No disallowance u/s 40(a)(ia) for short deduction of TDS made at less than prescribed rates. ITAT deleted addition following various judgments of High Courts.
ABCAUS Case Law Citation:
ABCAUS 3076 (2019) (07) ITAT
DCIT vs. Chandabhoy reported in (2012) 17 taxmann. Com 158 (Mum.)
CIT-LTU vs. HewlettPackard India Sales (P.) Ltd. reported in 382 ITR 496 (Kar).
This appeal was filed by the assessee against the order passed by CIT(A) in upholding disallowance u/s 40(a)(ia) on account of short deduction of TDS.
The assessee was carrying on the business of Hotels. During the scrutiny assessment, the Assessing Officer observed that the assessee company had paid license fees to various parties after deducting tax at source u/s 194I of the Income Tax Act, 1961 (the Act) at the applicable rates. However, it was noted that in case of one party, the tax at source was deducted as 2% instead of 10%.
The assessee submitted that that said payments were not covered u/s 194-I. However, the Assessing Officer was not convinced and he made a disallowance u/s 40(a)(ia).
Being aggrieved by the assessment order the assessee filed appeal before the CIT(A) who dismissed the appeal of the assessee.
Before the Tribunal, the assessee submitted that the CIT(A) relied upon the decision of assessee for earlier year where the Tribunal had upheld the disallowance u/s 40(a)(ia) but the assessee had filed Miscellaneous Application in which the said issue was decided in favour of the assessee by the Tribunal.
No disallowance u/s 40(a)(ia) for short deduction of TDS
The Tribunal noted that the CIT(A) had relied upon the non-modified decision of the Tribunal which was subsequently decided in favour of the assessee.
The Tribunal observed that in the modified decision, the Tribunal had relied upon the judgment of the High Court wherein the Hon’ble Court had held that in case of any shortfall due to any difference of opinion as to the taxability of any item or nature of payments falling under the various TDS provisions, the assessee can be declared to be the assessee in default u/s 201 of the Act but no disallowance can be made by invoking provisions of section 40a(ia) of the Act.
The Hon’ble High Court had observed that the provisions of section 40a(ia) have two limbs; one is where, inter alia, the assessee has to deduct tax and second where after deducting tax, inter alia, the assessee has to pay the same into government account.
The Tribunal had noted that according to the High Court there was nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction and further, section 40a(ia) refers only to the duty to deduct tax and pay to government account.
The Tribunal had observed that in the dispute in hand there was no allegation that the tax deducted was not paid into the government account and the only fault of the assessee was the failure on its part to deduct tax at the prescribed rate, which as per the judgment of the Hon’ble High Court did not attract disallowance u/s 40a(ia) of the Act.
Accordingly, the Tribunal following the ratio of the various judgments had allow the assessee’s appeal.
In the instant case also the Tribunal observed that the issue in dispute was identical and hence the appeal of the assessee was allowed
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