Appeal allowed for disallowed tax deduction at source, ITAT rules in favor of assessee

The ITAT Delhi allowed the appeal for the Assessment Year 2013-14, ruling in favor of the assessee. The disallowance of INR 2,49,381 representing tax deducted at source was overturned. The tribunal held that the tax deducted at source is deemed to have been paid by the assessee on behalf of the income recipients, even under the cash method of accounting. Referring to a Supreme Court decision, the ITAT concluded that the tax deduction at source was paid to the government within the prescribed time, leading to the deletion of the disallowed amount.

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Issues:
Deduction of tax deducted at source disallowed by assessing officer.

Analysis:
The appeal was filed against the order of the CIT(A)-20, New Delhi for the Assessment Year 2013-14. The primary issue raised by the assessee was the disallowance of INR 2,49,381 representing tax deducted at source from various expenditures, despite the tax being paid to the Central Government before the due date for filing the return of income. The assessing officer disallowed this amount, stating that as the assessee follows the cash method of accounting, only payments made during the year can be claimed as deductible expenditure. The AO considered the tax deduction at source, which had not been paid by the assessee, as non-deductible. The CIT(A) upheld this disallowance, emphasizing that expenses not paid cannot be claimed as deductible under the cash system of accounting.

The assessee contended that the tax deducted at source was deposited on time and should be considered as a liability of the assessee, discharged on behalf of the income recipients. The authorized representative argued for the deletion of the disallowance. However, the departmental representative supported the lower authorities' findings, stating that since the tax deducted at source had not been paid to the government, it was rightfully disallowed.

Upon careful consideration, the ITAT Delhi noted that tax deducted at source is deemed to be the income received by the recipient, as per the provisions of the Income Tax Act. Therefore, the tax deducted at source is considered as paid by the assessee on behalf of the income recipients. The tribunal held that the tax deduction at source is a liability of the assessee, and the amount is deemed to have been paid by the assessee, even under the cash method of accounting. Referring to a Supreme Court decision, the ITAT allowed the appeal, stating that the tax deduction at source was paid to the government within the prescribed time. Consequently, the disallowance of INR 2,49,381 was overturned, and the appeal by the assessee for the assessment year 2013-14 was allowed.

In conclusion, the ITAT Delhi ruled in favor of the assessee, allowing the appeal and directing the deletion of the disallowed sum representing tax deducted at source.

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