S R CONSTRUCTION COMPANY,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1), BANGALORE., BENGALURU

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ITA 2669/BANG/2025Status: DisposedITAT Bangalore23 July 2026AY 2023-247 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that disallowance under section 40(a)(ia) is not applicable if the payee has declared the income and paid tax, even if Form 26A was not filed with DGIT(Systems). The Tribunal also held that disallowance under section 40A(3) is not justifiable if the genuineness of the expenditure is not doubted and there is a case of business expediency.

What were the facts?

The assessee made purchases without deducting TDS under section 194Q and incurred sub-contractor expenses without deducting TDS under section 194C. Additionally, cash payments exceeding the prescribed limit were made under section 40A(3), and penalty interest was claimed as an expense.

What were the issues?

Whether disallowance under Section 40(a)(ia) is warranted when the payee has paid tax, and whether disallowance under Section 40A(3) is justified when the genuineness of expenditure is not disputed.

Which sections of the Income-tax Act were involved?

Section 194Q,Section 194C,Section 40(a)(ia),Section 40A(3),Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: SHRI BALAKRISHNAN S & SHRI KESHAV DUBEY

For Respondent: Shri. Pradeep S - Addl. CIT
Pronounced: 23.07.2026

आयकरअपीलीयअिधकरण, ब�गलु�पीठ�, ब�गलु� INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE BENCH: B BEFORE SHRI BALAKRISHNAN S, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.2669/BANG/2025 िनधा�रणवष�/Assessment Year: 2023-24) S R Construction Company Vs. The Deputy Commissioner Of No. 2732, 4th Floor, 14 Th Main Road, Income Tax, Circle-7(1)(1), E Block, Sahakarnagar,, Bengaluru- Bangalore. 560092, Karnataka. अपीलाथ� Appellant ��थ� Respondent

Permanent Account Number of Assessee: ABQFS9935H

अपीलाथ��ारा/Appellant represented by: Shri. N. V. Prasad - CA ��थ��ारा/Respondent represented by: Shri. Pradeep S - Addl. CIT

सुनवाईकीतारीख / Date of conclusion of hearing: 22.06.2026 घोषणाकीतारीख / Date of pronouncement: 23.07.2026 आदेश / ORDER Per Balakrishnan S, Accountant Member : This appeal is filed by the Assessee against the order of Ld. CIT(Appeals), NFAC, New Delhi. vide DIN: ITBA/NFAC/S/250/2025-26/1080785137(1) dated 16.09.2025 for the Assessment Year 2023-24 arising out of the Order passed under section 143(3) of the Act, dated 17.03.2025.

2.

Briefly stated the facts of the case are assessee filed its return of income for the Assessment Year 2023-24 on 16.09.2023. The return was summarily processed under section 143(1) on 08.01.2024. Subsequently, the case was selected for scrutiny under CASS for the issue of “Business purchases made by the assessee and no TDS deducted under section 194Q of the Act ad notice under sections 143(2) and 142(1) of the Act were issued and served on various dates”. 1

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3.

The assessee submitted the details called for by the learned AO. On perusal of the information furnished by the assessee, the learned AO noticed that the assessee has made payment of Rs.1,15,06,354/- for purchases without deduction of Tax at Source under section 194Q of the Act. He therefore proposed to disallow a sum of Rs.34,51,906/- being 30% of the expenditure which should be disallowed under section 40(a)(ia) of the Act. Further, the learned AO also noticed that assessee has made payment of Rs.17,97,37,152/- as sub-contractor expenses without deduction of Tax at Source under section 194C of the Act on these payments. The AO therefore proposed to add Rs.5,39,21,145/- being 30% of the contractual payments under section 40(a)(ia) of the Act. Further, the learned AO also noticed that assessee has made payment exceeding Rs.10,000/- per day to various parties and therefore proposed to disallow a sum of Rs.1,07,20,250/- under section 40A(3) of the Act. Further, the learned AO also noticed that assessee has claimed penalty interest amounting to Rs.7,73,573/- under section 37(1) of the Act and added the same to the income of the assessee by disallowing it.

4.

On being aggrieved by the additions made by the learned AO, assessee carried the matter before the learned CIT(A). The learned CIT(A), after considering the information furnished by the assessee, being not satisfied upheld the Order of the learned AO while dismissing the appeal of the assessee.

