📝 TDS Not Deducted? You Might Still Save the Deduction – Section 40(a)(ia) Case Law Guide with Focus on Form 26A

📌 Introduction

In tax audits, one of the most common disallowances is under Section 40(a)(ia)—for non-deduction or non-payment of TDS. But thanks to judicial rulings and clarifications by CBDT, there's a powerful shield available to taxpayers: Form 26A.

This blog explains how Form 26A can help, backed by real case laws and practical insights.

🔍 Understanding Section 40(a)(ia)

Section 40(a)(ia) disallows 30% of expenses (since AY 2015-16) such as:

• Contractor payments (194C)

• Professional fees (194J)

• Interest (194A)

• Rent (194I), etc.

If TDS is:

• Not deducted, or

• Deducted but not paid within prescribed time,

→ 30% of such expenditure is disallowed.

🛡️ But here's the savior: Form 26A

✅ What is Form 26A?

Form 26A is a CA-certified declaration filed by the payee, stating that:

• They have received the income, and

• They have paid tax on it.

This form allows the payer (you) to avoid disallowance under Section 40(a)(ia) even if you didn’t deduct TDS.

🧾 Supported by:

• CBDT Circular No. 10/2013

• Rule 31ACB of Income Tax Rules

• Section 201(1) Proviso (which is extended to 40(a)(ia))

⚖️ Important Case Laws Highlighting 26A Relief

🧑‍⚖️ 1. PCIT v. Tera Software Ltd

[2021] 125 taxmann.com 262 (Telangana HC)

• ₹20 lakh paid to vendor without TDS.

• Vendor filed ITR and paid tax.

• Court held: Disallowance under 40(a)(ia) not justified.

🔎 Key Point: Form 26A should be obtained to evidence that the vendor offered income in return and paid tax.

🧑‍⚖️ 2. CIT v. Rajeev Tandon

[2010] 327 ITR 248 (Delhi HC)

• Assessee failed to deduct TDS on professional fees.

• Professionals had already declared income.

Court observed: Forcing disallowance would lead to double taxation, which defeats the intent of Section 40(a)(ia).

👉 Though this case predates 26A, its spirit is now captured in the law via Form 26A.

⚖️ 3. CIT v. Vector Shipping Services (P) Ltd

[2013] 38 taxmann.com 77 (Allahabad HC)

• TDS was deposited after FY but before filing ITR.

• Court ruled that no disallowance is needed if TDS is deposited before the ITR due date.

✅ This works independently of Form 26A, but if TDS is not deposited at all, Form 26A is your only remedy.

🧠 Practical Scenario: When to Use Form 26A?

Situation	Can 26A Help?	Action
TDS not deducted at all	✅ Yes	Get 26A from payee
TDS deducted but not deposited	❌ No	Disallowance will apply
TDS deposited after FY but before ITR due date	✅ Yes	No 26A needed
TDS missed but vendor already filed ITR	✅ Yes	File 26A online via TRACES portal

📊 Summary of 26A's Power

• Shields payer from TDS default disallowance

• Must be digitally filed via TRACES

• Requires CA certification

• Should be filed before filing your ITR

✍️ Final Takeaway

Section 40(a)(ia) is no longer a dead-end if TDS is missed. Form 26A is your life jacket. Courts have consistently supported this compliance remedy when used correctly.

✅ Don’t let a genuine miss cost you lakhs in disallowed expenses.

✅ Train your accounts team and vendors on 26A usage.

✅ If you receive a scrutiny notice, ensure 26A is part of your documentation defense.

🎯 Quick Summary

Item	Without 26A	With 26A
30% Expense Disallowance	✅ Yes	❌ No
Assessee in Default	✅ Yes	❌ No
Penalty/Interest Exposure	✅ Yes	❌ Reduced
Deduction Allowed	❌ No	✅ Yes

If you have not complied with TDS provisions, Maintain a file of Form 26A acknowledgments and ITRs of vendors to handle scrutiny or audit queries.