TaxTMI 
TaxTMI 
2012 (8) TMI 1009
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....1 for the respective assessment years. Since common issues are involved, these are heard together and decided by this common order. ITA No.8966/Mum/2010: 2. In this appeal assessee raised three grounds on the issue of disallowance of Rs. 17,52,134/- under section 40(a)(ia) of the Act. Assessee is engaged in the business of solvent purification and distillation. It incurred expenses amounting to Rs. 21,90,168/- as Testing Charges towards technical analysis of samples. The same was paid to M/s Aeromatic & Industrial Chemical Pvt. Ltd which had charged service tax @ 12.24% on the invoiced amount. AO was of the view that testing involves technical knowledge and the payment was towards fees for technical services on which TDS was requir....
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....s reimbursement of fee between assessee and the ultimate recipient M/s Aeromatic & Industrial Chemical Pvt. Ltd. He considered the payment made are fees for technical services and analyzing the word "any" used in section 40(a)(ia) came to the conclusion that there is no provision under the said Chapter to make short deduction of tax since assessee has not made any correct deduction of tax, provisions of section 40(a)(ia) are applicable. Even though he was of the opinion that AO should have fully disallowed the deduction, claim of Rs. 21,90,168/-, he confirmed the actual disallowance made by AO to the extent of Rs. 17,52,134/. 5. The learned Counsel argued on merits that the amount paid pertains to labour charges and are reimbursement of la....
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....his issue was considered by the Coordinate Bench in the case of DCIT vs. Chandabhoy & Jassobhoy (ITA No.20/Mum/2010), vide Para 3 as under: "3. We have heard the rival arguments and examined the record. Assessee has employed about 18 consultants with whom it entered into agreements for a period of two years renewable further at the option of either parties and they were paid fixed amounts without any share in the profit. These consultants are prohibited from taking any private assignments and worked full time with the assessee firm. There is no dispute with reference to the deduction of tax under section 192 and also the fact that in their individual assessments these payments were accepted as salary payments. It is also not disputed that ....
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..../s. 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only non-deduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or otherwise but addition u/s. 40(a)(ia) can be made even though payments are genuine but tax is not deducted as required u/s. 40(a)(ia) of the Act. We are of the view that the conditions laid down u/s. 40(a)(ia) of the Act for making addit....
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.... item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. Accordingly, we confirm the order of CIT(A) allowing the claim of assessee and this issue of revenue's appeal is dismissed". 9. Respectfully following the above decisions, we are of the opinion that provisions of section 40(a)(ia) cannot be invoked for short deduction of tax. Therefore, the orders of AO and the CIT (A) on this issue are set aside and AO is directed to allow the amount as claimed. 10. In the result the grounds are treated as allowed. ITA Nos. 6178 & 6673/Mum/2011: 11. These are the cr....