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Facts
The assessee, a wholesaler/distributor, paid Rs. 13,60,796 as interest to Tata Capital for short-term finance but did not deduct Tax Deducted at Source (TDS). The Assessing Officer disallowed this amount under section 40(a)(ia), which was subsequently upheld by the Ld. CIT(A). The assessee contended that the recipient, Tata Capital Financial Services Ltd., had already declared this income and paid taxes, as evidenced by Form 26A.
Held
The Tribunal remitted the matter back to the Assessing Officer for a fresh examination of the issue. The AO is directed to verify Form 26A and pass an appropriate order after providing the assessee an opportunity to be heard, noting that disallowance under section 40(a)(ia) may not apply if the recipient has paid taxes. The appeal was allowed for statistical purposes.
Key Issues
Whether the disallowance of interest expenses under section 40(a)(ia) for non-deduction of TDS is justified when the recipient has declared the income and paid taxes, considering the proviso to section 201(1) of the Income Tax Act, 1961.
Sections Cited
40(a)(ia), 44AB, 194A, 201(1), 143(3)
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Income Tax Appellate Tribunal, “SMC” BENCH, KOLKATA
O R D E R The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 08.11.2024 passed for Assessment Year 2014-15, on the following grounds of appeal :-
1. 1. That the Ld. Commissioner of Income Tax (Appeals), NFAC erred in confirming the disallowance of Rs. 13,60,796 made by Ld. Income Tax Officer, Ward 3(1), Suri invoking the provisions of section 40(a)(ia) of the Income Tax Act, 1961 for failure of the Assessee to deduct tax at source on the payments made to Tata Capital Financial Services Limited although the said Tata Capital Financial Services Limited had declared the receipt of income in their return of income and paid taxes thereon.
2. That the impugned order passed by Ld. Commissioner of Income Tax (Appeals) is against law and facts of the case.
2. Brief facts of the case are that assessee was filed return of income declaring a total income of Rs.3,90,520/-. The assessee is a wholesaler/distributor of fertilizer, pesticides and maintains regular books of A/cs. which is audited u/s. 44AB of the 1.T. Act, 1961. The assessee has debited as amount of 13,60,796/- to the Profit & Loss A/c. for payment of 2 ITANo.29/KOL/2025 interest to the TATA Capital for short term finance for purchase of fertilizers & pesticides from TATA Chemical. The Assessing Officer found that Tata Capital provides short term finance for the fertilizers & Pesticides purchased from Tata Chemical. It was also asked by the Assessing Officer as to whether tax was deducted on source, the assessee said that no TDS had been made on payment of interest of Rs.13,60,796/-. Accordingly, the Assessing Officer disallowed the said amount u/s.40(a)(ia) of the Act. Against the said disallowance, the assessee preferred appeal before the ld. CIT(A) and the ld. CIT(A) dismissed the appeal of the assessee affirming the disallowance made by the Assessing Officer u/s.40(a)(ia) of the Act.
Now, the assessee is in further appeal before the Tribunal.
Ld. Counsel for the assessee submitted that during the year under assessment the assessee Firm paid a sum of Rs.13,60,796.00 by way of Interest for the said channel finance and debited the said interest in its Profit & Loss Account and claimed as expenses without deducting Tax at Source there from as per section 194A of the Income Tax Act 1961. It was submitted by the ld. Counsel that as per the proviso to section 201(1) inserted with effect from 1st July 2012, the assessee Firm obtained a Certificate dtd. 23/03/2017 from the Accountant of Tata Capital Financial Services Ltd. at a much latter date and by the time the appellant could collect the Certificate from the Accountant of Tata Capital Financial Services Ltd., however, the Assessing Officer framed the assessment u/s 143(3) of the Act, disallowing the expense towards Interest payment of Rs.13,60,796.00. It was also submitted by the ld. Counsel that in view of the second proviso to section 40(a)(ia) read with proviso to section 201(1)
3 ITANo.29/KOL/2025 of the Income Tax Act no disallowance of expense u/s 40(a)(ia) can be made unless the assessee has been treated as assessee in default u/s.201(1) of the Act for its failure to deduct tax at source from the payment made on account of interest. Thus, the ld. Counsel pleaded that on furnishing of Certificate from an Accountant) as prescribed under proviso to section 201(1) read with rule 31ACB of the I.T. Rules, no disallowance u/s 40(a)(ia) can be made. It was further submission of the assessee that the recipient offered this said amount and paid taxes on the receipt of income and filed Form 26A. Therefore, he pleaded to remit the matter back to the file of Assessing Officer to examine AS 26A and pass appropriate order.
On the other hand, ld. Departmental Representative vehemently supported the orders of the lower authorities and submitted that the assessee was unable to furnish the details as called for during the course of appellate proceedings as well as during the course of assessment proceedings. Thus, he pleaded to uphold the orders of both the authorities below.
I have heard the rival submissions and perused the material available on record. It is an undisputed fact that the assessee has not deducted tax at source, however, he filed proof to show that the recipient shows receipt as income and offered for tax and also filed AS 26A. He also relied on the decision of the Hon’ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd., reported in 377 ITR 635 (Delhi-HC), wherein it was held that once the recipient offered the same for taxation, then it is allowable expenditure u/s.40(a)(ia) of the Act. Considering the facts and circumstances of the case, I am of the view that it is a fit to remit the matter