No Disallowance on Ground of Non-Deduction of TDS from Salary When the Same is Disclosed in Employees ITR: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Chennai, has recently, while deciding a group of appeals filed before it, held that disallowance shall not be made on the ground of non - deduction of TDS from salary when the same is disclosed in the employees ITR.

The aforesaid observation was made by the Tribunal when five appeals were filed before it by the assessee M/s. Selva Ganesh Constructions Private Limited, wherein out of these five appeals of the Assessee, two appeals were arising out of two different orders of the Commissioner of Income Tax (Appeals) – 15, Chennai for the Assessment Years 2012 – 2013 and 2013 – 2014 in ITA No.218 & 219/2018-19/CIT(A)-15; dated 29.03.2019, and the other three appeals for the Assessment Years 2014 – 2015, 2015 – 2016 and 2016 – 2017 ,arising out of the order of the Commissioner of Income Tax (Appeals) – 15, Chennai in ITA No.220, 213 & 222/2018-19/CIT(A)-15; dated 29.03.2019.

The common issue in all these five appeals being the order of the Commissioner of Income Tax (Appeals) in confirming the action of the Assessing Officer in disallowing the expenses claimed by the Assessee, without deduction of Tax Deducted at Source [TDS] , followed by the Assessing Officer invoking the provision of Section 40(a)(ia) of the Income Tax Act and  thereby making a disallowance for the office rent paid to the Directors, payments made to Hypercube Architect, Directors remunerations, interest paid to Directors and salaries paid to employees, etc., it was contented by the Assessee that the payments of remunerations to the Directors are not subject to TDS and consequentially that the same are not subject to rigors of Section 201 of the Income Tax Act.

The reason for the aforesaid contention as submitted by the Assessee being the disclosure of the income with respect to these two amounts received, the inclusion of the same in the return of income filed by these two recipients and the payment of the taxes due thereon by them, the Tribunal observed as follows:

“The learned Counsel for the assessee stated that once the recipients have disclosed the remunerations in their respective returns of income and discharged the payments and complies with the filing of the return of income having been completed, no disallowance can be made for the non-deduction of TDS by invoking the provisions of Section 40(a)(ia) of the Income Tax Act.”

“In view of the second proviso to this Section, we are in full agreement with the arguments of the learned Counsel for the Assessee, as well as the learned Senior Departmental Representative that, in case the recipients have disclosed the remunerations received from the Assessee in their individual tax returns and discharged the taxes payable there under, in those case, the disallowance should not be made in terms of the second proviso of Section 40(a)(ia) of the Income Tax Act. This will also apply to the salaries paid to the employees, namely, salary for the Assessment Years 2014 – 2015, 2015 – 2016 and 2016 – 2017 and salaries paid to Shri Sathish and Shri Giri for the Assessment Years 2016 – 2017 and 2015 – 2016 respectively. In terms of the above, in all these years, i.e. 20-12 – 2013, 2013 – 2014, 2014 – 2015, 2015 – 2016 and 2016 – 2017, the directions will apply accordingly.”, the Bench added.

Thus, finally, concluding its observation, the Bench said:

“Hence in principle we have decided the issue in favour of the Assessee, but subject to the verification of the facts by the Assessing Officer. And therefore, this matter is restored back to the file of the Assessing Officer for limited purpose of verification of facts, as to whether the recipients have disclosed the remunerations received on the salaries received from the Assessee in their individual tax returns and discharged the taxes payable there under in terms of the second proviso to Section 40(a)(ia) of the Act or not? The Assessing Officer will accordingly allow the claim after verifying the same.”

To Read the full text of the Order CLICK HERE

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