No disallowance u/s 40(a)(ia) can be made for short deduction of TDS or deduction under wrong head. ITAT follows jurisdictional High Court decision.
The point for consideration was as to whether the provisions of section 40(a)(ia) of the Act could be invoked for short deduction of tax at source.
ABCAUS Case Law Citation:
ABCAUS 2334 (2018) (05) ITAT
No disallowance u/s 40(a)(ia) for short deduction of TDS
The Assessing Officer had made a disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 (the Act) on account of for short deduction of tax at source (TDS). The CIT upheld the addition.
The Tribunal observed that the jurisdiction High Court in a similar case, had held that that the conditions laid down u/s.40(a)(ia) of the Act for making an addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then only such payment can be disallowed u/s 40(a)(ia) of the Act but where tax is deducted by the assessee, even under bonafide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked.
The Hon’ble High Court had held that where the assessee had deducted tax under the wrong section and there was no allegation that the tax so deducted had not been deposited with the Government account, the said disallowance could not bemade.
The Hon’ble High Court had opined that the provisions of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction.
The Hon’ble High Court had clarified with regard to the shortfall, it could not be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, ‘on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139’. Section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account.
The Hon’ble High Court opined that 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 u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act.
Following the jurisdictional High Court, the Tribunal held that that no disallowance u/s 40 (a)(ia) of the Act could be made in the hands of the assessee but the assessee could be proceeded against only under section 201 of the Act in such cases.
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