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2016 (11) TMI 668 - ITAT AHMEDABAD

2016 (11) TMI 668 - ITAT AHMEDABAD - TMI - Addition u/s 40a (ia) - non deduction of tds on commission expense - non-crystallization and liability being unascertained entry in the book - Held that:- Section 40a(ia) provides that as and when the assessee makes the payment of relevant TDS, the expenditure will be allowed in the year of payment. Besides, the ld. CIT(A) has given clear findings that the provision was made on whims and fancies of the assessee without any proper basis and even the genu .....

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he provision of commission payment claim by the assessee is totally unascertainable, uncrystallized and fanciful. It does not assume the character of ascertained mercantile liability. Even in case of mercantile liability, Section 40a(ia) clearly mandates that the expenditure cannot be allowed in the absence of corresponding TDS payment in Government treasury. - Decided against assessee - ITA No. 1084/Ahd/2013 - Dated:- 14-10-2016 - Shri R. P. Tolani, Judicial Member Assessee by : Shri Ketan Jagi .....

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lowing reasons: i) The assessee is following mercantile basis of a accounting. Therefore, he is required to follow matching principle i.e. All expenditures relevant to accounted sales/income should be accounted in same year and vice versa, whether bills of relevant parties are received or not. Where ever bills are received, it is credited to party's account and where ever bills are not received for such expenditure entry for provision of expenditure is passed. Expenditure a/c Dr To Provision .....

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and Income account is credited. TDS is also duly paid on behalf of billing party on that date. iv) As bills are not raised on the assessee TDS cannot be deducted in the name of unknown party and there is no corresponding income of any person for that relevant year 'therefore, provisions of TDS are not applicable for such year end provision. v) The assessee has provided full details of commission agents to whom such commission was paid in following years after deduction of TDS on the sales of .....

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he TDS was not deducted as the assessee did not know in whose account the TDS was to be credited. 3.2 The AO did not find the reply of the assessee to be tenable on the grounds that the assessee had debited the commission expenses to profit and loss account which had resulted in reduction of his profit and hence TDS should have been made from such expenses. The AO observed that as per the provisions of Section 194H, TDS should be made from the commission amount likely to be credited if the amoun .....

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e which should have been taxed in the year under consideration. The AO invoked the provisions of Section 40a(ia) for disallowing the expenses of ₹ 26,00,000/- under the Income-tax Act. 3.3 Aggrieved, the assessee preferred first appeal where it was contended that the Hon ble Mumbai Tribunal in case of Industrial Development Bank of India V/s. ITO (2007) 293 ITR 267 has held that the IDBI did not have any liability to deduct tax at source in respect of provision of interest accrued but not .....

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A), however, upheld the action of the ld. AO by detailed finding as under:- 5.1 I have gone through the assessment order, submissions of the appellant and the judicial decisions relied upon. It is a fact that the appellant has created "provision for commission payable" on which no TDS has been done. This provision for commission payable this year has been created on 31-03- 2009 and has been reversed on the 1st day of the next financial year. i.e. on 01-04-2009. This shows that the liab .....

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hes that the liabilities for which provision was made on 31st March had not crystallized. Therefore the amount of provision made was a non deductible expenditure. In case it is to be held that the liability had crystallized in this year as the sale and purchase had been made during the year and therefore the liability for commission was known, then by the same logic it has to be held that name and address of the person to whom commission is to be given along with the amounts would be known to th .....

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31st of March itself and since no TDS has been made, the appellant would be caught within the mischief of sec 40 a (ia). Therefore whichever way we look at the issue, the amount of provision was not an admissible deduction during the year. 5.2. The case laws relied upon by the appellant in support of his contention that provision of sec. 40a(ia) was not attracted in his case as the identity of the parties to whom payments had to be made was not known to him does not help his cause. In the cases .....

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the appellant the expense is neither accrued nor quantifiable and hence the provision itself is inadmissible for deduction - whether TDS made or not. If, as has been mentioned earlier, it is argued that the amount is quantifiable and accrued, then the details would be known to the appellant and the same should be credited to the commission agent's account and TDS made. 5.3 During the course of appeal proceedings, a reconciliation of current year sales/purchases with the payments in subsequen .....

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d to have been paid in the immediately succeeding year and again a new provision of ₹ 25,46,524/- has been made in FY 09-10 in the books of proprietorship concern and claimed as expense for immediately subsequent year which is evident from the ledger account of the proprietorship concern for AY 2010-11 furnished by the appellant. This proves that the provisions are made according to the whims and fancies of the appellant without any proper basis and liability to pay. This is further corrob .....

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before me the appellant has stated different amounts of commission paid for the year none of which match with the provisions made. Furthermore, the appellant failed to furnish the details of transactions done through commission agents appearing at serial no 11 to 17 in the detail furnished by it before me which raises serious doubts about the genuineness of these payments. Similarly, the actual payments made on account of commission for sales/purchases in subsequent periods are different in diff .....

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relied on the judgments of IDBI (supra), Mahindra & Mahindra (supra) and CBDT clarification dated 05.07.1996 and contends that the practice followed by the assessee has been accepted by the Department in past year; therefore, making a provision on the estimate basis on the sales effected by the assessee, the commission become an ascertained liability and was allowable as business expenditure. The deduction of TDS become impossible as the exact names, amount of commission and TDS payable to e .....

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n was not known to the assessee. Unless the assessee ascertains these details, it cannot be said that the liability had crystallized in effective terms and was an ascertained liability. Merely because the assessee s practice was accepted in past does not apply as res judicata inasmuch as the provision of law will take precedence over an untenable practice adopted by the assessee. Besides, Section 40a(ia) provides that as and when the assessee makes the payment of relevant TDS, the expenditure wi .....

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