2014 (6) TMI 812 - AT - Income Tax

Disallowance u/s 40(a)(ia) of the Act shortfall in deducting TDS - Revenue was of the view that the assessee was only acting as agent and received commission for arrangement of transport Held that - if there is any shortfall in deducting TDS the assessee can be declared to be an assessee in default u/s 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) Relying upon COMMISSIONER OF INCOME TAX KOLKATA-XI Versus M/s SK. TEKRIWAL 2012 (12) TMI 873 - CALCUTTA HIGH COURT - Decided in favour of assessee. Non deduction of TDS - bonafide mistake - Held that - where the certificate u/s 197 has been issued the assessee can claim that it has a bonafide belief that tax is not required to be deducted on the basis of the certificate for the payment exceeds the exemption limit specified in the certificate. - Ld.CIT(A) is not justified in confirming the disallowance made by the AO on this count. - Decided in favor of assessee. Disallowance u/s 40A(3) of the Act Cash payment eceeds limit on single day Held that - section 40A (3) has been w.e.f 01/04/2009 providing that all the payments made to a person in a single day would be considered for making the disallowance - The amendment is not applicable so far as the case in hand being related to the AY 2008-09 - In the absence of a provision conferring the power to aggregate all the payments made in a single day for making the disallowance during the year under consideration and in view of the position that section 40A (3) as applicable in for the assessment year permits only single payment during the day has to be considered for disallowance - CIT(A) is not justified in confirming the action of the AO in aggregating the sums paid on a day for making the disallowance - the AO is directed to identify each of the payment made by the assessee less than Rs.20, 000/- and allow the expenditure Decided in favour of Assessee.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for non-deduction of TDS on payments to contractors.
2. Disallowance under section 40A(3) for cash payments exceeding Rs. 20,000 on a single day.

Issue 1 - Disallowance under section 40(a)(ia):
The appeal dealt with the disallowance of Rs.8,84,500 made by the AO under section 40(a)(ia) of the Income Tax Act for payments to contractors without deduction of tax at source. The assessee contended that the non-deduction of TDS was a shortfall and not a deliberate act. The tribunal referred to the Calcutta High Court decision in CIT v. S.K. Tekriwal, emphasizing that if there is a shortfall in deducting TDS, the assessee can be declared an assessee in default under section 201, and disallowance under section 40(a)(ia) cannot be made. Consequently, the disallowance of Rs.11,000 was deleted. Regarding a payment of Rs.8,73,500, the tribunal noted that the department had issued a certificate for non-deduction of tax at source under section 197. Relying on the case of Hero MotoCorp Vs ACIT, the tribunal held that the disallowance made by the AO was not justified, and thus, the disallowance of Rs.8,73,500 was deleted.

Issue 2 - Disallowance under section 40A(3):
The appeal also addressed the disallowance of Rs.37,17,686 made by the AO under section 40A(3) for cash payments exceeding Rs.20,000 on a single day. The assessee argued that the payments were made on different occasions on the same day, each being less than Rs.20,000. The tribunal observed that the provision of section 40A(3) applicable for the assessment year did not allow aggregating payments made on a single day for disallowance. As the amended provision permitting such aggregation was not applicable for the relevant assessment year, the tribunal directed the AO to identify payments less than Rs.20,000 and allow the expenditure. Consequently, Ground No. 2 was allowed for statistical purposes.

In conclusion, the tribunal allowed the appeal filed by the assessee, setting aside the disallowances under both sections 40(a)(ia) and 40A(3) after detailed analysis and consideration of relevant legal precedents and provisions.