Disallowance of expense u/s 40(a)(i) unsustainable in lieu of certificate of non-deduction of TDS issued u/s 195(2)

DCIT Vs Karvat Cover More Assist Pvt. Ltd. (ITAT Mumbai)

ITAT Mumbai held that once department issued the certificate of non-deduction of TDS under section 195(2), then department cannot disallow the same expenditure under section 40(a)(i) on the allegation that assessee failed to deduct TDS.

Facts-

During the course of assessment proceedings, it was observed that the assessee has paid management fees amounting to 5,40,49,783, to one of the Cover-More Group Companies, i.e., Cover-More Insurance Services Pty Limited, Australia. Accordingly, the assessee was asked to explain regarding the nature of management fees paid to the aforesaid company and as to why TDS has not be deducted in regard to the said payment. AO did not agree with the submissions of the assessee and held that services rendered to the assessee are purely technical in nature and disallowed the payment of Rs. 5,40,49,783, under provisions of section 40(a)(i) read with section 195 of the Act.

CIT(A) directed AO to delete the addition made u/s 40(a)(i). Being aggrieved, revenue has preferred the present appeal.

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