The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that the disallowance u/s 40 (a) (ia) of the Income Tax Act is not applicable when the recipient included the receipt in their income.
Shri S. Sridhar appeared on behalf of the assessee and Shri G. Johnson appeared on behalf of the revenue.
The assessee has purchased limestone at Rs.5,87,10,248/- which includes purchase invoice cost of Rs.4,12,89,155/- and royalty payment of Rs.1,74,21,093/-. The AO noted that the assessee has not deducted TDS on this royalty payment and required the assessee to explain why the purchase expenses were booked to the extent of royalty payment of Rs.1,74,21,093/- be not disallowance for non-deduction of TDS. It was explained by the assessee that royalty is also purchased cost paid to Tami Ltd and they have charged VAT on the same.
The assessee contended that the tax effect is Rs.48,59,097/-, which is below Rs.50.00 lakhs and the appeal was not maintainable as per CBDT Circular No.17/2019, dated 08.08.2019 brought out by the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India. Further argued that in view of proviso added by way of amendment in section 40(a)(ia) of the Act, and the second proviso which provides that in case the recipient has included the receipts in their income, no disallowance u/s.40(a)(ia) of the Act will be applicable
CIT(A) also confirmed the action of AO. Aggrieved, now assessee is in appeal before the Tribunal. The revenue contended the assessee has not filed any evidence that the recipient has included the receipts in their income and stated that the matter can be referred back to the file of the AO.
The Coram consist of Shri Mahavir Singh, vice president and Shri Manoj Kumar Aggarwal, AM observed that the assessee made the statement that the recipient has included the receipts in their return of income in regard to these expenses on which the assessee has not deducted TDS, in terms of the second proviso to section 40(a)(ia) of the Act, remit the matter back to the file of AO and allowed the appeal.
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