COMMISSIONER OF INCOME TAX vs. M/S LAKHANI MARKETING INC

Facts

The Revenue is in appeal before the High Court of Punjab and Haryana against an order dated 14.06.2013 passed by the Income Tax Appellate Tribunal (ITAT), Delhi Bench. The ITAT had dismissed an appeal filed by the Revenue, which in turn was challenging an order dated 29.03.2011 passed by the Commissioner of Income Tax (Appeals) (CIT(A)), Faridabad. The CIT(A) had deleted a disallowance of Rs. 26,50,236/- made by the Assessing Officer (AO) under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) also deleted a disallowance of Rs. 23,46,941/- made by the AO under Section 14A of the Income Tax Act, 1961.

Held

The High Court upheld the ITAT's decision on both issues. Regarding the first issue concerning the disallowance under Section 40(a)(ia), the Court noted that the CIT(A) had made a clear finding of fact that the assessee had deducted TDS from payments to Shri J.C. Arora by treating them as salary and remitted the amount to the government. This factual finding was not controverted by the Departmental Representative. Therefore, the Court found no reason to interfere with the CIT(A)'s order, which was upheld by the ITAT. On the second issue concerning Section 14A, the Court found that the appellant-revenue was unable to distinguish a previous judgment of the same High Court in ITA-970-2008, Commissioner of Income Tax, Faridabad Vs. M/s Lakhani Marketing Incl., Faridabad, decided on 02.04.2014, which dealt with a similar question and was decided against the revenue. Consequently, the appeal was dismissed.

Key Issues

1. Whether, on the facts and in the circumstances, the Tribunal was correct in law in upholding the CIT(A)'s deletion of the disallowance of Rs. 26,50,236/- made by the AO under Section 40(a)(ia), despite the assessee admitting non-deduction of TDS during assessment proceedings? 2. Whether, on the facts and in the circumstances, the Tribunal was correct in law in upholding the CIT(A)'s deletion of the disallowance of Rs. 23,46,941/- made by the AO under Section 14A, particularly when investments in shares yielding dividend income were exempt under Section 10(33), and thus the financial burden for acquiring such shares should have been proportionately disallowed? Assessee's Contention (implied from Revenue's argument): The assessee voluntarily admitted non-deduction of TDS. The CIT(A) erred in allowing additional evidence at the appellate stage to prove TDS deduction and deposit. Revenue's Contention: The CIT(A) erred in allowing additional evidence at the appellate stage to prove TDS deduction and deposit. Regarding the second issue, the deletion of disallowance under Section 14A is contrary to the Act, as expenditure incurred for acquiring shares yielding exempt dividend income should have been proportionately disallowed.