Assessee wins appeal against Section 263 revision for TDS non-deduction on salary and commission payments

ITAT Ahmedabad allowed the assessee's appeal regarding revision u/s 263 for non-deduction of TDS on salary and commission payments. The tribunal held that under Second Proviso to Section 40(a)(ia), when recipients offer income in their returns and pay due taxes, the assessee is deemed to have deducted taxes and is not in default. PCIT failed to consider this during proceedings. However, regarding commission disallowance, the assessee agreed to disallowance, making that amount liable to be added to income.

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Issues:
- Appeal against order passed by Ld. Principal Commissioner of Income Tax under Section 263 of the Act.
- Assessment order challenged on grounds of being erroneous and prejudicial to the interest of revenue.
- Disallowance under Section 40(a)(ia) of the Act.
- Non-deduction of tax at source on salary and commission payments.
- Interpretation of Second Proviso to Section 40(a)(ia) of the Act.

Analysis:
The appeal was filed against the order passed by the Ld. Principal Commissioner of Income Tax under Section 263 of the Act, challenging the assessment order on the grounds of being erroneous and prejudicial to the interest of revenue. The issues raised by the assessee included the timeliness of the order under Section 263, the jurisdiction of the Ld. PCIT, and the necessity of fulfilling the conditions for invoking Section 263. The Ld. PCIT initiated proceedings based on non-deduction of tax at source on salary and commission payments, invoking Section 40(a)(ia) of the Act.

The assessee contended that the non-deduction of tax on the salary payment did not result in any loss to the revenue as the recipient had filed returns and paid due taxes on the income. Similarly, regarding the commission payment, it was argued that since it was not claimed as an expense, there was no basis for disallowance under Section 40(a)(ia). The recipient of the commission income had also filed returns and paid taxes, indicating no loss to the revenue. The Ld. PCIT was criticized for not considering these arguments during the proceedings.

Upon review, the Tribunal agreed with the assessee's contentions. It held that if the recipient had offered the income and paid taxes, the assessee was not in default. The Tribunal directed the disallowance of a specific commission amount as agreed by the assessee during the proceedings. Consequently, the appeal of the assessee was allowed, and the Tribunal pronounced the order in open court on 17/01/2024.

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