No disallowance u/s 40(a)(ia) for short deduction of TDS – Delhi ITAT

UE Trade Corporation (India) Ltd v DCIT [ITA No.2303/Del/2011] (Delhi ITAT)


The assessee was engaged in trading in agricultural products. During the course of assessment proceedings from the tax audit report in Form No.3CD, the Assessing Officer noted that the tax auditor had quantified the amount of 40,41,233/- disallowable under sec. 40(a)(ia) of the Act. However, in computation of income the assessee had added back only Rs.20,16,778/-. The remaining amount of Rs.20,24,455/- was therefore, disallowed by the Assessing Officer.

Assessee’s contentions:

  • Payment was made after deducting lower tax in respect of certain items.
  • Reliance is placed on the following rulings:
    DCIT vs. Chandabhoy & Jassobhoy, 17 158 (Mum. ITAT)
    DCIT vs. S.K. Tekriwal, 15 289 (Kol.)ITAT)

    wherein it was held that provisions of sec. 40(a)(ia) can be invoked only in event of non-deduction of tax at source but not for lesser deduction of tax at source


Tax Authority’s arguments:

When tax auditor has pointed out the figures in 3CD report and out of the same, a portion had been added back, the same provision is attracted on the remaining part also.


The assessee’s case is covered by the decisions of the Tribunal referred to above. No doubt assessee is in default as per provisions of sec. 201 but disallowance of the expenditure is not permissible u/s 40(a)(ia). Respectfully following the precedents it is held that disallowance of Rs.20,24,455/- is not justified.

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