TANGENT SOLUTIONS INDIA PRIVATE LIMITED,HYDERABAD vs. ITO, WARD 2(1), HYDERABAD

Thereafter, the assessee has raised the following additional grounds :

The brief facts of the case are that the assessee is a Private Limited company engaged in the business of software development activities. The assessee filed its return of income for the assessment year 2013-14 on 25.07.2014 declaring 'Nil' income.

During the course of assessment proceedings, the A.O. noticed that the assessee had availed loans from M/s. Indiabulls, a Non- Banking Financial Company, and paid interest of Rs.8,25,252/- without deducting tax at source. Relying upon the decisions of the Hon'ble Kolkata High Court in the case of CIT Vs. Crescent Export Syndicate, the Hon'ble Gujarat High Court in the case of CIT vs. Sikandarkhan N. Tunvar and CBDT Circular No.10/DV/2013 dated 16.12.2013, the A.O. held that the provisions of section 40(a)(ia) of the Act, are applicable not only to the amounts payable at the end of the previous year but also to the amounts paid during the year and, accordingly, disallowed the interest

Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). During the course of appellate proceedings, the assessee filed detailed written submissions and also furnished a paper book containing, inter alia, copies of invoices relating to purchase of computers, ledger extracts and various judicial precedents in support of its contentions. Before the Ld. CIT(A), the assessee submitted that the disallowance made under section 40(a)(ia) of the Act, was not sustainable inasmuch as the interest had already been paid during the year, no proceedings under section 201(1) of the Act, had been initiated and the recipient, namely M/s. Indiabulls, had already offered the interest income to tax in its return of income. In respect of 6 depreciation, the assessee submitted that all the supporting evidences relating to purchase of computers were available and the depreciation had been wrongly disallowed without proper verification.

The learned CIT(A), after considering the assessment order, remand report of the A.O., written submissions of the assessee and also taking note of the judicial precedents relied upon by the assessee, rejected the contentions of the assessee in so far as the disallowance made under section 40(a)(ia) of the Act is concerned and sustained the addition made by the A.O. on the ground that the provisions of section 40(a)(ia) of the Act are clearly applicable to the facts of the present case. The learned CIT(A) further observed that the A.O. had omitted to invoke the provisions of section 201(1) of the Act and, accordingly, directed the A.O. to initiate proceedings under section 201(1) of the Act by treating the assessee as an assessee in default. In so far as the claim of depreciation on computers is concerned, the learned CIT(A), after considering the submissions of the assessee, held that once the A.O. had accepted the purchase of computers, the claim of depreciation could not be denied without proper verification of the 7 supporting evidences. Therefore, while setting aside the issue to the file of the A.O., the learned CIT(A) directed the A.O. to verify the requisite evidences and allow depreciation in accordance with law.

Aggrieved by the order of the learned CIT(A), the assessee is in appeal before the Tribunal.

The learned counsel for the assessee, Shri R. Mohan Kumar, Advocate, submitted that the learned CIT(A) erred in sustaining the disallowance made by the A.O. under section 40(a)(ia) of the Income-tax Act, 1961 without properly appreciating the facts and circumstances of the case. The learned counsel for the assessee submitted that the recipient of the interest income has already offered the corresponding income to tax and, therefore, the disallowance made under section 40(a)(ia) of the Act is not sustainable. He further submitted that the learned CIT(A) was also not justified in directing the A.O. to initiate proceedings under section 201(1) of the Act. In so far as the disallowance of depreciation is concerned, the learned counsel for the assessee submitted that the learned CIT(A), having accepted the claim of the assessee, ought to have allowed the depreciation instead of 8 restoring the matter to the file of the A.O. for verification. Therefore, he submitted that the issues raised by the assessee may be decided in accordance with law.

The learned Senior A.R. for the Revenue, Ms. T. Mythili, on the other hand, strongly supported the orders of the authorities below. She submitted that the A.O. has rightly invoked the provisions of section 40(a)(ia) of the Act, and the learned CIT(A), after considering the relevant facts and the submissions of the assessee, rightly sustained the disallowance. She further submitted that the directions issued by the learned CIT(A) are in accordance with law. She, however, submitted that the issues may be decided in accordance with law on the basis of the material available on record.

We have heard both the parties and perused the material available on record. We have also carefully gone through the orders of the authorities below. The short issue that arises for our consideration is whether the disallowance made by the A.O. under section 40(a)(ia) of the Income-tax Act, 1961 towards interest paid to M/s. Indiabulls for non-deduction of tax at source can be sustained in the facts and circumstances of the present case. It is 9 the claim of the assessee that although tax was not deducted at source on the interest payment, the recipient has duly accounted for the said income and offered the same to tax in its return of income. We find that, the second proviso to section 40(a)(ia) of the Act provides that where the assessee fails to deduct tax at source but is not deemed to be an “assessee in default” under the first proviso to section 201(1) of the Act, no disallowance under section 40(a)(ia) shall be made. Further, the Hon'ble Supreme Court in the case of Hindustan Coca-Cola Beverages Private Limited Vs. CIT reported in (2007) 163 Taxman 355 (SC) has held that once the recipient has paid tax on the income received, the payer cannot once again be fastened with the liability in respect of the same payment. Therefore, the benefit of the aforesaid provisions is available to the assessee, subject to verification of the necessary facts by the A.O.

In the present case, neither the A.O. nor the learned CIT(A) has examined the claim of the assessee in the light of the second proviso to section 40(a)(ia) of the Act, and the ratio laid down by the Hon'ble Supreme Court in the case of Hindustan Coca-Cola of the said provisions depends upon verification of the relevant facts, in our considered view, the issue requires fresh examination by the A.O. Accordingly, we set aside the matter to the file of the A.O. to verify the claim of the assessee in the light of the second proviso to Section 40(a)(ia) of the Act, and also the decision of the Hon'ble Supreme Court in the case of Hindustan Coca-Cola and 6, we find that although the issue before the learned CIT(A) was disallowance under section 40(a)(ia) of the Income-tax Act, 1961 for non-deduction of tax at source under the relevant provisions of the Act, the learned CIT(A) issued a direction to the A.O. to initiate proceedings under section 201(1) of the Act, without affording any opportunity of being heard to the assessee. Further, the powers and scope of the learned CIT(A) are confined

In the result, the appeal of the assessee is allowed for statistical purposes.

The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file