Provisions of Disallowance u/s 40(a)(ia) not applicable to Short-Deduction of TDS: ITAT [Read Order]

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The Income Tax Appellate Tribunal (ITAT), Kolkata bench has held that the provisions of disallowance under section 40(a)(ia) of the Income Tax Act, 1961 does not apply to the short deduction of tax as it covers only cases of non-deduction of tax. The department, while completing the proceedings against the assessee-Company, has invoked sec.40(a)(ia) disallowance of 1,19,95,048/- on account of non-deduction of TDS under section 194C of the Act on various heads of payments.

The Officer noted that the appellant was liable to deduct TDS of Rs4,08,954 under section 194C of the Income Tax Act from the total expenditure of Rs.2,08,88,541 relating to can outwards, labour charges, car hire charges, security charges, advertisement, and office decoration charges. However, the deduction was made only of Rs.1,61,856 resulting in the short deduction of rupees 2,47,098.

According to section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

Overruling the decisions of the lower authorities, the Tribunal held that this is not an instance of the non-deduction of TDS.

“Learned departmental representative fails to dispute that gong by the Assessing Officer’s(AO) detailed discussion in pages 2 to 3 in his assessment order dated 07.01.2016, the assessee had indeed deducted TDS u/s.194C albeit at a lesser rate followed by three other head(s) of 194-H, 194-I and 194- J involving nil deduction. And also that the Assessing Officer(AO) had disallowed the impugned sum under the first head only. We observe in this factual backdrop that hon’ble jurisdictional high court’s decision in Commissioner of Income Tax vs. S.K. Tekriwal 361 ITR (Cal) holds that the impugned disallowance u/s 40(a)(ia) does not apply in a case involving short deduction of TDS. We, therefore, go by the very reasoning and direct the Assessing Officer(AO) to delete the impugned disallowance,” the Tribunal said.

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