2011 (11) TMI 759 - AT - Income Tax

Disallowance of expenses u/s 40(a)(ia) - short deduction of tds - Held that - Provisions of section 40(a)(ia) would apply only in case of non deduction of tax and not in case of short deduction of tax. The Tribunal has also held that in case of short deduction of tax, the assessee could be declared in default under the provisions of section 201 and corresponding tax along with interest could be collected from the assessee. Therefore no disallowance is required to be made under section 40(a)(ia). We also note that in this case the assessee had deducted tax but there were small amounts of shortfall which in many cases are less than ₹ 10 in each case and in some cases less than ₹ 1/-. Therefore, plea of the assessee that the shortfall was only because of some clerical error or rounding off error has to be accepted as reasonable. No case for making any disallowance. Accordingly we see no infirmity in the order of CIT(A) in deleting the addition and the same is, therefore, upheld.

Summary

Issues: Disallowance of expenses under section 40(a)(ia) of the Income tax Act for assessment year 2006-07.

Analysis:
1. The appeal by the revenue challenges the CIT(A)'s order regarding the disallowance of expenses under section 40(a)(ia) of the Income Tax Act for the assessment year 2006-07. The dispute arose due to a shortfall in tax deduction related to lorry hire charges paid by the assessee.

2. The assessee contended before the CIT(A) that the shortfall in tax deduction was due to clerical errors, especially considering the large number of transactions involved. The CIT(A) accepted the explanation, noting that the shortfalls were minimal and directed the AO to delete the disallowance.

3. During the appeal, the assessee argued that section 40(a)(ia) applies only in cases of complete non-deduction or non-payment of tax after deduction, not in cases of short deduction. The assessee relied on precedents like the Tribunal's decision in the case of M/s. Chandabhoy and Jassobhoy and the Kolkatta Bench's decision in the case of M/s. S.K. Tekriwal.

4. The Tribunal examined the provisions of section 40(a)(ia) and the precedents cited. It was established that disallowance under this section applies to cases of non-deduction of tax, not short deduction. The Tribunal also noted that in cases of short deduction, the assessee could be declared in default under section 201, and the corresponding tax with interest could be collected. Given the minimal shortfalls, the Tribunal accepted the assessee's explanation of clerical errors and upheld the CIT(A)'s decision to delete the disallowance.

5. The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order to delete the addition of lorry hire charges under section 40(a)(ia) due to the insignificant shortfalls and the application of the law in cases of short deduction.