Tds related 40(a)(ia)

This query is : Resolved

Krishna Murthy (Querist)
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25 August 2011 Sir,
As per SC Judgement in 293 ITR 226 TDS cannot be recoverd again from deductor if the deductee has filed the return and paid taxes thereon. Now I want to know what is the position with respect to 40(a)(ia). Can the same be allowed as expenditure in the relevant AY even though TDS was not made.

CA. Anoop Gadia

CA. Anoop Gadia (Expert)
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25 August 2011 Check

The assessee made payments to sub-contractors during the previous year and though s. 194C requires TDS at the stage of payment/credit, did not do so. The tax was, however, deducted on 31st March and paid over in Sept before the due date for filing the return. The AO took the view that while the payment made to the sub-contractor for March was allowable, the payments for the earlier months was disallowable u/s 40(a)(ia). This was confirmed by the CIT (A). On appeal by the assessee, HELD allowing the appeal:

Failure to deduct or deposit tax as per s. 194C or Chapter-XVII makes the assessee liable to the consequences provided under the said Chapter-XVII. However, s. 40(a)(ia) is in addition to Chapter XVII. S. 40(a)(ia)(A) provides that if tax is deducted during the last month of the previous year and paid on or before the due date of filing of return as per s. 139(1), then such sum shall be allowed as deduction. In cases where tax is deducted other than the last month of previous year but is deposited before the last day of the previous year, then it will be allowed as deduction. Therefore, the conditions for allowability of deduction are prescribed u/s 40(a)(ia) itself and Chapter-XVII and s. 194C are not relevant. If the condition of deduction and payment prescribed u/s 194C / Chapter XVII are held applicable for dis-allowance of deduction u/s 40(a)(ia), then s. 40(a)(ia) will be rendered meaningless, absurd and otiose. Since the assessee had (belatedly) deducted tax in the last month of the previous year i.e. March 2005 and deposited the same before the due date of filing the return u/s 139(1), deduction had to be allowed u/s 40(a)(ia) (A).
Bapushaeb Nanasaheb Dhumal vs. ACIT (ITAT Mumbai)(download Complete case:
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Note: S. 40(a)(ia) has been amended by the FA 2010 w.e.f. 1.4.2010 to provide that in all cases if TDS is paid before the due date of filing the ROI, no disallowance shall be made.

Read more: 40(a)(ia) disallowance if TDS paid before due date of filing Return of Income | SIMPLE TAX INDIA-ITR FORM -TDS RATE 11-12 https://www.simpletaxindia.org/2010/07/40aia-disallowance-if-tds-paid-before.html#ixzz1W3wXL7xd