By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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Section 40(a)(ia) – No disallowance can be made u/s 40(a)(ia) in cases of short deduction of tax at source.
Facts :
In respect of certain payments made by the assessee to resident contractors the Tribunal vide its order dated 29th March, 2012 decided that the assessee was liable to deduct tax at source u/s. 194I and not u/s. 194C as was the contention of the assessee. Aggrieved by this order of the Tribunal, the assessee carried the matter, by way of an appeal u/s. 260A, to the High Court. The High Court vide its order dated 26th November, 2013 held that the assessee was liable to deduct tax at source u/s. 194I and not u/s. 194C. For the limited purposes of applicability of section 40(a)(ia) of the Act in respect of short deduction of tax, i.e., deduction of tax at 2.06 % instead of 10 % u/s. 194-I of the Act, the High Court restored the matter to the file of the Tribunal.
Held:
The Tribunal noted that the issue of disallowance in respect of short deduction of of tax at source has been considered by the co-ordinate Bench in the case of Apollo Tyres Ltd. vs. Dy. CIT [2013] 60 SOT 1 (Cochin). Having considered the provisions of section 40(a)(ia) and also the provisions of section 201(1A), the Tribunal held that section 40(a)(ia) does not envisage a situation where there was short deduction/lesser deduction as in case of section 201(1A) of the Act. There is an obvious omission to include short deduction/lesser deduction in section 40(a) (ia) of the Act. Therefore, the entire expenditure whose genuineness was not doubted by the Assessing Officer, cannot be disallowed. The Tribunal set aside the orders of lower authorities and deleted the entire disallowance.
