Wrong TDS Section Not Basis for Disallowance – Sec 40(a)(ia) Inapplicable to Short Deduction (194C vs 194J)

DCIT Vs Halliburton Off Shore Services Inc. (ITAT Delhi)

Wrong TDS Section Not Ground for Disallowance – Short Deduction U/s 194C vs 194J Not Hit by Sec.40(a)(ia)

The ITAT Delhi partly allowed Revenue’s appeal and upheld relief granted by CIT(A), holding that expenditure cannot be disallowed u/s 40(a)(ia) merely because TDS was deducted under a different section (u/s 194C instead of 194J). The AO had disallowed professional fee expenses alleging incorrect TDS deduction, but CIT(A) deleted the addition relying on jurisdictional High Court ruling in Samsung Heavy Industries.

The Tribunal observed that Finance Act 2020 reduced the TDS rate on technical services to 2%, and since tax had been deducted (though under a different section), it amounted only to short deduction and not non-deduction. Following judicial precedents including S.K. Tekriwal and coordinate bench rulings affirmed by Uttarakhand High Court, it held that section 40(a)(ia) applies only where tax is not deducted or not deposited, not where deduction is under a wrong provision.

Accordingly, deletion of disallowance of ₹4.47 crore was upheld, while granting liberty to Revenue to revive the issue if the pending Supreme Court matter in PVS Memorial Hospital is decided in its favour.

FULL TEXT OF THE ORDER OF ITAT DELHI

1. This appeal arises from order dated 30.09.2025, passed u/s 250 of the Income Tax Act, 1961 (hereafter referred to as “the Act”) by Ld. CIT(A), Noida-2. In this case, the Revenue has filed the appeal basically challenging the action of Ld. CIT(A) in giving relief to the assessee on account of alleged deduction of tax at source u/s 194C of the Act instead of section 194J of the Act. The Ld. AO is seen to have disallowed expenditure claimed under the head “Professional fee”, on account of this alleged mismatch.