TDS deposit compliance under section 40(a)(ia) prevents adjustment of current-year tax against earlier excess deposits.

Deduction of tax at source must be followed by deposit within the prescribed time for purposes of section 40(a)(ia); an assessee cannot justify non-deposit of current-year TDS by adjusting it against excess TDS deposited in an earlier year. The Board circular on refund or adjustment of excess TDS operates only in refund administration and does not displace the statutory deposit obligation once tax has been deducted. The disallowance under section 40(a)(ia) was therefore upheld.

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Issues: Whether expenditure was disallowable under section 40(a)(ia) of the Income-tax Act, 1961 when tax was deducted at source but not deposited within time on the ground that the assessee had adjusted the amount against excess TDS deposited in an earlier year.

Analysis: The allowance or disallowance under section 40(a)(ia) turns on compliance with the statutory requirement to deduct and deposit tax at source within the prescribed time. The right to seek refund or adjustment of excess TDS deposited in an earlier year does not authorise the assessee to withhold tax deducted in the current year. The Board circular recognising refund or adjustment of excess deposit operates in the field of refund administration and does not override the obligation to deposit TDS once deducted. Non-deposit of the deducted tax therefore attracts the consequence under section 40(a)(ia).

Conclusion: The disallowance under section 40(a)(ia) was upheld and the assessee's adjustment-based challenge failed.

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