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Expenses incurred in previous AY can be allowed where TDS is deducted & deposited in subsequent AY as per proviso to Section 40(a)(ia): ITAT

2019-TIOL-1436-ITAT-AMRITSAR

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH, AMRITSAR

ITA No.241/Asr/2014
Assessment Year: 2006-07

THE JAMMU AND KASHMIR BANK LTD
M A ROAD, SRINAGAR
PAN NO: AAACT6167G

Vs

ADDITIONAL COMMISSIONER OF INCOME TAX
RANGE-1, JAMMU

Vikram Singh Yadav, AM & N K Choudhry, JM

Date of Hearing: June 11, 2019
Date of Decision: June 14, 2019

Appellant Rep by: Sh Joginder Singh, CA
Respondent Rep by: 
Sh M P Singh, CIT (DR)

Income Tax – Section 40(a)(ia)

Keywords – Tax deducted at source

THE assessee had filed its return for the relevant AY. During the course of assessment proceedings, the AO observed that the assessee had made payment to M/s Infosys Technology which represents annual technical support charges for FY 2004-05 against Oracle 6 processors at Data Centre, Gurgaon which was claimed by the Company in the FY 2005-06 to relevant to AY. The AO held that the expenditure cannot be allowed as an expenditure, since it relates to an earlier year and the annual maintenance contracts are entered into in advance, the assessee had full knowledge that the expenditure has accrued and merely because the payment has been made in the year will not make it an allowable expenditure for the AY 2006-07. In view of the same, the expenditure amounting to Rs. 14.38 lacs was disallowed treating it as prior period expenditure and added to the total income of the assessee. On appeal, the CIT(A) confirmed the action of the AO.

On appeal, the Tribunal held that,

Whether expenses incurred in the previous year are allowable, when taxes have been deducted and deposited in the subsequent year by virtue of proviso to section 40(a)(ia) – YES: ITAT

++ it is to be noted that even if the expenditure is held to be a prior period expenditure, as per the provisions of section 40(a)(ia) the year of admissibility of the expenditure is the year in which the TDS has been deducted and deposited. Therefore, going by the clear language of section 40(a)(ia) and following the decision of the Co-ordinate Bench in assessee’s own case for AY 2010-11 the expenses deserved to be allowed to the assessee bank and the addition so made is directed to be deleted.

Assessee’s appeal allowed

Case followed:

ACIT v. M/S Jammu and Kashmir Bank Ltd.- 2017-TIOL-912-ITAT-AMRITSAR

ORDER

Per: Vikram Singh Yadav:

This is an appeal filed by the assessee against the order of ld. CIT(A), Jammu dated 12.02.2014 wherein the assessee has taken the following sole ground of appeal:-

“That the worthy CIT(A) is not justified in confirming the action of the ld. A.O for making a disallowance of Rs.14,38,914/- in respect of Annual Technical Support charges paid during the year pertaining to an earlier year. The worthy CIT(A) is unjustified in rejecting the contention of the appellant that tax on this sum was deducted and deposited in the year under consideration and as per proviso to Sec. 40(a)(ia) where in respect of any sum tax has been deducted and paid in subsequent year then such sum has to be allowed as deduction in the previous year in which such sum has been paid.”

2. Briefly stated, the facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that the assessee has made payment to M/s Infosys Technology on 25.07.2005 which represents annual technical support (ATS) charges for financial year 2004-05 against Oracle 6 processors at Data Centre, Gurgaon which was claimed by the Company in the financial year 2005-06 relevant to impugned assessment year. The Assessing Office held that the said expenditure cannot be allowed as an expenditure for the year under consideration since it relates to an earlier year and since the annual maintenance contracts are entered into in advance, the assessee had full knowledge that the expenditure has accrued and merely because the payment has been made in the year will not make it an allowable expenditure for the assessment year 2006-07. In view of the same, the expenditure amounting to Rs. 14,38,934/- was disallowed treating the same as prior period expenditure and added to the total income of the assessee.

