2012 (8) TMI 700 - AT - Income Tax

Disallowance of expense u/s 40(ia) of the Income Tax Act Held that - Assessee has deducted tax at source u/s 194C whereas according to the Assessing Officer provisions of section 194I are applicable - assessee is in default as per provisions of sec. 201 but disallowance of the expenditure is not permissible u/s 40(a)(ia) - appeal filed by the assessee is allowed.

Summary

Issues:
Confirming disallowance of expenses under sec. 40(a)(ia) of the Act.

Analysis:
The only issue in this case pertains to the confirmation of disallowance of expenses amounting to Rs.20,24,455/- under sec. 40(a)(ia) of the Income Tax Act. The assessee, engaged in trading agricultural products, faced disallowance during the relevant Assessment Year 2007-08. The Assessing Officer noted discrepancies in the tax audit report, leading to the disallowance of the remaining amount not added back by the assessee. The contention before the CIT(A) was that only expenditure without tax deduction should be disallowed. However, the CIT(A) upheld the disallowance, stating that sec. 40(a)(ia) applies to cases of lower tax deduction and non-payment before the due date, necessitating disallowance. The CIT(A) rejected the argument for proportionate disallowance.

Further arguments presented before the ITAT included the assessee's claim of payment after deducting lower tax for certain items and discrepancies in TDS sections applied by the Assessing Officer. The assessee relied on precedents from ITAT Mumbai and Kolkata Benches to argue against the disallowance under sec. 40(a)(ia). The ITAT analyzed the tax audit report in detail, considering the discrepancies in TDS deductions and the applicability of different TDS sections. Referring to the precedents, the ITAT held that while the assessee may be in default under sec. 201, disallowance under sec. 40(a)(ia) was not justified. Consequently, the ITAT directed the Assessing Officer to delete the disallowance amount.

In conclusion, the ITAT allowed the appeal filed by the assessee, emphasizing that the disallowance under sec. 40(a)(ia) was not warranted based on the precedents and the specific circumstances of the case.