Despite part breach of s. 194C, no s. 40(a)(ia) disallowance permissible

CIT vs. Valibhai Khanbhai Mankad (Gujarat High Court)

The second Proviso to s. 194C read with Rule 29-D provides that no tax need be deducted at source if the sub-contractor produces a declaration in Form 15-I that he does not own more than 2 goods carriages and the assessee (payer) furnishes a declaration in Form 15-J to the CIT on or before 15th June of the FY. The assessee obtained Form 15-I from the sub-contractors but did not file Form 15-J with the CIT within the prescribed due date. The AO & CIT(A) held that as there was a breach of the requirement of s. 194-C, the assessee ought to have deducted TDS u/s 194-C and as it had failed to do so, the expenditure had to be disallowed u/s 40(a)(ia). On appeal by the assessee, the Tribunal (order included) reversed the lower authorities. On appeal by the department to the High Court, HELD dismissing the appeal:

Once the assessee obtained Form No.15-I from the sub-contractors whose contents are not disputed or whose genuineness is not doubted then the assessee is not liable to deduct tax from the payments made to sub-contractors. Once assessee is not liable to deduct tax u/s 194C then disallowance u/s 40(a)(ia) cannot be made. The assessee’s breach of the requirement to furnish details to the income tax authority in the prescribed form within prescribed time may attract other consequences but cannot result in a s. 40(a)(ia) disallowance.