Disallowed expenses

If an expenditure is debited to P&L account but no TDS is being made & deposited to the govt a/c then suhc expense is disallowed in the eyar to whihc the expense relates.  however the expense is allowable in the year whne TDS is deposited to the govt A/c

TDS return for F.Y. 08-09 should be filed & the applicblae penalty should be paid.

Section 40(a)(ia) disallows only amounts outstanding as on 31st March, not amounts already paid during the F.Y.


Section 40(a)(ia) would apply only to amounts outstanding as of 31st March of every year on which TDS not deducted and not to amounts paid during previous year without deduction of TDS for following reasons:

1) Legislature by consciously replacing words from 'credited' or 'paid' in Finance (No.2) Bill,2004 to 'payable' in Finance (No.2) Act, 2004 has made it clear that only outstanding amount or provision for expenses which are liable for TDS, are to be disallowed in event there is default in not following TDS provisions under Chapter XVII-B of Act;

2) CBDT's Circular No.5 of 2005, dated 5th July, 2005 clarifies that intent of section 40(a)(ia) is to curb bogus payments by creating bogus liabilities - MERILYN SHIPPING & TRANSPORTS v. ACIT [2012] 20 taxmann.com 244 (Visakhapatnam - Trib.)(SB)