2015 (10) TMI 68 - AT - Income Tax

Disallowance u/s 40 (a)(ia) - short deduction of TDS - CIT(A) deleted the disallowance - Held that - Section 40(a)(ia) does not envisage a situation where there was short deduction / lesser deduction as in case of section 201(1A) of the Act. There is an obvious omission to include short deduction / lesser deduction in section 40(a)(ia) of the Act. Therefore, this Tribunal is of the considered opinion that in case of short / lesser deduction of tax, the entire expenditure whose genuineness was not doubted by the assessing officer, cannot be disallowed. Accordingly, the entire disallowance is deleted. See case of S.K. Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT - Decided in favour of assessee.

Summary

Issues:
- Disallowance of claim under section 40(a)(ia) of the Act due to short deduction of tax by the assessee.

Analysis:
The appeal was against the order of CIT(A)-II, Kochi pertaining to the assessment year 2006-07. The revenue contended that the assessee failed to deduct tax under sections 194C, 194H, and 194J of the Act amounting to Rs. 27,814, even though substantial tax of Rs. 7,40,042 was deducted. The assessing officer disallowed the claim under section 40(a)(ia) of the Act. The Tribunal noted that the assessee had indeed deducted tax but fell short by Rs. 27,814. The Tribunal referred to the decision in Apollo Tyres Ltd vs DCIT and analyzed the provisions of section 40(a)(ia) of the Act, which allows disallowance of payments where tax is deductible but not deducted or paid. The Tribunal highlighted the importance of distinguishing between non-deduction and short deduction of tax.

The Tribunal also examined section 201(1A) which enables the assessing officer to levy interest in case of non-deduction or non-payment of tax. It was noted that the legislature intended to levy interest even in cases of short deduction of tax under section 201(1A), but such provision was not explicitly included in section 40(a)(ia) of the Act. The Tribunal emphasized that the language of section 40(a)(ia) does not mandate proportionate disallowance for short deduction, unlike section 201(1A) which allows for interest on the undeducted amount.

Referring to the judgment of the Andhra Pradesh High Court in the case of P.V. Rajagopal, the Tribunal highlighted the distinction between non-deduction and shortfall in deduction of tax. The Tribunal concluded that section 40(a)(ia) does not cover situations of short or lesser deduction of tax and, therefore, the entire expenditure, where genuineness was not in doubt, cannot be disallowed. Consequently, the Tribunal upheld the order of CIT(A) and dismissed the appeal of the revenue.

In summary, the Tribunal found that section 40(a)(ia) does not apply to cases of short deduction of tax, unlike section 201(1A) which allows for interest on undeducted amounts. The judgment emphasized the importance of distinguishing between non-deduction and short deduction of tax, ultimately leading to the dismissal of the revenue's appeal.