2017 (10) TMI 1631 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Payment from the contract entered with the DTC for display of advertisement on DTC on their bus queue shelters and time keeper booths - HELD THAT - AO after taking note of all documents has simply objected to admission of additional evidence which in our opinion was not correct on the part of the AO. When the mandate was given by the Ld. CIT(A) to verify the payment made to MCD which is flowing from the bank statement of the assessee placed before the AO during the course of assessment proceedings then it was the duty of the AO to verify the same. CIT(A) has given a categorical finding that payment to MCD has been made through assessee s bank account through cheque duly reflected in the bank account of DTC which is already part of the original record which AO has not even bother to examine this issue at the time of assessment. Complete failure on part of the AO himself while making such a disallowance u/s 40(a)(ia). Order of CIT (A) confirmed. Since regular assessment of DTC i.e. payee has been completed u/s 143(3) at a huge loss wherein all the receipts of licence fee paid by the assessee has been reflected in its income therefore no disallowance is called for - We find that this fact that the payment made by the assessee is part of DTC s receipts has been duly noted by the Ld. CIT (A) - Once in the hands of the payee receipts have been shown and income thereon has been assessed u/s 143(3) then no disallowance u/s 40(a)(ia) can be made in view of the second proviso to section 40(a)(ia) brought by the Finance Act 2012 w.e.f. 1.4.2013 which has held to be declaratory and curative in nature by cases including that of CIT vs. Ansal Land Mark Township (P) Ltd 2015 (9) TMI 79 - DELHI HIGH COURT Thus the finding and observation of Ld. CIT (A) while deleting the said disallowance which has been reproduced above is affirmed and accordingly ground raised by the revenue is dismissed.

Summary

Issues:
1. Admissibility of additional evidence under Rule 46A of IT Rules 1962.
2. Disallowance under section 40(a)(ia) for non-deduction of TDS.
3. Applicability of second proviso to section 40(a)(ia) in case of completed assessment.

Admissibility of Additional Evidence:
The appeal was filed by the revenue against the order passed by Ld. CIT(Appeals) for the assessment year 2007-08. The revenue contended that the CIT(A) erred in admitting additional evidence, an agreement between the assessee company and DTC, which was not produced before the AO. The CIT(A) allowed the additional evidence under Rule 46A, as it revealed that 50% of the license fee was paid to MCD, an exempt entity under section 10(20). The AO failed to examine this crucial aspect during the assessment, leading to the CIT(A) concluding that the disallowance under section 40(a)(ia) was unjustified.

Disallowance under Section 40(a)(ia):
The AO disallowed the payment made to DTC for non-deduction of TDS, invoking section 40(a)(ia). In the first appeal, the assessee argued that no TDS was deductible on the portion of payment made to MCD. The CIT(A) observed that the payment to MCD was evident from the agreement and bank transactions, and since MCD's income was exempt, the disallowance was unwarranted. The CIT(A) relied on the retrospective applicability of the second proviso to section 40(a)(ia) and various court decisions to support the deletion of the disallowance.

Applicability of Second Proviso to Section 40(a)(ia):
The issue of completed assessment of DTC under section 143(3) was raised, questioning the necessity of TDS deduction by the assessee. The CIT(A) noted contradictory views and a circular by CBDT on this matter. Citing court decisions and the retrospective nature of the second proviso to section 40(a)(ia), the CIT(A) held that no disallowance was justified. The ITAT affirmed the CIT(A)'s findings, emphasizing that once DTC's receipts were assessed under section 143(3), no disallowance under section 40(a)(ia) was warranted.

In conclusion, the ITAT dismissed the revenue's appeal, upholding the CIT(A)'s decision on the admissibility of evidence, disallowance under section 40(a)(ia), and the applicability of the second proviso to section 40(a)(ia.