Late deposit of TDS-Section 40A

[Mukund Honkan]

Company A is undertaking Turnkey contracts & offloading 100% work to its  JV partner ’Company B’ after keeping margin of 2%.

In the year end March 2011, job worth Rs. 10 crores executed by Company A & offloaded to Company B.

Company B accounted contracting income of Rs. 9.80 crs which  in turn is expense of Company A.

 Company A has  to deduct TDS @ 2% from Rs. 9.80 crs i.e. Rs.19.60 lacs but deposited the same on 5^th October 2011.

Since TDS is not deposited before 30^th Sept 11, entire expenses get disallowed and Company A is liable for Income tax on Gross Income of Rs. 10 crores which will be around Rs. 3 crores.

Can we know what is the way out so that Rs. 3 crores can be saved?

Regards,

 

Mukund M Honkan

[CAGOPALJI AGRAWAL]

Only terms of the contract will decide the fate. If Company A claims that it is entitled for 2% commission and all the expenses are incurred on behalf of company B, then there may be an escape.

AI Summary

Late TDS deposit may disallow related expenses unless contract shows commission and expenses were incurred on principal's behalf.
Late deposit of TDS on amounts payable to a contractor led to asserted disallowance of the related expense; the controlling issue is contractual allocation. If the contract and accounts establish that the reporting party is entitled only to a commission and that the larger contract costs were incurred on behalf of the other party, the expense disallowance consequence may be avoided.