2016 (6) TMI 332 - AT - Income Tax

Additions u/s 40(a)(ia) due to Short deduction of tds - Held that - Provisions of section 40(a)(ia) are not attracted where there is short deduction of tax. Accordingly, no disallowance under section 40(a)(ia) in respect of payments made to M/s Mangalmurti Roadlines wherein the assessee had made short deduction of tax can be made. See Apollo Tyres Ltd. vs. DCIT 2013 (11) TMI 209 - ITAT COCHIN - Decided in favour of assessee

Issues Involved:
1. Disallowance of expenditure under section 40(a)(ia) for non-deduction/short deduction of tax at source.
2. Treatment of project fees and consultancy fees under section 40(a)(ia).
3. Allowance of depreciation on project fees and consultancy fees.
4. Disallowance of Carriage Outward Expenses due to short deduction of tax.

Detailed Analysis:

1. Disallowance of Expenditure Under Section 40(a)(ia):

The assessee, engaged in manufacturing Ethyl Acetate and Ethanol, filed a return declaring an income of ?2,04,89,380/-. During scrutiny, the Assessing Officer disallowed ?31,44,113/- under section 40(a)(ia) for non-deduction/short deduction of tax at source. The CIT(A) partly accepted the appeal, reducing the disallowance to ?20,90,575/-. The Tribunal noted that the assessee argued that payees had declared the amounts in their returns and paid tax, invoking the second proviso to section 40(a)(ia) inserted by the Finance Act, 2012. The Tribunal remitted the issue back to the Assessing Officer for fresh adjudication in light of this proviso, following the precedent set in Vivek Dattatraya Gupte – HUF vs. ITO.

2. Treatment of Project Fees and Consultancy Fees Under Section 40(a)(ia):

The assessee contested the disallowance of ?27,575/- (project fees) and ?4,25,000/- (consultancy fees) under section 40(a)(ia), asserting that no tax was required to be deducted. The Tribunal remitted this issue to the Assessing Officer for reconsideration in light of the second proviso to section 40(a)(ia), following the precedent set in Vivek Dattatraya Gupte – HUF vs. ITO.

3. Allowance of Depreciation on Project Fees and Consultancy Fees:

The assessee alternatively sought depreciation on project fees and consultancy fees if disallowed under section 40(a)(ia). Since the Tribunal remitted the primary issue for fresh adjudication, the alternate ground for depreciation became infructuous.

4. Disallowance of Carriage Outward Expenses Due to Short Deduction of Tax:

The assessee challenged the disallowance of ?9,60,138/- paid to M/s Mangalmurti Roadlines due to short deduction of tax. The Tribunal noted that the assessee deducted ?10,570/- instead of ?21,507/-. The Tribunal, following the decision in Apollo Tyres Ltd. vs. DCIT, held that section 40(a)(ia) does not apply to short deduction of tax, thereby allowing the appeal on this ground.

Conclusion:

The Tribunal allowed the appeal partly, remitting the primary issues back to the Assessing Officer for fresh adjudication in light of the second proviso to section 40(a)(ia) and the precedent set in Vivek Dattatraya Gupte – HUF vs. ITO. The Tribunal also ruled that section 40(a)(ia) does not apply to short deduction of tax, thereby allowing the appeal regarding Carriage Outward Expenses. The order was pronounced on May 31, 2016.

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