2017 (12) TMI 668 - AT - Income Tax

Tribunal upholds deletion of disallowance under section 40(a)(ia) in revenue's appeal

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the disallowance under section 40(a)(ia) based on the nature of the ... TDS u/s 194H - failure to make TDS on the agency commission paid - Held that:- Transactions between the appellant and the Ad Agencies are based on principal to principal basis. Therefore, appellant was not under any obligation to deduct tax u/s 194H. - Decided against revenue Issues:Disallowance under section 40(a)(ia) based on agency commission payments.Analysis:The appeal was filed by the revenue against the order of the CIT(A) regarding the disallowance under section 40(a)(ia) of the Income Tax Act. The revenue contended that the CIT(A) erred in deleting the addition on account of disallowance by ignoring the provisions of section 194H and a CBDT circular. The revenue argued that tax should have been deducted on payments made to advertising agencies. The CIT(A) observed that the assessee raised bills in the name of advertising agencies for the cost of space and deducted agency commission, indicating that the agency acted as an agent for the assessee. The AO held that there was a principal-agent relationship and tax was deductible under section 194H. The AO disallowed the agency commission as the assessee failed to make TDS on the payments. However, the CIT(A) found that the transactions were on a principal to principal basis and the assessee was not obligated to deduct tax under section 194H.The Tribunal noted that the issue of disallowance under section 40(a)(ia) had been previously decided in favor of the assessee for assessment years 2006-07, 2007-08, 2008-09, and 2009-10. The Delhi High Court had also dismissed the departmental appeal for the assessment years 2006-07 and 2007-08. The Tribunal found that the transactions between the appellant and the advertising agencies were on a principal to principal basis, and hence, there was no obligation to deduct tax under section 194H. The Tribunal referred to previous decisions where similar additions were deleted based on the nature of the transactions. The Tribunal upheld the CIT(A)'s order and dismissed the revenue's appeal, as the issue was identical to previous years and did not warrant interference.In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the disallowance under section 40(a)(ia) based on the nature of the transactions between the appellant and the advertising agencies, which were found to be on a principal to principal basis, not requiring tax deduction under section 194H.