No disallowance for non-payment of TDS can be made if payee has paid tax thereon

Shri G.Shankar Vs. Asst. Commissioner of Income-tax (ITAT Bangalore), ITA No.1832/Bang/2013, Date of pronouncement: 10/10/2014

Admittedly, the undisputed fact is that the assessee in the case on hand, has not deducted tax at source on the payments made to Shri Uday Kumar Shetty amounting to Rs.1,53,78,795/-. As submitted by the ld.AR, as far as the payments made by the assessee to Shri Uday Kumar Shetty, the fact that the payee has accounted for these payments in his books of account, financial statements and the same have been offered for tax in his return of income for the period relevant to assessment year

2005-06, has not been controverted by the authorities below. In our considered opinion, since the payee/ recipient i.e. Shri Uday Kumar Shetty has accounted for these payments in his books of account, audited u/s 44AB of the Act and has offered the same for tax in his return of income for the relevant period, thus, by virtue of the amendment, by way of insertion of the second proviso to section 40(a)(ia) of the Act w.e.f. 1/4/2013, the provisions of section 40(a)(ia) of the Act would not be attracted to the payments made by the assessee to Shri Uday Kumar Shetty amounting to Rs.1,53,78,795/-. In coming to this view, we draw support from the two above cited decisions of the co-ordinate benches of this Tribunal in the case of DCIT vs. Anand Marakala (ITA No.1584/Bang/2012 and CO No.58/Bang/2013 dated 13/9/2013) and S.M.Anand vs. ACIT (ITA No.1831/Bang/2013 dated 21/2/2014) wherein it was held that insertion of the second proviso to section 40(a)(ia) of the Act should be read retrospectively from 1/4/2005 and not prospectively from 1/4/2013. In this view of the matter, the provisions of section 40(a)(ia) of the Act is not attracted to the payments made by the assessee to Shri Uday Kumar Shetty amounting to Rs.1,53,78,795/- since the object of introduction of section 40(a)(ia) is achieved for the reason that the payee/recipient has accounted for, declared and offered for taxation the payments received from the assessee in his hands.

Earlier, we have held that the second proviso to section 40(a)(ia) of the Act is retrospective in operation w.e.f. 1/4/2005. As per this newly inserted proviso, the assessee is required to file Form No.26A as per rule 31ACB of the IT Rules,1962 so as not to be held as an assessee in default as per the proviso to section 201 of the Act. As held in the decision of the co-ordinate bench in the case of S.M.Anand vs. ACIT (supra), since the assessee in the period under consideration i.e. assessment year 2005-06, could not have contemplated that such a compliance was to be made, we also in the case on hand, remit the matter to the file of the Assessing Officer. The Assessing Officer is directed to consider the allowance or otherwise of the expenditure claimed amounting to Rs.1,53,78,795/- on account of payments to Shri Uday Kumar Shetty after affording the assessee adequate opportunity to file Form No.26A and verification of whether the said payee has reflected the payment/receipt in his books of account and offered the same to tax in the period under consideration. In these circumstances, we set aside the order of the ld.CIT(A) to the file of the Assessing Officer only for the limited purpose as directed above.