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2016 (1) TMI 1448 - AT - Income TaxShort deduction of tds - TDS u/s 194C or 194J - Payment Customs House Agents - HELD THAT - In a case like this, where the appellant has deducted tax at source in respect of the payments made to CHAs @ 2% under section 194C, when it is required to be made @10% u/s. 194J the provisions of section 40(a)(ia) cannot be made applicable. As held by the Hon ble High Court of Calcutta 2012 (12) TMI 873 - CALCUTTA HIGH COURT that if there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payment falling under various TDS provisions, 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) of the Act. Therefore, the disallowance made by the assessing officer cannot be sustained. Addition on account of disallowance of payments made to CHAs u/s. 40(a)(ia) of the IT Act, 1961 stands deleted. - A short deduction of tax at source, even if any, cannot be visited with the disallowance under section 40(a)(ia) - Decided in favour of assessee.
Issues:
Challenge to correctness of order under section 143(3) of the Income Tax Act, 1961 for assessment year 2010-11 - Disallowance under section 40(a)(ia) for short deduction of tax at source. Analysis: The Assessing Officer challenged the correctness of the order passed by the CIT(A) regarding the disallowance under section 40(a)(ia) of the Income Tax Act, 1961. The issue revolved around the deduction of tax under section 194C from payments to Customs House Agents, whereas the Assessing Officer contended that tax should have been deducted under section 194J. The AO concluded that there was a failure to deduct tax at source, leading to the disallowance under section 40(a)(ia). The assessee appealed this decision, arguing that disallowance cannot be applied in cases of short deduction of tax at source. The CIT(A) referred to a Calcutta High Court judgment supporting the assessee's position and deleted the disallowance, emphasizing that the provisions of section 40(a)(ia) only apply when there is a failure to deduct tax and pay it to the government account, not in cases of shortfall due to differences in TDS provisions. The Assessing Officer, aggrieved by the relief granted by the CIT(A), appealed to the ITAT. The ITAT, after considering the arguments and legal precedents cited, upheld the CIT(A)'s decision to delete the disallowance. The ITAT agreed with the CIT(A) that a short deduction of tax at source, even if present, does not warrant disallowance under section 40(a)(ia) of the Act. The ITAT found the CIT(A)'s reasoning well-founded and declined to interfere in the matter, ultimately dismissing the appeal. The judgment highlighted the importance of correctly applying TDS provisions and emphasized that disallowance under section 40(a)(ia) is not justified in cases of short deduction due to differences in interpretation of TDS provisions. In conclusion, the ITAT upheld the CIT(A)'s decision to delete the disallowance under section 40(a)(ia) of the Income Tax Act, 1961, emphasizing that a shortfall in tax deduction due to differing interpretations of TDS provisions does not warrant disallowance. The judgment provided clarity on the application of section 40(a)(ia) in cases of short deduction of tax at source and underscored the need for accurate compliance with TDS provisions to avoid disallowances.
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