| Question And Answer | |
|---|---|
| Subject: | Disallowance of expenditure on non deduction of TDS u/s 194Q |
| Category: | Income-Tax |
| Querist: | CA ANDICHAMY R |
| Answered by: | Law Intern |
| Tags: | Form 26A, Section 194Q, Section 40(a)(ia), TDS disallowance |
| Date: | March 4, 2025 |
Assessee fails to deduct TDS on payment made to purchases u/s 194 Q exceeding 50 lakhs.
He obtained Form 26A (from their CA ) from few parties. Assessing officer propose to make addition us/s 40 a (ia) of the Act for the remaining amount. Assessee submitted all the purchase bills supported by the bank statement for the payment. And also GSTR 2A & 2B and Annual return table 8 as evidence for the purchase payment along with e-way bill
Kindly give your opinion and any case laws in favour of my assessee.
For the amounts covered by Form 26A, the assessee is safe from disallowance. For the remaining amounts, the AO’s proposed addition under Section 40(a)(ia) is legally sound unless the assessee can secure Form 26A or convince the authorities (with judicial precedents) that the revenue’s interest is not harmed. The submitted evidence strengthens the case for genuineness but does not directly override the statutory TDS requirement.
I am unable to locate direct judicial precedents on Section 194Q. However, the following case laws interpreting Section 40(a)(ia) and TDS provisions may be of assistance:
(i) CIT v. Ansal Land Mark Township (P) Ltd. [2015] 61 taxmann.com 45 (Delhi HC)
The Delhi High Court held that if the payee has included the income in their return and paid tax, the disallowance under Section 40(a)(ia) should not apply mechanically. The court emphasized that the purpose of TDS provisions is to ensure tax collection, not to penalize the payer when tax has been paid by the recipient.
(ii) Hindustan Coca-Cola Beverage Pvt. Ltd. v. CIT [2007] 293 ITR 226 (SC)
The Supreme Court held that if the payee has paid tax on the income, the deductor should not be penalized for non-deduction of TDS, as the revenue’s interest is safeguarded.
(iii) CIT v. Rajinder Kumar [2014] 362 ITR 241 (Delhi HC)
The court ruled that disallowance under Section 40(a)(ia) is not warranted if the transactions are genuine and the payee has accounted for the income, especially where the deductor’s failure was due to a bona fide belief or technical lapse.
(iv) ACIT v. S.K. Enterprises [ITAT Mumbai, ITA No. 3178/Mum/2016]
The ITAT held that where payments are supported by proper documentation and there is no revenue loss (due to taxes being paid by the recipient), disallowance under Section 40(a)(ia) should not be applied mechanically.
(v) CIT v. Vector Shipping Services (P) Ltd. [2013] 357 ITR 642 (Allahabad HC) (affirmed by SC)
The court ruled that Section 40(a)(ia) applies only to amounts “payable” and not to amounts already “paid.” If payments have been made without TDS, and the payee has accounted for the income, disallowance may not apply.