ITAT Hyderabad allows appeal, directs deletion of disallowed amounts under specific Income Tax Act sections

The ITAT Hyderabad allowed the appeal of the assessee, directing the AO to delete the disallowed amounts of Rs. 47,50,000 and Rs. 2,40,000 under sections 194H and 40(a)(ia), and 194J and 40(a)(ia) respectively. The ITAT found that the disallowance of salary expenditure and accounting charges was unjustified as the payments were towards salary and accounting services, not subject to TDS under the specified sections of the Income Tax Act.

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Issues:
1. Disallowance of salary expenditure as commission paid for selling goods under sections 194H and 40(a)(ia) of the Income Tax Act.
2. Disallowance of accounting charges under sections 194J and 40(a)(ia) of the Income Tax Act.

Analysis:

Issue 1: Disallowance of Salary Expenditure
The assessee, engaged in wholesale trade, filed its return for AY 2013-14, facing scrutiny where the AO disallowed salary expenditure of Rs. 47,50,000 treating it as commission paid for selling goods under sections 194H and 40(a)(ia) of the Act. The CIT (A) upheld this decision. The assessee argued that the amount was paid to employees below taxable limits and thus tax deduction under section 192 was not applicable. The ITAT Hyderabad found that the rejection of the submission by revenue authorities, due to lack of salary registers and agreements, was unjustified. The ITAT directed the AO to delete the addition of Rs. 47,50,000 as the expenditure was towards salary and not commission.

Issue 2: Disallowance of Accounting Charges
During scrutiny, the AO disallowed accounting charges of Rs. 2,40,000 under sections 194J and 40(a)(ia) of the Act, treating it as salary paid to an accountant. The CIT (A) confirmed this decision. The assessee contended that the payment was salary below taxable limits, hence no TDS was applicable under section 192. The ITAT noted that the rejection of the assessee's submission due to lack of documentation was unjustified. The ITAT directed the AO to delete the addition of Rs. 2,40,000 as the payment was for accounting services and not subject to TDS under section 194J.

In conclusion, the ITAT Hyderabad allowed the appeal of the assessee, directing the AO to delete the disallowed amounts of Rs. 47,50,000 and Rs. 2,40,000 under sections 194H and 40(a)(ia), and 194J and 40(a)(ia) respectively.

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