Introduction: In a case between ACIT and TV Today Network Ltd, the ITAT Delhi has made a landmark judgment. The court has ruled that the penalty for failure to deduct TDS (Tax Deducted at Source) is not applicable if the assessee has added back the expense on which the tax was not deducted. The decision comes as a notable shift in the understanding of tax deduction regulations.
Analysis: During the scrutiny of the case, the AO (Assessing Officer) noticed that the assessee had added back a disallowance in the computation of income related to an expenditure amounting to Rs. 2705667199/-, on which there was a TDS liability of Rs. 17308103/-. The AO proceeded to impose a penalty equal to the amount of TDS, citing a failure to deduct tax at source.
Upon appeal, the CIT(A) noted that the assessee had not claimed the impugned expenditure and had in fact disallowed the entire amount. The CIT(A) further observed that in subsequent years, the assessee not only claimed the expenditure but also deducted tax at source and deposited the same. Given this, the CIT(A) held it was not a fit case for the levy of a penalty and thus cancelled the penalty.
The ITAT agreed with the CIT(A)’s findings and dismissed the appeal by the revenue. It concluded that the assessee had only made a provision of the liability of expenditure, which was added back while computing the income for the year. In the subsequent year, the assessee claimed the expenditure and deducted tax at source, once the liability crystallized.
Conclusion: The ruling of ITAT Delhi in the ACIT Vs TV Today Network Ltd case provides important insights into how penalties for failing to deduct TDS should be applied. The verdict highlights that if an assessee has added back the expense on which the tax was not deducted, the penalty for failure to deduct TDS is not applicable. This landmark judgment could potentially impact future cases where the application of TDS penalties is contested.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the revenue is preferred against the order of the CIT(A)-31, New Delhi dated 25.03.20 19 pertaining to A.Y.2014-15.
2. The grievance of the revenue read as under :-
3. The sum and substance of the grievance of the revenue is that the CIT(A) erred in cancelling the penalty levied by the AO u/s. 271C of the Act.
4. Briefly stated the facts of the case are that during the course of the scrutiny assessment proceedings it was noticed that assessee has added back disallowance u/s. 40a (ia) in the computation of income in respect of expenditure of Rs.2705667199/-. On which there was a TDS liability of 17308103/- .
5. The proceeding for imposition of penalty was initiated through a show cause notice u/s. 271C of the Act.
6. In the penalty proceedings the AO observed that the deductor (assessee) has failed to deduct tax at source aggregating to Rs. 17308 103/- and is, therefore, liable for penalty u/s. 27 1(1) (c) of the Act. The AO accordingly levied penalty equal to the amount of TDS i.e. 17308 103/-.
7. Assessee carried the matter before the CIT(A) and vehemently contended that the assessee has made the impugned payment and claimed expenditure in the subsequent assessment years in which the assessee has deducted tax at source and deposited the same.
8. After considering the facts and the submissions the CIT(A) observed that the assessee has already disallowed the entire amount and did not claim the impugned expenditure. The CIT(A) further observed that in subsequent years not only the assessee claimed expenditure but also deducted tax at source and deposited the same. The CIT(A) concluded by holding that it is not a fit case for levy of penalty u/s. 271C of the Act and deleted the same.
9. Before us though the DR strongly supported the findings of the AO but could not point out any factual error in the findings of the CIT(A).
10. We find that no order u/s. 201 of the Act has been framed by the AO which means the AO never treated the assessee in Further during the year under consideration the assessee has only made provision of liability of expenditure and the said provision was added back while computing the income for the year. In subsequent year when the liability crystallized not only the assessee has claimed the expenditure but also deducted tax at source.
11. On these facts we do not find any reason for the levy u/s. 271C of the Act and further we do not find any reason to interfere with the findings of the CIT(A). The appeal filed by the revenue is dismissed.
Order announced in the open court on 19.06.2023.