Brief of the case:
ITAT Kolkatta has held In the case of Menally Sayaji Engineering Ltd. VS -CIT that if assessee failed to deduct TDS during the previous year on payments of management service fee and royalty debited to the profit and loss account and if in his Assessment Order Passed U/s. 143(3) AO fails to make disallowance for such expenses than such order passed by AO is erroneous and prejudicial to the interest of the revenue and revision proceedings under section 263 initiated by CIT under section 263 is valid. ITAT Further held that to take benefit of amended Section 40(a)(ia) tax has to be deducted only in the previous year, So if TDS is not deducted in Previous Year than even if TDS been deposited before Due date of Return Filing expenses will not be allowed.
Facts of the case:
The case was selected for the scrutiny and the assessment order u/s 143(3) was passed by AO allowing the amount of management fees and royalty payment.
Thereafter the assessee was issued notice u/s 263 of the act by the ld. CIT stating that the non-deduction of TDS u/s 40(a) was prejudicial and erroneous to the interests of revenue.
After that the assessee had filed an appeal against the order of ld. CIT u/s 263 arguing that he had deducted the TDS though late in the next previous year but deposited the same before the due date of filing of return u/s 139(1).
Contention of the Assessee/Appellant
The assessee was of the view that he had deposited the TDS before the due date of filing of return U/s 139(1) so the same should be allowed as an expense because if the same had been disallowed in P.Y 08-09 the same would be allowed as an expense in the subsequent year.
Assessee also contended that though he had paid the TDS late but he had not defaulted in the payment of the same which was not at all erroneous to the interest of revenue so the same should be allowed as an expense.
Contention of the Respondent/Revenue:
Respondent argued that to avail the benefit of payment of TDS before the due date of filing of return u/s 139(1) TDS had to be deducted in the previous year in which the expense had been debited to the profit & loss account .Therefore disallowance ought to had been made for the payments made for the management service fees as well as for the royalty.
Therefore the order passed by the assessing officer was erroneous and prejudicial to the interest of the revenue. So the order u/s 263 is valid.
Held by respective court:
The ITAT held that as per amendment made by finance act 2010 whereby it is provided that no disallowance would be made, if after deduction of tax during the previous year, the same had been paid on or before the due date of filing of return of income as specified in sec 139(1) .
So to get the benefit of the above amendment, TDS had to be deducted in the previous year otherwise the same will be disallowed. ITAT confirmed the order of ld CIT u/s 263 and dismissed the appeal of assessee.