TMI Blog2013 (9) TMI 742X X X X Extracts X X X X X X X X Extracts X X X X ..... was binding upon the department and assessee can challenge the affect of the Circular but that the A.O. did not have any right to ignore the circulars and to disallow non-deduction of tax at source under Section 195 and under Section 40 (a) (i) of the Act – Decided against the Revenue. - Income Tax Appeal Defective No.-164 of 2011 - - - Dated:- 10-9-2013 - Hon'ble Sunil Ambwani And Hon'ble Surya Prakash Kesarwani,JJ. For the Appellant : S. C.,A. N. Mahajan, D. Awasthi For the Respondent : S. D. Singh ORDER We have heard Shri Dhananjay Awasthi, learned counsel for the appellant. Shri Krishna Dev Vyas appears for the respondent. The explanation of delay of 13 days in presenting the appeal has not been seriously opposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961." Brief facts giving rise to this case as stated in the order of the ITAT are quoted as below:- "The facts of the case, in brief, are that the asssessee is a partnership and was engaged in the business of manufacturing and export of finished leather, Shoe-uppers and leather products. The assessee was running two units-one at Jajmau and other at Banthar and filed the return on 30.10.2007 declaring an income of Rs.80,16,170, which was processed under Section 143 (1) of the I.T. Act. Later on, the case was selected for compulsory scrutiny. During the assessment proceedings, the AO observed that the assessee had paid a sum of Rs.57,49,489 to the claimed overseas entities without deduction of income-tax at source under Section 195 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no liability on the part of the assessee to deduct income tax at source u/s 195 or any other provisions of the Act, and (h) Therefore, the same cannot be disallowed u/s 40 (a) (ia) of the Income Tax Act, 1961." The AO was not satisfied with the explanation of the assessee and made the disallowance of Rs.57,49,489 for the reason stated at pages 25 to 34 of the assessment order dated 15.12.2009. For the sake of repetition, the same are not repeated here. The AO, while making the disallowance, held as under: ".....there there was mandatory liability on the part of the assessee under section 195 of the Income Tax Act, 1961 read with section 9 (1) (vii) thereof to deduct income tax at source from the sum of Rs.35,41,082/- which he has de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 40 (a) (i) for non-deduction of tax at source under Section 195. The liability has to be determined in accordance with the provisions of law and not of the circular. Even if earlier circulars did not make it obligatory on the part of assessee to deduct TDS since by Circular No.7 of 2009 all earlier circulars were withdrawn, the assessee would be liable as the withdrawal of the earlier circulars would be retrospective in nature and further that the assessment has to be made after withdrawal of the circular in accordance with law. The Circulars did not create any vested right and were only by way of clarification, which were withdrawn. The observations made by the A.O. under Section 40 (a) (i) for non-deduction of tax at source under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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