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Facts
The assessee challenged the disallowance of interest expense amounting to Rs. 4,72,991/-, which was upheld by the CIT(A). The disallowance was made by the Assessing Officer for non-deduction of tax at source (TDS) on interest payments made to Mariya Leather and Audi Finance. The assessee argued that only the interest component, not the entire principal, was disallowable and sought time to procure Form 26A certificates to prove tax payment by the recipients.
Held
The Tribunal noted the assessee's repeated non-appearance and lack of evidence regarding TDS compliance. It set aside the matter to the CIT(A) for fresh adjudication, directing the CIT(A) to grant the appellant another opportunity to be heard and present all relevant evidence, passing an order strictly in accordance with law.
Key Issues
Whether the disallowance of interest expense of Rs. 4,72,991/- under Section 40(a)(ia) for non-deduction of tax at source was justified, and if the assessee should be granted further opportunity to submit evidence of tax payment by the recipients.
Sections Cited
Section 250(6), Section 143(3), Section 40(a), Section 40(a)(ia), Chapter XVII-B, Section 201(1)
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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: DR. B.R.R. KUMAR & MS. MADHUMITA ROY
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’, NEW DELHI BEFORE DR. B.R.R. KUMAR, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. No. 452/Del/2018 (Assessment Year : 2013-14) Malhan Constructions Pvt. Vs. DCIT Ltd., Malhan One, Plot Circle – 6(1) No.1, Sunlight Colony, New Delhi Ashram, New Delhi-14 PAN: AAECM 5142 L (Appellant) .. (Respondent) Appellant by : -None- Respondent by : Shri Anshul, Sr. D.R. Date of Hearing 13.05.2024 Date of Pronouncement 20.05.2024 O R D E R PER MS. MADHUMITA ROY – JUDICIAL MEMBER : The instant appeal filed by the assessee is directed against the order dated 30.11.2017 passed by the Commissioner of Income Tax (Appeals)-6, Delhi under Section 250(6) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) arising out of the assessment order dated 31.03.2016 passed by the DCIT, Circle -16(1) New Delhi under Section 143(3) of the Act for the Assessment Year (A.Y.) 2013-14.
At the time of hearing of the matter, none appeared on behalf of the assessee. It further appears from the file that previously on many
ITA No.452/Del/2018 Malhan Constructions Pvt. Ltd. vs. DCIT Asst.Year –2013-14 - 2 - occasions whenever the matter was taken up for hearing, no one appeared on behalf of the assessee in spite of service of notice. Hence, having no other alternative, we have decided to proceed with the matter ex parte.
The assessee before us, challenged the order dated 30.11.2017 passed by Learned CIT(A)-6, Delhi arising out of the order dated 31.03.2016 for A.Y. 2013-14 with the following grounds:
“DISALLOWANCE OF INTEREST EXPENSE OF Rs. 4,72,991/- 1. That based on the facts and circumstances of the case, the H'nble CIT (A) has erred in upholding the disallowance of Rs.4,72,991/- on account of non deduction of tax at source, as the same has been done without correctly understanding the facts of the case. 2. That the Learned Assessing Officer has erred in making, and the H'nble CIT (A) has erred in upholding, the disallowance of Rs.4,72,991/- on account of non deduction of tax at source, as, based on the facts and circumstances of the case, the same has been done without affording sufficient time to produce the documents relevant to the said ground of appeal. 3. That based on the facts and circumstances of the case and on the information, documents produced and submissions made by the assessee company, the Learned Assessing Officer has erred in making, and the H'nble CIT (A) has erred in upholding, the disallowance of Rs. 4,72,991/-, as in doing so, they have gone against the principle of natural justice and as their orders are perpetrating unjust enrichment. Based on the above, it is prayed that the disallowance made and upheld in the case of the assessee company be deleted by the Hon'ble ITAT on the grounds of natural justice and for reason of the same being unjustified in view of the facts and circumstances of the case and of the intention of law.”
