M/S MAATHA FINANCIERS,,PALAKOL vs. THE ITO,, PALAKOL

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA No. 146/VIZ/2015 (Asst. Year : 2007-08) M/s. Maatha Financiers, vs. ITO, Ward-1, 13-5-42, Canal Road, Palakol. Palakol, W.G. District. PAN No. AALFM 2319 K (Appellant) (Respondent)

Assessee by : Shri D.L. Narasimha Rao, Adv. Department By : Smt. Suman Malik, Sr.DR Date of hearing : 22/11/2018. Date of pronouncement : /12/2018. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Rajahmundry, dated 03/03/2015 for the Assessment Year 2007-08. 2. Facts of the case, in brief, are that the assessee is engaged in the finance business, filed its return of income by admitting total income of Rs. 47,730/-. The case of the assessee was selected for scrutiny and after following due procedure, assessment was completed on 14/12/2009 by determining total

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income of Rs. 78,979/-. Subsequently, the Assessing Officer issued a notice under section 148 to consider the disallowance under section 40(a)(ia) as the assessee failed to comply with the provisions of section 194A of the Act. In the assessment order, the Assessing Officer noted that the assessee paid interest on unsecured loans of Rs. 15,60,164/- in 58 cases, in respect of which the assessee did not possess Form 15H on the date of payment/credit. Therefore, there is a violation of section 194A, hence, disallowance was made under section 40(a)(ia) of the Act and the entire interest amount of Rs. 15,60,164/- is added back to the total income of the assessee. 3. On appeal, ld. CIT(A) confirmed the order of the Assessing Officer by observing as under:-

“5.2 I have considered the submissions made. It is not in dispute that the assessee had not obtained the declaration in Form 15G/H at the time or before the payment of interest income or credit of interest to the payees. The forms were said to be obtained by end of May, 2007 but the interest was paid on 31.3.2007. The 'Action points' given in the Rules clearly stipulate that, "the payee must fill in the Form in duplicate & deliver it, or cause it to be delivered to the payee of the income. The delivery of this form to the payer must be made by the payee at the time or before, receiving the amount either directly or by credit to this account, and not after the amount is received or credited". Thus there is clear stipulation of the time within which these Forms are to be delivered to the payer- assessee. The provisions of Sec.194A clearly state that the tax shall be deducted at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or cheque or draft or by any other mode, whichever is earlier. Thus there is a clear violation of the obligation fastened on the assessee u/s.194A, in not deducting tax on the impugned interest payments when the assessee did not have at

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that point of time the requisite form 15G/H. The violation is complete as on 31.3.2007. A plea was also raised that it has time upto the date of filing of return. I find such a plea untenable, as the said provision deals with time limit for payment of tax after deduction. There is no grace period for non-deduction of tax u/s.40(a)(ia). Besides, it is relevant to note that the rules clearly bar the delivery of such form after the payment or credit of interest. Therefore, the AO is held justified in invoking the provisions of Sec.40(a)(ia) and making the impugned disallowance.”

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section 194A. Accordingly, the entire payment made by the assessee was disallowed. On appeal, ld. CIT(A) confirmed the order of the Assessing Officer. In the assessment order, the Assessing Officer has observed that assessee was not in possession Form 15H/15G at the time of payment of interest, therefore he invoked section 40(a)(ia) of the Act. The case of the assessee is that assessee has received Form 15H/15G subsequently from the parties, which is before due date of depositing the amounts, therefore no disallowance can be made under section 40(a)(ia) of the Act. This issue has been considered by the ITAT, Chennai ‘A’ Bench in the case of Narasu’s Spinning Mills (supra) and observed as under:-

“4. We have considered the rival submissions on either side and perused the relevant material available on record. We have carefully gone through the provisions of Section 40(a)(ia) of the Act. Section 40(a)(ia) of the Act clearly says that when the tax is deductible at source and such tax has not been deducted or after deduction it was not paid before the due date for filing the return of income, then the expenditure, which is otherwise allowable under the provisions of Income-tax Act, has to be disallowed. In the case before us, admittedly, the interest payment of Rs.71,016/- is claimed as expenditure. The question arises for consideration is when the assessee has not deducted tax under Section 194A of the Act in respect of the payment of interest income, whether such expenditure otherwise allowable can be allowed in view of Section 40(a)(ia) of the Act. Section 40(a)(ia) clearly says that the tax is deductible at source. The fact remains that the assessee is making similar payment to the very recipient in the earlier assessment year and tax was not deducted as required under Section 40(a)(ia) of the Act on the basis of Form 15H filed by the recipient. The fact is that the recipient of interest

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amount informed the assessee that she will file Form 15H. Accordingly, at the time of credit, the tax was not deducted. Subsequently Form 15H was filed on 10.04.2011, before the due date for depositing the amount in the Government account. When the recipient filed Form 15H, there is no liability on the part of the assessee to deduct tax. Admittedly, the tax was not deducted at the time of credit. However, before the due date for filing return of income, the recipient filed Form 15H. Therefore, on the date of filing of return of income, tax is not deductible on the amount paid to the recipient since Form 15H is filed. When there is no requirement for deduction of tax in view of filing of Form 15H by the recipient on 10.04.2011, this Tribunal is of the considered opinion that there cannot be any disallowance under Section 40(a)(ia) of the Act. Therefore, this Tribunal is unable to uphold the order of the lower authority and accordingly, the order of the lower authority is set aside and the addition of Rs.71,016/- is deleted.” In the present case, it is not clear neither from the order of the Assessing Officer nor ld. CIT(A) that when Form 15H was filed by the assessee before the Assessing Officer. Therefore, we remit the matter back to the Assessing Officer for examining the issue afresh, and if the assessee filed Form 15H before due date of depositing amount in Government account, the same may be allowed. Ordered accordingly. 8. In the result, appeal filed by the assessee is allowed for statistical purpose. Order Pronounced in open Court on this 07th day of Dec., 2018.

Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated: 07th Dec., 2018.

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vr/- Copy to: 1. The Assessee – M/s. Maatha Financiers, 13-5-42, Canal Road, Palakol, W.G. District. 2. The Revenue – ITO, Ward-1, Palakol. 3. The CIT, Rajahmundry. 4. The CIT(A), Rajahmundry. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.