3. On appeal, the ld. CIT(A) observed that the liability towards payment of these charges was ascertainable as on 31.03.2005 and was in the knowledge of the management of the bank and therefore, it should have been provided for in the books of accounts. Further, the contention of the assessee bank that since it has deducted & paid taxes thereon in the instant year, then such sum has to allowed as deduction in the year under consideration was also found acceptable. Against the said finding of the ld. CIT(A), the assessee is now in appeal before us.

4. During the course of hearing, the ld. AR submitted that as per proviso to section 40(a)(ia) where in respect of any expenditure, where any tax has been deducted and paid in the subsequent year, then such sum has to allowed as deduction in computing the income of the previous year in which such sum has been paid. It was submitted that it is not in dispute that the tax has been deducted on 25.07.2005 as evidenced by Form 16A placed on record as part of assessee’s paper and therefore, such claim should be allowed in the impugned assessment year. It was further submitted that a similar issue has arisen in case of assessee bank for A.Ys 2010-11 and 2011-12 wherein the Co-ordinate Bench vide its order dated 28.02.2017 (in ITA No. 74 & 137/Asr./2015 and ITA No. 76/Asr./2015) = 2017-TIOL-912-ITAT-AMRITSAR and ratio thereof applies equally in the instant case. In the said case, the Coordinate Bench has held as under:-

“30. The answer to the objection/observation of the ld. CIT(A), as correctly contended is to be found in “Commissioner of Income Tax vs. SMCC construction, Delhi, 320 ITR 534(Del) = 2010-TIOL-56-HC-DEL-IT. The Hon’ble High Court, in that case, upheld the objections/findings of the Tribunal that because of section 40(a)(ia) of the Act, the deduction has to be allowed in computing the income of the previous year in which such TDS has been paid; that section 40(a)(ia) starts with non-obstante clause, which is to the effect that section 40 overrides the provisions of sections 30 to 38; that the amounts which may otherwise be allowable as business expenditure as per the provisions of sections 30 to 38 and which is chargeable to tax in the hands of the receipient, would not be allowed as a deduction, unless the requisite amount of tax has been deducted on the said amount; that thus, merely passing a debit entry of these expenses in the books of account, would not be sufficient for claiming the deduction in the present account in the concerned year and then also, the deduction would not be admissible, unless tax has been paid on such amount; and that the proviso to section 40(a)(ia) makes it clear that if tax has been deducted in the subsequent year and paid, then deduction would be allowed in that year.

31. Obviously, though it may be important for accounting purposes, passing of a debit entry in the books of account, concerning the expenses in the year in which the expenses were incurred, for the purposes of section 40(a)(ia) of the IT Act, it is not determinative of the deductibility- particularly the year thereof. The proviso to section 40(a)(ia), as considered by the Hon’ble Delhi High Court, is unambiguous. Irrespective of the debit entry having not been made in the year of incurrence of the expenditure, the deduction needs to be allowed in the year in which the tax on the expense is deducted and paid, particularly when the genuineness of the expenditure, i.e. admissibility of the deduction is not in dispute. This, evidently, is the rationale behind “SMCC” (supra).”

5. The ld. CIT DR is heard who has relied on the order of the lower authorities.

6. We have heard the rival contentions and perused the material available on record. There is no dispute regarding the admissibility of the expenditure as has been incurred for the purposes of business. It is also not in dispute that the subject payment is liable for TDS and the assessee bank has actually done the TDS and deposited the same while making the payment on 25.07.2005 during the F.Y 2005-06 relevant to impugned assessment year. Therefore, even if the expenditure is held to be a prior period expenditure, as per the provisions of section 40(a)(ia) of the Act, the year of admissibility of the said expenditure is the year in which the TDS has been deducted and deposited. Therefore, going by the clear language of section 40(a)(ia) and following the decision of the Co-ordinate Bench in assessee’s own case (supra), the expenses deserved to be allowed to the assessee bank and the addition so made is directed to be deleted.

In the result, the appeal filed by the assessee is allowed.

(Order pronounced in the open Court on 14.06.2019)

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