ITA No.452/Del/2018 Malhan Constructions Pvt. Ltd. vs. DCIT Asst.Year –2013-14 - 3 - 4. We have perused the relevant materials available on record including the order passed by the authorities below and heard the Learned DR. The assessee made payment of Rs.15,42,252/- to Audi Finance and Rs.7,15,000/- to Mariya Leather without deducting tax thereon during the assessment year as found from the records of the Learned AO. The assessee was directed to explain as to why, the said sum was not disallowed under Section 40(a) of the Act, wherein the assessee submitted as follows: “6.3 The assessee vide letter dated 10:03:2016 has submitted as under: “Please find attached herewith the ledger accounts of loans taken by the assessee from Mariya Leather and Audi Finance (Annexure D). From the same it will be seen that the Figure of Rs.7,15,000/-and of Rs.8,28,252/- paid to the two companies respectively were on account of payment of interest and return of principal. Therefore the amount disallowable u/s 40(a)(ia) for non-deduction of TDS is only the interest component and not the entire amount paid to them during the year. The interest paid to the two parties during FY 2012-13 is as follows: Mariya Leather Rs. 1,55,398.67 Audi Finance Rs. 3,17,593.24 Rs. 4,72,991.91 Therefore the proposed action of disallowance of Rs.15,43,252/- is incorrect and against the provisions of Section 40(a) and is therefore objected to by the assessee as per arguments given above. The assessee is in the process of procuring the certificate in Form 26A in accordance with the proviso to Section 201(1) showing that due tax has been paid on this interest income earned by Ms Mariya Leuther and Ms. Audi Finance" 6.4 The reply of the assessee is considered on merits. The relevant provision of the section 40(a), prior to its amendment in the Finance Act, 2014, is reproduced below:
ITA No.452/Del/2018 Malhan Constructions Pvt. Ltd. vs. DCIT Asst.Year –2013-14 - 4 - “Amounts not deductible. 40. Norwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession"- (a) in the case of any assessee (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable 6 contractor or sub-contractor, being resident for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139.”
However, the Learned AO was of the opinion that as the assessee has not deducted the tax as per the provisions of Chapter XVII-B, and thus, the amount of interest paid is liable to be disallowed under Section 40(a)(ia) of the Act for the year under consideration. Consequently, Rs.4,72,991/- being the amount of interest paid on which tax has not been deducted, has been disallowed and added to the total income of the assessee.
Before the First Appellate Authority, the assessee submitted as under: “4.1 The appellant has submitted as under on this ground of appeal: "Second addition of Rs.4,72,991.91 is pertaining to the interest claimed by the assessee company on the EMIs paid by them for their car loans to the following parties:- a) Mariya Leather Rs. 1,55,398.67
ITA No.452/Del/2018 Malhan Constructions Pvt. Ltd. vs. DCIT Asst.Year –2013-14 - 5 - b) Audi Finance Rs. 3,17,593.24 Total Rs. 4,72,991.91 Copy of Board Resolution authority transfer of loan to share application head was also filed by appellant during the course of hearing. Admittedly, the assessee company failed to deduct the tax on the interest component on the said EMIs. However, the assessee had requested the Ld. AO to either summon these parties to establish that they had shown interest received from the assessee company as income and had paid taxes thereon or to give them time to submit Form No.26A to establish that due taxes on interest paid by the assessee company and taken as income by the two parties has been paid by the respective parties. However, the assessee failed to get Form No. 26A and even till date has not been able to produce that. The assessee requested for one last opportunity to submit Form 26A from the above mentioned parties to enable the assessee company to plead for deletion of the above mentioned deletion. The assessee humbly requests the indulgence of your Hon'ble self to allow them to do so." 4.2 In the assessment order, the AO has inter alia stated as under: "Addition u/s 40(a)(ia) on account of non deduction of tax at source. 1.1 During the scrutiny proceedings, it was noticed from the assessee's submission that it has made payments of Rs.8,28,252/- to Audit Finance and Rs.7,15,000/- to Mariya Leather, without deducting tax thereon as mandated by the provisions of Chapter XVII B of the Act. 1.2 Vide notice u/s 142(1) dated 17.2.2016, the assessee was asked as under. "...4. You have made payment of Rs.8,28,252/- to Audi Finance and Rs.7,15,000/- to Mariya Leather, without deducting tax thereon during the Assessment year as per details available with the Department.
