Loading judgment…
Facts
The assessee incurred professional and other expenses for which provisions were made at year-end. TDS was not deducted on these provisions, and the assessee suo moto disallowed them under Section 40(a)(ia). However, a tax auditor's report inadvertently mentioned the disallowance under Section 40(a)(i), leading to an adjustment by the CPC. The CIT(A) allowed only 30% of the expenses.
Held
The Tribunal condoned the delay in filing the appeal due to a reasonable cause. It held that since the assessee itself had disallowed 30% of the payments where TDS was not deducted, and Section 40(a)(ia) mandates only a 30% disallowance, the additions made by the lower authorities were unjustified.
Key Issues
Whether the addition made by the lower authorities on account of non-deduction of TDS on provisions for expenses is justified when the assessee had already suo moto disallowed 30% of such expenses as per Section 40(a)(ia) and the payments were to Indian parties.
Sections Cited
40(a)(ia), 40(a)(i)
AI-generated summary — verify with the full judgment below
Order
: 07.01.2026 O R D E R
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The assessee has filed appeal against the order of the Learned Addl/JCIT (A)-6, Mumbai [“Ld. JCIT(A)”, for short] dated 28.02.2025 for the Assessment Year 2021-22 raising following grounds of appeal :-
1. That on the facts and circumstances of the case and in law, CIT(A)/CPC have erred in not appreciating that the impugned provisional expenses amounting to INR 16,57,106 has been suo moto disallowed under section 40(a)(ia) by the Appellant and therefore, further addition of the said amount is erroneous and bad in law as the same results in double disallowance. 1.1 That on the facts and circumstances of the case and in law, CPC erred in making addition on account of non-deduction of tax deducted at source ("TDS") under section 40(a)(i) of the Act without appreciating that such payments were made to Indian parties and CIT(A) further erred in confirming the same partially. 1.2 Without prejudice that disallowance made by CIT(A)/CPC results in double disallowance, on the facts and circumstances of the case and in law, CIT(A) erred in partly allowing only 30% of the expenses instead of 70%.”
2. At the time of hearing, ld. AR of the assessee submitted that the assessee has filed the appeal with a delay of 21 days from the date of appellate order. He submitted that assessee could not file the subject appeal within the stipulated period as the intimation about the CIT (A) order being passed on the registered email address reached in the outlook junk email marking this message as spam. He further submitted that the assessee did not regularly check the income tax portal as the assessee was of the view that the order is yet to be passed by the CIT (A). He submitted that the assessee got aware about the impugned order on 14.05.2025 and as soon as the assessee got aware about the order, it had filed the appeal before the Tribunal at the earliest. It was submitted that the delay in filing the appeal was neither deliberate nor intentional but occurred due to circumstances beyond the control of the assessee. Accordingly, it was prayed that the delay in filing the appeal be condoned.
On the other hand, ld. DR of the Revenue objected to the above facts on record.
We have heard both the counsels on the issue of condonation of delay. In our considered opinion, there was a reasonable cause for the delay in filing the appeal. Therefore, we condone the delay in filing the appeal before the Tribunal.
At the time of hearing, ld. AR of the assessee submitted that assessee has created provision for various expenses related to professional fees and other expenses on 31.03.2021. The assessee follows the principle of booking the provision at year end for which actual invoices are to be received in the subsequent year. Further the TDS on the same is deducted at the time of payment of actual invoices. The abvoesaid professional expenses related to Indian parties, the tax auditor has duly verified the provisions made by the assessee during tax audit during the year under consideration. The assessee has not deducted TDS on the abovesaid professional expenses till the time filing of tax audit report and accordingly assessee has disallowed the same u/s 40(a)(ia) of the Income- tax Act, 1961 (for short ‘the Act’). However, the tax auditor while recording the details of disallowances made by the assessee u/s 40(a)(ia) inadvertently recorded the same u/s 40(a)(i) of the Act and because of that CPC while processing the return of income proposed the abvoesaid adjustment. The assessee vide his response dated 30.06.2022 against the proposed adjustment duly clarified before the CPC that it is a typographical error wrongly recorded in the section 40(a)(i) column. However, AO disregarded the same and proceeded to disallow the amount of Rs.16,57,106/-.
Aggrieved with the above order, assessee preferred an appeal before the ld. Addl/JCIT (A)-6, Mumbai. After considering the detailed submissions of the assessee, ld. JCIT (A) held that as per clause 21(b)(i)(A) of the Act, the tax auditor has reported certain payments of Rs.16,57,106/- on which TDS is not deducted, hence as per section 40(a)(ia), 30% can be allowed which amounts to Rs.4,97,131/- and rest of the addition is confirmed against which assessee is in appeal before us.
Before us, at the time of hearing, ld. AR of the assessee brought to our notice page 88 of the paper book wherein assessee suo motu disallowed Rs.5,04,255/- u/s 40(a)(ia) of the Act. In support of the abvoesaid claim, he brought before us pages 14 & 15 of the paper book wherein assessee has declared the details of payment on which tax is not deducted and further submitted that from the abvoesaid details, it is clear that all the parties are resident of India. Accordingly, he prayed that the issue relates to TDS deduction u/s 40(a)(ia) versus 40(a)(i), therefore, he pleaded that the addition proposed by the lower authorities may be deleted.
On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.
Considered the rival submissions and material placed on record. We observed that assessee has declared the details of payments on which assessee has not deducted TDS and as per the provisions of section 40(a)(ia) of the Act, assessee has suo motu disallowed 30% of the said payment relating to the provisions of expenses for which assessee has not received any proper bill. However, ld. CIT (A), after considering the detailed submissions of the assessee, proceeded to allow only 30% of the payment and sustained the balance of the amount. After considering the detailed submissions of the assessee, in our considered view, section 40(a)(ia) proposes only 30% of the payments on which TDS are not deducted and from the record, we observed that the assessee itself disallowed 30% of the payment on which TDS was not deducted, therefore, the additions proposed by the lower authorities are unjustified. Accordingly, the grounds raised
by the assessee are allowed.