Assessment jurisdiction and TDS disallowance principles: administrative CBDT allocation cannot override the Act, and short deduction is outside section 40(a)(ia).

A CBDT instruction issued for administrative allocation of low-income cases does not curtail assessment jurisdiction otherwise vested under the Act, and a jurisdictional objection not raised before the Assessing Officer within time is barred. Section 68 requires proper verification of loan credits; where affidavits and bank records exist but the lender and intermediary are not examined, further factual inquiry may be necessary, while unsupported cash credits remain vulnerable to addition. Section 40(a)(ia) applies to non-deduction or non-payment of deductible tax, but not to bona fide short deduction under a different TDS head; disallowance was therefore sustained for non-deduction and deleted for short deduction.

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Issues: (i) Whether the Assessing Officer had jurisdiction to complete the assessment in view of the CBDT instruction allocating low-income cases to the Income-tax Officer and the assessee's failure to object before the Assessing Officer; (ii) whether the addition made under section 68 in respect of alleged loan credits was sustainable; (iii) whether disallowance under section 40(a)(ia) could be made for amounts actually paid without deduction of tax and for short deduction of tax at source.

Issue (i): Whether the Assessing Officer had jurisdiction to complete the assessment in view of the CBDT instruction allocating low-income cases to the Income-tax Officer and the assessee's failure to object before the Assessing Officer.

Analysis: The jurisdictional objection was examined in the context of the CBDT instruction issued under section 119, the scheme of sections 120 and 124, and the definition of Assessing Officer in section 2(7A). The instruction was treated as an administrative arrangement for work distribution and hardship reduction, not as a provision divesting territorial jurisdiction otherwise vested in the Deputy Commissioner. The objection was also held to be barred because it had not been raised before the Assessing Officer within the statutory time frame.

Conclusion: The Assessing Officer had jurisdiction and the challenge to jurisdiction failed.

Issue (ii): Whether the addition made under section 68 in respect of alleged loan credits was sustainable.

Analysis: The assessee produced affidavits and bank statements to support the claim that the credits were routed through another person on the instructions of the alleged lender. The cash credits of Rs. 50,000 and Rs. 33,100 remained unsupported, but the credits of Rs. 2,00,000, Rs. 3,00,000 and Rs. 12,00,000 were backed by some documentary material that had not been properly verified by the Assessing Officer. As the material called for further examination and the lender and intermediary were not examined, the matter required fresh consideration.

Conclusion: The addition was sustained only in part and the matter relating to Rs. 2,00,000, Rs. 3,00,000 and Rs. 12,00,000 was remitted to the Assessing Officer for fresh adjudication.

Issue (iii): Whether disallowance under section 40(a)(ia) could be made for amounts actually paid without deduction of tax and for short deduction of tax at source.

Analysis: For the amount paid without any deduction of tax, the disallowance was upheld. For the amount on which tax had been deducted at a lower rate, the provision was held inapplicable because the statutory consequence under section 40(a)(ia) was confined to non-deduction or non-payment of deductible tax and did not extend to bona fide short deduction under a different TDS head.

Conclusion: The disallowance for non-deduction was sustained and the disallowance for short deduction was deleted.

Final Conclusion: The appeal succeeded only in part, with the jurisdictional challenge rejected, one set of credits remanded for fresh examination, and the TDS disallowance partly sustained and partly deleted.

Ratio Decidendi: A CBDT instruction issued for administrative distribution of work does not curtail jurisdiction otherwise vested by the Act, and section 40(a)(ia) is attracted for non-deduction of tax but not for bona fide short deduction of tax at source.

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