TDS Disallowance Unsustainable on Inter-Branch Adjustment Entries & Partner Remuneration: ITAT Grants ₹12.79 Lakh Relief to CA Firm [Read Order]

The Income Tax Appellate Tribunal (ITAT) Mumbai Bench deleted a disallowance of ₹12.79 lakh made under Section 40(a)(ia) of the Income Tax Act 1961 holding that inter-branch adjustment entries and remuneration paid to working partners of a Chartered Accountant firm could not be subjected to Tax Deducted at Source (TDS) provisions.

The assessee RSVA & Co. a Chartered Accountant firm having branches across multiple cities, had filed its return declaring income of ₹31.20 lakh for AY 2014-15. During scrutiny assessment, the Assessing Officer (AO) noticed that professional fees amounting to ₹28.93 lakh had been debited in the books. The AO alleged that TDS under Section 194J had not been deducted on certain payments and consequently disallowed ₹14.90 lakh under Section 40(a)(ia).

The dispute before the Tribunal primarily related to payments of ₹8.29 lakh transferred to the Ahmedabad branch and amounts of ₹1.50 lakh and ₹3 lakh paid to partners K.G. Anantha Rao and R.S. Agarwal respectively.

The assessee contended that the Ahmedabad branch was an integral part of the same partnership firm and that the amount represented an internal adjustment entry after fees were mistakenly deposited in the Thane branch account. It was further argued that payments made to the partners were in the nature of remuneration to working partners and therefore fell within the ambit of Section 40(b) not Section 194J.

The Tribunal observed that the Ahmedabad branch was substantiated through records of the Institute of Chartered Accountants of India (ICAI). The bench held that mere inter branch transfers within the same firm could not attract TDS liability.

The Tribunal also held that partner remuneration paid to working partners notwithstanding any name given to such payments would fall into the category of partner remuneration and no tax should be deducted at source from such payments. Since the Revenue authorities never questioned the genuineness of such payments the entire disallowance made was deleted.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates