Thakur Vaidyanath Aiyar & Co. vs ACIT Circle 61(1), New Delhi: TDS Payable and Other Disallowances – ITA 6602/DEL/2019

Thakur Vaidyanath Aiyar & Co. vs ACIT Circle 61(1), New Delhi: TDS Payable and Other Disallowances – ITA 6602/DEL/2019

This case pertains to the appeal filed by Thakur Vaidyanath Aiyar & Co. against the order passed by the Commissioner of Income Tax (Appeals)-20, New Delhi, dated 25th June 2019, in relation to the assessment year 2016-17. The case was heard by the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘H’, on 13th January 2023, with the final order pronounced on 21st February 2023.

Background of the Case

Thakur Vaidyanath Aiyar & Co., a reputed Chartered Accountant firm based in New Delhi, filed its return of income for the assessment year 2016-17, declaring a total income of Rs. 1,20,21,590. The firm follows the cash system of accounting and derived its income primarily from business or profession, along with some income from other sources.

The case was selected for compulsory manual scrutiny, and during the assessment, certain discrepancies were noted by the Assessing Officer (AO), leading to additions to the assessee’s income on account of TDS payable, service tax payable, and travel expenses. The AO disallowed these expenses, stating that they were not paid within the financial year and thus could not be claimed under the cash system of accounting.

Key Issues and Grounds of Appeal

The appellant raised several grounds in their appeal, challenging the additions made by the AO and sustained by the CIT(A). The primary grounds of appeal included:

1. Addition of Rs. 87,800 on account of TDS payable as of 31st March 2016.
2. Addition of Rs. 4,43,348 due to a mismatch of TDS and corresponding income.
3. Disallowance of Rs. 2,09,181, being 10% of the travel expenses claimed by the firm.

Tribunal’s Findings and Decision

The ITAT carefully examined the submissions made by both parties and reviewed the relevant documentation, including the balance sheet, TDS certificates, and reconciliation statements provided by the assessee. The tribunal’s findings on each of the key issues are as follows:

TDS Payable – Rs. 87,800

The AO had disallowed the TDS payable, arguing that under the cash system of accounting, only expenses paid within the financial year can be claimed as deductions. However, the tribunal noted that the assessee had paid the TDS amount before the due date of filing the return under Section 139(1) of the Income Tax Act. Citing precedents from the assessee’s own cases for previous assessment years, the ITAT ruled that the addition of Rs. 87,800 could not be sustained. The AO was directed to delete this addition.

Mismatch of TDS and Income – Rs. 4,43,348

The tribunal observed that the AO had noted a mismatch between the TDS credits available and the income declared by the assessee. However, the assessee explained that it followed the cash system of accounting, where income is recognized only when received. The tribunal accepted the assessee’s reconciliation statement, which detailed the receipts corresponding to the TDS credits in the subsequent financial year. The issue was remanded to the AO for verification, with instructions to consider the reconciliation provided by the assessee.

Disallowance of Travel Expenses – Rs. 2,09,181

The AO had disallowed 10% of the travel expenses claimed by the assessee, citing a lack of evidence to prove that the expenses were incurred wholly and exclusively for business purposes. The CIT(A) had upheld this disallowance. However, the ITAT found that the disallowance was made on an ad hoc basis without proper inquiry or evidence. Given the nature of the assessee’s profession and the expenses incurred, the tribunal directed the AO to delete the disallowance, ruling that it was not justified.

Conclusion

The ITAT’s decision in ITA 6602/DEL/2019 was largely in favor of Thakur Vaidyanath Aiyar & Co. The tribunal directed the deletion of the TDS payable and travel expense disallowances, while the issue of income mismatch was sent back to the AO for further verification. The appeal was allowed, and the case highlights the importance of proper documentation and adherence to accounting principles, particularly when dealing with TDS and expense claims under the cash system of accounting.

Thakur Vaidyanath Aiyar & Co. vs ACIT Circle 61(1), New Delhi: TDS Payable and Other Disallowances – ITA 6602/DEL/2019