Can TDS be recovered from the payee in view of settled judicial principle?

This judgement addresses whether an assessee can recover Tax Deducted at Source (TDS) from a payee if they failed to deduct it initially. The case involved a joint-venture that claimed interest expenses as a deduction but did not deduct TDS as required by law. The Assessing Officer disallowed the expense, a decision upheld by the CIT(Appeals). The tribunal considered the amended provisions of Section 40(a)(ia) of the Income Tax Act, which restricts disallowance to 30% of such expenses.

IN THE INCOME TAX APPELLATE TRIBUNAL,
‘’ B’’ BENCH, AHMEDABAD
(CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD)
BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT
And
SHRI WASEEM AHMED, ACCOUNTANT MEMBER

ITA No. 1499/AHD/2015

Asstt. Year: 2009-10

DRAIPL-MSKEL(JV),
2nd Floor, “MSK”,
Passport Officer to Panjra Pol Road,
Ambawadi,
Ahmedabad-380015.
PAN: AAAAD3825B

VS

Income Tax
Officer(OSD)-II,
Range-9,
Ahmedabad

Assessee by : Shri D.M. Rindani, A.R
Revenue by : Shri D.B. Gohil, Sr.D.R

Date of Hearing : 15/12/2021

Date of Pronouncement: 20/12/2021

O R D E R

The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals), Ahmedabad-5, dated 30/03/2015 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2009-10.

2. The facts in brief are that the assessee in the present case is a joint-venture and engaged in the business of road development/construction. The assessee in the year under consideration has paid interest of ₹ 15,44,543.00 to SREI Infrastructure Private Ltd which was claimed as deduction in the profit and loss account. However, the assessee failed to deduct the TDS under the provisions of section 194A of the Act on the payment of such interest expenses. Therefore, the AO disallowed the same under the provisions of section 194A read with section 40(a)(ia) of the Act and added to the total income of the assessee.

3. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the expense claimed by the assessee for interest was disallowed by the AO on account of non-deduction of TDS. The disallowance made by the AO was also subsequently confirmed by the learned CIT (A). Now, the issue which require consideration and the adjudication is whether the disallowance of the expense should be restricted to 30% by virtue of the amended provisions of section 40(a)(ia) of the Act which was brought in the statute by the Finance Act (No. 2) 2014. Admittedly, as per the provision of section 40(a)(ia) of the Act, the disallowance has to be restricted to the tune of 30% in respect of the expenses on which TDS was not deducted by the assessee.

4. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Court on 20/12/2021 at Ahmedabad.

Please find attached the enclosed file for the full judgement