Case Law Details
JMK Enterprises Pvt. Ltd. Vs DCIT (ITAT Delhi)
The issue in the present ground is with respect to the disallowance made u/s 40(a)(ia) of the Act on account non deduction of TDS of salary payment. It is an undisputed fact that during the year assessee has claimed expenses of Rs.64,03,670/- as remuneration to directors. It is the contention of the assessee that out of the aforesaid remuneration, the remuneration paid during the year was only Rs.30,00,000/-and the TDS on such amount was deducted.
The issue is only with respect to the provision made for salary of the balance amount of Rs.34,03,670/- on which TDS has not been deducted u/s 192 of the Act by the assessee. According to assessee Rs.34,03,670/- is a provision made for salary and has not been paid during the year under consideration and has been paid in subsequent year and TDS was also deducted and deposited in subsequent year. As far as the quantum of payment of salary of Rs.30,00,000/- during the year is concerned and the provision for salary made for Rs.34,03,670/- there is no dispute about the quantum.
The only dispute is whether the assessee is liable to deduct TDS u/s 192 of the Act on salary provision made during the year but not paid during the year under consideration. We find that Hon’ble Delhi High Court in the case of CIT vs. Taj Quebecor Printing Ltd. (supra) has held that the person making the salary payment is required to make a deduction towards tax at source only at the time of making such payment.
The accrual of the payment and the actual act of making the payment must both exist in order that a deduction at source may be made. It has further held that no deduction at source is contemplated under Section 192 in cases where a payment towards salary has accrued but is not made. Before us, Revenue has not placed on record any contrary binding decision in its support. In such a situation, we relying on the aforesaid decision of Hon’ble Delhi High Court in the case of Tej Quebecor Printing Ltd. (supra) are of the view that AO was not justified in making addition u/s 40(a)(ia) of the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the assessee is directed against the order dated 19.05.2021 passed by the Commissioner of Income Tax (Appeals)-NFAC, Delhi relating to Assessment Year 2017-18.
2. Brief facts of the case as culled out from the material on record are as under :-
3. Assessee is a company stated to be engaged in the business of Jewellery dealership and retailing the products. Assessee electronically filed its return of income for A.Y. 2017-18 on 21.06.2017 declaring total income of Rs.95,27,960/- which was later revised on 22.08.2017 with no change in the total taxable income. The case of the assessee was selected for scrutiny and thereafter, assessment was framed u/s 143(3) vide order dated 21.11.2019 and the total income was determined at Rs.1,05,49,060/-.
4. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 19.05.2021 in Appeal No.CIT(A), Delhi-5/10170/2019-20 dismissed the appeal of the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal and has raised the following grounds:
1. “That under the facts and circumstances of the case no reasonable and proper opportunity of hearing has been allowed.
2. That the Ld. CIT(A) ignored the statements of facts and there was no finding in the order of the Ld. CIT(A).
3. That under the facts and circumstances of the case, there is no logic and merits in making addition of Rs.10,21,101/-being 30% of Rs.34,03,670/- u/s 40 (a)(ia) of the Act.
4. That under the facts and circumstances of the case, there is no liability to deduct TDS u/s 192 on payment of remuneration which has not been paid during the year under consideration.5. That the appellant craves leave to add one or more grounds, amend or withdraw any of the grounds of appeal before the disposal of the appeal.”
5. Before us, at the outset, Learned AR submitted that though the assessee has raised various grounds but the sole controversy which requires adjudication is the addition made u/s 40(a)(ia) of the Act.
6. During the course of assessment proceedings and on perusing the Employee Benefit Expenses, AO noticed that assessee had claimed expenditure on account of Director’s Remuneration at Rs.64,03,670/- and though the assessee had deducted TDS only Rs.6,00,000/- and not on Rs.64,03,670/-. The assessee was asked to show-cause as to why 30% of Rs.58,03,670/- not be disallowed u/s 40(a)(ia) of the Act. In response to the aforesaid query, assessee inter alia submitted that as per provision u/s 192B of the Act, the TDS is required to be deducted on payment basis. It was submitted that the assessee had deducted TDS on the remuneration of Rs.30,00,000/- paid during the year and the balance remuneration amounting to Rs.34,03,670/- was the provision for salary which was based on the board resolution passed by the company on 01.11.2011 and was not finally determined on 31.03.2017. The submissions of the assessee was not found acceptable to AO. AO noted that out of the total director’s remuneration of Rs.64,03,670/-, TDS was deducted only on Rs.30,00,000/- and on the balance amount of Rs.34,03,670/- no TDS was deducted. He accordingly applying the provisions of Section 40(a)(ia) of the Act disallowed Rs.10,21,101/- and made its addition.
