Pushpa Sharma vs Income Tax Officer, Faridabad

PER MANISH AGARWAL, AM:

This appeal is filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [Ld. CIT(E)] dated 25.05.2026 u/s 250 of the Income Tax Act, 1961 (“the Act” in short) arising out of the assessment order passed u/s 143(3) of the Act for Assessment Year 2023-24.

Brief facts of the case are that the assessee is an individual and filed her return of income on 12.09.2023 declaring total income at Rs.32,85,260/-. The case of the assessee was selected for scrutiny and the income was assessed in terms of the order passed u/s 143(3) dated 19.03.2025 at Rs.1,68,48,462/- by making various additions and disallowance.

Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A) wherein assessee get part relief and disallowance of Rs.4,96,908/- made u/s 40(a)(ia) was confirmed by the Ld. CIT(A).

Aggrieved by the said order, the assessee is in appeal before the Tribunal wherein the solitary ground of appeal of the assessee is with respect to the confirmation of disallowance of Rs.4,96,908/- made Section 40(a)(ia) of the Act out of salary expenses claimed for failure to deduct tax at source on such payments.

Before us, ld. AR drew our attention to the table appearing in para 3.7.2 of the assessment order, wherein the AO has selected 18 employees to whom salary totaling to Rs. 49,69,081/- was paid on which no TDS was deducted nor their PAN were available. The AO observed that the salary paid to these employees was exceeding the threshold limit of basic exemption of Rs.2.5 lacs and, therefore, the assessee was liable to make TDS out of salary payments. Ld. AR submits that if standard deduction u/s 16(1) is reduced from the gross salary paid to each individual worker, only one employee namely Sh. Om Prakash had the salary exceeding the threshold limit of basic exemption of Rs. 2,50,000/-. Ld. AR further submits that if the tax rebate u/s 87A of the Act available to the assessee is considered, even in the case of Sh. Om Prakash no tax was remained payable therefore, assessee was not obliged to deduct any tax at source of the salary paid to these 18 employees and, therefore, the provisions of section 40(a)(ia) are not applicable. He prayed accordingly.

On the other hand, the Ld. Sr. DR vehemently supported the orders of the lower authorities and submits that the assessee had paid salary to employees which exceeds the threshold limit of basic exemption and even the PAN of these employees were not available nor Form 16 were issued to them, therefore, the disallowance has rightly been made which deserves to be upheld.

Heard both the parties and perused the materials available on record. From the perusal of the chart given in para 3.7.2 at page 13 of the assessment order, it is observed that gross payment of salary of Rs.49,69,081/- was made to total 18 employees which was exceeding the threshold limits of basic exemption of 2.50 lacs and if the standard deduction u/s 16(1) of Rs.50,000/- is allowed to each employee, the remaining salary was below the maximum amount of threshold limit of basic exemption i.e. Rs.2.5 lacs, therefore, there was no requirement of making TDS on such salary payment. It is further observed that in case of one employee Sh. Om Prakash to whom total salary of Rs.3,95,650/- was paid, after allowing standard deduction u/s 16(1), the tax liability would be Rs. 3,068/- on which he is eligible for rebate u/s 87A of the Act and if the same is allowed there would be no tax liability remained in the hands of Sh. Om Prakash also. Thus by considering these facts, we are of the view that assessee is not at a default for not deducting the tax at source on the salary payments of Rs.49,69,081/- and, therefore, the disallowance made u/s 40(a)(ia) for not deducting the tax at source on such payment is hereby deleted.

Solitary Ground of appeal of the assessee is allowed.

In the result, appeal of the assessee is allowed.