TDS deducted on payment allowable as expense when Assessee follows cash Method

Deloitte Haskins & Sells Vs ACIT (ITAT Delhi)

Conclusion: Amount of tax deducted at source from the payment made to the recipient of such income could be said to be the amount of expenditure incurred by assessee and paid during the year and, therefore, it was allowable to assessee as business expenditure.

Held: AO did not allow deduction of expenditure of Rs.44,09,937 representing tax deducted at source for Financial Year 2010-11 but paid in Financial Year 2011-12. It was held undisputedly, assessee was following cash system of accounting and, therefore, generally whatever was the cash outflow, assessee was entitled to claim the same as a deductible expenditure. In the present case, assessee had made cash payment to the various parties after duly deducting tax at source. The portion of the amount paid to them had already been allowed to assessee as a deductible expenditure. However, the issue was whether the amount of tax deducted at source from the payment made to the recipient of such income could be said to be the amount of expenditure incurred by assessee and paid during the year and, therefore, was it allowable to assessee as business expenditure. According to the provisions of section 198, tax deducted in accordance with the provisions of the Act was deemed to be the income received by recipient of the income. Therefore, according to the Act itself the amount of TDS was deemed to have been received by the recipient of the income. The moment assessee deducted the tax at source from the sums paid to the other person it became the liability of assessee who could be held to be an assessee in default for the above sum as well as liable to pay interest and penalty also. Therefore, the amount of TDS was to be considered as the sum paid by assessee on behalf of the recipient of the income. Therefore, it could not be said that the above sum had not been paid by assessee even while following the cash system of accounting. It was also not in dispute that assessee had duly deposited the tax deducted at source within the time prescribed under the Act. Accordingly, the impugned amount of TDS should be granted as a deduction in assessment year 2011-12.

FULL TEXT OF THE ITAT JUDGEMENT

ITA No. 3715/Del/2017 is the assessee’s appeal against order dated 30.03.2015 for Assessment Year 2011-12 whereas ITA No.3716/Del/2017 is the assessee’s appeal for 2012-13. As both these appeals involved identical issues, they were heard together and they are being disposed of by this common order for the sake of convenience.

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