S.40(a)(ia): Amounts not deductible- Short deduction of tax-If there is short deduction of tax, assessee be declared as assessee in default under section 201 - No disallowance can be made by invoking section 40(a)(ia).(S.194C,194I,201 )

The assessee deducted the tax at source in respect of payment of equipment charges at 2.06 %, treating the said payment as covered under section 194C. The Assessing Officer is of the opinion that equipment charges is in the nature of hiring and therefore the provisions of section 194I  is applicable hence the TDS is required to be deducted at 11.33%. As there was short fall in deduction of TDS  the Assessing Officer invoked the provision of section 40(a)(ia) and disallowed the expenses. Commissioner (Appeals) upheld the disallowance. On appeal to Tribunal, the Tribunal held that if there is short fall of deduction due to difference of opinion as to the taxability of any item or nature of payments falling under various provisions of TDS, assessee can be declared as to be assessee in default under section 201, but no disallowance can be made by invoking provisions of section 40(a)(ia). (A.Y.2008-09)(ITA no 6281 /Mum/ 2011 dated 10-8-2012 Bench ‘E’.

EGS Survey P.Ltd  v. ACIT (2012) Income Tax Review –September –P. 90(Mum.)(Trib.)