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TMI Blog2015 (7) TMI 1376X X X X Extracts X X X X X X X X Extracts X X X X ..... source on certain payments and in certain cases had not remitted the TDS within the due date of filing of the return under Section 139(1) of the Income Tax Act, 1961 (in short 'the Act') and therefore these amounts were liable for disallowance under Section 40(a)(12) of the Act. On being queried in this regard, the assessee submitted that TDS was made at 1% and subsequently on realising that TDS was to be made at 2% of the amounts paid, the balance TDS was paid on 31.1.2011 along with interest under Section 201(1A) of the Act. The Assessing Officer was of the view that deduction of tax at a lower rate cannot be taken as TDS made in accordance with the provisions of Chapter XVII-B. Following the decisions of the ITAT, Chennai Bench in the case of Frontier Offshore Exploration (I) Ltd. V DCIT (118 ITD 494) and ACIT V Pixie Enterprises (2011) 15 Taxmann 314 (Chennai), the Assessing Officer held that even in case of short deduction, the liability to deduct taxes exist as on the date of filing of the return of income and therefore that amount which has not suffered TDS is liable for disallowance under Section 40(a)(ia) of the Act and accordingly disallowed an amount of Rs. 3,42 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that the disallowance under section 40(a)(ia) has to be restricted to amounts payable as at the end of the accounting year. 5. The learned CIT (Appeals) has grossly failed to appreciate that the appellant has deducted tax at a lower rate due to misinterpretation of the law. 6. Your appellant craves for leave to add, amend or alter all or any of these grounds of appeal. 7. For these grounds and such other grounds as are advanced at the time of hearing of the appeal, the appellant prays that the appeal be allowed." 3.2 The assessee also preferred the following additional grounds of appeal :- "8. The learned lower authorities have erred in disallowing expenditure by invoking section 40(a)(ia) when the payments made by appellant are not towards 'work' as referred to in Explanation (iv) to section 194C of the IT Act. 9. Without prejudice to the above, both the learned CIT (Appeals) and learned Assessing Officer need to consider the amendment made to section 40(a)(ia) of the IT Act by Finance (No.2) Act, 2014 as curative in nature and to consider the amendment as retrospective, which restricts the disallowance to thirty percent of any sum payable." In the interest of eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2% thereon, instead of 1% as had been done by the assessee, the balance TDS was paid on 31.1.2011 along with interest under Section 201(1A) of the Act. The Assessing Officer, on examination of the assessee's claim, was of the view that deduction of tax at a lower rate cannot be taken as TDS made in accordance with the provisions of Chapter XVII-B and, following the decisions of the Chennai ITAT in the case of Frontier Offshore Exploration (I) Ltd. (supra) and Pixie Enterprises (supra), held that even in case of short deduction, the liability to deduct tax exists as on the date of filing the return of income and therefore those amounts which have not suffered TDS was liable to disallowance under Section 40(a)(ia) of the Act. On appeal, the learned CIT (Appeals) upheld the decision of the Assessing Officer. 5.3.2 According to the learned Authorised Representative if, as in the case on hand, there is any shortfall in deduction of tax at source due to any difference in understanding or opinion as to the taxability of any payment or the nature of payments made under TDS provisions, no disallowance can be made by invoking the provisions of Section 40(a)(ia) of the Act. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the conditions laid down under section 40(a)(ia) of the Act 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) of the Act but where tax is deducted by the assessee, even under bonafide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked. Here in the present case before us, the assessee has deducted tax under Section 194C(2) of the Act and not under Section 194I of the Act and there is no allegation that this TDS is not deposited with the Government account. We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Govt. Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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