The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has deleted the disallowance holding that the provisions of Section 40(a)(ai) of the Income Tax Act 1961 was not applicable for non-deduction of Tax Deducted at Source (TDS) in salary prior to annual year 2015-2016.
The assessee,(Erstwhile) Sumaitri Bima Distributors Pvt. Ltd was a general insurance commission agent and during the year ended on 31.03.2008 had earned commission income from general insurance business. It had taken certain employees on deputation from its sister concern Escorts Finance Ltd and had reimbursed the sum towards salary of deputed employees to Escorts Finance Ltd.
This payment was made without deduction of tax at source by the assessee. The assessee was of the bonafide belief that since the employees were on the rolls of Escorts Finance Ltd, the salaries were paid by the Escorts to the employees and the same were subjected to deduction of tax at source in terms of Section 192 of the Income Tax Act by Escorts and since the assessee had merely reimbursed the salary, there was no obligation on the part of the assessee to deduct tax at source. This argument of the assessee was not accepted by the lower authorities.
R. M. Mehta, appeared on behalf of the assessee and Anuj Garg appeared on behalf of the revenue.
The two-member Bench of M. Balaganesh, (Accountant Member) And Anubhav Sharma, (Judicial Member) observed that the AO had proceeded to disallow the salary expenditure for making payment without deduction of tax at source under Section 40(a)(ia) of the Income Tax Act which was evident from the assessment order.
In this regard, the Bench held that the provisions of Section 40(a)(ia) of the Income Tax Act could not be applied at all for non-deduction of tax at source in respect of salary as the same was introduced in the statute in Section 40(a)(ia) of the Income Tax Act only w.e.f 01.04.2015 and hence, could not be applied for years prior to AY 2015-16. Accordingly, the disallowances made by the AO under Section 40(a)(ia) of the Income Tax Act were to be deleted and this ground raised by the assessee was allowed.
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