2021 (8) TMI 156 - AT - Income Tax

Appellant's Appeal Partially Allowed: Restrictions on Disallowances & Salary Expenses Overturned

The Tribunal partially allowed the appellant's appeal, restricting disallowances under section 40(a)(ia) to 30% of expenses where TDS should have been ... TDS u/s 194J - consultation expenses incurred - Addition u/s. 40(a)(ia) - HELD THAT:- Amount of the subject matter of disallowance is not in dispute, which is ₹ 3,98,932/-. - The question is whether entire amount has to be disallowed or only 30% thereof has to be disallowed. Though the Finance Act of 2014 made an amendment to section 40(a)(ia) of the Act w.e.f. 01.04.2015, but in the decisions relied by the assessee, various Benches of Tribunals including Delhi Benches of Tribunal consistently held that such amendment is curative in nature. In R.H. International [2019 (5) TMI 616 - ITAT DELHI] it is clearly held that disallowance u/s. 40(A)(ia) of the Act has to be restricted only to 30% of the expenses paid as against 100% because the amended provision made to section 40(a)(ia) by Finance (No 2) Act, 2014 is curative in nature and the same should be applied retrospectively. Inasmuch as no contrary decision is available with us, we are of the considered opinion that such a view consistently taken by the Tribunals has to be followed. With this view of the matter, we direct the Assessing Officer to restrict the disallowance to 30% of the amount paid in respect of which TDS should have been made. We accordingly, allow ground No. 1 partially. Disallowance of salary to the employees - HELD THAT:- As seen from the impugned order that in respect of some of these employees, payments were made by way of cheques. We find some substance in the argument of the ld. AR that ICICI Bank might have refused to reimburse the entire so called salary expenses said to have been incurred by the assessee, but since the business of the assessee is a different one, if really, the assessee incurred such expenses, it cannot be disallowed. For this purpose, the verification at the end of the authorities below is not complete and they based their findings on surmises and conjectures. After hearing both the sides, we are of the considered opinion that in the present scenario, no purpose worth would be served by remanding the matter to the file of Assessing Officer to undertake the fresh exercise in this regard. Instead, we are of the considered opinion that ends of justice would be met by making disallowance of 25% in respect of salary expense of these 42 persons. We, therefore, direct the Assessing Officer to disallow 25% out of the disallowance - Decided partly in favour of assessee. Issues:1. Disallowance of expenses under section 40(a)(ia) of the Income-tax Act, 1961.2. Disallowance of salary expenses under section 40(a)(ia) of the Act.Issue 1: Disallowance of expenses under section 40(a)(ia) of the Income-tax Act, 1961:The appellant challenged the disallowance of expenses under section 40(a)(ia) for non-deduction of TDS on consultation expenses. The appellant argued that the amendment made by the Finance Act, 2014 should restrict the disallowance to 30% of the expenses, citing it as curative and retrospective. The Tribunal noted that various Tribunal decisions, including Delhi Benches, held the amendment as curative. Relying on the precedent set by these decisions, the Tribunal directed the Assessing Officer to restrict the disallowance to 30% of the amount paid where TDS should have been deducted, partially allowing ground No. 1.Issue 2: Disallowance of salary expenses under section 40(a)(ia) of the Act:Regarding the disallowance of salary expenses under section 40(a)(ia), the Assessing Officer disallowed a significant amount for non-compliance with section 194H. The CIT(A) allowed a portion of the expense but questioned the legitimacy of 42 employees' salaries. The Tribunal observed that the CIT(A) based its decision on assumptions and incomplete verifications. Considering the circumstances, the Tribunal decided not to remand the matter to the Assessing Officer and instead directed a 25% disallowance of the salary expense for the 42 employees. Consequently, ground No. 2 was partially allowed.In conclusion, the Tribunal partially allowed the appeal of the assessee, restricting the disallowances under section 40(a)(ia) to 30% of the expenses where TDS should have been deducted and directing a 25% disallowance of salary expenses for certain employees.