Tuesday, November 11, 2014

Short deduction of tax due to application of wrong provision won't lead to sec. 40(a)(ia) disallowance


a)The Tribunal held that the assessee had to deduct tax under section 194-I and that the provisions of section 194C were not applicable in respect of transactions entered between the assessee and the contractee.

b)On appeal, the High Court confirmed the order of the Tribunal. However, the High Court restored the matter back to the file of the Tribunal for the limited purposes of applicability of section 40(a)(ia) in respect of short deduction of tax at 2.06% instead of at 10%.

c)On remand, the revenue contended that for the short deduction of TDS there would be disallowance under section 40(a)(ia).

The Tribunal held in favour of assessee as under:

1)In case of Apollo Tyres Ltd. v. Dy. CIT [2013] 35 taxmann.com 593 (Coch.) it was held that section 40(a)(ia) did not envisage a situation where there was short deduction/lesser deduction as in case of section 201(1A) of the Act.

2)There was an obvious omission to include short deduction/lesser deduction in section 40(a)(ia) of the Act. Therefore, in case of short/lesser deduction of tax the entire expenditure could not be disallowed whose genuineness was not doubted by the Assessing Officer.

3)Thus, in view of the decision of this Tribunal in Apollo Tyres (Supra) short deduction of tax could not be a reason or basis for disallowance under section 40(a)(ia). Accordingly, the orders of the lower authorities were to be set aside and the disallowance made under section 40(a)(ia) was to be deleted. - THREE STAR GRANITES (P.) LTD. V. ACIT [2014] 49 taxmann.com 578 (Cochin - Trib.)