No TDS If Advance Received towards Professional Fee is Returned: ITAT quashes Re-Assessment [Read Order]

Professional Fee - TDS - Taxscan

The Hyderabad bench of Income Tax Appellate Tribunal (ITAT) in A.Naga Srinivas v.DCIT held that the advance received by the assessee towards his professional fee, when it is returned, is not covered by any of the provisions of Chapter XVIIB requiring TDS.

The Assessee A.Naga Srinivas, an individual, deriving income from the activity of direction of cine films, filed his return of income for the A.Y 2009-10 originally on 18.02.2010 admitting total income of Rs.45,25,330. The assessment order u/s 143(3) of the Act was passed determining the taxable income at Rs.46,89,333 after making disallowance of 20% of the salary claimed i.e. Rs.1,64,000 only. The AO, on perusal of assessment records, observed that the Assessee had debited an amount of Rs.20 lakhs in the P&L A/c for the A.Y 2009-10 as payment to M/s. Sumanth Art Production but TDS has not been deducted. He observed that the entire expenditure has to be disallowed and brought to tax as per Section 40(a)(ia) of the Income Tax Act 1961.

A show cause notice u/s 148 of the Act was issued to the Assessee. The Assessee filed a letter explaining that he had received a sum of Rs.20 lakhs as the advance for a project during the financial year 2006-07 relevant to the A.Y 2007-08  but the TDS certificate was erroneously issued as payment of interest instead of professional fees. The confirmation from M/s Sumant Art Production was also filed in support of the statement. The Assessee further submitted that the said project did not materialize and the advance was returned to the said party in the financial year 2008-09 relevant to the A.Y 2009-10. The amount was debited to the P&L A/c in accordance with cash system of accounting. The Assessee submitted that this transaction is not covered by the TDS provisions. The AO was not convinced with the Assessee’s contentions and held that the return of money was subject to TDS and since no TDS was made, it is to be disallowed u/s 40(a)(ia) of the Act. Accordingly, it was brought to tax.

The Assessee preferred an appeal before the CIT (A), who confirmed the order of AO. Aggrieved by this the Assessee filed the appeal before ITAT.

The  ITAT after considering the rival contentions of the Assessee and revenue department held that the return of advance by the Assessee does not fall under any of the categories of transactions for which TDS is applicable as per chapter XVIIB of the Income Tax Act 1961.

The ITAT observed that during the assessment proceedings u/s 143(3), the AO had called for details of the said expenditure and the Assessee had furnished the details. Since the regular assessment was completed only after that,a presumption shall be drawn that AO was satisfied with the explanation of the Assessee.The ITAT relied on the decision of Delhi High Court in the case of ‘CIT vs. Usha International Ltd’[(2012) 348 ITR 485 (Del.)].

The ITAT also observed that reopening the assessment on the very same ground on which an inquiry was made amounts to reopening due to change of opinion as held by the Hon’ble Supreme Court in the case of Kelvinator India Ltd [320ITR 561 (SC) (F.B)]. The Co-ordinate bench of the Tribunal has held in the case of ‘S. Ranjith Reddy vs. Deputy Commissioner of Income-tax’{144ITD461(Hyd)} that reopening of the assessment u/s147 will not be legitimate if it is merely based upon the change of opinion of the AO. Therefore the re-assessment proceedings in the present case were declared invalid. Accordingly, the disallowance made under Section 40(a)(ia) was cancelled.

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