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Facts
The assessee filed an appeal against the order of the CIT(A) upholding an adjustment made by the CPC u/s 143(1) for short deduction of TDS amounting to Rs. 87,47,488/- u/s 40a(ia) of the Income Tax Act. The issue was whether the disallowance for short deduction of tax at source was sustainable.
Held
The Tribunal held that the provisions of section 40(a)(ia) of the Act cannot be invoked if tax has been deducted by the assessee, even under a bonafide wrong impression. The section applies only to non-deduction or non-payment of tax, not to shortfalls due to differences in opinion.
Key Issues
Whether disallowance u/s 40(a)(ia) is sustainable when TDS was deducted at a lower rate than prescribed, but not entirely non-deducted.
Sections Cited
143(1), 40a(ia), 194C, 1941, 139, 201
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Income Tax Appellate Tribunal, DELHI
ORDER PER YOGESH KUMAR, U.S. JM:
The present appeal is filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals)(‘Ld. CIT(A)’ for short), New Delhi dated 29/11/2024 for the Assessment Year 2019-20.
The sole grievance of the Assessee in the present Appeal is against order of the Ld. CIT(A) in upholding the adjustment made by the Assistant Director of Income Tax (CPC) u/s 143(1) of the Income Tax Act, 1961 ('Act' for short)to the tune of Rs. 87,47,488/- u/s 40a(ia) of the Act for short deduction of TDS on the basis of the reporting in the Tax Audit Report.
The Ld. Counsel for the Assessee submitted that the issue of disallowance u/s 40a(ia) of the Act on account of short deduction of tax at source is squarely covered by the order of the Jurisdictional High Court in the case of Pr. CIT Vs. Future First info Services (P.) Ltd. [2022]145 taxmann.com 35 (Del)]. Thus, the ld. Assessee's Representative sought for allowing the Appeal of the Assessee.
Per contra, the Ld. Department's Representative by relying on the orders of the Lower Authorities sought for dismissal of the Appeal.
We have heard both the parties and perused the material available on record. The sole issue to be considered in the present Appeal is as to whether the disallowance made by the CPC u/s 40a(ia) of the Act amounting to Rs. 87,47,488/- on account of short deduction of tax at source is sustainable or not. The said issue is no more res-integra. The Jurisdictional High Court in the case of Future First info Services (P.) Ltd. (supra) held as under:-
"We are satisfied that the order under challenge is a just order. The reasoning appearing at paragraph 6 of the judgment and/or order under challenge reads as follows: "In the present case before us the assessee has deducted tax u/s. 194C(2) of the Act being payments made to sub-contractors and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40a(ia) of the Act.But the revenue's contention is that the payments are in the nature of machinery hire charges falling under the head 'rent' and the previous provisions of section 194I of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% u/s. 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only non-deduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or otherwise but addition u/s. 40(a)(ia) can be made even though payments are genuine but tax is not deducted as required u/s.40(a)(ia) of the Act. We are of the view that the conditions laid down u/s.40(a)(ia) of the Act for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then 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. Here in the present case before us, the assessee has deducted tax u/s. 194C(2) of the Act and not u/s. 194I of the Act and there is no allegation that this TDS is not deposited with the Government account. We are of the view 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. With regard to the shortfall, it cannot 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'. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. 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." (emphasis supplied) 6. By respectfully following the order of Jurisdictional High Court in the case of Future First info Services (P.) Ltd. (supra), we allow the Grounds of Appeal of the Assessee and set aside the order impugned of the Ld. CIT(A).
7. In the result, the Appeal of the Appellant is allowed.