2014 (11) TMI 1054 - AT - Income Tax

TDS u/s 194C OR 194J - transaction charges - u/s 40(a)(ia) - short deduction of tds - Held that - The conditions as laid down u/s 40(a)(ia) for making the disallowance is that, the tax on the amount paid or payable which is deductible at source under chapter XVII B and such a tax, has not been deducted or after deduction has not been paid on or before the due date specified in 139(1). There are only conditions for disallowance u/s 40(a)(ia), firstly, tax which was deductable has not been deducted and secondly, after deduction has not been paid. If both the conditions are satisfied then only disallowance u/s 40(a)(ia) can be made. The section does not envisages that, if the assessee has deduced the tax under wrong provisions of the act or there is a short deduction of tax then also, it entails disallowance under section 40(a)(ia). There is nothing in the section to treat the assessee as defaulter for claiming a deduction, where there is a short fall in deduction. This proposition has been upheld in the case of CIT Vs. S.K. Tekriwal reported in (2012 (12) TMI 873 - CALCUTTA HIGH COURT). In this case the assessee has deducted tax u/s 194C instead of 194J, the Hon ble High Court held that the expenses cannot be disallowed u/s 40(a)(ia) merely on account of short deduction of tax at source. Similar view has been taken by the Co-ordinate Benches in the cases relied upon by the learned counsel, which has been referred in the foregoing para. Accordingly, we hold that no disallowance u/s 40(a)(ia) can be made merely because assessee has deducted TDS under section 194C instead of section 194J. - Decided in favour of assessee

Summary

Issues: Disallowance of Transaction Charges under Section 40(a)(ia) for TDS under wrong section

Analysis:
1. The appellant challenged the order confirming the disallowance of transaction charges under Section 40(a)(ia) for not deducting TDS under the correct section, as per the Assessing Officer's decision.
2. The Assessing Officer disallowed the claimed transaction charges of Rs. 12,72,440 for not deducting TDS under section 194J, considering it disallowable under section 40(a)(ia) despite TDS deduction under section 194C by the assessee.
3. The CIT(A) upheld the disallowance citing the jurisdictional High Court's decision in Kotak Securities Ltd., which classified transaction charges as fees for technical services necessitating TDS deduction under section 194J.
4. The appellant argued that the disallowance under section 40(a)(ia) applies only if no TDS is deducted or remains unpaid, contending that the assessee's belief in deducting TDS under section 194C was reasonable and that the clarification in Kotak Securities Ltd. came after the assessee's return filing.
5. The appellant referenced various tribunal decisions supporting no disallowance under section 40(a)(ia) for short deduction or deduction under different sections, emphasizing the bona fide belief of the assessee.
6. The Tribunal analyzed the provisions of section 40(a)(ia) and precedent, concluding that disallowance is warranted only if TDS is not deducted or remains unpaid, not for incorrect section deduction, citing the Kolkata High Court's decision in CIT Vs. S.K. Tekriwal.
7. Consequently, the Tribunal allowed the appeal, emphasizing that disallowance under section 40(a)(ia) cannot be enforced solely due to TDS deduction under a different section, affirming the appellant's position.

This judgment clarifies the scope of disallowance under section 40(a)(ia) concerning TDS deduction under the correct section, emphasizing the necessity of non-deduction or non-payment for disallowance rather than incorrect section deduction, supported by relevant legal precedents.