ITAT Deletes Section 40(a)(ia) Disallowance as Payments Stayed Below TDS Threshold

Prontos Private Limited Vs ITO (ITAT Chandigarh)

ITAT Removes Branch Stock Addition After Holding Unsold Goods Were Not Taxable Income;  ITAT Deletes Closing Stock Addition Because Branch Stock Represented Recoverable Sales

The ITAT Chandigarh partly allowed the assessee’s appeal for AY 2013-14 involving two additions: disallowance under Section 40(a)(ia) of Rs.1,26,708 and addition of Rs.7,43,098 relating to branch office closing stock.

On the disallowance under Section 40(a)(ia), the assessee had paid professional charges of Rs.1,26,708 without deducting tax at source under Section 194J, contending that the payment made to each individual payee was below the threshold limit of Rs.30,000. The Assessing Officer disallowed the expenditure due to lack of documentary evidence, and the CIT(A) upheld the disallowance. The Tribunal examined the ledger and found that the payments were made to multiple payees, with no individual payment exceeding the prescribed threshold. Since the assessee was not required to deduct TDS, the Tribunal deleted the disallowance.

Regarding the addition for branch office stock, the Assessing Officer treated the closing inventory of Rs.7,43,098 as omitted from the Profit & Loss Account. The assessee explained that finished goods transferred from the head office to the Dera Bassi branch were recorded as sales, while the branch sold them at the same price, with the remaining stock representing goods yet to be sold. The Tribunal observed that the branch was effectively a debtor of the head office to the extent of the unsold stock, and the difference between opening and closing stock did not constitute profit or loss. It held that the lower authorities had failed to appreciate these facts and deleted the addition. As the appeal succeeded on merits, the Tribunal treated the legal grounds as academic and infructuous.

FULL TEXT OF THE ORDER OF ITAT CHANDIGARH

Aforesaid appeal by assessee for Assessment Year (AY) 2013-14 arises out of an order of learned Commissioner of Income Tax (Appeals), NFAC [CIT(A)] dated 22.08.2025 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 147 r.w.s. 144B of the Act on 29.03.2022. The grievance of the assessee is two folds i.e., (i) Confirmation of disallowance u/s 40(a)(ia) for Rs.1,26,708/-; (ii) Addition for closing stock of branch office for Rs.7,43,098/-. Having heard rival submissions, the issues are adjudicated as under.

2. Disallowance u/s 40(a)(ia)

The assessee paid professional charges for Rs.1,26,708/- but did not deduct applicable tax at source (TDS) u/s 194J on the ground that the payment to each payee was below threshold limit. However, Ld. AO made disallowance for want of documentary evidences. The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us.

The perusal of ledger of professional fees as placed on Page No.42 of the paper book would indicate that the assessee has made professional payment to various payees and not to a single payee. The basic payment to each of the payees does not exceed threshold limit of Rs.30,000/-. Therefore, the assessee is not obligated to deduct tax at source on these payments. Accordingly, the impugned addition stands deleted. The corresponding grounds of appeal stand allowed.

3. Addition for stock lying at branch office

Upon perusal of assessee’s financials, Ld. AO alleged that the closing inventory of branch office for Rs.7,43,098/- was omitted to be shown by the assessee in its Profit & Loss Account. The assessee explained that it was having branch office at Dera Bassi and it transferred finished goods to the branch office as sale. The branch sold the goods at the same price. The stock lying at branch office was duly accounted for by the assessee separately. However, not convinced, Ld. AO added this amount to the income of the assessee. The Ld. CIT(A) confirmed the stand of Ld. AO against which the assessee is in further appeal before us.

From the records, it could be seen that the opening and closing stock position of the assessee is as under: –

The Ld. AO has observed that though the net change in inventory is Rs.62,17,477/-, the assessee has claimed change of Rs.69,60,575/- and accordingly, the differential of Rs.7,43,058/- has been added to the income of the assessee. This difference is arising in view of the fact that head office has sold goods to the branch for Rs.13,07,17,784/- which has been shown as sales in the books of Head Office. However, the branch has sold goods for Rs.12,99,74,686/- leaving balance stock of Rs.7,43,098/-. The branch sells the goods at the same price. The branch is accordingly debtor of the head office to the extent of stock and the differential is not a Profit or Loss of the assessee company. The branch office stock is considered as sale and the amount recoverable from the branch is in the form of stock. As the branch is debtor for sales and therefore, the difference in its opening and closing stock has to be ignored in full. These facts have not been fully appreciated by both the lower authorities. Therefore, this addition could not be sustained. We order so. Since assessee’s grounds on merits have been allowed, the legal arguments thus advanced by Ld. AR have been rendered infructuous and academic in nature.

4. The appeal stands partly allowed.

Order pronounced on 02nd June 2026.