Important recent unreported decision of Mumbai Bench - in the context of sec 40(a)(ia)

In an important recent unreported decision of Mumbai Bench of the Tribunal in the case of ACIT v. DICGC Ltd, wherein, the Tribunal has, inter-alia, laid down an important legal propositon that once tax has not been deducted at source from any payment and even if such tax has been paid by the deductee, disallowance u/s.40(a)(ia) can still be made by the assessing officer.

Note:

Today, there are catena of decisions (including Suprme Court) are available  wherein the Courts have, while determining the liablity of the Deductor under section 201(1), held that in case the deductee has paid the due taxs, then, demand under section 201(1) could not be raised on the deductor.

The above decision is one of the important decision because not much guidance is currently available on the subject issue as to whether disallowance of expenditure under section 40(a)(ia) could be made even in a situation where tax has been depoisted by the deductee. Reference can, however, be made to the decision of the Chennai bench of the Tribunal in the case of Amirtham Transport vs DCIT: ITA No. 1699/Mds./2009, wherein it was held as under:

“6. Another argument taken by the learned counsel is that where the payee has filed the return and paid tax on the payment received, no disallowance can be made. Perhaps, the learned counsel is mixing up two issues viz., disallowance under sec.40(a)(ia) and demand raised by an order under sec.201(1) of the Act. Where the payee has already paid tax, no demand can be raised against the payer under sec.201(1) of the Act. But, non-deduction of tax where it is statutorily required, will certainly invite all the consequences under the Act irrespective whether tax has been paid by the payee or not. Of course, where the payee has already paid tax and if the same amount is disallowed in the payer's case, it will certainly amount to taxing the same amount twice. However, the legislature has taken care to remedy this situation by providing that the sum disallowed will be allowed as a deduction in the year of payment. This is exactly what the CIT(A) has held and we are in agreement with it.” (Emphasis supplied)

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By,

 

Rohit Garg

 

B.Com(H), ACA,LLB