5.

On being aggrieved by the Order learned CIT(A), assessee is in appeal before us by raising the following grounds:

1.

On the facts and circumstance of the case Learned CIT(A) is not justified in passing the order without giving opportunity. 2. On the facts and circumstance of the case Learned CIT(A) might have given another opportunity before passing the order. 3. On the facts and circumstance of the case Learned CIT(A) is not justified in confirming the addition of Rs.17,35,831/- towards disallowance U/s 40(a)(ia) of the Income Tax Act.

ITA No.2669/BANG/2025 Page 3 of 7

4.

On the facts and circumstance of the case, Learned CIT(A) is not justified in confirming the addition of Rs.1,07,20,250/- towards disallowance U/s 40(A)(3) of the Act. 5. On the facts and circumstance of the case, the Learned CIT(A) is not Justified in confirming the addition of Rs.8,77,539/- towards disallowance U/s 40(a)(ia) of the Income Tax Act. 6. ON the facts and circumstance of the case, the Assessing Officer travelle.c beyond the reasons selected for scrutiny which is without jurisdiction arz: consequently the additions made by the Assessing Officer is with ()L.; jurisdiction. 7. Any other ground or grounds that may be urged at the time of hearing of appeal . 6. Ground Nos.1, 2 and 7 are general in nature and needs no adjudication. Ground Nos.3 and 5 are with respect to the disallowance under section 40(a)(ia) of the Act. On this issue, the learned AR submitted that assessee has obtained Form 26A from the parties on which Tax at Source ought to have been deducted by the assessee. He further submitted that the parties have declared their entire income received from the assessee and has discharged the tax due on the income while filing their return of income. The learned AO / CIT(A) has not doubted the genuineness of the payments or the contents of Form 26A. However, did not accept the same since the return of income filed by the parties was not produced before the Revenue. On this issue, the learned AR relied on the decisions in the case of Jai Mata Di Vs. ITO in ITA No.508/CTK/2017 and DCIT Vs. Essix Biosciences Ltd., in ITA No. 534/CHD/2023. He therefore prayed that the addition made by the learned AO be deleted.

7.

Per contra, the learned DR vehemently argued by stating that return of income filed by the third parties establishing the income disclosed which was received by the assessee was not produced before the Revenue authorities. He therefore pleaded that the Order of the learned AO be upheld.

8.

We have heard the rival contention and perused the material available on record. It is the case of the learned AO that the assessee has not deducted tax at source under

ITA No.2669/BANG/2025 Page 4 of 7

section 194Q of the Act while making the payment for purchases amounting to Rs.1,15,06,354/-. It was also noticed that the assessee has duly submitted Form 26A relating to the parties before the Revenue authorities. The Revenue authorities have not doubted the contents of Form 26A but has stated that Form 26A was not furnished before the DGIT(Systems) and therefore disbelieved Form 26A while making the disallowance. Under similar circumstances, the Co-ordinate Bench of Cuttack in the case of Jai Mata Di Vs. ITO (supra) by relying the decision of the Hon’ble Supreme Court in the case of Ansal Land Mark Township (P.) Ltd., reported in (2015) 61 taxmann.com 45 (Delhi) held that whether the payee has filed the return of income disclosing the payment received by it and also has paid the tax on such income, the assessee cannot be treated as a person in default u/s 201of the Act. Similarly, it was also held by the Mumbai Bench of Tribunal in the case of Karwat Steel Traders Vs. ITO reported in 145 ITD 370 (Mum) has held as follows:

"The amount cannot be allowed as deduction only in the event when tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid. In this case, the assessee was to deduct tax under provisions of section 194A. Section 194A is further qualified by the provisions of section 197A( 1 A) wherein if a person furnishes a declaration in writing in prescribed Form and verified in the prescribed manner to the effect that tax on his estimated total income is to be included in computing his total income will be nil there is no need to _deduct tax. The assessee has received such forms as prescribed from those persons to whom interest was paid/being paid and, accordingly, no deduction of tax was to be made in such cases. The default for non-furnishing of the declarations to the Commissioner as prescribed may result in invoking penalty as per provisions under section 272 A(2)(i), for which separate provision/procedure was prescribed under the Act. However, once Form 15G/Form 15H was received by the person responsible for deducting tax, there is no liability to deduct tax. Once there is no liability to deduct tax, it cannot be considered that tax is deductible at source under Chapter XVII-B as prescribed under section 40 (a)(ia). The provisions of section 40(a)(ia) can only be invoked in a case where tax is deductible at source and such tax has not been deducted or after deduction has not been paid. No such default occurred in this case. Accordingly, the provisions of section 40(a)(ia) are not applicable to the facts of the case. Both the Assessing Officer and Commissioner (Appeals) erred in considering that non-filing of form 15H invites disallowance under section 40(a)(ia). Suffice to say that on the facts of the case, there is no need to deduct tax

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at source and thus, there is no default committed by the assessee. Accordingly, disallowance under section 40(a)(ia) does not arise. Non-filing or delayed filing of such forms cannot result in isallowance under section 40(a)(ia). The grounds raised by assessee are allowed. Assessing Officer is directed to modify the order accordingly"

9.

In the instant case, the AO has not called into question the contents of Form 26A but has made the disallowance under section 40(a)(ia) of the Act for the mere reason that Form 26A was not filed before the DGIT(Systems). Respectfully following the decision of the Co-ordinate Benches, we direct the learned AO to delete the disallowance under section 40(a)(ia) of the Act and thus the grounds 3 and 5 are allowed.

10.

With respect to ground No.4 regarding disallowance of Rs.1,07,20,250/- under section 40(A)(3) of the Act, the learned AR submitted that the AO has not disputed the genuineness of the expenditure but has disallowed the same under section 40(A)(3) of the Act merely for the reason that the assessee has not submitted any bank account statement showing that these transactions have been made in the bank account. The learned AR relied on the decision of Hon’ble High Court of Rajasthan in the case of Smt. Harshila Chordia Vs. ITO reported in (2008) 298 ITR 349 (Rajasthan) and the decision in the case of Gurdas Garg Vs. CIT(A) of Hon’ble Punjab and Haryana High Court reported in (2015) 63 taxmann.com 289. He therefore prayed that the addition may be deleted.

11.

Per contra, the learned DR submitted that the Hon’ble High Court of Rajasthan in the case of Smt. Harshila Chordia Vs. ITO (supra) as relied on by the assessee is before the amendment of the section 40(A)(3) of the Act and hence cannot be applied to the instant case. He therefore pleaded that the Order of the learned CIT(A) be upheld by sustaining the addition under section 40(A)(3) of the Act.

12.

We have heard the rival contention and perused the material available on record. It is an undisputed fact that assessee has made cash payments exceeding the limits prescribed under section 40(A)(3) of the Act to various parties. The learned AO has

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called for the ledger statements from the parties by issuing a notice under section 133(6) of the Act. The assessee submitted before the learned AO that the payments to its engineers and supervisors were made in cash who in turn made the payment to the companies in excess of the limitations prescribed under section 40(A)(3) of the Act. However, the assessee relied on the decision of the Hon’ble High Court of Rajasthan in the case of Smt. Harshila Chordia Vs. ITO (supra) and Gurdas Garg Vs. CIT(A) of Hon’ble Punjab and Haryana High Court (supra) wherein it was held that for the genuineness of the transaction and identity of the payee was established and the explanation for making the payment in cash was acceptable in the light of the modus operandi of the assessee’s business the payment in cash cannot be disallowed. In the instant case, the learned AO has not disbelieved the genuineness of the expenditure where the assessee made out a case of business expediency which cannot be sole reason for disallowance under section 40(A)(3) of the Act. We, therefore, are of the opinion that disallowance under section 40(A)(3) of the Act is not justifiable since the Revenue has not doubted the genuineness of the expenditure. We therefore direct the learned AO to delete the addition made under section 40(A)(3) of the Act. Thus, ground No.4 is allowed.

13.

Since the grounds on merits are decided in favour of the assessee, ground No.6 raised by the assessee on the legal issues are kept open without adjudicating.

14.

In the result, appeal of the assessee is allowed. Pronounced in the court on the date mentioned on the caption page.

Sd/- Sd/- (KESHAV DUBEY) (BALAKRISHNAN S) Judicial Member Accountant Member Bangalore, Dated : 23.07.2026. /NS/*

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Copy to: 1. Appellant 2. Respondent 3. Pr.CIT 4.CIT(A) 5. DR, ITAT.

By order

Assistant Registrar ITAT, Bangalore.

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