2020 (10) TMI 413 - AT - Income Tax

Short-deduction of tax at source - appellant while making payments had deducted lower tax in respect of part of the amount paid to the deductee - payments exceeding the amounts specified in the certificates issued in form no.13, r/w section 197(2) and rule 28AA - HELD THAT - We notice from the record that assessee had made the payment to M/s Times Innovative Media Ltd to the extent of ₹ 8,22,37,744/- and deducted TDS @ 0.1%. M/s Times Innovative Media Ltd has submitted the short deduction certification issued u/s 197 and as per the certificate, the approved limit of short deduction is ₹ 7,51,10,831/-, but assessee continued to deduct the tax at the concessional rate beyond the certificate limit of ₹ 7,51,10,831/- instead of deducting the TDS @ 2%. In the subsequent financial year, assessee was brought to the notice of short deduction by the department and assessee has remitted the shortfall amount alongwith interest. However, AO and Ld. CIT(A) has sustained the disasllowance u/s 40(a)(ia) for the above said default on the part of the assessee. Since the facts of the case are similar to the facts of the case titled Tata Communications Ltd. Vrs. DCIT 2019 (12) TMI 442 - ITAT MUMBAI as held statutory provisions providing for deduction of tax at source at lower rate is person specific and cannot be extended to the amounts specified by the recipients of the payment while making application for grant of certificate in Form no.13, in terms of section 197 of the Act. Thus, the Tribunal has ultimately held that in such circumstances, if the assessee continues to deduct tax at the rate specified in the certificate, even, in respect of payment made over and above the sum specified in the certificate, it cannot be treated as assessee in default for short deduction of tax. - Decided in favour of assessee.

Summary

Issues:
- Disallowance under section 40(a)(ia) for short deduction of TDS
- Applicability of judicial pronouncements on disallowance of expenditure under section 40(a)(ia)
- Mistake in deduction of tax at source under section 194C

Analysis:

Issue 1: Disallowance under section 40(a)(ia) for short deduction of TDS
The appellant, a company engaged in outdoor advertising, filed an appeal against the order of the Ld. CIT(A) regarding the disallowance of &8377; 67,70,550 under section 40(a)(ia) of the Income Tax Act for short deduction of TDS. The AO disallowed the amount as TDS was paid after the due date under section 139(1). The appellant contended that the shortfall was due to a mistake and paid the amount along with interest after receiving a short deduction notice in the subsequent financial year. The Ld. CIT(A) upheld the disallowance stating that the appellant continued to deduct tax at a lower rate even after exceeding the approved limit under section 197, resulting in negligence. However, the appellant argued that the disallowance was not justified as the tax was deducted under a bona fide mistake. The Ld. CIT(A) rejected the appellant's contentions and sustained the disallowance.

Issue 2: Applicability of judicial pronouncements on disallowance under section 40(a)(ia)
The appellant cited various judicial pronouncements to support their argument that mere short deduction of tax should not lead to disallowance under section 40(a)(ia). They relied on cases where it was held that if tax deduction was made under a bona fide mistake, no disallowance should occur. The Ld. CIT(A) distinguished the cited cases, stating that in those instances, tax was deducted under one provision of the Act, whereas in the present case, it should have been deducted under a different provision at a higher rate. The Ld. CIT(A) emphasized that the appellant's negligence led to the continued deduction at a lower rate, contrary to the prescribed rate under section 194C. The disallowance was upheld based on the negligence of the appellant.

Issue 3: Mistake in deduction of tax at source under section 194C
The appellant argued that the provision of section 40(a)(ia) should not apply as they followed due process and rectified the short deduction upon receiving the notice. The Ld. AR highlighted a similar case where the assessee was not treated as an assessee in default for short deduction of tax. The Coordinate Bench of ITAT referred to a case involving Tata Communications Ltd., where it was held that short deduction beyond the approved limit specified in the certificate under section 197 did not make the assessee default. Following this precedent, the ITAT allowed the appellant's appeal, stating that the disallowance under section 40(a)(ia) was not justified given the circumstances.

In conclusion, the ITAT allowed the appeal filed by the appellant, overturning the disallowance under section 40(a)(ia) for short deduction of TDS, based on the precedent set by a similar case. The judgment emphasized the importance of adhering to prescribed tax deduction rates and rectifying mistakes promptly upon notice to avoid disallowances.