7. Aggrieved by the order of AO, assessee carried the matter before CIT(A). Before CIT(A) it was inter alia submitted that TDS on Rs.34,03,670/- has been deducted in subsequent year when the payment was made and the income has also been disclosed by the recipient in the subsequent assessment year and therefore no disallowance was called for. CIT(A) did not accept the contentions made by assessee. He thereafter for the reasons states in the order, upheld the order of AO. Aggrieved by the order of CIT(A), assessee is now before us.
8. Before us, Learned AR reiterated the submissions made before AO and CIT(A) and pointing to the Ledger account of the Director Pratibha Singh, which is placed at page 56 of the paper book, pointed to the fact that Rs.34,03,670/- represents the provision made for salary but the same was not paid to the director during the year under consideration. He pointed to page 57 of the Ledger account of the subsequent year wherein the TDS has been deducted at the time of making the payment. Learned AR thereafter submitted that as per the provision of Section 192 of the Act, assessee was liable to deduct TDS on salary only on payment basis and not on accrual basis. In support of its contention, Learned AR placed reliance on the decision of Hon’ble Delhi High Court in the case of CIT vs. Tej Quebecor Printing Ltd. reported in 281 ITR 170 (Delhi) and decision of Hon’ble Bombay High Court in the case of PCIT vs. Indofil Industries Ltd. in ITA No.2027 of 2017. He also pointed to the copy of aforesaid decision placed at page 84-87 and 111-116 respectively of the paper book. He therefore reiterated that the liability of the assessee to deduct TDS u/s 192 of the Act arises at the time of payment of salary and not otherwise. He therefore , submitted that the addition made by AO and upheld by CIT(A) be deleted.
9. Learned DR on the other hand supported the order of lower authorities.
10. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the disallowance made u/s 40(a)(ia) of the Act on account non deduction of TDS of salary payment. It is an undisputed fact that during the year assessee has claimed expenses of Rs.64,03,670/- as remuneration to directors. It is the contention of the assessee that out of the aforesaid remuneration, the remuneration paid during the year was only Rs.30,00,000/-and the TDS on such amount was deducted. The issue is only with respect to the provision made for salary of the balance amount of Rs.34,03,670/- on which TDS has not been deducted u/s 192 of the Act by the assessee. According to assessee Rs.34,03,670/- is a provision made for salary and has not been paid during the year under consideration and has been paid in subsequent year and TDS was also deducted and deposited in subsequent year. As far as the quantum of payment of salary of Rs.30,00,000/- during the year is concerned and the provision for salary made for Rs.34,03,670/- there is no dispute about the quantum. The only dispute is whether the assessee is liable to deduct TDS u/s 192 of the Act on salary provision made during the year but not paid during the year under consideration. We find that Hon’ble Delhi High Court in the case of CIT vs. Taj Quebecor Printing Ltd. (supra) has held that the person making the salary payment is required to make a deduction towards tax at source only at the time of making such payment. The accrual of the payment and the actual act of making the payment must both exist in order that a deduction at source may be made. It has further held that no deduction at source is contemplated under Section 192 in cases where a payment towards salary has accrued but is not made. Before us, Revenue has not placed on record any contrary binding decision in its support. In such a situation, we relying on the aforesaid decision of Hon’ble Delhi High Court in the case of Tej Quebecor Printing Ltd. (supra) are of the view that AO was not justified in making addition u/s 40(a)(ia) of the Act. We, therefore, direct its deletion. Thus the ground of assessee is allowed.
11. In the result, appeal of assessee is allowed.
Order pronounced in the open court on 27.03.2023
