Disallowance of payment u/s 40(a)(ia) for failure to deduct TDS

Last updated: 08 August 2020

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The Supreme Court has ruled against Shree Choudhary Transport Company regarding the disallowance of payments amounting to Rs. 57,11,625. The disallowance was made under Section 40(a)(ia) of the Income Tax Act because the company failed to deduct the required tax at source when making payments to truck operators. The court found that the company was responsible for these deductions, even if payments were split or made in cash, and upheld the disallowance of these expenses from the company's total income.

Court :
Supreme Court of India

Brief :
(i) Disallowance u/s 40(a)(ia), 40A(3) etc are intended to enforce due compliance of the requirement of other provisions of the Act and to ensure proper collection of tax as also transparency in dealings. The interest of a bonafide assessee who had made the deduction as required and had paid the same to the revenue is safeguarded. No question about prejudice or hardship arises (ii) Payment made for hiring vehicles for the business of transportation of goods attracts TDS u/s 194C, (iii) Disallowance u/s 40(a)(ia) is not limited to the amount outstanding ("payable") but also to expenses that had already been incurred and "paid" by the assessee, (iv) Disallowance u/s 40(a)(ia) as introduced by the Finance (No.2) Act, 2004 w.e.f. 01.04.2005 is applicable to AY 2005-2006, (v) Benefit of amendment made in the year 2014 to s. 40(a)(ia) is not available

Citation :
Shree Choudhary Transport Company Vs ITO

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