Suo motu Disallowance u/s 40(a)(i) or 40(a)(ia) does not exonerate the assesse from the liability u/s 201 of the IT Act

As per the provisions of section 40(a)(i)(a) of the Income Tax Act, 1961 (‘IT Act’), if an assessee who pays a sum of money by way of interest, royalty, fees for technical services or any other sum to a person outside India or within India, fails to deduct and/or deposit TDS as per the provisions of Chapter XVII-B with the government, the amount so paid will be disallowed and shall not be deducted in computing the income chargeable under the head “Profits and gains from business and professions.”

However, the provisions of the IT Act states that, if an assessee is not an “assessee in default” as per first proviso to section 201(1), it shall be deemed that the assessee has deducted and paid the taxes on the date of furnishing of return.

1.1       The Bangalore Tribunal in the recent case of Biocon Ltd. vs. Deputy Commissioner of Income Tax LTU Bangalore, ITA No.1248/Bang/2014, recently passed a judgement wherein it held that suo motu disallowance under Section 40(a)(i)/(ia) does not exonerate the assessee from the liability under Section 201.

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