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Judgment
PER KRINWANT SAHAY AM
Appeal in this case has been filed by the assessee against the order dated 17.11.2025 passed by the Ld. CIT(A)/NFAC, Delhi for the 2024-25. Grounds of appeal are as under :-
1.On the facts and in law, the learned Commissioner of Income tax (Appeals) NFAC, erred in upholding the adjustment made by the CPC under section 143(1) for assessment year 2024-2025, whereby deduction of legitimate business expenditure pertaining to the earlier previous year was disallowed solely on the ground that tax was deducted at source in current year.
2.The learned CIT (A) NFAC erred in law in misapplying the provisions of section 40(a) (ia), without appreciating that once tax has been deducted and deposited, the expenditure cannot be permanently disallowed, and at most, the same can be regulated in accordance with law.
3.The learned CIT (A) NFAC grossly erred in not calling for crucial evidences such as:
- TDS return,
- Computation of income,
- TDS challans and certificates, which were necessary for proper adjudication of the issue and were vital to establish compliance with TDS provisions.
4.That the learned CIT (A) NFAC failed to appreciate that the appellant had duly deducted and deposited tax at source during the current previous year, and therefore, in accordance with the proviso to section 40(a) (ia) of the Income tax act 1961, the said expenditure is mandatorily allowable in the year in which TDS is deducted and paid.
5.The learned CIT (A) NFAC erred in confirming an addition made purely on technical and procedural grounds, ignoring the fact that the expenditure is genuine, incurred wholly and exclusively for business purposes, and that tax has been duly deducted and deposited.
6.That the action of the learned CIT(A) NFAC in sustaining the disallowance has resulted in double taxation / double disallowance of the same expenditure, which is impermissible under law and contrary to the legislative intent of section 40(a)(ia).
7.That the learned CIT(A) NFAC erred in not following settled judicial precedents, wherein it has been consistently held that expenses disallowed under section 40(a)(ia) in an earlier year are allowable in the year of deduction and payment of TDS.
8.That the order passed by the learned CIT(A) NFAC is arbitrary, unsustainable in law and bad in facts, and therefore liable to be quashed.
9.Without prejudice, the learned CIT(A) NFAC erred in not directing the Assessing Officer to allow the deduction in the current year after verification of TDS compliance, thereby denying substantive relief on mere procedural grounds.
During proceedings before us the Ld. Counsel of the assessee has filed a synopsis which is reproduced as under :-
1.Expenditure was disallowed in earlier year (AY 2023-2024) under section 40(a)(ia) due to non-deduction of TDS.
2.Invoices of such expenses received in relevant year under appeal.
3.TDS was subsequently deducted and deposited during the relevant previous year (2024-2025).
4.In terms of the proviso to section 40(a)(ia), deduction becomes mandatorily allowable in the year of TDS payment.
5.CPC wrongly disallowed the claim while processing return under section 143(1), despite the issue requiring detailed factual and legal examination.
6.The impugned adjustment results in double disallowance of the same expenditure and defeats the very scheme and legislative intent of section 40(a)(ia).
7.The issue is fully covered in favour of the appellant by judicial precedents including: CIT v. Calcutta Export Company CIT v. Virgin Creations
8.Accordingly, the impugned disallowance deserves to be deleted in entirety.”
Per contra the Ld. DR relied on the order of the authorities below.
We have considered the findings given by the Ld. CIT(A) in his order and we have also considered the brief synopsis as well as argument of the Ld. DR on the issues. We find that in this case since tax was not deducted during the relevant previous year. Accordingly, expenditure was disallowed in the earlier assessment year i.e. 2023-24 u/s. 40(a)(ia) of the Act. Subsequently, during the previous year to the assessment year under appeal 2024-25, the appellant duly deducted TDS and deposited with the Central Government and claimed the deduction of the said expenditure in the year in which TDS was actually deducted and deposited. However, while processing the return u/s. 143 (1) of the Act the CPC Bangalore disallowed the claim. In appeal the Ld. CIT(A) also confirmed to the order of the CPC Bangalore. We find that the expenditure on which TDS was claimed u/s. 40a(ia) of the Act was already disallowed by the revenue in the assessment year 2023-24 but in A.Y. 2024-25 when the assessee deducted TDS deposited it with the Central Government the action was disallowed. Thus, it has become a case of double disallowance of the same expenditure once in 2023-24 and financial Year 2024-25. It cannot be done twice as the same expenditure can be disallowed only once. Keeping in view this principle in mind we are of this view that the action of the CPC Bangalore and the Ld. CIT(A) cannot be accepted. Assessee's appeal on this issue is allowed.
In the result, the appeal filed by the assessee is allowed.