Provisions of section 40(a)(ia) of Income Tax cannot be invoked in event of short deduction of TDS: ITAT

The Income Tax Appellate Tribunal (ITAT) in the matter of Advait Agrotech Private Limited vs Principal Commissioner of Income Tax-1 relaying on the judgment of Hon’ble Gujarat High Court in the case of CIT Vs. Prayas Engineering Ltd. in Tax Appeal No. 1237 of 2014 vide order dated 17/11/2014 has retreated that provisions of section 40(a)(ia) of the Act cannot be invoked in the event of short deduction of TDS.

The necessary facts arising from the order of the authorities below are that the assessee in the present case is a private limited company and case of the assessee was selected for limited scrutiny to verify whether the payment has been made after deducting the TDS u/s 194C of the Act. However, the AO in the assessment proceedings has accepted income declared by the assessee at Rs. 40,22,070/- only.

Subsequently, the Ld. PCIT on examination of the assessment records found that the assessee has deducted TDS on the contractual payment made to M/s Bansal Cargo Movers at the rate of 1% whereas it was required to deduct the TDS at 2% u/s 194C of the Act. Thus, the Ld. PCIT, was of the view that the assessee has deducted the short amount of TDS and this fact was not examined by the AO during the assessment proceedings. As such proportionate disallowance was to be made under the provision of section 194C r.w.s. 40(a)(ia) of the Act on account of short deduction of TDS. Thus, the Ld. PCIT held the assessment order as erroneous in so far prejudicial to the interest of Revenue.

ITAT Order:

8.1 From the above judgment, there remains no IOTA of doubt that the provisions of section 40(a)(ia) of the Act cannot be invoked in the event of short deduction of TDS. Accordingly, the assessment framed by the AO cannot be held as erroneous in so far prejudicial to the interest of revenue on account of non-deduction of TDS.

8.2 Besides above, we also note that the AO has framed the assessment after necessary verification about the payment made to M/s Bansal Cargo Movers which is evident from the assessment order itself. Therefore, we are of the view that the assessment order has been framed by the AO after due application of mind. Accordingly, the same cannot be held as erroneous in so far prejudicial to the interest of revenue on account of non-verification. Accordingly, we hold that the order passed by the Ld. PCIT u/s 263 of the Act, is not sustainable. Hence, we quashed the same. The ground of appeal of the assessee is allowed.

For Official Judgment Download PDF Given Below: