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Facts
The assessee challenged the CIT(A)'s order upholding disallowances by the AO for AY 2013-14. These disallowances included Rs. 11,12,486/- under Section 14A read with Rule 8D for expenditure related to exempt income and Rs. 71,40,344/- under Section 40(a)(ia) for non-deduction of TDS on interest payments, which significantly increased the total income from the returned amount. The assessee also disputed the levy of interest under sections 234A, 234B, and 234C.
Held
For the disallowance under Section 14A read with Rule 8D, the Tribunal, relying on jurisdictional High Court decisions, restricted the disallowance to the actual exempt income of Rs. 930/-, holding that the Finance Act 2022 amendment to Section 14A is not retrospective. For the disallowance under Section 40(a)(ia), the matter was remanded to the AO to re-examine the facts, including the actual interest amount, the inclusion of processing fees, and whether the payees had already accounted for the income and paid taxes, in light of Delhi High Court judgments.
Key Issues
1. Whether disallowance under Section 14A read with Rule 8D can exceed the actual exempt income, and if the Finance Act 2022 amendment is retrospective. 2. Whether disallowance under Section 40(a)(ia) for non-deduction of TDS on interest is warranted when payees have declared and paid tax on such income, and if processing fees and pre-closure charges should be included in such disallowance.
Sections Cited
14A, 40(a)(ia), 194A, 201(1), 234A, 234B, 234C, 143(3)
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Income Tax Appellate Tribunal, DELHI BENCH “A” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI M BALAGANESH
आदेश /O R D E R PER C.N. PRASAD, J.M.
This appeal is filed by the assessee against the order of the Ld.CIT(Appeals)-1, New Delhi dated 02.05.2018 for the AY 2013-14. Assessee has raised the following grounds: -
“That the learned Commissioner of Income Tax (Appeals)- 1, New Delhi has erred both in law and on facts in 1
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upholding the action of learned Assessing Officer in computing the total income of the appellant at Rs. 1,15,69,920/- as against the returned income of Rs.33,17,090/- u/s 143(3) of the Act.
That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding a disallowance of a sum of Rs. 11,12,486/- by incorrectly invoking section 14A of the Act read with Rule 8D of the Income Tax Rules’ 1962.
That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding a disallowance of a sum of Rs. 71,40,344/- representing interest paid by the assessee by invoking section 40(a)(ia) of the Act. 3.1That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that, provisions u/s 40(a)(ia) of the Act read with section 194A of the Act were inapplicable and as such, disallowance so made and sustained is not in accordance with law. 3.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that, in any case since the payee had paid the taxes on the interest paid by the appellant company, no disallowance was warranted in view of second proviso to section 40(a)(ia) of the Act.
That both the authorities below have framed the impugned order without granting sufficient proper opportunity to the appellant company and therefore the same are contrary to principle of natural justice and hence vitiated.
That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the levy of interest under section 234A, 234B and 234C of the Act which are not leviable on the facts and circumstances of the case of the appellant company.”
ITA No.5174/Del/2018
Ground no. 2 relates to disallowance of a sum of
Rs.11,12,486/- u/s 14A read with Rule 8D of I.T. Rules.
Ld. Counsel for the assessee, at the outset, submits that the
AO made disallowance of Rs.11,12,486/- invoking Rule 8D(2)(iii) of
I.T. Rules being 0.5% of average value of investments appearing in
the balance sheet as expenditure incurred for earning dividend
income of Rs.930/-. Ld. Counsel submits that the Ld.CIT(A)
sustained the disallowance. The Ld. Counsel placing reliance on the
decision of the Hon’ble Jurisdictional High Court in the case of Joint
Investments Pvt. Ltd. Vs. CIT [372 ITR 694] submits that
disallowance u/s 14A read with Rule 8D cannot exceed exempt
income.
On the other hand, the Ld. DR submits that an amendment
was made by the Finance Act, 2022 to section 14A by inserting a non
obstantive clause and an Explanation was inserted clarifying that
even the assessee did not earn any exempt income the provisions of
section 14A are applicable and the disallowance can be made, the
expenditure for earning exempt income.
The Ld. Counsel for the assessee submits that the Hon’ble
Jurisdictional High Court in the case of DCIT Vs. M/s Era
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Infrastructure (India) Ltd. in ITA No.204/2022 dated 20.07.2022 held
that an amendment to section 14A which was brought in for removal
of doubts cannot be retrospective. Therefore, the Ld. Counsel
submits that the amendment brought in by the Finance Act 2022 is
not applicable for the AY 2013-14 which is under consideration.
Heard rival submissions, perused the orders of the authorities
below.
In the case of Joint Investment Pvt. Ltd. Vs. CIT the Hon’ble
Jurisdictional High Court held that the disallowance u/s 14A read
with Rule 8D cannot exceed more than the exempt income. In so
far as the contention of the Ld. DR that the amendment brought in
by the Finance Act 2022 to section 14A is concerned, we observe
that the Hon’ble Jurisdictional High Court in the case of PCIT Vs.
M/s Era Infrastructure (India) Pvt. Ltd. (supra) held that the said
amendment which was brought in by the Finance Act 2022 is for
removal of doubts and, therefore, cannot presumed to be
retrospective. Therefore, respectfully following the jurisdictional
High Court decision in the case of Joint Investments Pvt. Ltd. Vs.
