2016 (4) TMI 518 - AT - Income Tax

Tribunal rules in favor of assessee on rent disallowance despite non-TDS, emphasizing retrospective provisions

The Tribunal allowed the assessee's appeal regarding the disallowance of rent paid under section 40(a)(ia) of the Income Tax Act. Despite non-deduction of ... TDS liability - disallowance u/s 40(a)(ia) - Held that:- The recipient has already paid tax and evidence has been produced before the Assessing Officer as the recipient had claimed refund by filing the return. There is no revenue loss. - Decided in favour of assessee Issues:Rectification of order disallowing rent paid under section 40(a)(ia) of the Income Tax Act, 1961.Analysis:1. The appeal was filed by the assessee against the order disallowing rent paid of Rs. 1,31,280 under section 40(a)(ia) for the assessment year 2008-09. The Assessing Officer found that the assessee had paid house rent without deducting TDS under section 194(I) of the Act. The Assessing Officer's order was based on the non-deduction of TDS on the rent paid by the assessee.2. The ld CIT(A) dismissed the appeal stating that the second proviso to section 40(a)(ia) introduced by the Finance Act, 2012, was not applicable for the assessment year in question. The ld CIT(A) held that the Assessing Officer correctly disallowed the rent paid under section 40(a)(ia) of the Income Tax Act.3. The assessee argued that TDS was not deducted due to the landlord's insistence that his case would result in a refund, and the landlord would pay any demand raised. The assessee provided evidence that the landlord had filed a return claiming a refund. The assessee relied on various judicial decisions to support their case, emphasizing that the non-deduction of TDS did not result in any loss to the exchequer.4. The Tribunal considered the arguments and evidence presented. It noted that the recipient had paid tax and produced evidence of claiming a refund by filing a return. The case laws cited by the assessee were found to be applicable, and it was established that there was no revenue loss. Consequently, the appeal filed by the assessee was allowed, and the disallowance of Rs. 1,31,280 was deemed unjustified and deleted.5. The Tribunal's decision highlighted the importance of considering the circumstances where TDS was not deducted due to reasonable causes, and where the recipient had paid the tax, thereby avoiding any revenue loss. The judgment emphasized the retrospective applicability of certain provisions and the curative nature of the amendments made to the Income Tax Act.6. In conclusion, the Tribunal's decision favored the assessee, emphasizing that the disallowance of rent paid under section 40(a)(ia) was unwarranted in the given circumstances, where the recipient had paid tax and there was no revenue loss to the department.