The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has restricted the disallowance of expenses to 30% under Section 40(a)(ia) of the Income Tax Act 1961 as the assessee failed to provide details of the payee.
The assessee Niteshkumar Maganbhai Patel, an individual claimed to be engaged in the business of civil construction.
The AO during the assessment proceeding observed that the assessee, made payment to Kanubhai M Parjapati for the work of land filling and levelling which was in the nature of work contract and liable to tax deduction at source under section 194C of the Income Tax Act.
However, the assessee failed to deduct tax at source. Hence the Assessing Officer invoked the provision of section 40(a)(ia) of the Income Tax Act and disallowed the impugned expenses.
The Section 40(a)(ia) of the Income Tax Act deals with disallowance of certain payments-30% of any payment made to a resident on which tax is taken at source under Chapter XVII-B and where tax has not been deducted or, after deduction, has not been paid by the due date indicated in sub-section (1) of section 139 of Income Tax Act.
With the caveat that 30% of any such sum shall be allowed as a deduction in computing the income of the prior year in which such tax has been paid if tax with respect to any such sum has been deducted in any subsequent year, or has been deducted during the prior year but paid after the due date.
For the purposes of this sub-clause, it shall be presumed that the assessee has deducted and paid the tax on such sum on the date of furnishing of the return of income by the payee referred to in the first proviso to sub-section (1) of Section 201 of the Income Tax Act if the assessee fails to deduct the entirety or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default.
Niteshkumar Maganbhai Patel, who appeared on behalf of the assessee did not advance any argument but left the issue at the discretion of the bench.
Vijay Kumar Jaiswal, who appeared on behalf of the revenue vehemently supported the order of the lower authorities.
The two-member Bench of Waseem Ahmed, (Accountant Member) and T.R. Senthil Kumar, (Judicial Member) observed that the assessee had failed to provide the details that the payee had included the amount received from the assessee in its income. Thus, the assessee could not be given the benefit of the proviso to section 40(a)(ia) of the Income Tax Act.
The Bench also noted that the Finance Act had made amendment to section 40(a)(ia) of the Income Tax Act with effect from 1-4-2015.
The Various benches of the Tribunals had already held that the amendment made by Finance Act to be curative in nature, that disallowance under Section 40(a)(ia) of the Income Tax Act be restricted to 30% of the expenses paid as against 100% because amended provision was curative in nature and the provisions should be applied retrospectively.
The Bench partly allowed the appeal by disallowing expenses on account of non-deduction of TDS restricted to 30% of the expenses.
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