Tribunal rulings on TDS and tax disallowance in M/s Palam Gas Service case

The Tribunal upheld the disallowance of Rs. 22,09,267/- under Section 40(a)(ia) for non-deduction of TDS, citing the Supreme Court's decision in M/s Palam Gas Service. Regarding the disallowance under Section 43B, the Tribunal remanded the matter for further examination by the Assessing Officer, confirming the disallowance of VAT but setting aside the service tax issue. The appeal was dismissed for Section 40(a)(ia) and partly allowed for Section 43B, with directions for additional verification.

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Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance under Section 43B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia):
The assessee challenged the disallowance of Rs. 22,09,267/- under Section 40(a)(ia) for non-deduction of TDS on various expenses including hire charges, labor and job charges, advertisement, and freight. The assessee argued that Section 40(a)(ia) applies only to amounts payable as on the balance sheet date and not to amounts already paid during the year. However, this argument was rejected based on the Supreme Court's decision in M/s Palam Gas Service (Civil Appeal No. 5512 of 2017), which clarified that Section 40(a)(ia) covers both amounts payable and paid without TDS deduction. The Tribunal noted that the amendment to Section 40(a)(ia) by the Finance Act 2014, which restricts disallowance to 30% of the payable amount, is effective from 01.04.2015 and is not retrospective. Consequently, the Tribunal upheld the disallowance of Rs. 22,09,267/- and dismissed the assessee's ground.

2. Disallowance under Section 43B:
The assessee contested the disallowance of Rs. 7,67,899/- under Section 43B, arguing that since service tax and VAT were not claimed as expenses in the Profit and Loss account, Section 43B should not apply. The CIT(A) had upheld the disallowance, citing the Supreme Court's decision in Chowrangee Sales Bureau, which treats sales tax as part of turnover even if not debited in the P&L account. The Tribunal reviewed various case laws, including Noble & Hewitt (I)(P.) Ltd., Jet Lite (India) Ltd., and Real Image Media Technologies (P.) Ltd., which supported the assessee's position that Section 43B does not apply if the tax is not claimed as a deduction. However, the Tribunal noted that there was no factual finding by lower authorities to confirm that the assessee did not receive the amount on which service tax was payable. Therefore, the Tribunal remanded the matter to the Assessing Officer for fresh examination, confirming the disallowance of VAT but setting aside the service tax issue for further verification.

Conclusion:
The Tribunal dismissed the appeal regarding the disallowance under Section 40(a)(ia) and partly allowed the appeal for statistical purposes regarding the disallowance under Section 43B, directing further examination by the Assessing Officer. The order was pronounced in the open court on 24/5/2017.

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