40(a)(ia) – “Payment w/o Deduction”
B’lore ITAT gives a sigh of Relief.
In a recent decision in the case of ACIT Vs. Smt. K. Jayalakshmi, [ITA No.1035 & 1036 /Bang/2012 (Assessment years: 2008-09 & 2009-10)] (Dt. 13.06.2013), Hon’ble Banglore ITAT, has after referring and its own decision in the case of ACIT v. M.G. Vishwanath Reddy, held as under:
We have carefully considered the rival submissions, perused the relevant materials on record and also various case laws on which the learned AR as well as the Revenue placed strong reliance.
6.1. The Assessing Officers have resorted to invoke the provisions of s. 40(a) (ia) of the Act, for the reason that the assessee had failed to comply with the provisions of s. 194C of the Act coming under Ch. XVII-B of the Act by not deducting TDS from the amounts paid/payable to the transporters in cash/cheque. However, on the same breath, the AOs have acknowledged that “……….The amount of TDS deducted and paid by the assessee to the Government account is Rs.3,03,211/- on the different dates during the year. The copy of ledger account under the head TDS Transportation was filed. The same is verified from the challan details available in the name of the assessee in the system and the payments are found to be made on the following dates….” [Source: Page 2 of Asst. order for 2008 09].
As rightly argued by the learned AR, once the assessee (payer) has discharged the TDS compliance in accordance with the Ch. XVII read with s. 195 A of the Act, there cannot be any disallowance u/s 40(a)(ia) of the Act.
6.2. At this juncture, we would like to refer to the findings of the Co-ordinate Bench of this Tribunal in the case of ACIT v. M.G. Vishwanath Reddy reported in (2012) 51 SOT 420/ (2012) 20 Taxmann.com 344 (Bang) in an identical issue. After considering the rival submissions, the Hon’ble Bench had recorded its findings as under:
“6.1. In the case before us, the assessee was liable to pay labour charges to various parties and made the payment without deducting tax at source. However, at the end of the financial year, the assessee has made a provision for tax deductible at source and has remitted to the Government account before the due date of filing of return u/s 139(1) of the IT Act. The question before us is whether the assessee has to deduct the tax from the payments made to contractors only or can be make a provision for the same from his own income. According to learned counsel for the assessee, sec. 195A allows the assessee to make such a provision. For the purpose of clarity the provision of sec. 195A is re-produced here-under:
‘Sec. 195A where………………………….under such
agreement or arrangement.’
6.2. From the literal reading of the above provision, it is clear that the provision for grossing up of the tax can be made only if the same forms part of the income concerned, where there is an agreement or arrangement to pay the income-tax by the prayer itself. In the case before us, the assessee has not stated anywhere that the labour charges to be paid are agreed to be paid tax free or that the assessee has to bear the taxes. Another aspect of the issue before us is where the assessee has pad the TDS amount into the account of the Government before the due date of filing of the return, whether the disallowance u/s 40(a) (ia) is called for. In the provisions of sec. 195A, there is reference to agreement or arrangement for the payment of tax free income. However, it is not clear as to whether such an agreement or arrangement has to be in writing. In the absence of specific provision for the arrangement or agreement to be in writing, it can be presumed that the agreement or arrangement can be oral also. From the fact that the assessee has failed to deduct the tax at source and has made the provision for such payment of tax at the end of the year, it is to be presumed that there is an arrangement for paying tax free income to the labourers. The second aspect i.e., whether the tax deducted at source at the end of the year can be deposited before the due date of filing of the return of income, we find that this issue is covered by the decision of the Co-ordinate Bench of the Tribunal at Mumbai in the case of Bapushaeb Nanasaheb Dhumal cited supra on which the CIT (A) has placed reliance for allowing the assessee’s appeal and deleting the addition. As the learned CIT (A) followed the decision of the co-ordinate Bench of the Tribunal which is a precedent on the issue and the learned DR has not been able to rebut this finding of the Tribunal with any other contrary decision, we do not see any reason to take any other view. In view of the same, the appeal of the revenue is dismissed.”
6.3. Further, the ruling of the Hon’ble Madras High Court in the case of Tube Investments of India Limited v. ACIT reported in (2010) 325 ITR 10 (Mad)/(2009) 226 CTR 313 (Mad) is also on a similar issue.
6.5. Taking into account the facts and circumstances of the issue as discussed (supra) and also in conformity with the judicial views referred above, we are of the considered view that the CIT (A) was justified in deleting the additions made by the AOs u/s 40(a)(ia) of the Act. It is ordered accordingly.
[ emphasis supplied ]
The above decision has covered and answered all the aspects of recent controversy on 40(a)(ia), which sprung from a recent decision of ITAT, Rajkot, wherein a view was taken : That for saving one’s self from rigors of sec. 40(a)(ia), one has to not only make payment of TDS before due date of filing of return u/s. 139(1), but also has to strictly ensure that such deducted tax was the ‘deduction’ out of payments made or amounts credited, and that too should be at the time payment or deduction whichever is earlier.
Hope that the genuine assessee would get reasonable relief from this ‘consistent’ view taken by Hon’ble ITAT, B’lore after drawing support from harmonious reading of sec. 194C r.w.s. 195A, and from Decisions in case of Tube Investment of India Ltd. (Madras HC) and FARASOL Ltd. (Raj. HC).