2015 (8) TMI 210 - AT - Income Tax

Disallowance u/s s.40(a)(ia) - TDS made is not at the correct rate as per Chapter XVII B - CIT(A) deleting the disallowance - Held that - As relying on M/s. S.K.Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT wherein held that Section 40(a)(ia) refers only to the duty to deduct tax and pay to government account there is nothing in the said section to treat the assessee as defaulter where there is a shortfall in deduction. And if there is any shortfall due to any difference of opinion the assessee can be declared to be an assessee in default u/s. 201 but no disallowance u/s 40(a)(ia) is allowed - Decided in favour of assessee. Levy of interest u/s 234B - Held that - Neither the AO, nor the Ld. CIT(A) have narrated the facts of the case under which the assessee has been found liable by the AO to pay interest u/s 234B of the Act. The Ld. CIT(A) has given relief by deleting the interest charged u/s 234B on the basis that the issue is covered in favour of the assessee, by the decision of DIT vs. Maersk Co. Ltd. (2011 (4) TMI 886 - Uttarkhand High Court). Nothing has been argued on behalf of the revenue that the decision followed by the Ld. CIT(A) does not cover the issue on hand. The revenue submits that it has preferred SLP against the said decision of Hon ble Uttrakhand High Court in the case of DIT vs. Maersk Co. Ltd. (supra). The ratio laid down by the Hon ble Uttarakhand High Court in the case of Maersk Co. Ltd. is that, when a duty was cast on the payer to deduct tax at source, on failure of the payers to do so, no interest u/s 234B could be imposed on the assessee. In absence of any stay granted by the Hon ble Supreme Court in the Special Leave Petition, the Ld. CIT (A) was bound to follow the same - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of expenses under section 40(a)(ia) due to incorrect TDS rate application.
2. Disallowance of expenses as Foreign Technical Services (FTS) without proper TDS deduction.
3. Levy of interest under section 234B of the Income Tax Act.

Analysis:
1. The appeal was filed by the Revenue against the order of the Ld.CIT(Appeals)-II, Dehradun regarding the assessment year 2009-10. The assessee, a Non-Resident company, declared a loss of Rs. 12,91,33,127/- but the assessment determined the total income at Rs. 32,15,98,116/-, disallowing an amount under section 40(a)(ia) due to incorrect TDS deduction under section 194C instead of 194J. The First Appellate Authority allowed the appeal of the assessee, citing relevant case laws. The Tribunal upheld the decision, emphasizing that no disallowance can be made for short deduction of tax at source as per section 40(a)(ia) of the Act. The appeal was dismissed based on the precedent set by the Hon'ble Calcutta High Court.

2. The Revenue challenged the disallowance of expenses under section 40(a)(ia) for Foreign Technical Services (FTS) without proper TDS deduction under section 194J. The Tribunal, following previous decisions and the Hon'ble Calcutta High Court's judgment, held that as the tax was deducted at a lower rate in good faith, the disallowance cannot be upheld. The Tribunal allowed the appeal, stating that the assessee's actions did not constitute non-deduction of tax but rather a case of incorrect deduction under a genuine belief.

3. The issue of levy of interest under section 234B was raised by the Revenue. The Ld. CIT(A) deleted the interest charge based on the decision of the Hon'ble Uttarakhand High Court in the case of Maersk Co. Ltd. The Tribunal noted that the Revenue did not challenge the applicability of the decision and had filed a Special Leave Petition (SLP) against it. As there was no stay granted by the Supreme Court, the Tribunal upheld the deletion of interest under section 234B. The grounds raised by the Revenue were rejected, and the appeal was dismissed.

In conclusion, the Tribunal upheld the decisions of the First Appellate Authority regarding the disallowance of expenses under section 40(a)(ia) and the levy of interest under section 234B, based on relevant case laws and judicial precedents. The appeal filed by the Revenue was dismissed, and the orders were pronounced on 9th January 2015.