day of the previous year. Reference was made to a decision of the ITAT Special Bench Visakhapatnam, which clarified that disallowance under section 40(a)(ia) cannot be invoked for payments made during the financial year, except for amounts remaining payable at the year-end. The Tribunal agreed with the appellant's argument, emphasizing that there was no amount payable at the end of the previous year in this case. The issue was remanded to the Assessing Officer for factual verification in line with the ITAT decision.Issue 3: Adjudication of grounds not addressed by CIT(A)The appellant raised multiple grounds before the CIT(A), including the non-adjudication of a specific ground. The Tribunal noted that the ground raised before the CIT(A) was identical to one raised before them. It was observed that factual verification was necessary based on the ITAT decision cited, prompting the issue to be sent back to the Assessing Officer for reconsideration in accordance with the ITAT's ruling.In conclusion, the Tribunal allowed the appeal for statistical purposes, directing a reevaluation of the disallowance under section 40(a)(ia) in light of the legal interpretations provided.