Tax withholding on settlement compensation requires an identified statutory obligation before a disallowance can arise.

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....Faceless assessment permits Assessment Units to exercise Assessing Officer functions, including issuing scrutiny notices, without requiring the National Faceless Assessment Centre to issue them. ESOP discount reimbursed to a holding company constitutes employee compensation accruing over the vesting period where the liability has arisen and is reasonably estimable; later exercise, lapses or forfeitures require corresponding adjustments. A disallowance for failure to deduct tax from settlement compensation requires an identified statutory withholding obligation. Relinquishment of a right to sue does not itself establish payment for services, commission, brokerage, professional or technical services, or a non-compete arrangement; for non-resident payments, withholding depends on taxability in India.....