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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
PER MAHAVIR PRASAD, JUDICIAL MEMBER
This appeal by the Assessee is directed against the order of the Ld. CIT(A)- VIII, Ahmedabad dated 14.10.2014 pertaining to A.Y. 2007-08 and solitary
ITA No. 3374/Ahd/2014 2 . A.Y. 2007-08 ground has been taken by the appellant is that lower authorities are wrong disallowance of Rs. 1,20,000/- of the expenses incurred by the assessee company under the head commission paid to directors as part of salary.
In this case, it was noticed that there was a mistake not disallowing commission expenditure on which TDS has not been made, accordingly, a notice u/s. 154 dated 27/08/2012 was issued proposing rectification of the mistake as pointed out as above, which was duly served upon the assessee. In terms of the said notice, the assessee was required to submit its explanation on or before 06/09/2012.
In response thereto, the assessee filed its reply vide letter dated 27/09/2012 objecting the proposed action. The relevant portion of objection raised by the assessee is reproduced as under;
"We have further to submit that commission payments made by the assessee company is a part of directors' remuneration and same was already disclosed as an income in the I.T. return of the recipient in the concern assessment year. We have further to submit that section 40(a)(ia) is applicable only in respect of TDS defaults if amount is payable. If amount is actually paid and tax is not deducted under the respective provisions of TDS, section 40(a)(ia) is not applicable and default with reference to actual payment of expenditure would not entail disallowance. "
The submission made by the assessee has been gone through carefully but the same is found to be incorrect. From the submission of the assessee, it can be seen that it has given stress on the word payable occurring in section 40(a)(ia) of the Act. The contention of the assessee that the amount on which tax was deductable and the same was paid within the financial year cannot be
ITA No. 3374/Ahd/2014 3 . A.Y. 2007-08 encompassed within the provisions of section 40(a)(ia) of the Act is devoid of any merit. The intention of the legislature to insert section 40(a)(ia) was to ensure a scrupulous adherence to the provision of Chapter - XV1I-B of the Act. The object of section 40(a)(ia) is to ensure that one of the methods of the recovery provided in the Chapter-XVII-B is scrupulously implemented without any default. The word 'payable' is to be construed with reference to the financial year in which such payments relates, therefore, the word 'payable' encompassed-both the word 'paid' or 'credited' in a particular year. If a narrow interpretation is assigned to term payable occurring in section 40(a)(ia), then the very object of insertion of section would be defeated. Further, on a close examination of section 40(a)(ia) in the backdrop of section 194H of the Act, it can be seen that it referrers to amount 'payable' on which tax was deductible at source u/s. 194H of the Act. Therefore, it can easily be inferred that the term payable in section 40(a)(ia) has to be interpreted in the light of sum referred to in section 194H of the Act on which tax was deductible. In view of the above, the assessee's submission on this ground is rejected. With a due respect to the decision quoted by the assessee in the case Teja Construction Vs. C.I.T. [2010] reported in 39 SOT 13 (Hyd.) (URO), it is to be submitted that the same is not yet reached its finality. As stated above, the assessee has paid/credited an amount of Rs. 60,000/- each in the accounts of Smt. Rumaben R. Parikh and Priyanka Parikh without deducting the tax as required u/s. 194H of the Act and as such the same is squarely covered u/s. 40(a)(ia) of the Act. The mistake being apparent on record, same is rectified u/s. 154 of the Act. In view of the above, the amount of Rs. 1,20,000/- is disallowed and added to the total income of the assessee.
ITA No. 3374/Ahd/2014 4 . A.Y. 2007-08 5. Against the disallowance of Rs. 1,20,000/-, appellant preferred first statutory appeal before the ld. CIT(A) who dismissed the appeal.
Now appellant is before us.
We have gone through the relevant record and impugned order. None appeared on behalf of the assessee but written submissions have been filed by the appellant. As we can see, Schedule-H part of annual accounts at paper book at page No. 8, appellant has shown Rs. 1,20,000/- as commission expenses and appellant has shown separately directors’ remuneration to the tune of Rs. 3,61,920/-.
We agree with the contention of the assessee that proviso to Section 201 is inserted with effect from 01.07.2012 by the Finance Act 2012 providing that the assessee liable to deduct tax at source shall not be deemed to be in default in respect of amounts paid to a resident if such resident has-
(i) Furnished return of income u/s. 139, (ii) Has taken into account such sum for computing income in such return of income and (iii) Has paid the tax due on the income declared by him in such return of income
And the person furnishes a certificate to this effect from an accountant in such form as may be prescribed.
As we can see, appellant has complied with all the formalities as per Income Tax Act and has paid tax in its return. Therefore, in our considered opinion,
ITA No. 3374/Ahd/2014 5 . A.Y. 2007-08 lower authorities are not justified for disallowing of Rs. 1,20,000/-. Therefore, appeal filed by the Assessee is allowed.
In the result, appeal filed by the Assessee is allowed. .
Order pronounced in Open Court on 31- 10- 2018
Sd/- Sd/- (PRADIP KUMAR KEDIA) True Copy (MAHAVIR PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 31/10/2018 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Deputy/Asstt.Registrar ITAT,Ahmedabad