This article provides a comprehensive review of the proceedings and judgment of the Income Tax Appellate Tribunal (ITAT) Delhi in the case of ITA No. 1856/DEL/2020, where Vipul Ltd, New Delhi, appealed against the disallowance of TDS on payments for club services and external development charges (EDC), assessed by ACIT Circle-26(2), New Delhi for the assessment year 2017-18.
Vipul Ltd, the appellant, filed its income tax return for the assessment year 2017-18, declaring a total income of Rs.2,33,94,820/-. The case was taken up for scrutiny, and the Assessing Officer (AO) observed several disallowances, including Rs.1,90,529/- incurred for club services, considering them as personal expenses, and Rs.1,48,57,247/- for external development charges (EDC) paid to HUDA without TDS deduction.
The case was heard by the Delhi ‘H’ Bench of the Income Tax Appellate Tribunal, with Dr. B.R.R. Kumar, Accountant Member, and Shri Anubhav Sharma, Judicial Member, presiding. The final order was pronounced on July 29, 2022, addressing the procedural and substantive issues surrounding the TDS disallowance.
Vipul Ltd appealed to the Commissioner of Income-tax (Appeals) [CIT(A)], contesting the disallowance of Rs.1,48,57,247/- under section 40(a)(ia) for non-deduction of TDS on EDC payments and Rs.1,90,529/- for club expenses. The CIT(A) sustained the AO’s disallowances, leading the appellant to further appeal to the ITAT.
The appellant raised the following grounds:
The appellant argued that the payment of EDC was in compliance with the agreement executed with the Governor of Haryana and not subject to TDS. Regarding club expenses, the appellant contended that these were incurred for business promotion and meetings, with no personal benefit derived by the Managing Director.
The Departmental Representative (DR), Shri M. Baranwal, argued that HUDA is not a part of the government or a corporation established under a Central Act, thus making TDS applicable. The DR also contended that the club expenses were personal in nature and not related to business activities.
The ITAT examined the arguments and evidence presented by both sides. The tribunal made the following observations and decisions:
The tribunal highlighted the importance of proper service of notices for ensuring fair play and justice. It found that the CIT(A) did not verify whether the notices were actually served on the appellant at the given address.
The ITAT held that the CIT(A) should have decided the appeal on the merits of the case. The tribunal emphasized that the CIT(A) did not provide a reasonable opportunity for the appellant to present its case, especially considering the significance of the issues involved.
In the interest of justice and fair play, the ITAT restored the appeal to the file of the Assessing Officer (AO) with a direction to verify the details of the payments. The ITAT instructed the AO to delete the addition if the payments were made before the specified date. The tribunal’s decision reinforces the principle that due process and fair hearing are essential components of justice.
Order pronounced in the open court on October 13, 2021.
Signed by:
Shri R.K. Panda, Accountant Member
ITA No. 1856/DEL/2020 – Vipul Ltd vs ACIT Circle-26(2), New Delhi: Appeal Against TDS Disallowance
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