TDS classification dispute cannot trigger disallowance where tax was deducted and deposited on time for non-technical work.

Disallowance under section 40(a)(ia) was not justified where tax had been deducted under Chapter XVII-B and deposited in time, even though the Revenue contended that deduction should have been made under section 194J instead of section 194C. The Tribunal treated the underlying work as ancillary, non-technical activity such as computer job work, field inspection and collection-related tasks, and therefore not professional or technical services attracting section 194J. A bona fide dispute only about the correct TDS provision could not trigger section 40(a)(ia), which targets failure to deduct tax or failure to deposit deducted tax within time. The Revenue's appeal failed.

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Issues: Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 could be made where tax was deducted and deposited under section 194C, but the Revenue claimed that deduction ought to have been made under section 194J.

Analysis: The payments were for ancillary, non-technical work such as computer job work, field inspection and collection-related activities. The Tribunal accepted the view that such work did not constitute professional or technical services so as to attract section 194J, and in any event the assessee had deducted tax under Chapter XVII-B and deposited it in time. On that basis, a bona fide dispute only about the correct TDS provision could not be used to trigger disallowance under section 40(a)(ia), which is aimed at cases where tax is not deducted or, after deduction, is not paid within time. The Tribunal also followed its earlier decision in the assessee's own case for a subsequent year on the same controversy.

Conclusion: Disallowance under section 40(a)(ia) was not warranted and the Revenue's appeal failed.

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