Section 40(a)(ia) – Disallowance u/s. 40(a)(ia) is not attracted if the payment on which tax has not been deducted at source has not been claimed as an item of deductible expenditure.
Facts:
The Assessing Officer (AO) while assessing the total income of the assessee disallowed a sum of Rs. 85,05,05,515, being payments by the assessee to various hospitals without deduction of tax at source u/s. 194J of the Act, by invoking the provisions of s. 40(a)(ia) of the Act.
Aggrieved, the assessee preferred an appeal to the CIT(A) who restricted the addition to Rs. 10,65,669 and deleted the remaining addition of Rs. 84,94,39,847 on the basis of certificates submitted by the payee hospitals u/s. 197 of the Act.
Aggrieved, the assessee preferred an appeal to the Tribunal and contended that the assessee had not claimed these payments as expenditure, hence there was no question of disallowance of any expenditure. Once an expenditure has not been claimed, no question of disallowance of the same can arise.
Held:
The Tribunal noted that in the assessee’s own case for assessment year 2009-10 vide ITA No. 2188/M/2013 dated 25.07.2014 the Tribunal, after detailed discussion, has observed as under –
“7. Though the assessee is under the obligation to deduct tax at source u/s. 194J however, the consequential liability is only u/s. 201 and 201(1A) and the disallowance u/s. 40(a)(ia) cannot be automatic when the assessee has not claimed this payment as expenditure against the income. The assessee has shown the income, only the service charges receivable from insurance companies for rendering services as 3rd party administrator and not having any margin or profit element in the payment received from the insurers for the purpose of remitting to the hospitals to settle medical claim of the insured. Therefore, when the said payment has not been claimed as expenditure incurred for earning the income by the assessee then the provisions of section 40(a)(ia) is not attracted for non deduction of tax at source in respect of the said payment. Following the decisions of the Tribunal as relied upon by the assessee and discussion above we hold that no disallowance can be made under section 40(a)(ia) in respect of the payment in question. Accordingly the ground raised in assessee’s appeal is allowed and ground raised in the revenue’s appeal is dismissed.”
The Tribunal, following the above stated observations, decided the issue in favor of the assessee and directed the lower authorities to delete the disallowance.
The appeal filed by assessee was allowed.
