Case Law Details
DCIT Vs Shiv Build (ITAT Ahmedabad)
Introduction: The recent judgement by ITAT Ahmedabad in the case of DCIT vs. Shiv Build significantly clarifies the applicability of Section 40(a)(ia) of the Income Tax Act. The tribunal held that short deduction of TDS should not warrant disallowance under this section, providing valuable insights into the interpretation of tax legislation.
Analysis: The ruling emerged from a dispute over the disallowance of Rs. 69,89,644 under Section 40(a)(ia) of the IT Act for short deduction of TDS. The assessee, Shiv Build, had deducted TDS on payments made to subcontractors but did not levy a surcharge on the tax amount for payments exceeding Rs. 10 lakhs. This led to a short deduction of TDS, for which the Assessing Officer initially held that a disallowance should be made under Section 40(a)(ia). However, the CIT(A) ruled in favor of the assessee, a decision later upheld by ITAT Ahmedabad. The key point of contention was whether the short deduction of TDS could be considered a default warranting disallowance under Section 40(a)(ia).
Conclusion: The ITAT Ahmedabad’s judgement in DCIT vs. Shiv Build reflects the progressive interpretation of tax legislation. Affirming that Section 40(a)(ia) is not applicable in cases of short deduction of TDS, the ruling sets a crucial precedent for future cases. It affirms that while any shortfall in TDS due to varying interpretations of taxability can render an assessee default under Section 201, it should not cause disallowance under Section 40(a)(ia) of the IT Act.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This is an appeal filed by the Revenue against the order of the ld. CIT(A)-6, Ahmedabad, in proceeding u/s. 250 vide order dated 12/10/2017 passed for the assessment year 2008-09.
2. The Department has taken the following grounds of appeal:-
“i. The Ld. CIT(A) has erred in law and on facts in deleting disallowance of Rs. 69,89,644/- u/s 40(a)(ia) of the IT Act for short deduction of TDS.
ii. The appellant craves leave to add, alter and /or to amend all or any of the ground before the final hearing of the appeal.”
3. The brief facts of the case are that during the course of assessment, the Assessing Officer noted that assessee had credited payment of Rs. 7,10,25,399/- to the Profit and Loss Account on account of payment to subcontractors. The Assessing Officer noted that though the assessee had deducted TDS on payment made to sub-contractors u/s. 194C of the Act, the assessee while making payments exceeding Rs. 10 lakhs at the time of deducting TDS on such amounts, surcharge was not levied on the tax amount, thereby leading to short deduction of TDS amounting to Rs. 69,98,644/-. Accordingly, the Assessing Officer held that the amount of Rs. 69,98,644/- was to be disallowed u/s. 40(a)(ia) of the Act.
4. The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) allowed the appeal of the assessee by placing reliance on the decision of the Kolkata High Court in the case of CIT vs. S.K. Tekriwal 46 com 444 (Kolkata). While allowing the appeal of the assessee, the ld. CIT(A) observed as under:-
“As can be seen from above, it is not a case where the appellant did not deduct TDS as per provisions of Section 194C of the Act. The TDS as provided in Section 194C of the Act was duly deducted. It is also not a case where TDS deducted was not deposited into government account. There is no dispute about these facts. The only default of the appellant is that it did not deduct surcharge on TDS deducted on payments above Rs. 10 lakhs amounting to Rs. 69,98,644/- as provided in Section 194C of the Act. Thus it is a case of short deduction of tax. As said above, the total of such payments is Rs. 69,98,644/-. Hence the default on account of non-deduction of surcharge on TDS on these payments would be a nominal amount. The appellant has relied on the judgment of hon’ble High court of Calcutta in CIT, Kolkata vs S.K. Tekriwal in ITAT No. 183 of 2012 in support of its contention that no disallowance u/s 40(a)(ia) of the Act is to be made on short deduction of TDS. I am inclined to agree with the appellant that judgment of hon’ble High Court of Calcutta in CIT, Kolkata XI M/s. S.K. Tekriwal (Supra) is applicable to the present case. Hon’ble High Court in CIT, Kolkata vs M/s. Tekriwal (2014) 46 taxmann.com (Calcutta) has held as follows:-
“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 Government 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, ‘on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139’. This section 40(a)( ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)( ia) of the Act.”
