Deducted TDS Under the Wrong Section? No Disallowance if the Right Amount Was Deducted

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📊 INCOME TAX • HIGH COURT RULING

Delhi High Court: 194C instead of 194I won't trigger Section 40(a)(ia) disallowance

📌 Case: Principal Commissioner of Income-tax vs. Jindal Saw Ltd.
⚖️ Citation: [2026] 188 taxmann.com 376 (Delhi)  |  Dated: 08-07-2026

Deducting TDS is one thing — deducting it under the correct section is another. But what happens when you deduct the right amount under the wrong provision? The Delhi High Court has clarified that a genuine section mix-up won't cost you a disallowance, as long as tax was actually deducted.

🔍 What Happened?

Deducted TDS
Under Sec 194C (instead of 194I)
↓
Dept. Action
"In default" + 40(a)(ia) disallowance
↓
Tribunal
Set aside 201/201A order
↓
✔ High Court: No Disallowance
Assessee not in default
  • The assessee deducted tax at source under Section 194C (contractors) instead of the applicable Section 194I (rent).
  • The appropriate amount of tax was deducted — only the section quoted was different.
  • The Tribunal set aside the order passed under Sections 201 & 201A, holding the assessee not to be in default.

⚔️ The Core Question

🧑‍💼 Assessee

The correct tax was deducted and paid. A wrong section reference alone cannot make me a defaulter or trigger disallowance.

🏢 Revenue

Deduction under 194C instead of 194I means short/wrong deduction — invoke Section 40(a)(ia) to disallow.

✅ What the Court Held

  1. Where the appropriate tax has been deducted, the mere fact that it was deducted under a different (but relevant) provision cannot make the assessee "in default".
  2. In such a case, the amount cannot be disallowed by invoking Section 40(a)(ia).
  3. Since the Tribunal had rightly set aside the order under Sections 201/201A, the disallowance under Section 40(a)(ia) was not warranted. [Para 5 — in favour of the assessee]

💡 Key Takeaway: If the right amount of TDS was deducted, quoting the wrong (but relevant) section — like 194C in place of 194I — does not make you an assessee-in-default, nor does it attract a Section 40(a)(ia) disallowance.

Disclaimer: This post is for informational purposes only and does not constitute legal or professional advice. Please consult a qualified professional for your specific case.

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