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No s. 40(a)(ia) disallowance for short-deduction TDS default
The assessee paid Rs. 3.37 crores as “machine hire charges” on which it deducted TDS u/s 194C at 1%. The AO held that the payment was “rent” and TDS ought to have been deducted at 10% u/s 194-I. He disallowed the expenditure u/s 40(a)(ia). This was reversed by the CIT (A). On appeal by the department, HELD dismissing the appeal:
S. 40(a)(ia) provides for a disallowance if amounts towards rent etc have been paid without deducting tax at source. It does not apply to a case of short-deduction of tax at source. As the assessee had deducted u/s 194C, it was not a case of “non-deduction” of TDS. If there is a shortfall due to difference of opinion as to which TDS provision would apply, the assessee may be treated as a defaulter u/s 201 but no disallowance can be made u/s 40(a)(ia). (Chandabhoy & Jassobhoy (ITAT Mumbai) followed – included in file)
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