No Disallowance u/s 40a(ia) of Income Tax Act when due Tax has been made by Recipient of Income: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Kolkata Bench ruled that no disallowance under Section 40a(ia) of the Income Tax Act, 1961 can be claimed when due tax has been made by recipient of income.

The assessee, M/s Umananda Rice Mill Ltd has paid documentation charges consisting of freight and transportation charges of Rs. 6 lakhs to Satyam Services on which tax was not deducted at source as required by the provisions of Section 194C of the Income Tax Act.

Accordingly, a show cause notice was issued to the assessee as to why the disallowance should be made u/s 40a(ia) of the Income Tax Act which was replied by the assessee’s Counsel before the AO by submitting that the said payment has duly been shown as income by Satyam Services in its return of income for AY 2011-12 and has paid tax accordingly.

The assessee relied on the decision of Hon’ble Apex Court in the case of Hindusthan Coca Cola Beverages Pvt. Ltd. vs. CIT, wherein it has been held that no disallowance is required to be made as due tax has already been made under the Act by the recipient of income.

The CIT(A) dismissed the appeal of the assessee on the ground that the assessee has admitted the non-deduction of tax at source and thus reached a conclusion that assessee has committed a default u/s 194C of the Income Tax Act.

 The Bench consisting of Rajesh Kumar, Accountant Member and Sonjoy Sarma, Judicial Member observed that “We are of the view, the crux of the ratio laid down in the said decision is that where the assessee has made any payment and the payee has duly disclosed the said receipt in the return of income and has paid taxes thereon, no disallowance u/s 40a(ia) of the Income Tax Act to be made. Therefore, the CIT(A) has not interpreted the decision correctly.”

The Tribunal also noted that “Since the payment made by the assessee to Satyam Services has duly been shown in the return of income of the said recipient and due tax was also paid which is not in dispute at all. Therefore, respectfully following the ratio as laid down in the Apex Court decision, we are inclined to set aside the order of the CIT(A) on this issue and direct the AO to delete the addition.”

To Read the full text of the Order CLICK HERE

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