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DATE: (Date of pronouncement)
DATE: May 11, 2012 (Date of publication)
FILE: Click here to download the file in pdf format

Click here to download the judgement (gurumurthy_40aia_TDS.pdf)

S. 194C default does not result in s. 40(a)(ia) disallowance if TDS paid before ROI due date

For AY 2008-09, the assessee made payments to contractors from April 2007 to February 2008. However, the TDS thereon was deducted (belated) in March 2008 and paid before the due date for filing the ROI. The AO disallowed the payments u/s 40(a)(ia) though the CIT (A), relying on Bapusaheb Nanasaheb Dhumal, allowed the claim on the ground that as the TDS was (belatedly) deducted in March 2008, it could be paid before the due date for filing the ROI. On appeal by the department, HELD dismissing the appeal:

(i) Though u/s 194C, tax had to be deducted at the time of payment or credit, the assessee deducted TDS only in March. While the assessee has to face consequences for its failure to deduct TDS in time, no disallowance u/s 40(a)(ia) can be made because clause (A) of the proviso to s. 40(a)(ia) provides that if the tax is deducted during the last month of previous year and paid on or before the due date of filing the ROI, no disallowance shall be made (Bapusaheb Nanasaheb Dhumal 40 SOT 361 (Mum) followed);

(ii) S. 40(a)(ia) was amended by the FA 2010 w.e.f. 1.4.2010 to provide that no disallowance shall be made if the TDS (for whichever month) is paid before the due date of filing the ROI. While in Bharti Shipyard Ltd 132 ITD 53 (Mum) (SB), it was held that the amendment is not retrospective, a contrary view has been taken by the Calcutta High Court in CIT v. Virgin Creations. Considering the precedent in the judicial hierarchy, the judgement of the non-jurisdictional High Court prevails over a judgement of the Special Bench (Kanel Oil & Export 121 ITD 596 (Ahd) (TM) followed)

See also Rajamahendri Shipping (ITAT Vizag), Piyush Mehta (ITAT Mumbai) & Alpha Projects (ITAT Ahd)

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