No s. 40(a)(ia) disallowance for default of short-deduction of TDS

Apollo Tyres Ltd vs. DCIT (ITAT Cochin)

 

The assessee made payments to various contractors. Though tax was deducted at source, it was at a rate lower than that prescribed under the Act. The AO & CIT(A) held that as there was a default by the assessee, the expenditure had to be disallowed u/s 40(a)(ia). On appeal by the assessee to the Tribunal, HELD allowing the appeal:

 

A combined reading of s. 201(1A) and s. 40(a)(ia) shows that while a case of short-deduction of TDS is covered by s. 201(1A), it is not covered by s. 40(a)(ia). There is an obvious omission to include short deduction / lesser deduction in s. 40(a)(ia). Therefore, in case of short /lesser deduction of tax, the entire expenditure whose genuineness was not doubted by the assessing officer, cannot be disallowed (S.K. Tekriwal (Cal HC) & Chandabhoy and Jassobhoy 49 SOT 448 (Mum) followed)

 

Note: It is also held that foreign currency loss on loan given to a subsidiary for capital purposes is not deductible