2020 (2) TMI 457 - AT - Income Tax

Tribunal ruling: Appellant wins on TDS, partner's salary; revenue authorities succeed on telephone expenses

The Tribunal partially allowed the appeal, ruling in favor of the appellant regarding the disallowance of TDS under section 194J and partner's salary ... TDS deducted u/s 194J - delay in deposit of the TDS deduction - applicability of section 43B in case of appellant, as the appellant is following cash of accounting under sec 145 - HELD THAT:- No doubt, the assessee is following the cash method of accounting and has made cash payment to various parties after deducting TDS, the portion of which has been allowed by the AO as deductible expenditures, U/s 198 of the Act tax deducted at source by the assessee as per Income Tax Act is deemed to be income received by the recipient of the said income and as such TDS deducted by the assessee is deemed to have been received by the recipient of the income and as such it cannot be held that the assessee has not paid the amount of tax deductible at source on or before the due date. So it cannot be held that the aforesaid amount of TDS has not been paid by the assessee while following the cash system of accounting. Hon’ble Delhi High Court in case of Commissioner of Income Tax XIII Vs. Naresh Kumar [2013 (9) TMI 275 - DELHI HIGH COURT] and Commissioner of Income Tax Vs. Rajinder Kumar [2013 (7) TMI 454 - DELHI HIGH COURT] held that if the statutory liability of depositing the TDS has been fulfilled before the due date of filing of the return u/s 139(1) of the Act, the same are allowable expenses in the year to which it relates. This is also mandate of Section 43B of the Act. Even otherwise identical issue has been decided by the revenue itself in favour of the assessee in its own case in A.Y. 2008-09, 2010-11 and 2011-12, so rule of consistency has to be followed by the Revenue. - Decided in favour of assessee. Addition of partner’s salary paid to Mr. U.A. Rana on the ground that partner’s salary has been revised just before the few dates of the end of financial years - HELD THAT:- Perusal of the supplementary partnership deed shows that partner’s salary has been enhanced with effect from 1st April, 2012 to ₹ 57,00,000/-. Accordingly assessee has claimed partner’s salary with effect from 1st April and placed on file the copy of ledger available. When it is undisputed fact that out of two partner namely Mr. R.J.Gagrat and Mr. Ujjwal A. Rana only one partner is active partner and is deriving salary and no salary is being drawn by Mr. R.J. Gagrat, they have mutually agreed to decide the salary of the active partners. When the salary of the partner has been enhanced in accordance with law and has been claimed as such, enhanced amount disallowed by the AO/ Ld. CIT(A) is not sustainable in the eyes of law hence, ordered to be allowed. So the addition made by AO and confirmed by the ld. CIT(A) is ordered to be deleted. Consequently ground no. 4 raised by the assessee is allowed. Disallowance of telephone expenses - HELD THAT:- In view the fact that as against the gross receipt of ₹ 5.93 crore, Assessee has claimed telephone expenses of ₹ 1,93,712/- which is merely 0.32% of the gross receipts, we are of the considered view that Ld. CIT(A) in A.Y. 2011-12 has rightly restricted the personal nature of telephone expenses of the assessee to 8% of the total claim. So the Revenue is required to follow the rule of consistency and as such personal nature of telephone expenses of the assessee is restricted to 8% of the total claim. So Ground No. 5 is partly determined in favour of the assessee. Issues involved:1. Disallowance of TDS on statutory liability under section 194J2. Disallowance of partner's salary under section 40(b)3. Disallowance of telephone expensesIssue 1: Disallowance of TDS on statutory liability under section 194J:The appellant contested the disallowance of TDS amounting to Rs. 5,33,700 under section 194J, arguing that the payment was made before the due date specified in Section 139(1) of the Income Tax Act. The appellant followed the cash method of accounting and deposited the TDS before the income tax return filing. The Tribunal referred to previous court judgments and ruled in favor of the appellant, stating that the disallowance was unjustified. The Tribunal emphasized that the TDS payment was made within the stipulated time and was in compliance with Section 43B of the Act. The Tribunal also noted that the revenue had previously ruled in favor of the appellant in similar cases, highlighting the need for consistency in decisions.Issue 2: Disallowance of partner's salary under section 40(b):The revenue authorities disallowed Rs. 4,29,274 out of a total partner's salary of Rs. 57,00,000, citing that the salary increase for one partner was done just before the end of the financial year. The Tribunal examined the partnership deeds and found that the salary increase was in accordance with the partnership agreements. As only one partner was actively receiving a salary, the decision to increase the partner's salary was legitimate. The Tribunal ruled that the disallowance was not justified in law and ordered it to be deleted, emphasizing that the salary increase was lawful and properly documented.Issue 3: Disallowance of telephone expenses:The appellant claimed telephone expenses of Rs. 1,93,712, out of which the revenue authorities disallowed 15% for personal use, later reduced to 10% by the CIT(A). The appellant argued for consistency based on a previous year's decision where the disallowance was restricted to 8%. The Tribunal analyzed the percentage of telephone expenses against the gross receipts and upheld the CIT(A)'s decision to restrict the disallowance to 8% of the total claim. The Tribunal emphasized the need for consistency and ruled partially in favor of the appellant on this issue.In conclusion, the Tribunal partially allowed the appeal filed by the appellant, ruling in favor of the appellant on the issues of TDS disallowance and partner's salary disallowance, while partially favoring the revenue on the disallowance of telephone expenses.