Ankit Sharma vs ITO Ward 1(1) Faridabad

PER MANISH AGARWAL, A.M.:

The present appeal is filed by assessee against the order dated 09.10.2025 passed by Ld. Commissioner of Income Tax (Appeals)/ADDL/JCIT(A)-3, Bengaluru [“Ld. CIT(A)”] in Appeal No. CIT(A), Faridabad /10447/2018-19 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 23.12.2018 passed u/s 143(3) of the Act pertaining to Assessment Year 2016-17.

Brief facts of the case are that the assessee is an individual and during the year under appeal, had started a business of online trading of shares etc. The assessment was completed u/s 143(3) of the Act wherein disallowance of INR 4,16,243/- @ 20% was made out of the expenses claimed in the Profit & Loss Account and further the AO has disallowed INR 6.00 Lakhs paid as advertisement expenses and commission expenses of INR 34,72,800/-. Accordingly, total income was assessed at INR 50,12,363/- against the returned income of INR 5,23,320/-. Before Ld. CIT(A), assessee filed all the relevant details to prove the genuineness of the expenses claimed as additional evidence under Rule 46A of the Income Tax Rules, 1962 (“The Rules”). Ld. CIT(A) obtained the Remand Report from the AO on 02 (two) occasions and thereafter, confirmed the disallowance of INR 4,16,243/- made out of various expenses however, has reduce the disallowance of advertisement expenses of INR 6.00 Lakhs to INR 84,900/-. With respect to the disallowance of commission expenses of INR 34,72,800/-, ld. CIT(A) held the said payment as salary to various employees and since the assessee has filed to deduct the tax at source on such payment, he reduced the disallowance at INR 10,41,840/- being 30% of the payment after invoking the provisions of section 40(a)(ia) of the Act.

Aggrieved by the order of Ld. CIT(A), assessee is in appeal before the Tribunal where the solitary ground of appeal is with respect to the confirmation of disallowance of INR 10,41,840/- u/s 40(a)(ia) of the Act.

Before us, Ld. AR for the assessee submits that it is the first year of the business and therefore, the provisions of section 40(a)(ia) of the Act are not applicable since the assessee is an individual and has not exceeds the threshold limits to get the accounts audited u/s 44AB of the Act. For this, he placed on record a copy of the return of income filed in immediately preceding year. He therefore, prayed that Ld.CIT(A) has wrongly invoked the provisions of section 40(a)(ia) of the Act and requested for the deletion of disallowance so confirmed.

On the other hand, Ld. Sr. DR for the Revenue vehemently supported the order of Ld.CIT(A) and stated that though the assessee has claimed the said expenditure as commission however, after verification of the details filed by the assessee, ld. CIT(A) observed that said payments were in the nature of salary and since the gross payment of salary exceeds the maximum amount not chargeable to tax, TDS u/s 192 is required to be made. Ld. Sr. DR submits that as per section 192, it is not necessary that the books of accounts of the assessee should be audited in immediately preceding year in case of an individual or HUF. He therefore, prayed that Ld. CIT(A) has rightly made the disallowance which order deserves to be upheld.

Heard the contentions of both the parties at length and perused the material on record. Every employer responsible for paying salary must deduct tax at source under section 192 of the Act if the salary income exceeds the basic exemption limit. TDS is deducted at the time of salary payment and should be the average of total estimated tax liability of the employee. It is observed that the claim of the assessee was that it is the first year of business and therefore, provision of section 40(a)(ia) of the Act could not be applied. However, while upholding the disallowance at page 22 of the appellate order, ld. CIT(A) has reproduced the copy of bank book furnished by the assessee, according to which payments made to 05(five) persons were on account of salary though it was the claim of the assessee that the same were paid as commission. When the assessee himself admitted that he has paid salary to these Five persons and the salary exceeds the maximum amount of basic exemption of INR 2.50 Lakhs therefore, the assessee was liable to deduct tax at source u/s 192 of the Act. Therefore, we find no error in confirming the disallowance of 10,41,840/- made by ld. CIT(A) by invoking the provision of section 40(a)(ia) of the Act. Accordingly, solitary Grounds of appeal raised by the assessee is dismissed.

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