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2010 (9) TMI 1094 - AT - Income TaxDisallowance u/s.40(a)(ia) - TDS deposited after due date - TDS payment toward Commission, professional fees paid to a resident - scope of amendment - AO held that the assessee company has deposited TDS late in the Government Account - CIT (A) confirmed the order of AO - HELD THAT:- Amendments carried out in Finance Act, 2008 in Sec.40(a)(ia) for extending time limit for the TDS to be made on the last month was with retrospective effect. This would show that the amendment was curative in nature brought into to ameliorate the hardship caused on account of nominal delay in payment of the TDS. Respectfully applying the ratio of the Apex Court in the case of CIT vs. Alom extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] we are of the opinion that amendment brought in by the Finance Act, 2010, which totally replaces the earlier amendment and extends the time limit for all TDS payable throughout the year, has also been introduced as a curative measure and therefore would apply to earlier years also. We therefore direct the AO not to disallow the expenditure (i) which have accrued prior to 10.09.2004 when the Finance Act, (No.2) 2004 got the presidential approval, upto which date the provisions of sec.40(a)(ia) will not be applicable and (ii) expenditure in respect of which TDS has been paid by the assessee before the due date of filling of the return. However, expenditure on which TDS has not been paid by the assessee requires to be disallowed u/s.40(a)(ia). Addition to commission income received - assessee earns commission from marketing the membership of club Mahindra. - time difference between the commission income as offered by the assessee and commission income that is determined/payable by MHRIL - assessee therefore submitted that no addition can be made in respects of commission income receivable from MHRIL purely on the basis of the TDS certificate - HELD THAT:- The liability to deduct tax in commission arises only when the amount is credited in the books of the payer. The assessee (recipient) has recognized at the time of admission of the member itself whereas MHRIL recognizes the liability to pay commission only on receipt of installment of membership fees. Hence, the time of accrual of commission expenditure by MHRIL differs. AO cannot merely take the income as per TDS statement and arrive at the undisclosed income without examining the method of accounting of the assessee. Section 199 provides that credit for TDS shall be given in the year in which corresponding income has been offered for taxation. Section itself contemplates timing difference in recognition of the income by the recipient and deduction of tax at source by the payer. Therefore without examining the method of accounting of recognition of income by way of commission and whether the assessee has accrued the entire commission income following the mercantile system of accounting, the Assessing Officer erred in adding this amount purely on the basis of TDS Certificate. Disallowance u/s.40A(2)(b) - Disallowing commision paid to directors - AO comparing of 0.5% seems to be reasonable and disallowed the balance - HELD THAT:- We find that comparison made by the AO between agents and the director is not correct. The company on the basis of the commercial expediency may decide the commission payable to the directors. The marketing agents efforts and responsibility to the assessee company cannot be compared to that of the director who is full time employee of the company and responsible for actions of all employees. Thus commission payable to free lance commission agents cannot be the bench mark for disallowance u/s.40A(2)(b) and holding commission to be excessive. Hence we allow the assessee appeal.
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