2010 (7) TMI 801 - AT - Income Tax

Disallowance u/s 40(a)(ia) - HELD THAT - The due date of filing the return in the present case is 30-9-2007. The assessee in the present case has deducted tax in the month of March 2007 and it has paid the said TDS before the due date of filing the return.; Therefore the disallowance cannot be made u/s 40(a)( ia) as there is no default on the part of the assessee of non-deduction or non-payment of TDS in accordance with the said provision. The disallowance has wrongly been upheld by the CIT(A) and the same deserves be deleted. Accordingly the disallowance is deleted. In the result the appeal filed by the assessee is allowed.

Summary

Issues:
1. Disallowance of expenses due to late deduction and deposit of tax.
2. Interpretation of section 40(a)(ia) regarding TDS deduction and payment timelines.

Issue 1: Disallowance of expenses due to late deduction and deposit of tax
The appeal was against the order of the CIT(A) for the assessment year 2007-08, where the assessee contested the addition of Rs. 12,63,265 despite TDS payment before the due date of filing the return. The Assessing Officer disallowed an aggregate sum of Rs. 22,91,792 due to late deduction and deposit of tax on expenses like clearing charges, freight cartage inward, and shipping expenses. The CIT(A) upheld the disallowance, leading to the appeal. The assessee argued that TDS was deducted in March 2007 and paid before the due date of filing the return, thus complying with the law.

Issue 2: Interpretation of section 40(a)(ia) regarding TDS deduction and payment timelines
The tribunal analyzed section 40(a)(ia) which outlines conditions for disallowance if tax deductible at source under Chapter XVII-B is not deducted or paid. It stipulates that if tax is deducted during the last month of the previous year, it must be paid before the due date specified in section 139(1). In this case, the due date for filing the return was 30-9-2007, and the assessee deducted and paid the TDS in March 2007. As there was no default in deduction or payment of TDS, the disallowance under section 40(a)(ia) was deemed unwarranted. The tribunal concluded that the disallowance was wrongly upheld by the CIT(A) and ruled in favor of the assessee, allowing the appeal and deleting the disallowance.

This judgment clarifies the importance of adhering to TDS deduction and payment timelines as per the provisions of the Income-tax Act, ensuring that expenses are not disallowed unjustly due to technicalities.