Tribunal allows deduction for failure to deduct TDS in time

The Tribunal upheld the CIT(A)'s decision to allow deduction under section 40(a)(ia) for failure to deduct TDS under section 194C, based on the retrospective application of the amendment by Finance Act, 2008. The Tribunal dismissed the revenue's appeal, affirming that if TDS is deducted in the last month of the previous year and paid before the due date for filing return, no disallowance under section 40(a)(ia) can be made.

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Issues involved: Appeal against order of CIT(A) deleting disallowance u/s. 40(a)(ia) for failure to deduct TDS u/s. 194C.

Summary:
The appeal by revenue challenged the CIT(A)'s deletion of disallowance u/s. 40(a)(ia) for failure to deduct TDS u/s. 194C. The Assessing Officer observed that the assessee, a contractor, made payments exceeding Rs. 50,000 to seven parties for labour charges without deducting TDS as required u/s. 194C. The AO disallowed Rs. 22,39,414 under section 40(a)(ia) as TDS was deducted in March 2007 for payments made throughout the year. The CIT(A) allowed the claim based on the amendment by Finance Act, 2008, stating that if TDS is deducted in the last month of the previous year and paid before the due date for filing return u/s. 139(1), no disallowance u/s. 40(a)(ia) can be made. The High Court's decision in CIT V Virgin Creations supported the retrospective application of the amendment in section 40(a)(ia), allowing deduction if TDS is paid before the due date of filing return. The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal.

In conclusion, the Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s order regarding the disallowance u/s. 40(a)(ia) for failure to deduct TDS u/s. 194C.

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