M/S. INFANTS TRAVELS PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 3(1)(1), BANGALORE

All these three appeals have been filed by the assessee challenging the orders passed by Ld. CIT(A)-3, Bengaluru confirming the additions made by the assessing officer u/s 40(a)(ia) of the Income-tax Act,1961 ['the Act' for short] in assessment years 2010-11, 2012-13 & 2013-14.

We heard the parties and perused the record. This is second round of proceedings. The assessee had paid to 1690/Bang/2019 M/s. Infants Travels (P) Ltd., Bengaluru interest to non-banking financial companies in all the three years on the loan taken by it from them. However, the assessee did not deduct tax at source as required u/s 194A of the Act. Hence the A.O. disallowed the interest expenditure by invoking provisions of section 40(a)(ia) of the Act. The details of interest paid by the assessee to various financial companies have been tabulated below:

The Ld CIT(A) confirmed the disallowances and hence the assessee carried the matters before the ITAT and the Tribunal restored the issues, vide its order dated 11.08.2017, to the file of the AO for examining the issue afresh, since the assessee had placed reliance on the to 1690/Bang/2019 M/s. Infants Travels (P) Ltd., Bengaluru second proviso to sec.40(a)(ia) of the Act inserted with effect from 1.4.2013 and further it was contended that the same shall have retrospective application. Hence the assessing officer has passed the impugned assessment orders.

It is pertinent to note that, as per second proviso to sec. 40(a)(ia), the disallowance u/s 40(a)(ia) is not required to be made if the assessee is not deemed to be an assessee in default under the first proviso to sec.201(1) of the Act. As per the first proviso sec. 201(1), the assessee, in order to be declared as an assessee not in default, is required to furnish a certificate from an accountant specifying therein that the recipient has furnished his return of income u/s 139, has taken into account such sum for computing total income and has paid the tax due on the total income so declared in the return of income.

Before the AO, the assessee appears to have submitted the certificates obtained from some of the companies in the prescribed Form No.26A. The AO issued letters to all the finance companies asking for their confirmation. to 1690/Bang/2019 M/s. Infants Travels (P) Ltd., Bengaluru Since the AO did not receive any reply from them, he again made the disallowance u/s 40(a)(ia) of the Act in all the three years.

Before Ld CIT(A), the assessee submitted that it has furnished certificate in Form No.26A. It was contended that the assessee should not be penalized for non- response of the finance companies to the letter written by the AO. It was further admitted that some companies have confirmed lesser amount of interest only.

The Ld CIT(A) was not convinced with the contentions of the assessee. He noticed that the Rule 31ACB of Income tax Rules has prescribed a procedure, according to which the certificate obtained in Form No.26A should be presented to Director General of Income tax (Systems) or the person authorized by him in accordance with the procedures, formats and standards specified in Rule 31ACB. Since the assessee has not followed the procedure prescribed in Rule 31ACB, the Ld CIT(A) to 1690/Bang/2019 M/s. Infants Travels (P) Ltd., Bengaluru refused to take congnizance of certificates in Form 26A filed by the assessee before the AO. Accordingly he confirmed the disallowance made in all the three years.

For the sake of convenience, we extract below the operative portion of the order passed by Ld CIT(A) in assessment year 2010-11:- to 1690/Bang/2019 M/s. Infants Travels (P) Ltd., Bengaluru to 1690/Bang/2019 M/s. Infants Travels (P) Ltd., Bengaluru to 1690/Bang/2019 M/s. Infants Travels (P) Ltd., Bengaluru

We heard the parties and perused the record. We notice that the Ld CIT(A) has confirmed the disallowance, only for the reason that the assessee has not followed the procedure prescribed in Rule 31ACB. At the time of hearing, the Ld A.R submitted that the assessee may be provided with an opportunity to comply with the procedure prescribed in Rule 31ACB of the Act. He further submitted that the disallowance, to the extent to 1690/Bang/2019 M/s. Infants Travels (P) Ltd., Bengaluru covered by the certificates obtained in Form 26A, should also be directed to be deleted.

The Ld D.R also agreed that the disallowance may be directed to be deleted, if the assessee has followed the procedure prescribed in Rule 31ACB of the Act.

Accordingly, in the interest of natural justice, we are of the view that the assessee should be provided with an opportunity to comply with Rule 31ACB of I.T Rules.

Accordingly, we set aside the orders passed by Ld CIT(A) in all the three years and restore the same to the file of the assessing officer with the direction to allow the assessee to comply with the provisions of Rule 31ACB of Income tax Rules. The prayer of the assessee is to delete the disallowance to the extent covered by certificates obtained in Form 26A. Subject to the compliance of Rule to 1690/Bang/2019 M/s. Infants Travels (P) Ltd., Bengaluru 31ACB of Income tax Rules, we direct the AO to allow the above said prayer of the assessee.

In the result, all the three appeals of the assessee are treated as allowed for statistical purposes.