TMI Blog2010 (9) TMI 1094X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,894/- is shown as outstanding as on 31.03.2005 on account of TDS. During the assessment proceedings the Assessing Officer has asked the assessee company to furnish details of TDS deposited after due date and also given a show cause to explain why this amount may not be disallowed u/s.40(a)(ia) of the I.T. Act. In response to this show cause notice the assessee has submitted its reply which is discussed at page 2 par 4 of the assessment order. After considering the reply of the assessee the Assessing Officer has held that the assessee company has deposited TDS late in the Government Account therefore the provisions of section 40(a)(ia) are applicable to this case, accordingly ₹ 29,52,389/- was disallowed. The assessee submitted that TDS payment is towards payment of commission of res.27,97,190/-, professional fee of ₹ 1,21,541/- and payment to director of ₹ 33,658/-. 4. Aggrieved by the order of the Assessing Officer the assessee preferred the appeal before CIT(A). 5. The AR of the assessee submitted before the CIT(A) as under: Section 40(a)(ia) as amended with retrospective effect from Finance Act, 2008 and Explanatory notes to the Finance Bill, 2004 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed and ground of appeal is dismissed. 7. Aggrieved assessee is in appeal before us and made following submissions. Disallowance of Commission, professional fees etc paid to a resident was made disallowable u/s.40(a)(ia) be means of amendment to that subsection by the Finance Act, (No.1) 2004. The amendment to section 40(a)(ia) introduced in the Finance Act, (No.2) of 2004 Act which got the assent of the President on 10.09.2004. Therefore as per section 294 any payment accrued and credited in the books both prior to 10.09.2004 would not attract the provisions of section 40(a)(ia). 8. Further, section 40(a)(ia) has been amended by the Finance Act, 2008 with retrospective effect from 01.04.2005 providing that tax deducted during the last month of the previous year but paid before due date for filing of the return u/s.130(1) was al allowable deduction. The CBDT vide their circular NO.1 of 2009 dated 27.03.2009 (310 ITR 42 Statues), at Para 12.2 has clarified that to mitigate any hardship caused by the above provisions of section 40(a)(ia), while maintaining TDS discipline, the Act has amended provisions of sub clause (ia) of clause (a) of section 40. The amendment allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... measure and therefore would apply to earlier years also. We therefore direct the Assessing Officer 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). 12. The next issue is regarding addition to commission income received from M/s. Mahindra Holidays and Resorts India P Ltd.(MHRIL). The assessee earns commission from marketing the membership of club Mahindra. The assessee is entitled to commission at the fixed basis in respect of membership introduced to MHRIL. During the year the assessee has offered the commission income earned from MHRIL at ₹ 1,69,29,206/-. But the TDS certificate issued by MHRIL showed the total commission on which TDS has been deducted and paid as ₹ 1,73,82,260/-. Therefore, the Assessing Officer added a sum of ₹ 4,63,054/- as commission that has accrued but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of the commission liability by MHRIL. 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. 16. We are of the opinion that Assessing Officer 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. As pointed out by the learned counsel Shri Anil Sathe, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd principles laid down by Supreme Court and various High Court in the contest of section 40A(2)(b). Reliance is placed on the decision of S.A. Builders Ltd. vs. CIT(A) (2007) 288 ITR 1 (SC) 20. The CIT(A) held as follows: I have considered the submission of the assessee, order of the Assessing Officer and the facts of the case carefully, it is noticed that the assessee company has a number of employees working as Telemarketing Agents. Sales Executive, Managers and Customer Relation Executives etc. who are procuring business for the company and commission at the rate of 0.10% to 1% is paid to these employees. The directors of the company are mainly engaged in the all over control of the administration of the company affairs. Both the directors have been paid commission at the rate of 1.5% and 0.75% which was excessive as compared to commission paid to other employees of the company. Both the directors have specified and covered u/s.40A(2)(b) of the I.T. Act. The Assessing Officer has given a show case notice to explain what extra services are rendered by these directors and why the commission payment made at the higher rate may not be disallowed. The assessee has sub ..... 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