TDS Disallowance u/s 40(a)(ia): ITAT Allows Rs. 23.67L Deduction, Sets Aside First Appellate Order [Read Order]
While the CPC initially disallowed the claim under section 143(1) and the First Appellate Authority upheld the disallowance citing lack of evidence, the ITAT noted that the AO, in the scrutiny assessment under section 143(3), had verified prior disallowance and allowed the deduction.
The Hyderabad Bench of Income Tax Appellate Tribunal ( ITAT ) allowed a deduction of Rs. 23,67,760 lakh under section 40(a)(ia) of Income Tax Act,1961 for Tax Deducted at Source (TDS) deposited during the year, setting aside the First Appellate Authority’s order.
Healthware Pvt. Ltd.,appellant-assessee, filed its return for A.Y. 2018-19 declaring a business loss of Rs. 75,21,678/-. In the preceding year, an amount of Rs. 23,67,760/- was disallowed under section 40(a)(ia) due to non-deduction of TDS.
During the year under appeal, the appellant deposited the TDS and claimed the same amount as deduction. The CPC, while processing the return under section 143(1), disallowed the claim, reducing the loss to Rs. 51,53,918/-.
The First Appellate Authority upheld the disallowance, observing that the assessee did not prove that the amount was disallowed earlier and that TDS was deposited in the current year. The assessee then approached the tribunal in further appeal.
The assessee counsel submitted that the AO, in the scrutiny assessment under section 143(3) dated 05.04.2021, had examined and allowed the deduction of Rs. 23,67,760/-, verifying that it was disallowed in A.Y. 2017-18 and that TDS was deposited during the year under appeal.
The counsel argued that once the claim was accepted in the regular assessment, the earlier disallowance in the section 143(1) intimation lost effect, and therefore, the First Appellate Authority’s order affirming the disallowance deserved to be set aside.
The Departmental counsel contended that the appellant had failed to provide evidence before the first appellate authority to prove the prior disallowance and TDS payment. The DR stated that the First Appellate Authority had correctly noted the absence of evidence, and the order needed to be upheld.
The tribunal observed that once the claim was accepted in the regular assessment, the adjustment made by the CPC under section 143(1) lost effect, as a regular assessment under section 143(3) merges with the intimation under section 143(1).
Accordingly, the appellate tribunal held that the assessee was entitled to the deduction of Rs. 23,67,760/-, set aside the order of the First Appellate Authority, and allowed the appeal.
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