JKG Construction Pvt. Ltd. Vs ITO (ITAT Delhi)
Legal Framework
Section 201(1)
- Any person who fails to deduct or, after deduction, fails to deposit TDS, is deemed to be an assessee in default.
- Proviso: Where the deductee has filed return of income, considered such sum for computing income, and paid tax due, the deductor shall not be treated as an assessee in default (subject to filing of Form 26A).
Section 201(1A)
- Provides for interest liability:
- 1% per month (from the date tax was deductible to the date of actual deduction).
- 1.5% per month (from the date of deduction to the date of deposit).
- Interest is compensatory and remains payable even if relief from default is available under Section 201(1).
Form 26A – Chartered Accountant’s Certificate
- Deductor must furnish a CA-certified Form 26A to establish that the payee has:
- Included the income in its return,
- Paid due taxes, and
- Complied with return filing obligations.
Brief Facts:
The assessee company paid interest to ECL Financial Ltd. but did not deposit the TDS. The AO disallowed the expenditure u/s 40(a)(ia).
The assessee argued that the payee had already paid taxes on such income and furnished evidence including a certificate.
Issue for Consideration:
Whether disallowance u/s 40(a)(ia) is justified when the deductee has already offered the income to tax and discharged the liability, though the deductor failed to deposit TDS?
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