HERMAN PROPERTIES (P) LTD.,NEW DELHI vs. ACIT CIRCLE 11(1), NEW DELHI

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ITA 134/DEL/2024Status: DisposedITAT Delhi09 July 2025AY 2017-183 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal noted that both lower authorities disallowed the interest payment of Rs. 58,53,195/- solely due to the assessee's failure to deduct TDS. The assessee sought to admit additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, which contained details of payees having been assessed for the interest income in light of the second proviso to section 40(a)(ia). The Revenue contended that this additional evidence should be sent back to the Assessing Officer for fresh verification, as it was being submitted for the first time before the Tribunal. The Tribunal found merit in the Revenue's technical objection and accepted the assessee's issue of section 40(a)(ia) disallowance to be restored back to the Assessing Officer for fresh adjudication and factual verification as per law. The appeal was allowed for statistical purposes. No issue was expressly left undecided.

What were the facts?

The assessee, M/s. Herman Properties (P.) Ltd., is in appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench, against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, for Assessment Year 2017-18. The appeal arises from assessment proceedings under section 143(3) of the Income-tax Act, 1961. The core issue involves a disallowance of Rs. 58,53,195/- representing interest paid by the assessee to a non-banking finance company/securitization trust. This disallowance was made for failure to deduct Tax Deducted at Source (TDS) and was upheld by the lower appellate authority. The assessment was framed on 28.12.2019.

What were the issues?

1. Whether the disallowance of Rs. 58,53,195/- representing interest paid to a non-banking finance company/securitization trust is warranted by invoking section 40(a)(ia) of the Act? Assessee's Contentions: - The disallowance is erroneous as the payee had paid taxes on the interest income, making the second proviso to section 40(a)(ia) applicable, thus negating the disallowance. - Section 40(a)(ia) is inapplicable if the assessee had a bonafide belief that TDS was not deductible, citing the Bombay High Court judgment in CIT v. Kotak Securities Ltd. (340 ITR 333). - Various adverse findings by the CIT(A) are factually incorrect and legally misconceived. Revenue's Contentions: - The assessee's application for admitting additional evidence, containing details of payees having paid taxes on the interest income, should be restored to the Assessing Officer for fresh factual verification. The Revenue argued that this additional evidence is being presented for the first time before the Tribunal.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI

Before: SHRI SATBEER SINGH GODARA & SHRI S. RIFAUR RAHMAN

Hearing: 23.06.2025Pronounced: 09.07.2025

Date of hearing 23.06.2025 Date of pronouncement 09.07.2025 ORDER

PER SATBEER SINGH GODARA, JM

1.

This assessee’s appeal for assessment year 2017-18, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2023-24/1058117909(1), dated 21.11.2023 involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). Heard both the parties. Case file perused.

2.

This assessee’s appeal raises the following substantive grounds:

1.

1. That the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred both in law and on facts in upholding a disallowance of a sum of Rs. 58,53,195/- representing interest paid by the appellant company to non-banking finance company / securitization trust by invoking section 40(a)(ia) of the Act. 1.1 That in any case since the payee had paid the taxes on the interest paid by the appellant company, no disallowance was warranted in view of second proviso to section 40(a)(ia) of the Act. 1.2 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that once assessee had bonafide reason to believe TDS was not deductible, section 40(a)(ia) of the Act is inapplicable as has been held by the judgment of Hon'ble Bombay High Court in the case of CIT v. Kotak Securities Ltd. reported in 340 ITR 333 1.3 That various adverse findings recorded by the learned Commissioner of Income Tax (Appeals) are factually incorrect, legally misconceived and wholly untenable. It is therefore, prayed that, disallowance made and sustained by the learned Commissioner of Income Tax (Appeals) be deleted and appeal of the appellant company be allowed.

3. Suffice to say, both the learned lower authorities have disallowed the assessee’s interest paid of Rs.58,53,195/- for the sole reason of its failure to deduct TDS thereupon; in the course of assessment framed on 28.12.2019 and upheld in the lower appellate discussion.

4. Faced with this situation, learned counsel has invited our attention to the assessee’s application dated 22nd May, 2025 seeking to admit it’s additional evidence under Rule 29 of Income Tax (Appellate Tribunal) Rules, 1963 which contains all the 2 | P a g e relevant details of it’s payees concerned having got assessed qua the very interest income(s) in light of section 40(a)(ia) 2nd proviso.

5.

The Revenue’s case on the other hand is that the assessee’s above additional evidence deserves to be restored back to the learned Assessing Officer for his afresh factual verification. We find merit in the Revenue’s instant technical objection as the assessee’s foregoing additional evidence has seen light of day for the first time in tribunal only. We thus accept the assessee’s sole issue of section 40(a)(ia) disallowance back to the learned Assessing Officer for his afresh appropriate adjudication and factual verification as per law. Orders accordingly.

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