Section 40(a)(i) Disallowance Cannot Survive Once Deductee Settles Tax Liability

The Bangalore Bench of the Income Tax Appellate Tribunal examined whether expenditure disallowed under Section 40(a)(i) of the Income-tax Act for failure to deduct tax at source could continue to survive when the recipient of the income had already settled the underlying tax dispute under the Direct Tax Vivad se Vishwas Scheme, 2024. 

The Tribunal held that in view of CBDT Circular No. 19/2024 and FAQ No. 58, consequential relief must also be extended to the deductor. 

Accordingly, the Tribunal directed deletion of the disallowance made under Section 40(a)(i), while sustaining the disallowance relating to delayed deposit of employees’ PF contribution in view of the Supreme Court decision in Checkmate Services Pvt. Ltd..