2026 (1) TMI 1562 - AT - Income Tax

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), ... Non-deduction of tax deducted at source ('TDS') u/s 40(a)(i) - assessee suo motu disallowed u/s 40(a)(ia) - TDS deduction u/s 40(a)(ia) versus 40(a)(i) HELD THAT:- We observed that assessee has declared the details of payments on which assessee has not deducted TDS and as per the provisions of section 40(a)(ia) of the Act, assessee has suo motu disallowed 30% of the said payment relating to the provisions of expenses for which assessee has not received any proper bill. CIT (A), after considering the detailed submissions of the assessee, proceeded to allow only 30% of the payment and sustained the balance of the amount. After considering the detailed submissions of the assessee, in our considered view, section 40(a)(ia) proposes only 30% of the payments on which TDS are not deducted and from the record, we observed that the assessee itself disallowed 30% of the payment on which TDS was not deducted, therefore, the additions proposed by the lower authorities are unjustified. Accordingly, the grounds raised by the assessee are allowed. 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).