The division bench of Delhi High Court comprising Justice Manmohan and Justice Manmeet Pritam Singh Arora has held that disallowance under section 40(a)(ia) of the Income Tax Act is not required in case of short deduction of TDS.
The appellant department has challenged the ruling of the ITAT which has given concurrent findings in favour of the assessee, Future First Info. Services Pvt. ltd on the issue of remuneration paid to the director. The department contended that the ITAT had erred in deleting the addition of Rs. 1,03,53,150 made by the assessing officer under Section 40A (2) even after the assessee failed in justifying their actions.
It was observed by the ITAT that the higher salary paid to the director was accepted by the assessing officer during the assessment proceeding and the assessing officer had arbitrarily disallowed 50% of the remuneration without any reason and material fact.
The ITAT held that the AO had not given cogent reason to conclude that the remuneration paid was not commensurate with the market value of the services rendered by the Managing Director.
The court relied on the decision of the Calcutta High Court in the case of CIT vs. SK Tekriwal where it was held that section 40 (a)(ia) refers only to the duty to deduct tax and pay into government accounts. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default under section 201 of the Income Tax Act,1961 and no disallowance can be made by invoking the provision of section 40(a)(ia) of the Act.
The court dismissed the appeal of the department as no substantial question of law arose in the proceedings. Mr Sanjay Kumar, senior standing counsel appeared with Ms Easha Kadian on behalf of the department and Mr Sumit Lalchandani appeared on behalf of the assessee.
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