2016 (7) TMI 101 - AT - Income Tax

Tax Tribunal Allows Retrospective TDS Relaxation, Partially Reduces Disallowance

The ITAT upheld the CIT(A)'s decision to apply the relaxation introduced by the Finance Act, 2010 retrospectively for TDS deductions. The Revenue's appeal ... Delayed payment of TDS - addition under section 40(a)(ia) - retrospectivity - Held that:- Assessing Officer himself has returned a finding of fact that the TDS has been deposited with the Government Treasury albeit after the prescribed due date. We also notice from the order of the CIT(A) that except for one or two instances involving paltry amount, the entire amount has been paid during the relevant financial year itself. The other two small payments were also found by the CIT(A) to be made in the month of April 2008 only. In the background of the aforesaid facts, we find no infirmity in the order of the CIT(A) in deleting the addition - Decided in favour of assessee. Addition u/s 40(a)(ia) - assessee had not proved that TDS was deducted and paid before the end of the financial year - Held that:- Having regard to the facts of the case, we set-aside the issue to the file of the Assessing Officer for de novo examination. AO is directed to delete the addition on being satisfied that the TDS on the aforesaid payment has been deducted and paid on or before the due date of filing of the return of income. The assessee shall be given reasonable opportunity of being heard while deciding the issue. - Decided in favour of revenue for statistical purposes. Some expenses were not fully verifiable - Ad-hoc disallowance made @ 10% of such expenses. Issues:1. Addition under section 40(a)(ia) - retrospective application of law.2. Disallowance under section 40(a)(ia) for failure to deduct TDS.3. Disallowance under section 40(a)(ia) for lack of proof of TDS deduction.Issue 1: Addition under section 40(a)(ia) - retrospective application of lawThe cross appeals were filed against the order of CIT(A)-V, Pune, regarding the addition of &8377; 52,14,078 under section 40(a)(ia) of the Income Tax Act for assessment year 2009-10. The Revenue contended that the amendment to section 40(a)(ia) by the Finance Act, 2010 should not be applied retrospectively. However, the CIT(A) ruled in favor of the assessee, citing a judgment by the Calcutta High Court that the relaxation introduced by the Finance Act 2010 should apply to earlier years as well. The ITAT upheld the CIT(A)'s decision as the TDS was deposited within the financial year, except for minor delays, and dismissed the Revenue's appeal.Issue 2: Disallowance under section 40(a)(ia) for failure to deduct TDSThe Revenue appealed the deletion of the addition of &8377; 4,34,387 under section 40(a)(ia) for failure to deduct TDS. The Assessing Officer disallowed the amount as TDS was not deducted and PAN/TAN details were not provided. The CIT(A) allowed the appeal, considering the PAN submission and lack of adverse comments in the Auditor's Report. The ITAT directed the Assessing Officer to re-examine the issue to confirm TDS deduction before the due date of filing the return of income, allowing the Revenue's appeal for statistical purposes.Issue 3: Disallowance under section 40(a)(ia) for lack of proof of TDS deductionThe assessee's appeal involved the ad-hoc disallowance of &8377; 3,12,706 out of business/sales promotion expenses. The Assessing Officer estimated a disallowance of 10% due to expenses not fully verifiable. The CIT(A) upheld the disallowance based on discussions with the assessee's counsel. The ITAT modified the order, restricting the disallowance to expenses related to Hotel and lunch expenses only, reducing it to &8377; 22,635. Consequently, the assessee partly succeeded on this issue.In conclusion, the ITAT upheld the CIT(A)'s decision regarding the retrospective application of law for TDS deductions, directed a re-examination of TDS deduction for the Revenue's appeal, and partially allowed the assessee's appeal by modifying the disallowance under section 40(a)(ia) for lack of verifiable expenses.