Case Law Details

Case Name : DCIT Vs Chandabhoy & Jassobhoy (ITAT Mumbai)
Appeal Number : ITA No. 20/Mum/2010
Date of Judgement/Order : 08/07/2011
Related Assessment Year : 2006-07
Courts : All ITAT (7060) ITAT Mumbai (2048)

DCIT Vs Chandabhoy & Jassobhoy (ITAT Mumbai)

Section 40(a)(ia) can be invoked only in the event of non deduction of tax (TDS) but not for lesser deduction of tax.  Hence, this will not be the reason to disallow the expense u/s 40(a)(ia) just because of less deduction since section 40(a)(ia) can be invoked only in the event of non deduction of tax but not for lesser deduction of tax.

There is no dispute with reference to the deduction of tax under section 192 and also the fact that in their individual assessments these payments were accepted as salary payments. It is also not disputed that the entire amount paid for 18 consultants is only an amount of `26,75,535/-, which indicates that they are in employment and not professional consultants. It is also not the case that assessee has not deducted any amount. Assessee has indeed deducted tax under section 192 and so we are of the opinion that provisions of section 40(a)(ia) also do not apply as the said provision can be invoked only in the event of non deduction of tax but not for lesser deduction of tax. In view of this, we are of the opinion that there is no merit in Revenue’s contention that the amount paid to the employees should be disallowed as provisions of section 194J would attract.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal by the Revenue is against the order of the CIT(A)-III, Mumbai dated 20.10.2009.

2. Assessee is a partnership firm of Chartered Accountants and in the scrutiny assessment, the A.O. considered that payment made to certain consultants engaged by the Chartered Accountants’ firm are in the nature of fees for professional services and accordingly provisions of section 194J would attract. It was the contention of the assessee that the consultants functioned as employees of the firm and were engaged on full time basis. They could not undertake any other job or assignments privately and they were provided with annual leave and other benefits except bonus, gratuity and P.F. It was further submitted that they were employees of the firm and tax was deducted under section 192 of the I.T Act and these persons filed their returns based on Form 16 issued by the assessee firm and so their salary can not be under the provisions of section 194J. The A.O. analyzing the agreements entered by the assessee firm with the said consultants came to a conclusion that there is no employee-employer relationship and assessee should have deducted tax under section 194J and since assessee has not deducted the tax, the amounts claimed of Rs. 26,75,535/- was to be disallowed under section 40(a)(ia). The matter was carried to the CIT(A) who, after examining the issue and submissions of the assessee, deleted the addition by stating as under: –

“3.7.1. There is merit in this submission of appellant. The deduction of tax made by appellant though made u/s. 192 has not been disputed by AO, neither has the TDS deposit in Government account been challenged, nor has the genuineness of payment of monies to IHC been doubted by AO. As such, the payments become allowable expense under the Act. These have been disallowed due to an interpretation of the section under which the payment made is to be considered i.e. whether section 192 or section 194J. Without prejudice to the decision in para 3.6 and 3.6.1 supra, in the background of appellant’s submission and precedence of many years in his own case, it is felt that even if payments were considered to be u/s. 194J by A.O., the tax already deducted by appellant could have been considered against that due u/s 194J and shortage of TDS, if any, could have been arrived at. The consequent shortage of TDS with interest, if any, could have been considered as liability under the I.T. Act and as due from the appellant. Disallowance of the entire expenditure of Rs.26,75,535/- whose genuineness has not been doubted by the AO is not justifiable.”

3. We have heard the rival arguments and examined the record. Assessee has employed about 18 consultants with whom it entered into agreements for a period of two years renewable further at the option of either parties and they were paid fixed amounts without any share in the profit. These consultants are prohibited from taking any private assignments and worked full time with the assessee firm. There is no dispute with reference to the deduction of tax under section 192 and also the fact that in their individual assessments these payments were accepted as salary payments. It is also not disputed that the entire amount paid for 18 consultants is only an amount of `26,75,535/-, which indicates that they are in employment and not professional consultants. It is also not the case that assessee has not deducted any amount. Assessee has indeed deducted tax under section 192 and so we are of the opinion that provisions of section 40(a)(ia) also do not apply as the said provision can be invoked only in the event of non deduction of tax but not for lesser deduction of tax. In view of this, we are of the opinion that there is no merit in Revenue’s contention that the amount paid to the employees should be disallowed as provisions of section 194J would attract. On the facts of the case, there is no merit in Revenue’s appeal. Accordingly the order of the CIT(A) is confirmed.

4. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on 8th July 2011.

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