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Facts
The assessee's return was processed with an adjustment under Section 40(a)(ia) for Rs. 5,70,19,180/- due to non-deduction of tax at source on subcontract charges. The CIT(A) restricted this disallowance to 30%, amounting to Rs. 1,71,05,754/-. The assessee appealed, contending that they should not be deemed "assessee in default" as per the first proviso to Section 201(1) and the second proviso to Section 40(a)(ia).
Held
The Tribunal upheld the CIT(A)'s decision, stating that the assessee failed to demonstrate that the payee had fulfilled the conditions stipulated in the first proviso to Section 201(1), specifically by not furnishing the required accountant's certificate. Consequently, the disallowance restricted to 30% under Section 40(a)(ia) was confirmed.
Key Issues
Whether the disallowance under Section 40(a)(ia) for non-deduction of TDS was justified when the assessee failed to prove that the payee satisfied the conditions of the first proviso to Section 201(1).
Sections Cited
40(a)(ia), 201(1), 143(1), 194C, 139
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Income Tax Appellate Tribunal, MUMBAI “D” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI RAHUL CHAUDHARY
Assessment Year : 2020-21 Moreshwar Builders and Income Tax Officer, Developers & Tejas Ward-3(2), Superstructures vs. 2nd Floor, Rani Mansion, Private Limited JV, Kalyan Murbad Road, A-01, Shubhvastu Apartment, Above Canara Bank, Pandit Dindayal Road, Kalyan Dombivli West, Maharashtra-421301. Thane, Maharashtra-421202. PAN : AABAM6975E (Appellant) (Respondent) For Assessee : NONE For Revenue : Shri Annavaram Kosuri, Sr.DR Date of Hearing : 23-09-2025 Date of Pronouncement : 24-09-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Learned Addl/JCIT(A)-2, Ahmedabad, dated 13-03-2025, pertaining to Assessment Year (AY) 2020-21, wherein the assessee has taken the following grounds of appeal:
“1. THE ORDER IS BAD IN LAW, ILLEGAL AND WITHOUT JURISDICTION 1.1 In the facts and the circumstances of the case, and in law, the appellate order framed by the Additional / Joint Commissioner of Income tax (Appeals)-2.
Ahmedabad, ['Ld. CIT (A)'] is bad in law, illegal and without jurisdiction, as the same is framed in breach of the statutory provisions and the scheme and as otherwise also is not in accordance with the law. 1.2 Otherwise also, in the facts and the circumstances of the case, and in law, the appellate order so framed by the Ld. CIT (A) is bad in law, illegal and void as the same is arbitrary and perverse.
2. VIOLATION OF PRINCIPLES OF NATURAL JUSTICE 2.1 The Ld. CIT (A) erred in not granting proper, sufficient and adequate opportunity of being heard to the Appellant while framing the appellate order. 2.2 It is submitted that, in the facts and the circumstances of the case, and in law, the appellate order so framed be held as bad and illegal, as: (i) The same is framed in breach of the principles of natural justice; and (ii) The same is passed without application of mind to the facts. WITHOUT PREJUDICE TO THE ABOVE 3. DISALLOWANCE OF EXPENSES OF RS. 1,71,05,754/- (ΒΕΙNG 30% OF THE TOTAL EXPENDITURE OF RS. 5,70,19,180/-) U/S. 40(a)(ia) OF THE ACT 3.1 The Ld.CIT(A) erred in confirming the action of the A.O. in making disallowance of the expenditure to the extent of Rs.1,71,05,754/- (being 30% of the total expenditure of Rs. 5,70,19,180/-) to the income of the Appellant, on account of non- deduction of tax at source by invoking section 40 (a) (ia) of the Income -tax Act, 1961 ["the Act"]. 3.2 While doing so, the Ld.CIT(A) failed to appreciate that - (i) the Appellant cannot be treated as "assessee - in - default" in view of first proviso to section 201 (1) of the Act; and (ii) the case of the Appellant falls within the purview of second proviso to section 40 (a) (ia) of the Act. 3.3 It is submitted that in the facts and the circumstances of the case, and in law, no such disallowance was called for. 3.4 Without further prejudice to the above, assuming but not admitting that some disallowance was called for, the Ld. CIT (A) failed to appreciate that the computation of the disallowance made by the A.O. was arbitrary, excessive and not in accordance with the law.”
