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Income Tax Appellate Tribunal, ‘SMC‘ BENCH
Before: SHRI M.BALAGANESH & SHRI PAVAN KUMAR GADALE
Assessee by Shri Niraj Seth Revenue by Shri S G Mehta Date of Hearing 01/06/2022 Date of Pronouncement 08/06/2022 आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in A.Y.2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-49, Mumbai in appeal No.CIT(A), Mumbai-49/10087/2015-16 dated 10/02/2021 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/03/2015
M/s. Macrotech Developers Ltd., by the ld. Dy. Commissioner of Income Tax, Central Circle 7(3), Mumbai (hereinafter referred to as ld. AO).
The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the disallowance of interest on account of non-deduction of tax at source u/s.40(a)(ia) of the Act in the facts and circumstances of the instant case.
We have heard rival submissions and perused the materials available on record. We find that assessee is a private limited company engaged in the business of real estate construction and development. During the year under consideration, the ld. AO observed that assessee had paid the interest of Rs.1,63,10,620/- without deduction of tax at source to its group company on the loans borrowed from group company. In response to the show-cause notice issued by the ld. AO as to why the provisions of Section 40(a)(ia) of the Act should not be invoked on the assessee, the assessee responded that the recipient party had duly filed its returns of income alongwith interest income and tax and hence in view of the second proviso of Section 40(a)(ia) r.w.s. 201 of the Act, no disallowance of interest u/s.40(a)(ia) of the Act would be operational in the hands of the assessee. It was also pleaded that the amendment brought by way of second proviso by Finance Act 2012, is to be construed with retrospective in operation. The ld. AO however, objected that the said amendment should be held only in prospective in application and accordingly, proceeded to disallow the interest. However, the ld. AO observed that out of the total interest of Rs.1,63,10,620/-, an amount of Rs.1,26,96,353/- has been capitalised by the assessee to inventory account and the remaining amount of Rs.36,14,267/- has been debited to profit and loss account. Accordingly, the ld. AO disallowed Rs.36,14,267/- u/s.40(a)(ia)
M/s. Macrotech Developers Ltd., of the Act and sought to reduce a sum of Rs.1,26,96,353/- from the value of inventory. This action of the ld. AO was upheld by the ld. CIT(A).
3.1. It is a fact that assessee had duly enclosed the details of recipient wherein the recipient had disclosed the interest income in its return and paid taxes thereon. The assessee had also submitted the requisite audit certificate in the prescribed form No.26A and filed it before the ld. AO as well as before the ld. CIT(A). This goes to conclusively prove that the payee had duly paid taxes on the same and in view of the second proviso to Section 40(a)(ia) r.w.s.201 of the Act, no disallowance u/s. 40(a)(ia) of the Act could be made in the hands of the assessee payer. Though the second proviso has been introduced by the Finance Act 2012, the same had been held to be retrospective in operation by the decision of the Hon’ble Delhi High Court in the case of CIT vs. Ansal Landmark Township Pvt. Ltd., reported in 377 ITR 635. Respectfully following the same, we direct the ld. AO to delete the disallowance u/s.40(a)(ia) of the Act in the sum of Rs.36,14,267/- and also increase the value of inventory in the sum of Rs.1,26,96,353/-. Accordingly, the grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced on 08/ 06 /2022 by way of proper mentioning in the notice board.