Case Title:
PR Commissioner Of Income Tax-1 Vs Future First Info Services Pvt Ltd
Date Of Order:
14th July 20222
Judges:
HON’BLE MR. JUSTICE MANMOHAN and HON’BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA
Parties:
Petitioner:PR. COMMISSIONER OF INCOME TAX-1
Respondent:FUTURE FIRST INFO. SERVICES PVT. LTD.
SUBJECT
The Delhi High Court ruled that applying Section 201 of the Income Tax Act instead of Section 40(a)(ia) in the context of an incorrectly calculated TDS deduction would have been the proper course of action.
IMPORTANT PROVISIONS
1. Income Tax Act, 1961
A. Section 40a(ia)
Any amount paid to a resident that is subject to tax at source deduction will result in a 30% disallowance if tax is not deducted at source or if tax is deducted but not deposited with the Central Government by the required date for filing a return.
B. Section 40A(2)
enables an Assessing Officer to refuse expenditure deductions. A deduction for income taxes may not be allowed under Section 40A(2) if the expense is deemed to be excessive or undervalued in comparison to the fair market value of the relevant goods, services, or facilities.
C. Section 197(1)
Offers the option of a deduction at a lower rate of tax or a NIL source deduction of tax.
D. Section 201
The Consequences of Failure to Deduct or Pay are discussed in this section.
BRIEF FACTS
- A review of the paper book revealed that the Assessing Officer was instructed by the Commissioner of Income Tax (Appeals) to confirm whether copies of the assessee's non-deduction of tax or deduction of tax at a lower rate were filed before issuing the assessment order while handling the assessee's appeal.
- The Assessing Officer erased the disallowance in the order giving effect, according to the ITAT's record of the contested order, after validating the aforementioned tax deduction certificate.
QUESTIONS RAISED
- Whether the income tax appeal filed in response to the ITA No.3838/Del./2017 order issued by the Income Tax Appellate Tribunal (the "ITAT") for the Assessment Year 2009–10 was admissible.
ARGUMENTS ADVANCED BY THE APPELLANT
- tion 197(1) of the Act, the ITAT erred in erasing the disallowance under Section 40a(ia) of the Income Tax Act, 1961 (the Act).
- The appellant further claimed that the ITAT erred in erasing the addition of Rs. 1,03,53,150/- made by the assessing officer pursuant to Section 40A(2) of the Act, despite the fact that the assessee failed to provide any justification for the director Shri Sunil Baijal's service to the company during the assessment proceedings.
ARGUMENTS ADVANCED BY THE RESPONDENT
- The assessing officer accepted the higher salary paid to the director, Shri Sunil Baijal, as compensation during the scrutiny assessment in the following assessment year, according to the plaintiff's concurrent findings on the facts, and the assessing officer had not presented any evidence or materials to support a disallowance under Section 40A(2)(b) of the Act.
- The plaintiff also added that the Assessing Officer had arbitrarily denied 50% of the compensation without providing any justification or relevant evidence.
- The plaintiff further claimed that the Assessing Officer had not provided convincing evidence to support his claim that the Managing Director's compensation did not correspond to the market worth of the services he provided.
ANALYSIS BY THE COURT
- According to the Court, disallowance under Section 40a(ia) of the Act cannot be issued in circumstances of short deductions of TDS; instead, Section 201 of the Act should have been invoked.
- The Calcutta High Court had previously rejected the Revenue's appeal in CIT vs. SK Tekriwal [2012 SCC Online CAL 12147] based on comparable facts.
- As a result, there was no significant legal issue raised in the proceedings.
- Therefore, the appeal was dismissed.
CONCLUSION
Section 40(a)(ia) exclusively applies to the obligation to withhold taxes and deposit funds into government accounts.
The assessee may be designated as an assessee in default under section 201 if there is any shortfall brought on by a difference of opinion regarding the taxability of any item or the type of payments coming under different TDS rules. Invoking the provisions of Section 40(a)(ia) of the Act will not result in any disallowances.
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