2014 (1) TMI 300 - AT - Income Tax

ITAT Upholds Assessee's Victory, Rejects Revenue Appeals on Deductions

The ITAT dismissed all three appeals filed by the Revenue, upholding the decisions of the Ld. Commissioner of Income Tax (A) in favor of the assessee. The ... Deletion on account of short deduction of tax from salary u/s 201(1) of the Act – Alowability of Deduction on House Building Advance u/s. 24(1)(vi) and on principal amount of House Building Advance u/s. 80C of the Act – Completion Certificates of the houses not taken – Held that:- The assessee obtained verification of particulars of loss under the head income from house property from the employees - The assessee company has also obtained interest certificate from the bank before allowing deduction u/s 24(1)(vi) for arriving at the TDS – the Observation of CIT (A) that neither Rule 26B nor the Circulars of CBDT stipulate obtaining of completion certificate of house before allowing deduction u/s. 24(1)(vi) and u/s. 80C of the Act for arriving at the TDS liability upheld – following C.I.T. vs. Semiconductor Complex Ltd. [2007 (1) TMI 155 - PUNJAB AND HARYANA High Court] – Decided against Revenue. Deletion of Interest u/s 201(1A) of the Act – Disproportionate deduction of tax from salary – Held that:- Following The Commissioner of Income Tax Versus M/s Enron Expat Services Inc. [2010 (8) TMI 201 - UTTARAKHAND HIGH COURT] - Section 192(3) permits the assessee to make adjustments during the financial year and once the assessee has deducted the tax u/s. 192(1) by making adjustments during the financial year it cannot be held that the assessee was in default u/s. 201(1A) of the Act - there is no infirmity in the action of the Ld. Commissioner of Income Tax (A) in holding that the action of the Assessing Officer in deleting the interest u/s 201(1A) for the default in not deducting tax on average basis is not proper – Decided against Revenue. Issues:1. Deduction of House Building Advance interest and principal without completion certificates.2. Disproportionate deduction of tax from employee salaries.3. Interest charged under section 201(1A) for tax deduction.Analysis:Issue 1: Deduction of House Building Advance interest and principal without completion certificatesThe Assessing Officer noted that the assessee allowed deductions without obtaining completion certificates of the houses while deducting TDS from employee salaries. The Ld. Commissioner of Income Tax (A) held that there is no legal mandate for the employer to obtain completion certificates before allowing deductions under sections 24(1)(vi) and 80C. The Commissioner referred to Circular No. 11 of 2006 and a High Court decision supporting the assessee's position. The ITAT upheld the Commissioner's decision, emphasizing that neither Rule 26B nor CBDT Circulars require obtaining completion certificates before allowing deductions, and cited a relevant case law regarding Leave Travel Concession (LTC) to support their decision.Issue 2: Disproportionate deduction of tax from employee salariesThe Assessing Officer charged interest under section 201(1A) for alleged disproportionate tax deduction from employee salaries. The assessee argued that annual increments and deductions were made based on various factors, and relied on a High Court decision to support their case. The Ld. Commissioner of Income Tax (A) deleted the addition, stating that the assessee had deducted correct TDS under section 192(1) by making adjustments during the financial year. The ITAT agreed with the Commissioner, citing a High Court decision that allows adjustments during the financial year and concluded that the interest charged was not justified.Issue 3: Interest charged under section 201(1A) for tax deductionThe Assessing Officer levied interest under section 201(1A) for disproportionate tax deduction from employee salaries. The Ld. Commissioner of Income Tax (A) deleted the addition, and the ITAT upheld this decision. The ITAT referred to section 192(3) that permits adjustments during the financial year, and a High Court decision that clarified the obligations of deducting tax at the time of payment. The ITAT concluded that once the tax was deducted by making adjustments during the financial year, the assessee cannot be held in default under section 201(1A).In conclusion, the ITAT dismissed all three appeals filed by the Revenue, upholding the decisions of the Ld. Commissioner of Income Tax (A) in favor of the assessee.