Our NGO recently received an Income Tax demand after our Form 10BB audit report noted a failure to deduct TDS on certain transactions. The Assessing Officer added back 30% of these expenses, resulting in the current tax demand.
Since our total application of funds remains above the required 85% threshold even after this 30% addition, is this demand legally valid? Please advise on the available remedies to contest this assessment.
This tax demand is not withstanding that you have fulfilled 85% application. As per Section 40(a)(ia) of IT Act 1961, if TDS is not deducted on payments that need deduction, 30% of such amounts will be disallowed and taxed which has what has happened. If this TDS is deposited with interest, the amount disallowed earlier will be allowed as application but in the year of deposit as per Section 40(a)(ia). The only relief from this demand is if the recipient has filed ITR, included this income and paid taxes and your CA issues a certificate (Form 26A) to that effect stating that you are not an assessee in default.
CS Sharad Bhargava