Tribunal directs deletion of disallowed TDS addition, deeming it recipient's income.

The Tribunal allowed the appeal and directed to delete the disallowed addition of TDS payable, emphasizing that TDS is deemed to be the income received by the recipient and considered as paid by the assessee, even when following the cash system of accounting.

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Issues:
1. Disallowance of TDS payable as statutory liability.
2. Interpretation of provisions related to deduction and deposit of tax at source.
3. Disallowance of expenditure towards taxes collected at source.

Analysis:

Issue 1: Disallowance of TDS payable as statutory liability
The appeal was filed against the order regarding the disallowance of Rs. 69,76,701/- shown in the balance sheet as statutory liability on account of TDS payable. The assessee argued that TDS payable is a statutory liability and should not have been disallowed under Section 145 of the Income Tax Act, 1961. The Tribunal noted that the Tax Authorities below did not discuss the nature of the payments giving rise to TDS. It was observed that the TDS amount was shown in the form of a provision, not as payable to any creditor, but to be deposited to the Government. The Tribunal held that the TDS amount, being part of the expenses debited in the Profit and Loss Account, cannot be disallowed solely on the basis of following the cash system of accounting. The decision was supported by a previous case where it was established that TDS is deemed to be the income received by the recipient, and the TDS amount is considered as paid by the assessee. Therefore, the Tribunal allowed the grounds raised by the assessee and directed to delete the disallowed addition of TDS payable.

Issue 2: Interpretation of provisions related to deduction and deposit of tax at source
The assessee contended that the provisions relating to the responsibility for deduction and deposit of tax at source were part of the provision for collection and recovery of tax, not of computing the total income. The Tribunal observed that the Tax Authorities below did not provide a detailed analysis of the nature of the payments leading to TDS. The Tribunal held that the TDS amount, being part of the expenses debited in the Profit and Loss Account, cannot be disallowed solely based on following the cash system of accounting. The Tribunal referred to a previous case to support its decision that TDS is deemed to be the income received by the recipient, and the TDS amount is considered as paid by the assessee. Therefore, the Tribunal allowed the grounds raised by the assessee and directed to delete the disallowed addition of TDS payable.

Issue 3: Disallowance of expenditure towards taxes collected at source
The appeal challenged the disallowance of the portion of expenses taken towards the liability for taxes collected at source. The assessee argued that the expenses were already accepted and debited to the Profit and Loss Account as professional expenditure. The Tribunal found that the Tax Authorities below did not provide a detailed analysis of the nature of the expenses and the TDS component within them. The Tribunal held that the TDS amount, being part of the expenses debited in the Profit and Loss Account, cannot be disallowed solely based on following the cash system of accounting. The Tribunal referred to a previous case to support its decision that TDS is deemed to be the income received by the recipient, and the TDS amount is considered as paid by the assessee. Therefore, the Tribunal allowed the grounds raised by the assessee and directed to delete the disallowed addition of TDS payable.

In conclusion, the Tribunal allowed the appeal and directed to delete the disallowed addition of TDS payable, emphasizing that TDS is deemed to be the income received by the recipient and considered as paid by the assessee, even when following the cash system of accounting.

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