Case Law Details
(Erstwhile) Sumaitri Bima Distributors Pvt. Ltd Vs ITO (ITAT Delhi)
Introduction: The Income Tax Appellate Tribunal (ITAT) in Delhi recently ruled in the case of (Erstwhile) Sumaitri Bima Distributors Pvt. Ltd vs. ITO, providing important insights into the applicability of Section 40(a)(ia) of the Income-tax Act. This section deals with the disallowance of expenses for non-deduction of tax at source (TDS). In this specific case, the ITAT addressed the applicability of Section 40(a)(ia) concerning TDS on salary prior to the assessment year 2015-2016.
Detailed Analysis: The case revolved around the disallowance of salary expenses amounting to Rs. 10,28,628 due to non-deduction of TDS. The taxpayer, Sumaitri Bima Distributors Pvt. Ltd, had reimbursed salaries to deputed employees from another company, M/s. Escorts Finance Ltd, without deducting TDS. The taxpayer argued that since the salaries were initially paid by Escorts Finance Ltd and subjected to TDS under Section 192 of the Income-tax Act, there was no obligation to deduct TDS again.
However, the Income Tax Appellate Tribunal clarified that Section 40(a)(ia) could not be applied for non-deduction of TDS on salaries prior to the assessment year 2015-2016. This section, which deals with the disallowance of expenses for non-compliance with TDS provisions, was introduced in the statute only from April 1, 2015. Therefore, the disallowance made by the Assessing Officer under Section 40(a)(ia) was deemed inappropriate for years preceding the assessment year 2015-2016.
Additionally, the ITAT emphasized that the salaries had already undergone TDS deduction by Escorts, as per Section 192 of the Act, and the taxpayer’s reimbursement without further TDS was justifiable.
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