Tds deducted but not paid

[DEV KUMAR KOTHARI]

Many small business persons have been shocked by disallowance u/s 40 (a)((ia). The tax was not deducted, as in past, the payees ahve no taxable income. TDS would simply increase work load- deduction, TDS return and certificates, claim for refund and refund. For an alleged failure to deduct tax of say Rs.50000 on contractors payments of Rs.25 lakh disallowance of entire sum of Rs. 25 lakh is not at all justified. There are separate provisions for monitoring TDS, its deposit, interest in case of delayed deposit,penalties etc. The payee is ultimately liable to pay his tax. TDS is credited only if it is paid by deductor and certificate is issued. In such circumstances, there is no justification of S. 40(a)(ia). We can also look from the point of view that if a transporter provide PAN detils, TDS is not required, then why in case of other payments, non deposit of TDS has been made so harsh on assessees. Though provision is made to allow the same when TDS is deposited, but that cannot justify disallowance fue to failure to deduct or deposit tax due to bonafide reasons, ignorance, different opinions prevailing etc. Readers are requeted to send their view which will help in preparing case for presentation before courts to hlod the provision of section 40(a) (ia) as invalid.

[Surender Gupta]

You have raised a valid and important issue. It is said that an expense in one hand is the income in the other hand. But in case of dis allowance of entire expenditure for failure to deduct TDS make the same amount taxable in two hands. IT is taxable in the hands of person making payment as well as it is taxable in the hands of recipient of services. However, some relief is given in the provision itself for delayed deduction and payment thereof. But, sometimes, there is genuine difficulty or the issue is related to interpretation, in that case this provision become more harsh to the assessee. A good writ petition on this issue will be a welcome step.

[ASHWIN GALA]

Really a very significant issue.courts have already upheld validity of 40(a)(ia)stating that the assesee can get deduction of exp. as & when TDS is paid. But practically this becomes very harsh & sometimes even absurd.e.g.A CHA pays exp. on behalf of clients,say Rs. 6 cr.,does not deduct TDS with genuine belief that TDS not applicable,The dept. does not agree,disallows Rs. 6 cr. & raises demnad Rs. 2cr. whereas profit of CHA is less than Rs. 10 lacs.Even if he pays TDS in later years, exp. allowance in that year will create loss of Rs. 5.9 cr.When he will be able to adjust this loss ? I have a genuine case like this.I really wonder why professional bodies & business associations do not take up this issue ? There can be alternatives such as whenever TDS is paid allowance of exp. will be retrospective in the year of disllowance.A force can be created to ammend the Law.IF OUR PROFESSIONAL BODIES/BUSINESS ASSOCIATIONS CAN COME OUT WITH SUCH PRACTICAL SOLUTIONS ,THEN IT WILL BE REAL SERVICE TO THE SOCIETY/MEMBERS/TAXPAYERS. IS THERE ANY ENLIGHTENED PERSON TO NOTE THIS ?

AI Summary

Concerns Raised Over Double Taxation Under Section 40(a)(ia) for Non-Deduction of TDS; Calls for Amendments A discussion highlights concerns over the disallowance of expenses under Section 40(a)(ia) of the Income Tax Act due to non-deduction or non-payment of TDS. Participants argue that this provision unfairly taxes the same income twice and can be harsh on assessees, especially in cases of genuine misunderstanding or differing interpretations. The discussion suggests that professional bodies should advocate for amendments to allow retrospective expense allowances when TDS is eventually paid. The forum calls for collective action to address these issues and provide practical solutions for taxpayers.