BISWANATH AGARWALA,KOLKATA vs. ACIT, CIRCLE - 43, KOLKATA, KOLKATA

We note that all the aforesaid disallowance are ad hoc disallowance made by AO of 20% and 10% of expenses claimed by the assessee, which according to AO is not permissible as per law. The expenditure claimed are on account of car expenses, telephone expenses and travelling and conveyance expenses. In case, if the assessee had not supported its expenditure with bills/vouchers etc., the AO was at liberty to disallow item wise expenditure claimed by the assessee. We note that the AO has not rejected the books of account and so, without rejecting the books of account, the AO cannot enter into the arena to undertake estimation of the claim for disallowance which action of AO is per se arbitrary and, therefore, we are inclined to delete the addition. These grounds of appeal of assessee are allowed.

Ground no. 7 is against the action of the Ld. CIT(A) in confirming the action of the AO invoking section 40(a)(ia) of the Act and disallowance of Rs.1,19,874/- for non-

We have heard rival submissions and gone through the facts and circumstances of the case. The Ld. AR drew our attention to page nos. 29 to 35 of the paper book which are Form 15G of the four parties which though were placed before the authorities below has not been given any credence and the disallowance was ordered for non-deduction of TDS. We note that a similar issue was considered by the Coordinate Bench of this tribunal Bombay Bench in the case of Karwat Steel Traders Vs. ITO, ITA No. 6822/Mum/2011 for AY 2008- 09 dated 10.07.2013 wherein a similar issue arose and the Tribunal held as under: “4. We have considered the issue. The provisions of section 40(a)(ia) are as under ;- 40. Amounts not deductible Notwithstanding anything to the contrary in Sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "profits and Gains of business or profession",- (a) In the case of any assessee-- (i) . (i a.) any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub- contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid,-- ( rest not extracted.) ( emphasis supplied) 4.1 As can be seen from above provision, the amount cannot be allowed as deduction only in the event when tax is deductible at source under Chapter-XVII-B and such tax has not been deducted or, after deduction has not been paid. In this case, the assessee was to deduct tax under provisions of section 194A. Section 194A is further qualified by the provisions of section 197A(lA) wherein if a person furnishes a declaration in writing in prescribed Form and verified in the prescribed manner to the effect that tax on his estimated total income is to be included in computing his total income will be nil, there is no need to deduct tax The assessee has received such Forms as prescribed from those persons to whom interest was paid/being paid and accordingly no A.Y.08-09 Karwat Steel Traders deduction of tax was to be made in such cases. The default for non- furnishing of the declarations to the CIT prescribed may result in invoking penalty provisions u/s. 272A(2)(f), for which separate provision/procedure was prescribed under the Act. However, once Form 15G/Form 15H was received by the person responsible for deducting tax, there is no liability to deduct tax. Once there is no liability to deduct tax, it cannot be considered that tax is deductible at source under Chapter XVII-B as prescribed u/s.40(a)(ia). The provisions of section 40(a)(ia) can only be invoked in a case where tax is deductible at source and such tax has not been deducted or after deduction has not been paid. No such default occurred in this case. Accordingly, we are of the opinion that the provisions of section 40(a)(ia) are not applicable to the facts of the case. Both the Assessing Officer and CIT(A) erred in considering that non-filing of form 15H invites disallowance u/s. 40(a)(ia).”

In the result, the appeal of the assessee is allowed.