The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that Disallowance made by AO under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS under section 194I cannot be sustained for the holding company only debited the rent part of the premise occupied by the assessee.
The assessee filed its return of income for the A.Y. 2014-15 by declaring total income at Rs. Nil. The return of income filed by the assessee was processed under Section 143(1) of the Income Tax Act followed by selection of the case for scrutiny and were duly issued and served upon the assessee. During the assessment proceeding, the AO had observed that assessee has claimed expenses on rent at Rs. 15,98,400/-. However, assessee has not deducted TDS as required under section 40(a)(ia) of Income Tax Act. Therefore, the AO had disallowed expenses of Rs. 15,98,400/- in the hands of assessee.
Aggrieved by the above order, assessee is in appeal before the CIT(A) where the appeal of the assessee was dismissed. Aggrieved, the assessee appealed before the tribunal.
After hearing both sides, the tribunal noted that the assessee is paying rent to the holding company as reimbursement since last couple of years. This position has been accepted by the department all through and it has been never disputed even when provisions for TDS were inserted on statute since 1994, Section 194I of the Income Tax Act was inserted w.e.f. 01.06.1994. Similarly, this position was not disputed even after amendment in Section 40(a)(ia) of the Income Tax Act w.e.f. 01.04.2006. On this issue, there is no material change in the facts and circumstances of the case as well as the law during the year under consideration.
The actual payments are made by the lessee (holding company) to the lessor and necessary tax was deducted there from. Further, the holding company also did not debit the whole rent to its books of account. It has only debited the rent which pertains to the part of the premises occupied by assessee. In such a situation, there is no lessor and lessee relationship between the holding company and the present assessee where the provisions of Section 194-I are applicable.
The two member bench consisting of Rajesh Kumar (Accountant member) and Sonjoy Sarma (Judicial member) directed the AO to delete the addition made under section 40(a)(ia) of the Act setting aside the impugned order dated 02.05.2023 passed by the CIT(A) by allowing the appeal of the assessee.
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