The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently, while deleting an addition made under Section 40(a)(ia) of the Income Tax Act, held that accrual of payment and actual act of making payment must both exist for TDS to be made.
The aforesaid observation was made by the Delhi ITAT, when an appeal was filed before it by the assessee, as directed against the order dated 19.05.2021 passed by the Commissioner of Income Tax (Appeals)-NFAC, Delhi, relating to Assessment Year 2017-18.
The grounds of the assessee’s appeal being that, the CIT(A) has ignored the statements of facts and there was no finding in the order of the Ld. CIT(A), and further that under the facts and circumstances of the case, there was no liability to deduct TDS u/s 192 on payment of remuneration which has not been paid during the year under consideration.
The brief facts of the case as culled out from the material on record, were that the Assessee was a company stated to be engaged in the business of Jewellery dealership and retailing the products.
The Assessee electronically filed its return of income for A.Y. 2017-18 on 21.06.2017, declaring total income of Rs.95,27,960/- which was later revised on 22.08.2017 with no change in the total taxable income. And thereafter, the case of the assessee was selected for scrutiny, assessment framed u/s 143(3) vide order dated 21.11.2019 and the total income determined at Rs.1,05,49,060/.
During the course of assessment proceedings and on perusing the Employee Benefit Expenses, the AO noticed that the assessee had claimed expenditure on account of Director’s Remuneration at Rs.64,03,670/- and that the assessee had deducted TDS only Rs.6,00,000/- and not on Rs.64,03,670/.
Thereafter, the assessee was asked to show-cause as to why 30% of Rs.58,03,670/- shall not be disallowed under Section 40(a)(ia) of the Income Tax Act. And in response to the aforesaid query, the assessee inter alia submitted that, as per provision under Section 192B of the Act, TDS is required to be deducted on payment basis.
It was submitted that the assessee had deducted TDS on the remuneration of Rs.30,00,000/- paid during the year and that the balance remuneration amounting to Rs.34,03,670/-, was the provision for salary which was based on the board resolution passed by the company on 01.11.2011 and was not finally determined on 31.03.2017.
The submissions of the assessee were not found acceptable to AO, who noted that out of the total director’s remuneration of Rs.64,03,670/-, TDS was deducted only on Rs.30,00,000/- and that, on the balance amount of Rs.34,03,670/, – no TDS was deducted. He, accordingly applying the provisions of Section 40(a)(ia) of the Income Tax Act, disallowed Rs.10,21,101/- and made its addition.
Aggrieved by the order of AO, the assessee carried the matter to the CIT(A). Before CIT(A), it was submitted that TDS on Rs.34,03,670/- has been deducted in subsequent year, when the payment was made and the income has also been disclosed by the recipient in the subsequent assessment year and therefore no disallowance was called for.
However, the CIT(A) did not accept the contentions made by assessee. He thereafter, for the reasons stated in the order, upheld the order of AO, thereby leaving the assessee aggrieved, to prefer the instant appeal before the Tribunal.
Hearing the opposing contentions of both sides as presented by Shri Saurav Rohtagi, C.A., on behalf of the assessee and by Shri Anuj Garg, the Sr. D.R, on behalf on the Revenue, and thereby perusing the materials available on record, the ITAT observed:
“We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the disallowance made u/s 40(a)(ia) of the Act on account non deduction of TDS of salary payment. It is an undisputed fact that during the year assessee has claimed expenses of Rs.64,03,670/- as remuneration to directors. It is the contention of the assessee that out of the aforesaid remuneration, the remuneration paid during the year was only Rs.30,00,000/- and the TDS on such amount was deducted. The issue is only with respect to the provision made for salary of the balance amount of Rs.34,03,670/- on which TDS has not been deducted u/s 192 of the Act by the assessee. According to assessee Rs.34,03,670/- is a provision made for salary and has not been paid during the year under consideration and has been paid in subsequent year and TDS was also deducted and deposited in subsequent year. As far as the quantum of payment of salary of Rs.30,00,000/- during the year is concerned and the provision for salary made for Rs.34,03,670/- there is no dispute about the quantum. The only dispute is whether the assessee is liable to deduct TDS u/s 192 of the Act on salary provision made during the year but not paid during the year under consideration.”
“We find that Hon’ble Delhi High Court in the case of CIT vs. Taj Quebecor Printing Ltd., has held that the person making the salary payment is required to make a deduction towards tax at source only at the time of making such payment. The accrual of the payment and the actual act of making the payment must both exist in order that a deduction at source may be made. It has further held that no deduction at source is contemplated under Section 192 in cases where a payment towards salary has accrued but is not made”, the Coram of Narender Kumar Choudhary, the Judicial Member and Anil Chaturvedi, the Accountant Member added.
Thus, the ITAT finally held:
“Before us, Revenue has not placed on record any contrary binding decision in its support. In such a situation, we relying on the aforesaid decision of Hon’ble Delhi High Court in the case of Tej Quebecor Printing Ltd. (supra) are of the view that AO was not justified in making addition u/s 40(a)(ia) of the Act. We, therefore, direct its deletion. Thus, the ground of assessee is allowed. In the result, appeal of assessee is allowed.”
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