ITA No.452/Del/2018 Malhan Constructions Pvt. Ltd. vs. DCIT Asst.Year –2013-14 - 6 -
You are required to explain why the sum of Rs.15,43,252/- may not be added in your income u/s 40(a) of the Income Tax Act, 1961. It may be noted that the explanation submitted by you much be complete & true. If it is found incomplete and or not true, then the onus cast upon you to explain this sum as per scope of section 40(a) shall remain undischarged & nature of consequence thereof shall flow accordingly." 1.3 The assessee vide letter date 10.03.2016 has submitted as under: "Please find attached herewith the ledger accounts of loans taken by the assessee from Mariya Leather and Audi Finance (Annexure D). From the same it will be seen that the figure of Rs.7,15,000/ and of Rs.8,28,252/ paid to the two companies respectively were on account of payment of interest and return of principal. Therefore, the amount disallowable u/s 40(a)(ia) for non-deduction of TDS is only the interest component and not the entire amount paid to them during the year. The interest paid to the two parties dunng FY 2012-13 is as follows: Mariya Leather Rs.1,55,398.67 Audi Finance Rs.3,17,593.24 Rs.472,991.91 Therefore the proposed action of disallowance of Rs.15 ,43,252/- incorrect and against the provisions of Section - 10(a) and is therefore objected to by the assessee as per arguments given above. The assessee is in the process of procuring the certificate on Form 26A in accordance with the proviso to Section 201(1) showing that the tax has been paid on this interest income earned by M/s. Mariya Leather and M/s Audi Finance.” 1.4 The reply of the assessee is considered on merits. The relevant provision of the section 40(a), prior to its amendment in the Finance Act, 2014, is reproduced as below: "Amounts not deductible.
ITA No.452/Del/2018 Malhan Constructions Pvt. Ltd. vs. DCIT Asst.Year –2013-14 - 7 - 40. Notwithstanding anything to the contrary in section 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession", (a) In the case of any assessee (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident or amounts payable to a contractor or sub-contractor, being resident for carrying out any work (including supply of labour for carrying out any work on which tax is deductible at source under chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified ia sub-section (1) of section 139: ..."(Emphasis supplied) 1.5 It is evident from the above that the assessee has not deducted tax as per the provisions of Chapter XVII-B, and therefore the amount of interest paid is liable for disallowance u/s 40(a)(ia) of the Act as applicable in AY 2013-14. Accordingly, the amount of Rs. 4,72,991/-, being the amount of interest paid on which tax has not been deducted u/s 40(a)(ia) of the Income Tax Act, 1961."
Upon perusal of the entire set of document, the CIT(A) since observed that as no TDS certificate has been furnished by the assessee in support of the claim that the tax has been withheld in accordance with the provisions of Chapter – XVII on payments made to Audi Finance of Rs.8,28,252/- and to Maria Leather to the tune of Rs.7,15,000/- respectively, the disallowance was upheld.
In the absence of any assistance rendered by the appellant and relevant evidence in support of the claim of the appellant before us, the
ITA No.452/Del/2018 Malhan Constructions Pvt. Ltd. vs. DCIT Asst.Year –2013-14 - 8 - veracity of the same cannot be ascertained. We, thus, set aside the issue to the file of Learned CIT(A) for adjudication of the same afresh upon granting an opportunity of being heard to the appellant and upon considering the evidence on record or any other evidence which the appellant may choose to file in support of the claim made by the appellant. The Learned CIT(A) is directed to pass an order strictly in accordance with law.
In the result, appeal filed by assessee is dismissed.
This Order pronounced in Open Court on 20/05/2024
Sd/- Sd/- ( DR. B.R.R. KUMAR ) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 20/05/2024 Priti Yadav, Sr.PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI