M/S. SHREE LAMINATORS LTD.,,KOLKATA vs. DCIT, CIRCLE 4(4), KOLKATA,, KOLKATA

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ITA 1534/KOL/2026Status: HeardITAT Kolkata15 October 2026AY 2011-20126 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that Section 40(a)(ia) cannot be invoked to disallow expenditure when TDS has been deducted, even if at a lower rate or under a different section due to a difference in interpretation. Relying on the jurisdictional High Court's decision in CIT v. S. K. Tekriwal, the Tribunal reasoned that a shortfall or difference in deduction rate does not equate to complete failure or non-deduction. Therefore, the disallowances of Rs. 40,88,250/- and Rs. 16,96,250/- made under Section 40(a)(ia) were deleted. Regarding the interest expense, the Tribunal held that interest on delayed trade payments is compensatory and intrinsically linked to business operations. Accordingly, the addition of Rs. 35,045/- was also directed to be deleted. The appeal was allowed.

What were the facts?

The assessee, M/s. Shree Laminators Ltd., filed its return of income for Assessment Year 2011-12 on September 30, 2011, declaring a total income of Rs. 12,04,820/-. During scrutiny, the Assessing Officer (AO) noted payments of Rs. 78,42,330/- for management consultancy fees and Rs. 32,53,850/- for brokerage/commission. The assessee had deducted TDS at a lower rate, believing it was entitled to such. The AO treated these payments under Section 194J and Section 194H respectively, requiring a higher TDS rate. Consequently, the AO disallowed Rs. 40,88,250/- and Rs. 16,96,250/- under Section 40(a)(ia) due to the TDS shortfall. An additional Rs. 35,045/- was added for interest payments deemed penal. The total income was assessed at Rs. 70,24,370/-. The CIT(A) dismissed the appeal, upholding the disallowances and the addition.

What were the issues?

1. Whether Section 40(a)(ia) can be invoked for disallowance when TDS has been deducted, albeit at a lower rate or under a different provision, due to a bona fide belief or difference of opinion regarding the applicable TDS provisions/rates, as opposed to complete non-deduction? (Question of law turning on Section 40(a)(ia) and Section 201). Assessee's contention: Citing CIT v. S. K. Tekriwal (Calcutta High Court), the assessee argued that Section 40(a)(ia) applies only to non-deduction or non-payment of TDS. For shortfalls due to a bona fide belief or difference of opinion, the assessee may be deemed in default under Section 201, but no disallowance under Section 40(a)(ia) is permissible. Revenue's contention: Not recorded in the judgment. 2. Whether interest paid on delayed payments for purchase of materials is compensatory in nature and deductible as a business expense? (Question of mixed law and fact). Assessee's contention: Not explicitly recorded, but implied by challenging the addition. Revenue's contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194J,Section 194H,Section 201

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, KOLKATA

Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, KOLKATA Before Shri Rajesh Kumar, Accountant Member and Shri Pradip Kumar Choubey, Judicial Member ITA No 1534 /KOL/2026 Assessment Year- 2011-12 M/S. Shree Laminators Ltd................................................................................Appellant Swaika Centre, 4A, Pollock Street, Room No.206, 2nd Floor, Kolkata- 700001 [PAN No. AAKCS5342Q]

Vs. ITO Ward-9(1)..........................................................,..……………....……….Respondent West Bengal- 700069 Appearances by: Rajeeva Kumar, Advocate, appeared on behalf of the Appellant. Praveen Das Chowdhury, (Sr. D.R), appeared on behalf of the Respondent. Date of concluding the hearing: September 15, 2026 Date of pronouncing the order: October ,2026 ORDER Per Pradip Kumar Choubey, Judicial Member: This appeal filed by the assessee is directed against the order dated 31.03.2014 of the Office of the Commissioner of Income Tax passed under Section 143(3) of the Assessment Year 2011-12 of the Income-Tax Act, 1961 (hereinafter referred to as “the Act”). 2. Brief Facts of the Case the assessee filed its return of income for A.Y. 2011-12 on 30.09.2011, declaring a total income of Rs.12,04,820/-. The case of the assessee is selected for scrutiny and during scrutiny proceedings, the Assessing Officer (AO) noted payments made to M/s Timespac India Limited towards management consultancy fees Rs. 78,42,330/- and

