Disallowance u/s 40a(ia) and Penalty u/s 201--Double Whammy

Hi Mr Chugh,

Yes, of course, disallowance u/s 40a does not preclude the right of the Income tax authorities to treat a person who's failed to deduct TDS as an assessee in default. Section 40a brought in its wake a double whammy for the assessees—-not only were they liable to be penalized u/s 201(1A) and 271C, but they'd lose the benefit of claim of that expense also. When FA 2004 introduced sub-section (ia) to Section 40a, a lot of experts had decried the move, saying there were already enough safeguards to deter the assessees to shy away from their TDS responsibilities. A disallowance in case of non-deduction of TDS on a payment to a non-resident, who wouldn't be traceable so readily as a resident, was understandable, but subjecting to disallowance even payments made within the country just because the assessee didn't make TDS on them, seemed a bit harsh. But nothing doing. Here's what Section 201 says:[If any such person [….] does not deduct [….], he or it shall, WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE OR IT MAY INCUR, be deemed to be an assessee in default in respect of the tax]So clearly, launching penalty proceedings against the assessee for non-deduction of TDS doesn't prejudice the department's right to seek a disallowance u/s 40a(ia) and vice versa.But you can save yourself being penalized if you can prove that the deductee (the contractor) had had enough advance tax deposited by him, and so, the revenue wasn't put through a loss because of your client's negligence in deducting and depositing the TDS on the deductee's income. Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "c.p chugh" wrote:>> Dear All,> > Please advise whether the ITO (TDS) is justified issuing penaly notices> for tax not deducted at source on payments which has been otherwise> disallowed u/s 40(i)(a) for Non-deduction of tax at source in regular> assessment proceedings.> > Thanks> > CPChugh> > On 4/16/08, ajay rajput wrote:> >> >> > Dear Friends,> >> >> >> > Please let me know about your opinion as to whether the medical> > expenditure incurred by the employer for treatment of employees in an> > approved hospitals is liable to FBT..?> >> >> >> > as the Circular doest not deals with this aspect..it says only about> > expenses reimburesed upto 15000.> >> >> >> > Thanks !> > *With Regards> > *> > *CA AJAY RAJPUT*> > *New Delhi*> >> > ca.ajayrajput@ ...