Non-deduction of TDS under section 40(a)(ia) 30% suo motu disallowance by assessee precludes additional additions by revenue

Non-deduction of tax at source prompted assessment enquiries where the assessee itself applied a suo motu disallowance under section 40(a)(ia), restricting disallowance to 30% of payments lacking TDS and proper bills. The legal basis is that section 40(a)(ia) prescribes a 30% proportionate disallowance for expenses on which TDS was not deducted; because the assessee had already disallowed 30% of such payments, further additions by the revenue were held unjustified and the taxpayer's grounds were allowed.

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Issues: Whether the additions made by the Assessing Officer/CPC for non-deduction of TDS should stand where the assessee had suo motu disallowed 30% of the payments under section 40(a)(ia) of the Income-tax Act, 1961 (and whether the further addition results in double disallowance).

Analysis: The Tribunal examined the statutory scheme under section 40(a)(ia) which prescribes a 30% disallowance on payments where TDS is not deducted. The assessee had declared the payments in question and had itself disallowed 30% of those payments as suo motu disallowance in its tax audit. The assessing authority/CPC had made further additions, treating the matter under section 40(a)(i) due to an apparent recording error, and the Commissioner (Appeals) had allowed only 30% and sustained the balance. The Tribunal considered the tax audit record, the details of payments showing the payees were Indian residents, and the fact that the assessee had already taken the 30% disallowance contemplated by section 40(a)(ia), concluding that the additional additions by the lower authorities amounted to a double disallowance inconsistent with the statutory 30% rule.

Conclusion: The addition made by the lower authorities is not justified; the assessee's grounds are allowed and the appeal is allowed in respect of the impugned additions arising from non-deduction of TDS under section 40(a)(ia).

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