ITA No.1534/Kol/2026 brokerage/commission of Rs. 32,53,850/-.The assessee deducted TDS at the rate of 4.25% on these amounts under the bona fide belief/claim of lower deduction rate entitlement.The AO treated these payments as falling under Section 194J and Section 194H respectively (requiring standard deduction @ 10%). On the reasoning that there was a shortfall in TDS deduction, the AO disallowed proportional amounts of Rs. 40,88,250/- and Rs. 16,96,250/- under Section 40(a)(ia).The AO further added Rs. 35,045/- on account of interest payments, holding them to be penal in nature and non-deductible.The total income was assessed at Rs.70,24,370/-.

3.

Aggrieved by the order assessee preferred appeal before CIT(A) where in Ld. CIT(A) dismissed the grounds related to Section 40(a)(ia) disallowances on the reasoning that the assessee failed to furnish an accountant's certificate under Section 201(1) to prove that the payee had accounted for the income and paid taxes thereon and also affirmed the disallowance of ₹35,045/- regarding interest expense.

4.

Being aggrieved by and dissatisfied with the order assessee preferred appeal before us by taking following primary grounds:

1.

Disallowance u/s 40(a)(ia) – Management Consultancy Fees: Challenge to the confirmation of disallowance amounting to ₹40,88,250/- on account of alleged lower deduction of TDS.

ITA No.1534/Kol/2026 2. Disallowance u/s 40(a)(ia) – Commission & Brokerage: Challenge to the confirmation of disallowance amounting to ₹16,96,250/- on account of alleged lower deduction of TDS. 3. Disallowance of Interest Expense: Challenge to the addition of ₹35,045/- towards interest paid on delayed payments for purchase of materials. 4.1. The learned AR by citing a decision of Kolkata High Court passed in CIT v. S. K. Tekriwal [2014] 46 taxmann.com 444 (Calcutta) / [2014] 361 ITR 432 (Calcutta) has submitted that Calcutta High Court affirmed that Section 40(a)(ia) applies strictly to instances of non-deduction or non-payment of TDS into the Government account. Where tax has been deducted under a bona fide belief or difference of opinion regarding the applicability of specific TDS provisions/rates, it constitutes a shortfall in deduction. For such shortfalls, an assessee may be treated as an assessee-in-default under Section 201, but no disallowance can be made by invoking Section 40(a)(ia).

5.

We have heard the contention and find that the primary legal issue is whether Section 40(a)(ia) can be invoked to make a disallowance in cases where tax has been deducted under a different provision or at a lower rate (i.e., cases involving a shortfall in deduction rather than complete non- deduction).Respectfully following the binding principle laid down by the Jurisdictional High Court in CIT v. S. K. Tekriwal, we hold that where tax has been deducted by the assessee (even if at a lower rate or under a different

ITA No.1534/Kol/2026 section due to difference in interpretation), the provisions of Section 40(a)(ia) cannot be invoked to disallow the underlying expenditure. Shortfall or difference in rate does not equate to complete failure or non-deduction. Therefore, the disallowance of ₹40,88,250/- and ₹16,96,250/- made by the Assessing Officer and confirmed by the Ld. CIT(A) is hereby deleted.

5.1. Regarding Ground of Interest Expense:

The interest on delayed trade payments is compensatory in character and intrinsically linked to business operations. The disallowance of ₹35,045/- is accordingly directed to be deleted.

In the result, the appeal filed by the Assessee is allowed.

Kolkata, the 15th October, 2026.

Sd/- Sd/- [Rajesh Kumar] [Pradip Kumar Choubey] Accountant Member Judicial Member

DC Dated: 15. 10.2026.

ITA No.1534/Kol/2026 Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- 5. CIT(DR)

//True copy// By order

ITA No.1534/Kol/2026

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