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Facts
The assessee firm's appeal is against the order of the CIT(A), which upheld the disallowance of 30% of TDS not deposited by the assessee. The AO had disallowed Rs. 11,57,283/- on account of failure to deposit TDS of Rs. 38,57,609/-. The assessee had claimed this interest expenditure on a loan from LIC Housing Finance, used for investment in its project/land.
Held
The Tribunal observed that the assessee firm had deducted TDS on various payments but failed to deposit Rs. 38,57,609/- into the Central Government account. Therefore, the AO rightly disallowed 30% of this amount. The CIT(A) had upheld this disallowance, and no infirmity was found in the CIT(A)'s view. Consequently, the Tribunal upheld the disallowance.
Key Issues
Whether the disallowance of interest expenditure under Section 40(a)(ia) for failure to deposit TDS is justified, despite the assessee having deducted the TDS amount.
Sections Cited
143(3), 144B, 40(a)(ia), 194C, 194A, 194J, 1941
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Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: Shri Manjunatha G. & Shri Ravish Sood
आयकर अपीलीय अिधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad Before Shri Manjunatha G., Accountant Member and Shri Ravish Sood, Judicial Member आ.अपी.सं /ITA No.1683/Hyd/2025 (िनधा�रण वष�/Assessment Year: 2018-19) Global Developers, Vs. DCIT, Nellore. Circle-1, PAN: AAGFG8471R Nellore. (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: None राज� व �ारा/Revenue by: Shri Sankar Pandi. P, Sr. AR सुनवाई की तारीख/Date of Hearing: 28/01/2026 घोषणा की तारीख/Date of 04/02/2026 Pronouncement: आदेश / ORDER PER. RAVISH SOOD, J.M:
The present appeal filed by the assessee firm is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 03/09/2025, which in turn arises from the order passed by the Assessing Officer (for short, “AO”) under section 143(3) r.w.s 144B of the Income Tax Act, 1961 (for short, “the Act”), dated 14/06/2021 for the Assessment Year (AY) 2018-19. The assessee firm has assailed the impugned order of the CIT(A) on the following grounds of appeal:
Global Developers vs. DCIT “1. That on facts and in law, the Ld. CIT(A) erred in confirming the addition of ₹. 11,57,283/- made by the Assessing Officer on account of Interest expenditure paid without deduction of TDS made of Rs. 11,57,283/- as per the provisions of Income tax Act, 1961.
If you fail to deduct TDS on interest paid to LIC Housing Finance Ltd., the consequence under Section 40(a)(ia) could be: 30% of the interest paid may be disallowed in computing business income. However, NO disallowance will apply if: TDS is deducted later and deposited before the due date of filing return (as per first proviso to Section 40(a)(ia)), OR The payee (LIC Housing Finance) has included the interest in their income and filed their return, and a Form 26A is obtained from a Chartered Accountant as per second proviso to Section 40(a)(ia).
Some courts have held that interest paid to public financial institutions like LIC Housing Finance, even without TDS, should not be disallowed if: The recipient is a tax-compliant assessee, and The income has been offered to tax. Shekhar Dadarkar vs. DCIT (ITAT Mumbai) Payment of interest to NBFCs without deduction of TDS. The Tribunal held: if the payee (NBFC) had shown the interest income in its return and paid tax on it, then no disallowance under Section 40(a)(ia) could be made. Shri Azmath Ulla vs ACIT (ITAT Bangalore) The AO disallowed interest payments to NBFCs without TDS. Tribunal held disallowance not justified when the NBFC (payee) considered the interest in its income (i.e. disclosed) and presumably paid tax thereon. Sai Pushpa Sharada Alliance vs ITO (ITAT Pune) The issue was non-deduction of TDS, and whether disallowance under 40(a)(ia) is warranted if payee has paid tax.
Global Developers vs. DCIT Tribunal applied the second proviso to section 40(a)(ia), observing that if payee has paid the tax, payer cannot be held liable for non-deduction, and no disallowance needed. Rajeev Kumar Agarwal vs Additional Commissioner of Income Tax (ITAT Agra) Disallowance under 40(a)(ia) of interest paid without TDS was challenged. It was held that the second proviso to Section 40(a)(ia) is retrospective. If the recipient (payee) has disclosed the income and paid tax, then disallowance is not sustainable.
