Taxpublishers.in - InterestingDecision/Flash_136.htm - Tax Publishers Your Tax Solution Hub

Share via Whatsapp 225 Views


Tax Publishers Associated Law Advisors v. ACIT [ITA Nos. 411 & 8237/Del/2019, dt. 28-10-2020] : 2020 TaxPub(DT) 4687 (Del-Trib.) Deductibility of TDS done but not remitted before the end of the financial year on cash basis of accounting *Facts:* Assessee a legal firm followed cash basis of accounting. For year end on payments made it had deducted TDS and remitted the TDS as per the time limits after the year end. They claimed deduction of the TDS deducted but not yet remitted as an expense in their books of accounts. AO/CIT(A) disallowed the same. On higher appeal -- Held in favour of the assessee that since they were following the cash basis of accounting; the amount what was deducted as TDS and remitted by them in the subsequent year as per the time limit under the act is an allowable expenditure. It can be added to the amount paid to the vendors which anyways is claimed as an expense. *Relied on:* Assessee's own case in ITAT dated 11-9-2019 in ITA No. 1122/Del/2017 CIT v. Calcutta Export Company (2018) 404 ITR 654 (SC) : 2018 TaxPub(DT) 2136 (SC) 7. We have carefully considered the rival contention and perused the orders of the lower authorities. Admittedly, the assessee is following the cash method of accounting and therefore generally whatever is the cash outflow, the assessee is entitled to claim the same as a deductible expenditure. In the present case the assessee has made cash payment to the various parties after deducting tax at source. The portion of the amount paid to them was already allowed to the assessee as a deductible expenditure. However, the issue is whether the amount of tax deducted at source from the payment made to the recipient of such income can be said to be the amount of expenditure incurred by the assessee and paid during the year and therefore it is allowable to the assessee as business expenditure. We have carefully considered the rival contention and found that according to the provisions of section 198 of the Income Tax Act, tax deducted in accordance with the provisions of the income tax act is deemed to be the income received by the recipient of the above income. Therefore, according to the income tax act itself the above amount of tax deducted at source is deemed to have been received by the recipient of the income. Thus, it cannot be said that the assessee has not paid the amount of tax deducted at source to the recipient of the income from whose payments the tax have been deducted. Further tax deduction at source is a liability cast upon the assessee to deduct the sum from the recipient of such income. In fact the moment assessee deducts the tax at source from the sums paid to the other person it becomes the liability of the assessee who can be held to be an assessee in default for the above sum as well as liable to pay interest and penalty also. Thus, the amount of tax deducted at source is always considered as the sum paid by the assessee on behalf of the recipient of the income. Therefore, it cannot be said that the above sum has not been paid by the assessee even while following the cash system of accounting. Further the action of the learned Commissioner (Appeals) in invoking the provisions of section 40(a)(i) is also devoid of any merit in view of the decision of the Hon'ble Supreme Court in (2018) 404 ITR 654 (SC) : 2018 TaxPub(DT) 2136 (SC) where the assessee has paid the above tax deduction at source to the credit of the government within the prescribed time. Accordingly the appeal of the assessee on the solitary issue of the disallowance of sum of INR 249381 is allowed. *Editorial Note:* It would take some time to understand this case especially from the perspective of cash basis of accounting thus worthwhile reading.

Tax Publishers

Associated Law Advisors v. ACIT [ITA Nos. 411 & 8237/Del/2019, dt. 28-10-2020] : 2020 TaxPub(DT) 4687 (Del-Trib.)

Deductibility of TDS done but not remitted before the end of the financial year on cash basis of accounting

Facts:

Assessee a legal firm followed cash basis of accounting. For year end on payments made it had deducted TDS and remitted the TDS as per the time limits after the year end. They claimed deduction of the TDS deducted but not yet remitted as an expense in their books of accounts. AO/CIT(A) disallowed the same. On higher appeal --

Held in favour of the assessee that since they were following the cash basis of accounting; the amount what was deducted as TDS and remitted by them in the subsequent year as per the time limit under the act is an allowable expenditure. It can be added to the amount paid to the vendors which anyways is claimed as an expense.

Relied on:

Assessee's own case in ITAT dated 11-9-2019 in ITA No. 1122/Del/2017

CIT v. Calcutta Export Company (2018) 404 ITR 654 (SC) : 2018 TaxPub(DT) 2136 (SC)

7. We have carefully considered the rival contention and perused the orders of the lower authorities. Admittedly, the assessee is following the cash method of accounting and therefore generally whatever is the cash outflow, the assessee is entitled to claim the same as a deductible expenditure. In the present case the assessee has made cash payment to the various parties after deducting tax at source. The portion of the amount paid to them was already allowed to the assessee as a deductible expenditure. However, the issue is whether the amount of tax deducted at source from the payment made to the recipient of such income can be said to be the amount of expenditure incurred by the assessee and paid during the year and therefore it is allowable to the assessee as business expenditure. We have carefully considered the rival contention and found that according to the provisions of section 198 of the Income Tax Act, tax deducted in accordance with the provisions of the income tax act is deemed to be the income received by the recipient of the above income. Therefore, according to the income tax act itself the above amount of tax deducted at source is deemed to have been received by the recipient of the income. Thus, it cannot be said that the assessee has not paid the amount of tax deducted at source to the recipient of the income from whose payments the tax have been deducted. Further tax deduction at source is a liability cast upon the assessee to deduct the sum from the recipient of such income. In fact the moment assessee deducts the tax at source from the sums paid to the other person it becomes the liability of the assessee who can be held to be an assessee in default for the above sum as well as liable to pay interest and penalty also. Thus, the amount of tax deducted at source is always considered as the sum paid by the assessee on behalf of the recipient of the income. Therefore, it cannot be said that the above sum has not been paid by the assessee even while following the cash system of accounting. Further the action of the learned Commissioner (Appeals) in invoking the provisions of section 40(a)(i) is also devoid of any merit in view of the decision of the Hon'ble Supreme Court in (2018) 404 ITR 654 (SC) : 2018 TaxPub(DT) 2136 (SC) where the assessee has paid the above tax deduction at source to the credit of the government within the prescribed time. Accordingly the appeal of the assessee on the solitary issue of the disallowance of sum of INR 249381 is allowed.

Editorial Note: It would take some time to understand this case especially from the perspective of cash basis of accounting thus worthwhile reading.