2018 (6) TMI 894 - AT - Income Tax

Additions made u/s 40(a)(ia) - short deduction of tax at source - Held that - In the case of DCIT vs S.K. Tekriwal 2011 (10) TMI 10 - ITAT, KOLKATA , Hon ble Kolkata High Court has held that section 40(a)(ia) refers only to the duty to deduct tax and pay to government account also if there is any shortfall due to any difference of opinion as to the taxability of any items or the nature of payment falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s 201 but no disallowance can be made - hence following the said decision we delete the disallowance made - Decided in favor of assessee. Disallowance u/s 40(a)(ia) for failure to deduct tax at source - Held that - the learned counsel for the assessee has not raised any material contention to show that the assessee was not liable to deduct tax at source from the relevant payment. It is thus clear that the assessee had failed to deduct tax at source from the payment u/s 40(a)(ia) - we therefore, modify the impugned order of the Ld. CIT(A) on this issue and restrict the disallowance of ₹ 1,16,51,016/ - partly allowed in favor of assessee. Disallowance of amount paid on donation and subscription - Held that - the assessee is a construction company executing the work at different sites. On these sites, different pujas and functions are performed for which the assessee has to give donations and subscriptions - thus there is some nexus of the expenditure incurred by the assessee on donations and subscriptions to its business - this claim of the assessee is not fully verifiable in the absence of the relevant details and supporting documentary evidence - hence it would be fair and reasonable to allow the claim of the assessee on account of donations and subscriptions only to the extent of 50% - appeal of the assessee is partly allowed.

Summary

Issues involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of donation and subscription expenses.

Detailed Analysis:
1. Disallowance under section 40(a)(ia):
The issue involved in this case was the disallowance of ?1,16,51,016 made by the Assessing Officer (AO) under section 40(a)(ia) of the Income Tax Act, 1961, and confirmed by the Ld. CIT(A). The disallowance was due to the short deduction of tax at source by the assessee from payments made to subcontractors. The AO found that the assessee failed to deduct tax at the correct rates from payments made to subcontractors, leading to the disallowance. The Ld. CIT(A) upheld the disallowance, stating that section 40(a)(ia) covers both non-deduction and short deduction of tax at source. However, the Tribunal, following a decision of the Kolkata High Court, held that if there is any shortfall due to a difference of opinion on taxability or nature of payment, the assessee can be declared in default under section 201 but disallowance under section 40(a)(ia) cannot be made. The Tribunal deleted the disallowance to the extent of ?22,46,041 and ?56,81,220, but upheld the disallowance of ?37,23,755 due to the failure of the assessee to deduct tax at source.

2. Disallowance of donation and subscription expenses:
The second issue involved the disallowance of ?3,26,412 made by the AO and confirmed by the Ld. CIT(A) on account of donations and subscriptions. The assessee debited this amount in its profit and loss account but failed to provide documentary evidence to establish that the expenditure was wholly and exclusively for the business purpose. The Tribunal noted that while there was some nexus of the expenditure to the business, the lack of verifiable details and supporting evidence led to a partial allowance of the claim. The Tribunal modified the Ld. CIT(A) order and restricted the disallowance on account of donations and subscriptions to 50%.

In conclusion, the Tribunal partly allowed the appeal of the assessee, deleting a portion of the disallowance under section 40(a)(ia) and restricting the disallowance of donation and subscription expenses to 50%. The judgment was pronounced on 15th June 2018 by the Appellate Tribunal ITAT Kolkata.