TCS liability shown in audit report cannot be added under section 43B as it's not an allowable expense or claimed deduction

The ITAT Amritsar held that TCS (Tax Collected at Source) payable shown in audit report cannot be added under section 43B as it is neither an allowable expense nor claimed by the assessee. The assessee, engaged in scrap trading, collected TCS from buyers under section 206C(1) as custodian for the Government. Since TCS represents income tax of buyers held as liability and not debited to profit and loss account, it cannot be treated as an expense subject to section 43B provisions. The addition was deleted and assessee's appeal was allowed.

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Issues involved:
The judgment involves the interpretation of provisions u/s 43B of the Income Tax Act 1961 regarding the disallowance of TCS payable amount in the audit report.

Issue 1: Disallowance of TCS payable amount

The appeal was against the order of the JCIT(A) - 12, Mumbai, passed u/s 250 of the Act 61, dated 15/09/2023, arising from the order of the CPC Bangalore u/s 143(1) of the Act 61. The grounds of appeal by the assessee challenged the addition of Rs. 4,83,000/- in the returned income on account of TCS payable in the audit report. The dispute centered around the reporting of TCS payable amount in the tax audit report (TAR) by the auditor, leading to the disallowance u/s 43B of the Act 61.

Issue 2: Correctness of TCS collection figure

During the first appellate proceedings, the assessee contended that there was an error in reporting the TCS collection figure in the TAR, which should have been Rs. 4,10,834/- instead of Rs. 4,83,000/-. The assessee argued that since the amount was not claimed as a deduction in the profit and loss account, it should not be disallowed under section 43B of the Act 61. However, the first appellate authority upheld the addition, emphasizing that the assessee should have rectified the error in the audit report in a timely manner.

Issue 3: Legal interpretation of TCS provisions

The Tribunal analyzed the provisions of section 206C(1) of the Act 61, which require the seller to collect tax at source from the buyer. It was highlighted that the TCS amount collected by the assessee is essentially the income tax of the buyer, held by the assessee as a custodian for the government. The Tribunal clarified that since the TCS amount was not debited in the profit and loss account and was held as a liability in the balance sheet, it should not be disallowed under section 43B of the Act 61.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the addition of Rs. 4,10,834/-, as it was held that the TCS amount collected was not a sum payable by the assessee but the income tax of the buyers, held in trust for the government. The judgment emphasized the distinction between TCS amounts held as custodian and actual payable sums, leading to the deletion of the disallowance under section 43B of the Act 61.

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