2015 (7) TMI 1376 - AT - Income Tax

Disallowance u/s 40(a)(ia) - shortfall in deduction of tax at source - HELD THAT - Respectfully following the decision of the Hon'ble High Court of Calcutta in the case of S.K. Tekriwal 2011 (10) TMI 10 - ITAT, KOLKATA which is factually similar to the case on hand, we hold that no disallowance can be made by invoking the provisions of Section 40(a)(ia) of the Act if there was any shortfall in deduction of tax at source due to any difference of understanding or opinion as to the taxability of any item or the nature of payments falling under various TDS provisions and therefore reverse the findings of the authorities below and allow the assessee's appeal.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act due to short deduction of tax at source.
2. Applicability of judicial pronouncements and amendments to Section 40(a)(ia) of the Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act due to short deduction of tax at source:

The assessee, engaged in business as transport contractors, filed its return of income for Assessment Year 2010-11. During scrutiny, the Assessing Officer (A.O.) noted that the assessee had incurred direct expenditure of Rs. 13.20 Crores against receipts of Rs. 13.53 Crores but had short deducted tax at source (TDS) on certain payments and in some cases, had not remitted the TDS within the due date. The A.O. disallowed an amount of Rs. 3,42,84,912 under Section 40(a)(ia) of the Income Tax Act, 1961, citing decisions from the ITAT, Chennai Bench, which held that short deduction of tax still mandates disallowance under Section 40(a)(ia). The assessee's reliance on the ITAT, Kolkata Bench decision in the case of DCIT V S.K. Tekriwal, which stated that no disallowance should be made for shortfall due to difference in opinion on taxability, was distinguished by the A.O. as not applicable.

The CIT (Appeals) upheld the A.O.'s decision, stating that the judicial pronouncements cited by the assessee were not jurisdictional Tribunal decisions. The CIT (Appeals) concurred with the A.O. that the word "such tax" in Section 40(a)(ia) envisages full tax, thus justifying the disallowance.

2. Applicability of judicial pronouncements and amendments to Section 40(a)(ia) of the Act:

The assessee appealed to the ITAT, arguing that the CIT (Appeals) failed to appreciate that the short deduction of tax was due to a misinterpretation of the law. The assessee cited the decision of the ITAT, Kolkata Bench in S.K. Tekriwal, which was upheld by the Hon'ble High Court of Calcutta, asserting that no disallowance should be made if there is a shortfall in TDS due to a difference in understanding or opinion on the taxability of payments.

The ITAT considered the rival contentions and examined the material on record, including judicial pronouncements. It noted that the assessee had made a short deduction of tax at 1% instead of 2% and paid the balance TDS along with interest subsequently. The ITAT found that the Hon'ble High Court of Calcutta in S.K. Tekriwal held that no disallowance under Section 40(a)(ia) should be made for shortfall in TDS due to differences in opinion on taxability. The ITAT concluded that this decision squarely covered the issue in favor of the assessee.

Conclusion:

The ITAT held that no disallowance could be made under Section 40(a)(ia) for shortfall in TDS due to differences in understanding or opinion on taxability. Consequently, the ITAT reversed the findings of the lower authorities and allowed the assessee's appeal on this ground. Other grounds raised by the assessee were dismissed as infructuous since they were not argued or urged.

Order:

The assessee's appeal for Assessment Year 2010-11 was allowed, and the order was pronounced in the open court on 24th July 2015.