The Mumbai Income Tax Appellate Tribunal, in an appeal filed by M/s Destimoney Enterprises Limited, has held that the provisions relating to tax deduction at source is not applicable when the assesse itself has not claimed deduction on expenditure and and has suo moto made disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
In the instant case, the assesse identified a property for business which was under acquisition proceedings by the Haryana state and litigation challenging the same was under process. When it came to know that sale would take considering time, the owner agreed to lease out the property to the Assessee under the lease agreement as per which, the assessee was given a right to purchase the said property. The assessee accepted right to purchase from the builder subject to the conditions that the builder should obtain NOC and get the property released from the proceedings of the local authority.
While completing assessment against the assesse, the department noted that they have not paid TDS on the rental amount paid to the owner under section 194I of the Income Tax Act and therefore, treated them as assesse-in-default under the provisions of the Income Tax Act.
On second appeal instituted by the assessee, the division bench noted that the assessee made suo motu disallowance of provision for lease rent of Rs.2,83,91,800/- under the provisions of section 40(a)(ia) of the Act and did not claim any deduction thereof from its income.
Allowing the appeal, the bench observed that “in our considered view the provision of TDS are not applicable where there is no claim of expenditure made by the assessee and assessee has made suo motu disallowance under Section 40(a)(ia) of the Income Tax Act. We find merit in the contentions of the assessee that the assessee has already made suo motto disallowance under Section 40(a)(ia) of the Act at the time of filing the return of income and paid income tax accordingly without claiming any expenditure of lease rental on the ground that the provisions were of contingent nature and were never ever paid. We therefore are inclined to set aside the order of the FAA and hold that the provisions of section 194-I of the Act are not applicable where the assessee has not claimed the deduction of the expenses by suo motu making the disallowance u/s 40(a)(ia) of the Income Tax Act.”
Read the full text of the Order below.