Briefly the facts of the case are that the assessee filed its return of income on 13-02-2021 which was processed by the AO/CPC and intimation issued u/s. 143(1) of the Income Tax Act, 1961 („the Act‟) dated 03-11-2021. While processing the return of income, the CPC has made an adjustment u/s. 40(a)(ia) of the Act amounting to Rs. 5,70,19,180/-. Against the said intimation, the assessee carried the matter in appeal before the Ld.CIT(A). The Ld.CIT(A) has partly allowed the appeal of the assessee and against the said order, the assessee is in appeal before us.
None appeared on behalf of the assessee nor was any adjournment application filed. Considering the fact that notices have been issued and duly served on the assessee, we find that no useful purpose would be served in adjourning the matter any further and to decide the matter based on material available on record.
The Ld.DR is heard, who has relied on the order of the Revenue authorities.
Heard the Ld.DR and perused the material available on record. As noted above, the CPC while processing the return of income has made an adjustment u/s. 40(a)(i) of the Act on account of non-compliance with the provisions of Chapter XVII-B amounting to Rs. 5,70,19,180/-. The assessee thereafter carried the matter in appeal before the Ld.CIT(A) and as part of its submissions, it was submitted that it has claimed deduction of Rs. 5,70,19,180/- towards sub-contract charges paid to M/s. Mayureshwar Infrasupplies Pvt. Ltd., and since the assessee was required to deduct tax at source u/s. 194C of the Act and since the tax was not deducted at source, the tax auditor made the disclosure in the tax audit report. It was submitted that tax auditor has erroneously made disclosure u/s. 40(a)(i) instead of section 40(a)(ia) of the Act, which is the correct section since the payments are made to an Indian company and not to a foreign company. Besides that there were submissions on delay in filing of the appeal before the Ld.CIT(A).
The Ld.CIT(A) considered the submissions so made by the assessee and considering the facts and circumstances of the case, the delay in filing of the appeal was condoned and the appeal was admitted for adjudication. On merits, the Ld.CIT(A) has given the findings, stating that while filing the return of income, the assessee has claimed 100% of the payment made to the residents under the provisions of section 40(a)(i) of the Act amounting to Rs. 5,70,19,180/-. The AO/CPC has fully disallowed the claim of the appellant, however, the provisions of section 40(a)(ia) of the Act are applicable which restricts disallowance to 30% of payment made to residents without deduction of tax at source considering the fact that the assessee-company has produced documents that payment has been made to a resident company and disallowance was restricted to Rs. 1,71,05,754/- and reliance was placed on the decision of the Hon‟ble Supreme Court in the case of CIT vs. Calcutta Export Co. [2018] 404 ITR 654 (SC) which clarifies that procedural lapses should not lead to excessive disallowances.
During the course of hearing as we have noted supra, none appeared on behalf of the assessee nor have any written submissions been filed. However, on perusal of the grounds of appeal, it is noted that the assessee has challenged the action of the Ld.CIT(A) due to lack of opportunity which we find factually incorrect as the ld CIT(A) has taken into consideration the submissions so filed by the assessee and the fact that the payment has been made to resident company and not to a non-resident company and basis the submissions so made and applying the provisions as relates to facts of the case, has restricted the disallowance from 100% to 30%.
8. The assessee has further challenged the action of the Ld.CIT(A) stating that the Ld.CIT(A) has failed to appreciate that the assessee cannot be treated as assessee-in-default under the 1st proviso to section 201(1) of the Act and the assessee‟s case thus falls within the 2nd proviso to section 40(a)(ia) of the Act and thus, no such disallowance was called for.
In this regard, we have gone through the provisions of section 201(1) of the Act. The 1st proviso to section 201(1) of the Act provides that - “Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed.”
We have also gone through the second proviso to section 40(a)(ia) of the Act which provides that where the assessee fails to deduct the whole or any part of the tax but is not deemed to be an assessee in default under the 1st proviso to section 201(1) of the Act, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso.
In the instant case, we find that there is nothing on record which could demonstrate that the payee has fulfilled the requisite conditions so specified in the first proviso to section 201(1) and the assessee has furnished a certificate from an accountant in this behalf before the Ld.CIT(A). The Ld.CIT(A) has rightly invoked the provisions of section 40(a)(ia) of the Act and has restricted the disallowance to 30% of sum so claimed by the assessee as contract charges to a resident company where admittedly, the assessee has failed to deduct tax at source. In light of the same, we do not see any infirmity in the order so passed by the Ld. CIT(A) and the same is hereby confirmed and the grounds so taken by the assessee are dismissed.
Ground No. 1 is general in nature and it doesn‟t require any separate adjudication.
In the result, the appeal filed by the assessee is dismissed.