Thus it is clear that no disallowance should be made u/s 40(a)(ia) of the Act for short deduction of tax.
Following the judgment of hon’ble High Court, of Calcutta in CIT, Kolkata XI vs M/s. S.K. Tekriwal (Supra) hon’ble ITAT Ahmedabad in Cadila Pharmaceuticals vs Additional commissioner of Income Tax vide order dated 11.07.2014 in ITA Nos. 1146 & 1518/Ahd/2011 in A.Y.2006-07 have held as follows has held as follows:-
“26.1. We have gone through the judgement of Hon’ble Calcutta High Court in the case of CIT vs. M/s.S.K.Tekriwal(supra)f wherein the Hon’ble High Court held that provision 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 Government 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, ‘on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139’. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature o payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act In the present case also, it is not the case of non-deduction ‘of tax or after deduction of the tax the same is not deposited in the Government Account, but it is a case where there is a shortfall in deduction of tax. Therefore, respectfully following the judgement of Hon’ble Calcutta High Court in the case of CIT vs. S.K.Tekriwal, we do not find ny infirmity in the order of the Id.CIT(A), same is hereby upheld. Thus, this ground of “Revenue’s appeal is rejected.”
In my considered opinion ratio of the above judgments is squarely applicable to the facts of the present case. It would be travesty of justice to disallow entire payments of Rs, 69,98,644/- on account of nominal shortfall in IDS on account of non-deduction of surcharge.
Accordingly, in view of discussion above and relying on the judgments of the hon’ble High Court of Calcutta in CIT, Kolkata XI vs M/s. S.K. Tekriwal (supra) and judgment of hon’ble ITAT Ahmedabad in Cadila Pharmaceuticals Limited vs Additional Commissioner of Income Tax (supra), I hold that the AO was not justified in making disallowance of Rs. 69,98,644/- u/s 40 (a) (ia) of the Act. Accordingly, the addition of Rs. 69,98,644/- is hereby deleted. This ground of appeal is allowed.”
5. The Department is in appeal before us against the order passed by ld. CIT(A) deleting the disallowance of Rs. 69,89,644/- u/s. 40(a)(ia) of the Act for short deduction of TDS. Before us, the ld. Departmental Representative placed reliance on the observations made by the Assessing Officer in the assessment order. In response, the ld. counsel for the assessee submitted that this issue is now more or less settled in favour of the assessee in view of the various decisions rendered by various Courts and Tribunals including the decision rendered by the Jurisdictional Ahmedabad ITAT.
6. We have heard the rival contentions and perused the material on record. In the case of CIT vs. S.K. Tekriwwal 46 taxman.com 444 ( Kolkata), the Kolkata High Court held that if there is any shortfall due to any difference of opinion as to taxability of any item or nature of payments falling under various TDS provisions, assessee can be declared to be an assessee in default u/s. 201, but no disallowance can be made by invoking provisions of section 40(a)(ia) of the Act. In the case of Future First Info Services vs. PCIT, 147 taxman.com 35 (Delhi), the Delhi High Court held that where Assessing Officer made disallowance u/s. 40(a)(ia) of the Act on the ground that assessee company had made short deduction of tax and thus was in violation of section 197(1), since for cases of short deduction correct course of action would be to invoke section 201, thus impugned disallowance u/s. 40(a)(ia) of the Act was to be deleted. In the case of Dish T.V. India Ltd. vs. ACIT 86 taxman.com 177 (Mumbai Tribunal), the Mumbai ITAT held that where tax was deductable u/s. 194J but was actually deducted u/s. 194C, such a short deduction would not meet requirements of section 40(a)(ia) of the Act as assessee could not be held as defaulter when there was only shortfall in deduction of TDS. In the case of Three Star Granites vs. ACIT 49 taxman.com 578 (Cochin Trib), the Cochin ITAT held that the short deduction of tax cannot be reason for disallowance u/s. 40(a)(ia) of the Act. Accordingly, in view of the aforesaid decisions which have consistently held that no disallowance u/s. 40(a)(ia) of the Act can be made for short deduction of tax, we are of the considered view that ld. CIT(A) has not erred in facts and in law in allowing the appeal of the assessee on this issue, so as to call for any interference.
7. In the result, the appeal of the Department is dismissed.
Order pronounced in the open court on 16-06-2023
