ITAT Rajkot: Deduction Under Proviso to Section 40(a)(ia) Allowed in Year of Actual TDS Payment — Omission in Return Not a Bar
Case Overview
Case Name: RS Industech Private Limited Vs ITO (ITAT Rajkot)
Appeal Number: ITA No. 843/Rjt/2026
Date of Order: 08/10/2026
Assessment Year: 2018-19
The Rajkot bench of the Income Tax Appellate Tribunal delivered a significant ruling in the matter of RS Industech Private Limited Vs ITO (ITAT Rajkot), affirming that a statutory deduction under the proviso to Section 40(a)(ia) of the Income Tax Act, 1961 cannot be denied merely because the assessee omitted to claim it in the original return of income. The Tribunal directed the Assessing Officer to allow a deduction of ₹10,48,139/-, representing expenditure that had been disallowed in AY 2017-18 due to non-deposit of TDS within the prescribed deadline, and which became allowable in AY 2018-19 upon actual payment of the TDS.
Background and Factual Matrix
RS Industech Private Limited, a company engaged in the business of erection and repair of construction and engineering equipment, maintained regularly audited books of account under both the Companies Act, 2013 and the Income Tax Act, 1961.
What Happened in AY 2017-18
During the financial year relevant to AY 2017-18, the assessee had deducted tax at source on various expenditures. However, the deducted TDS was not remitted to the government treasury on or before the due date prescribed under Section 139(1) of the Income Tax Act, 1961. As a consequence, 30% of the relevant expenditure — amounting to ₹10,48,139/- — was disallowed under Section 40(a)(ia).
The underlying expenses and TDS details were as follows:
| Particulars | Payee Name | Amount (₹) | TDS Rate | TDS Deducted (₹) |
|---|---|---|---|---|
| Interest to Finance Company | Citicorp Finance India Limited | 2,10,830 | 10% | 21,083 |
| Hiring Charges | R. K. Crane Service | 84,000 | 2% | 1,680 |
| Payment to Contractor | Vijaya Bhanu Security Services | 1,71,600 | 2% | 3,432 |
| Payment to Contractor | Real Heavy Lifters | 2,06,000 | 2% | 4,120 |
| Hiring Charges | R. J. Crane Service | 1,75,000 | 2% | 3,500 |
| Payment to Contractor | Guru Mover's Pvt Ltd | 35,000 | 2% | 700 |
| Payment to Contractor | Amrik Singh & Sons Crane Service Pvt Ltd | 23,69,700 | 2% | 47,404 |
| Payment to Contractor | J R Heavy Lifters | 5,75,000 | 2% | 11,500 |
| Total | 38,27,130 | 93,719 | ||
| 30% Disallowed | 11,48,139 |
Note: The figure of ₹10,48,139/- claimed as a deduction in AY 2018-19 corresponds to the portion of expenses disallowed in AY 2017-18 under
Section 40(a)(ia), traceable to TDS that was deducted but not timely deposited.
Events in AY 2018-19
The deducted TDS was ultimately deposited by the assessee on 21 March 2018 and 22 March 2018, falling within FY 2017-18, which is the financial year relevant to AY 2018-19. The proviso to Section 40(a)(ia) specifically provides that where such TDS is paid in a subsequent year, the 30% disallowance made in the earlier year becomes allowable as a deduction in the year of actual payment.
The assessee's original return for AY 2018-19 was filed on 26 October 2018. Despite the TDS payment having been made before the date of filing the return, the deduction was inadvertently not included in the return. The assessee subsequently brought the claim to the attention of the Assessing Officer through a letter dated 10 January 2020, during the course of assessment proceedings.
The case had been selected for limited scrutiny under the E-Assessment Scheme, 2019, specifically on the issues of TDS default and the consequent disallowance.