2010 (10) TMI 516 - AT - Income Tax

TDS - Tax not deducted at source for the expenditure u/s 40(a)(ia) of the I T Act - levy of interest u/s. 234A 234B and 234C of the Act - whether the interest levied u/s. 234A 234B and 234C is in accordance with law - assessee had filed waiver application before the CCIT and the same was dismissed by the CCIT stating that the condition prescribed as per the Board Notification dated 23.5.1996 was not satisfied by the assessee for grant of waiver no infirmity in the order of CIT(A) and no interference called for - assessee dismissed

Summary

Issues:
1. Disallowance of expenditure for non-deduction of TDS under section 40(a)(ia) of the IT Act.
2. Confirmation of levy of interest under sections 234A, 234B, and 234C of the Act.

Analysis:

Issue 1: Disallowance of Expenditure for Non-Deduction of TDS
The assessee, a firm engaged in mining sea shells, filed a return for the year 2005-06, declaring income of Rs.34,92,050/-. The Assessing Officer disallowed a contract payment of Rs.2,40,09,915/- under section 40(a)(ia) of the Act for non-deduction of TDS. The CIT(A) upheld the disallowance, stating that when TDS is not made on payments to sub-contractors, the amount paid would be disallowed and added back to the total income. The Tribunal affirmed this decision, emphasizing the strictness of section 40(a)(ia) and the lack of discretion for authorities to allow payments without TDS. The Tribunal rejected the argument that the disallowance should be canceled based on a different case precedent, as it did not apply to the present situation.

Issue 2: Confirmation of Levy of Interest
Regarding the levy of interest under sections 234A, 234B, and 234C, the assessee argued that the huge demand of Rs.35,29,873/- for a TDS default of Rs.5,04,074/- was unjustified. The Tribunal, however, held that interest is mandatory under the specified sections and is calculated based on the assessed income. The Tribunal dismissed the contention that the disallowance could not have been predicted, stating that the provisions of section 40(a)(ia) were clear since April 1, 2005. The Tribunal differentiated previous case judgments cited by the assessee, noting the certainty of the disallowance under section 40(a)(ia). The Tribunal also mentioned the possibility of seeking waiver based on other court decisions but concluded that the interest levied was in accordance with the law.

In conclusion, the Tribunal dismissed the appeal, upholding the disallowance of expenditure for non-deduction of TDS and confirming the levy of interest under sections 234A, 234B, and 234C. The decision was based on the strict application of the relevant provisions and the lack of discretion for authorities to provide relief in such cases.