Sec 40A(3) V/s 43B V/s 40a(i a)

This query is : Resolved

CA. Lohith Jagadeesh (Querist)
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08 February 2011 Hi
Dear All,

Please Confirm me the Treatment in the following issue.

If A Company pays Commission to its Employee (Resident) an Amount of Rs. 40000/- in Cash, for which TDS is deducted but not deposited to Govt in the Pyr(2009-10), but deposited in the next Pyr(2010-11) relevant to the Ayr (2011-12)

Whether Sec 40a(ia) or Sec 43B or
Sec 40A(3) is aplicable????

If Sec 40a(ia) is applicable though it will be disallowed for the Pyr 2009-10 as TDS has not been deposited to Govt, will it be allowed in Pyr 2010-11 as the TDS is been Deposited in 2010-11.

IF yes, then what is the significance of Sec 40A(3)- payments made in cash???

Sec 43B - Expenditure allowed only on payment basis ???

( Again as far as 43B is Concerned since the Sec allows deduction on payment basis and evidence of TAX has been produced in the Pyr 2010-11, the amount of Commission PAID to the employee, can the expenditure be claimed in the Pyr 2010-11 itself????)

Then will provisions of Sec 40A(3) be defeated if the expenditure was allowed in the Pyr 2010-11

Thanks

Regards
CA.Lohith.J
B.Com,ACA,CS,(ICWA),ITF Hons,SAPM Hons

chetan soni

chetan soni (Expert)
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08 February 2011 My opinion:

All the sections should be read independently. Lets see the disallowances & allowances;

AY 2009-10

-Cash paid in excess of limits is disallowed u/s 40A(3).
- TDS deducted but not paid to govt before due date of filing the return of income, then expenses related to such deduction is disallowed u/s 40a(ia)
- Section 43B is not applicable as you have paid the commission due to employees after deduction of TDS. Also TDS is not covered as tax in sec. 43B.

AY 2010-11
- TDS paid of last year then expenses disallowed in earlier years can be claimed on payment of TDS.

Comments welcome

Kapil Gupta

Kapil Gupta (Expert)
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08 February 2011 1. Section 40A(3) is applicable as the expenses has been paid in cash. It does not matter whether the TDS has been deducted or not. The expenses will not be allowed in any year.
2. As the asses see has deducted the TDS but not deposited with the tax authorities in time so need to make payment with interest other-wise the penalty provisions are applicable.

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CA. Lohith Jagadeesh

CA. Lohith Jagadeesh (Querist)
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10 February 2011 Hi,
My Concern about the above issue is that, 1)Which section should be taken as a specific section to over rule the general section....????

Again In my opinion Section 43B may be applicable in a sence that the expenditure of Commission paid to Employee is covered under it & Once the evidence of Tax paid ( TDS payment amounting to Tax payment), so therefore the expenditure is allowable....

However there is a point that Evidence of TAX payment though not there in Pyr 2009-10, the same is available in the Pyr 2010-11....

Again Sec 43B says if the PAYMENT is made with in the due date of Filing the Return of Income U/Sec 139(1)& evidence of Tax paid is shown then, expenditure can be allowed.....

Further Since the issue is

Payment made to employee is in Pyr 2009-10
Evidence of Tax is shown is Pyr 2010-11

how to treat it, as the Section [Sec 43B] also says that the expenditure if paid after due date of filing the ROI will be allowed in the in the year of Actual payment....

Mean while going by the Provisions of Sec 40A(3) I agree that it shall be disallowed in Pyr 2009-10, but what about Pyr 2010-11 as Sec 40a(ia) & Sec 43B protects by saying that payments can be claimed in the year TDS on which is Deposited i.e. in Pyr 2010-11.

Comments Welcome

Regards
CA. Lohith. J
B.Com,ACA,CS,(ICWA),ITF Hons,SAPM Hons

Kapil Gupta

Kapil Gupta (Expert)
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11 February 2011 Dear Lohit,
First of all, the Section 43B, is not concerned about TDS.

Secondly the provision of Section 40A is a overriding section over all other sections. It starts from "The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head “Profits and gains of business or profession”
So dont be confused, the expense is not allowed in any case. And as the assessee has deducted the TDS and failed to deposit in time, the penalty provisions are applicable.

CA. Lohith Jagadeesh

CA. Lohith Jagadeesh (Querist)
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11 February 2011 Hi, Mr. Kapil.

It was not about the confusion part, jus wanted to clarify the stand about over riding Sections.
Thanks for the Information, now its pretty convincing...:)

Will be glad to share some more such issues,

Regards

CA. Lohith. J
B.Com,ACA,CS,(ICWA),SAPM Hons,ITF Hons