Disallowance u/s 40(a)(ia)

Tax queries 1727 views 5 replies

Dixit Jawahar

CA Finalist

444 Points Posted on 29 August 2008

Dear All,

I want a small clarification. Can any one please clarify.

The facts of the case is as follows:

ABC Private Ltd has made a provision for payment of commission of Rs.4 lakhs during the Financial Year 2005-06 ie.on 31/03/06 to Mr.X, the director of ABC Private Ltd. At the time of Scrutiny Assessment u/s 143(2), the Assessing Officer disallows the amount of Rs.4 lakhs on the ground that the TDS amount though deducted at the time of credit to the account of the director on 31/03/06, but the same is actually remitted on 31/10/06 to the account of the Govenment.

(i) Is the action of the A.O. justified for the disallowance ?

(ii) Is there any remedy available to the Assessee ie.ABC Private Limited.

(iii) Does Sec.40(a)(ia) and Sec.43B co-exist?

Regards,

Dixit

Replies (5)

CA Nitin Wadhwani

Chartered Accountant

4469 Points Posted on 29 August 2008

Yes.

A.O Is Absolutely Justified Since TDS Is To Be deducted At The Time Of "Payment or Credit" Whichever Is Earlier.

Remedy Available Since The Expenditure Is Disallowed In Previous 2005-2006, U can Claim Expenditure In Year Of Payment i.e 2006-2007.

Dixit Jawahar

CA Finalist

444 Points Posted on 29 August 2008

Dear Nitin,

There is an amendment to Sec.40(a)(ia) with retrospective effect from the AY 2005-06 in the Finance Act,2008 that if the TDS is paid before the due date of furnishing Return of Income u/s 139(1) ,then in such a case, there can be no disallowance as the TDS will be treated as paid with in the due date. Anyhow thanks for your prompt reply.

Regards,

Dixit

CA Nitin Wadhwani

Chartered Accountant

4469 Points Posted on 30 August 2008

Plz the Link Of Notification.

sudarshan

745 Points Posted on 21 August 2009

First of all, commission is payable normally as a percentage of profit only afte accounts are approved in AGM. Tds on salary is deducted only on payment basis as per section 192 of income tax. So it wont be disallowed

sivadas chettoor

2644 Points Posted on 22 August 2009

You will have to study closely the contract, if any , entered into by the company with the the director concerned. If the terms indicates that it partakes the charactor of salary only then as rightly pointed out by CA Sudharsan, no disallowance is called for. You may also note that it is not the nomenclature which determines the charactor of the payment. It is substance which matters. But if it is pure business commission and have nothing to do with the contractual employment , the disallowance shall be justified. Anyway, thamx for giving food for thoughts.

sivadas chettoor B.com FCA LL.M siva208 @ yahoo.com