TDS expenditure allowed despite technical error in section reference when substantive compliance with section 40(a)(ia) proven

The ITAT Delhi allowed the assessee's appeal regarding TDS disallowance under section 40(a)(ia). Despite TDS being correctly deducted at applicable rates with proper lower deduction certificates obtained, authorities disallowed the expenditure solely because section 194IB was mentioned instead of section 194I(b). The tribunal held this technical error insufficient to sustain the disallowance when substantive compliance was evident. However, the tribunal dismissed the assessee's claim for excess Dividend Distribution Tax refund, following precedent that DTAA protection doesn't automatically apply to domestic companies paying DDT under section 115O unless contracting states specifically extend such protection.

---

---

Issues Involved:
1. Disallowance u/s 40(a)(ia) of the Act on account of non-deduction of tax at source on rental expenditure.
2. Non-grant of additional claim for refund of excess Dividend Distribution Tax (DDT).
3. Chargeability of interest u/s 234B and 234C of the Act.
4. Initiation of penalty proceedings u/s 270A of the Act.

Summary:

1. Disallowance u/s 40(a)(ia) of the Act:
The assessee challenged the disallowance of Rs. 5,55,68,616 made u/s 40(a)(ia) of the Act for non-deduction of tax at source on rental expenditure. The assessee argued that tax was deducted and deposited within the prescribed timelines. The Tribunal found that the rental expenditure of Rs. 18,52,28,719 was duly subjected to TDS at applicable rates. The disallowance was made due to the incorrect mention of section 194IB instead of section 194I(b). The Tribunal held that the disallowance cannot be sustained merely due to this error and deleted the disallowance of Rs. 18,52,28,719. Ground Nos. 2 to 2.2 were allowed.

2. Non-grant of additional claim for refund of excess DDT:
The assessee sought relief for an additional claim for refund of excess DDT of Rs. 4,07,72,163. The Tribunal referred to the decision in the case of DCIT vs Total Oil India Pvt Ltd, where it was held that DTAA does not apply when a domestic company pays DDT u/s 115O of the Act. Thus, the claim for the refund of excess DDT was dismissed. Ground Nos. 3 to 3.4 were dismissed.

3. Chargeability of interest u/s 234B and 234C of the Act:
The issue regarding the chargeability of interest u/s 234B and 234C was deemed consequential in nature. Ground No. 5 was noted as such.

4. Initiation of penalty proceedings u/s 270A of the Act:
The initiation of penalty proceedings u/s 270A was considered premature for adjudication at this stage. Ground No. 6 was dismissed.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal deleted the disallowance of Rs. 18,52,28,719 u/s 40(a)(ia) but dismissed the claim for refund of excess DDT. The issues regarding interest and penalty proceedings were either consequential or premature. Order pronounced on 12/03/2024.

---