THE issue before the Bench is - Whether when assessee fails to deduct tax at source from the payments made but deposits the TDS sum before the end of the FY, even then disallowance u/s 40(a)(ia) is warranted. NO is the Tribunal's answer.
Facts of the case
AO observed that out of the total amount debited under the head “freight and cartage”, a sum of Rs.10,18,825 was paid to five persons exceeding the prescribed limit of Rs.50,000 on which no tax was deducted at source. According to the AO,
AO observed that out of the total amount debited under the head “freight and cartage”, a sum of Rs.10,18,825 was paid to five persons exceeding the prescribed limit of Rs.50,000 on which no tax was deducted at source. According to the AO,
since no tax was deducted at source, the said expenditure was not allowable. He made disallowance by invoking provisions of section 40 (a)(ia). The CIT(A) deleted the addition after having observed that there was no violation of provisions of section 194C and therefore the AO was not right in invoking the provisions of section 40 (a)(ia).
On Appeal before the Tribunal the DR submitted that the assessee had not placed challan for deposit of Rs.25,398 before the AO. Since the assessee had failed to produce evidence with regard to the deposit of TDS, the AO had rightly disallowed the claim of the assessee. The AR contended that the challan for deposit of Rs.25,398 was produced before the CIT(A) and he had verified the factum of the deposit. The counsel also submitted that all the payments were made before the end of the F.Y, therefore, no disallowance can be made in the light of the order of the Special Bench of the Tribunal in Merilyn Shipping & Transports.
Having heard the parties, the Tribunal held that,
++ we find that the assessee has made deposit of the TDS though it might not have been deducted from the payments made to the payee, but it related to those payments. The fact that all the payments have been made before the end of the financial year has not been disputed by the Revenue. Therefore, even if the TDS was not deducted on these payments but these payments were made before the end of the financial year, disallowance u/s 40(a)(ia) cannot be made in the light of the order of the Special Bench of the Tribunal in Merilyn Shipping & Transports;
++ on the issue of disallowance of Rs.3,66,241 on account of application of section 14A, we find that both the lower authorities have examined the issue in dispute on different aspects. They have not examined whether the assessee has maintained separate account for making investments. Undisputedly the assessee has borrowed some funds but according to him these funds were utilized for business purposes. Since there is no categorical finding of the lower authorities in this regard, we are of the view that let the matter go back to the AO for examination whether investments were made from separate account of the assessee in which he has not made any deposit of the borrowed funds. If the borrowed funds were not utilized in investments on which tax free income was generated, no disallowance u/s 14A is called for.
On Appeal before the Tribunal the DR submitted that the assessee had not placed challan for deposit of Rs.25,398 before the AO. Since the assessee had failed to produce evidence with regard to the deposit of TDS, the AO had rightly disallowed the claim of the assessee. The AR contended that the challan for deposit of Rs.25,398 was produced before the CIT(A) and he had verified the factum of the deposit. The counsel also submitted that all the payments were made before the end of the F.Y, therefore, no disallowance can be made in the light of the order of the Special Bench of the Tribunal in Merilyn Shipping & Transports.
Having heard the parties, the Tribunal held that,
++ we find that the assessee has made deposit of the TDS though it might not have been deducted from the payments made to the payee, but it related to those payments. The fact that all the payments have been made before the end of the financial year has not been disputed by the Revenue. Therefore, even if the TDS was not deducted on these payments but these payments were made before the end of the financial year, disallowance u/s 40(a)(ia) cannot be made in the light of the order of the Special Bench of the Tribunal in Merilyn Shipping & Transports;
++ on the issue of disallowance of Rs.3,66,241 on account of application of section 14A, we find that both the lower authorities have examined the issue in dispute on different aspects. They have not examined whether the assessee has maintained separate account for making investments. Undisputedly the assessee has borrowed some funds but according to him these funds were utilized for business purposes. Since there is no categorical finding of the lower authorities in this regard, we are of the view that let the matter go back to the AO for examination whether investments were made from separate account of the assessee in which he has not made any deposit of the borrowed funds. If the borrowed funds were not utilized in investments on which tax free income was generated, no disallowance u/s 14A is called for.
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