Opinion Of Eminent Legal Luminaries On Controversial Issues

Can Disallowance Be Made U/s. 40(a)(ia), When Tax Has Not Been Made At Proper Rate?

QUERY: While making the assessment, the Assessing Officer has disallowed certain of expenses mentioned in section 40(a)(ia) of the Act, on the ground that no tax been deducted at proper rate, whether disallowance is justified?
ANSWER: In DCIT vs. S. K. Tekriwal [48 SOT 515 (Kol)], the Tribunal held that the condition laid down under section 40(a)(ia) for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied, then such payment can be disallowed under section 40(a)(ia). But where tax is deducted by the assessee, even under bona fide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) cannot invoked. Section 40(a)(ia) refers only to the duty to deduct tax and paid to the Government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payment falling under various TDS provisions, the assessee can be declared to be an assessee in default under section 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act.

Similarly, the Bombay Tribunal in Chandabhoy & Jassobhoy, bearing ITA No. 20/Mum/2010 has held that provisions of sections 40(a)(ia) do not apply for less deduction of tax at source as the said provisions can be invoked only in the event of non deduction of tax at source.
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