That the Ld. CIT(A) failed to appreciate that the addition was made without proper application of mind and without giving adequate opportunity of being heard to the appellant.
That the Ld. CIT(A) erred in not considering the documentary evidence filed by the appellant in support of reasons for non duction of TDS on Interest paid to LIC Housing Finance Limited.
That the Ld. CIT(A) failed to apply judicial precedents and relevant case laws that support the appellant's claim regarding no disallowance on Interest paid to LIC Housing Finance Limited without deduction of TDS.
That the assessment order is bad in law and liable to be quashed due to violation of principles of natural justice.
That the Ld. CIT(A) erred in upholding the disallowance u/s 40(a)(ia) without appreciating the correct legal and factual position.
The appellant craves leave to add, amend, alter, or withdraw any ground(s) of appeal at the time of hearing.”
Succinctly stated, the assessee firm had e-filed its return of income for AY 2018-19 on 30/10/2018, declaring an income of Rs.54,91,500/-. Subsequently, the case of the assessee firm was
During the course of the assessment proceedings, the AO observed that the assessee firm had during the subject year paid interest of Rs.3,94,99,913/- on the loan raised from LIC Housing Finance. As the subject loan was utilized by the assessee firm for making investment in its project/land, therefore, the proportionate interest expenditure of Rs.23,60,945/- was capitalized and disallowed by the AO.
Apart from that, the AO observed that the assessee firm had though deducted tax at source (TDS) of Rs.38,57,609/-, but not deposited the same in the Central Government account. Accordingly, the AO disallowed 30% of Rs.38,57,609/- and made a disallowance of Rs.11,57,283/-.
Accordingly, the AO vide his order passed under section 143(3) r.w.s 144B of the Act, dated 14/06/2021 determined the total income of the assessee firm at Rs.90,09,730/-.
Aggrieved, the assessee firm carried the matter in appeal before the CIT(A). Although, the CIT(A) vacated the disallowance of the assessee’s claim for deduction of interest expenditure of Rs.23,60,945/-
Global Developers vs. DCIT , i.e., as capitalized by the AO, but at the same time upheld the disallowance under section 40(a)(ia) of 30% of the tax deducted at source (TDS) of Rs.11,57,283/- which the assessee firm had failed to deposit in the Central Government account.
The assessee being aggrieved with the order of the CIT(A) to the extent he had upheld the disallowance made by the AO under section 40(a)(ia) of the Act has carried the matter in appeal before us.
As the assessee appellant had failed to participate in the proceedings before the Tribunal, and the matter has been adjourned on the last three occasions, therefore, we are constrained to proceed with and dispose of the appeal as per Rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963 after hearing the respondent revenue and perusing the orders of the authorities below.
Shri Sankar Pandi P, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”) at the threshold of hearing of the appeal submitted that as the assessee firm had failed to deposit the tax at source (TDS) of Rs.38,57,609/-, therefore, the AO had rightly disallowed the same under section 40(a)(ia) of the Act and made a disallowance of Rs.11,57,283/-.
Ostensibly, the assessee firm during the subject year had made a deduction of tax at source on the multi facet payments that it had made during the subject year, viz., (i) payment to contractors (under section 194C): Rs.1,09,885/-; (ii) interest other than the interest on securities (under section 194A): Rs.35,85,844/-; (iii) fees for professional or technical services (under section 194J): Rs.6,000/-; and (iv) rent (under section 194I): Rs.1,55,880/-. In our view, as the assessee firm had failed to deposit tax deducted at source (TDS) of Rs.38,57,609/- (supra), therefore, the AO has rightly disallowed 30% of the said amount. As no material has been placed before us which would reveal any infirmity in the view taken by the CIT(A), who had upheld the disallowance made by the AO, therefore, we uphold the same.
Resultantly, the appeal filed by the assessee firm being devoid and bereft of any substance is dismissed. Order pronounced in the open court on 04th February, 2026.
Sd/- Sd/- (MANJUNATHA G.) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 04th February, 2026.