CIT (supra) we restrict the disallowance u/s 14A read with Rule
8D(2)(iii) to Rs.930/- which is the exempt income earned by the
ITA No.5174/Del/2018
assessee during the year under consideration. This ground is partly
allowed.
Coming to ground nos. 3 to 3.2 the same are with respect to
disallowance made u/s 40(a)(ia) of the Act for non-deduction of TDS
on interest paid by the assessee. Ld. Counsel submits that during
the assessment year under consideration assessee paid interest to
Bajaj Finance Ltd. and Religare Finvest Limited and the details of
interest paid are placed at page no. 21 of the Paper Book. Ld.
Counsel for the assessee referring to page 22 which is the ledger
copy of interest account submits that the total interest paid during
the year was only Rs.54,77,288/- and not Rs.71,40,344/- as
disallowed by the AO.
8.1 Ld. Counsel further submits that the recipients of interest
have accounted for the interest paid by the assessee as their
income and, therefore, in view of proviso to section 201(1) of the
Act the assessee cannot be treated as deemed to be an assessee in
default in respect of the interest paid for non deduction of tax at
source and thus, no disallowance u/s 40(a)(ia) of the Act is
warranted. Reliance was placed on the decision of the Hon’ble
Delhi High Court in the case of CIT vs. Ansal Landmark Township
[377 ITR 635]. Reliance was also placed on the decision of Delhi 5
ITA No.5174/Del/2018
High Court in the case of CIT vs. Dr. Jaideep Kumar Sharma in ITA
No.95/2015 dated 19.11.2015. The Ld. Counsel further referring to
pages 22 and 24 submits that Bajaj Finance Ltd. was issued
certificate certifying that assessee had paid interest to them on the
loans for the FY April 2012 to March 2013 and, therefore, the
assessee cannot be treated as assessee in default for non deduction
of tax at source in view of proviso to section 201(1) of the Act.
On the other hand, the Ld. DR submits that till date the
assessee has not furnished any certificate certifying that the
recipient had furnished return of income and has taken into account
the interest paid in their returns and has paid taxes on such interest
and, therefore, the AO as well as the Ld. CIT(A) rightly sustained
the disallowance u/s 40(a)(ia) of the Act.
Heard rival submissions, perused the orders of the authorities
below. It is the contention of the Ld. Counsel for the assessee that
the interest paid during the assessment year under consideration is
only Rs.54,77,288/- and not Rs.71,40,344/- as disallowed by the AO.
To this effect the assessee furnished copy of ledger account of
interest for the period from 01.04.2012 to 31.03.2013. It is also the
contention of the assessee that the AO disallowed not only the
interest but also processing fee and pre-closure charges treating 6
ITA No.5174/Del/2018
them as interest for non deduction of TDS. Assessee also produced
two certificates issued by Bajaj Finance Ltd. dated 06.05.2013,
wherein Bajaj Finance Ltd. certified that assessee has paid interest
portion of Rs.29,05,977/- and 14,97,020/- for the loans obtained by
the assessee from them and the interest portion pertains to the FY from 1st April 2012 to 31st March 2013.
We observe that the Hon’ble Delhi High Court in the case of
CIT Vs. Ansal Landmark Township (supra) held as under: -
“9. It is seen that the second proviso to Section 40(a)(ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-Section (1) of Section 201 of the Act, then, in such event, “it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso”. …….. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a)(ia) and Section 210(1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax.
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……….. 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance..” [Emphasis supplied] “ 12. As could be seen from the above, the Jurisdictional High Court
held that as long as the payee/resident has filed its return of
income disclosing payment received and has also paid taxes on such
income the assessee would not be treated as a person in default.
In the case of CIT Vs. Dr. Jaideep Kumar Sharma (supra) the
Hon’ble Delhi High Court following its decision in the case of CIT Vs.
Ansal Landmark Township P. Ltd. (supra) has taken a similar view
observing as under: -
“4. The ITAT has in the impugned order dated 25th July, 2014 referred to the insertion of the second proviso to Section 40(a)(ia) of the Act by Finance Act, 2012 as discussed by Agra Bench of the ITAT in the case of Rajiv Kumar Aggarwal v. CIT (order dated 29th May, 2013 in ITA No.337/Agra/2013) which in turn followed the decision of this Court in CIT v. Rajinder Kumar 362 ITR 241. It was held that the second proviso is declaratory and curative in nature. It was held that as long as the corresponding income was brought to tax in the hands of the payee, it was not intended to disallow the expenditure in the hands of the payer due to non deduction of tax at source. 5. The ITAT has in the impugned order in the present case noted that “the Assessee has filed necessary
ITA No.5174/Del/2018
confirmation from the payee that they have paid the amount received from the Assessee. The confirmation filed by the Assessee was enclosed in the paper book filed before the CIT(A).” 6. In similar circumstances, this court recently in CIT v. Ansal Landmark Township (P.) Ltd. (2015) 377 ITR 635 (Del) decided a similar issue in ITA Nos.95 & 352 of 2015 Page 4 of 4 favour of the Assessee approving the order of the Agra Bench of the ITAT in the Rajiv Kumar Aggarwal (supra). ” 14. It is the contention of the assessee that the payees have
received the interest income and filed a certificate which is part of
the Paper Book at pages 23 & 24. It is also the contention of the
assessee that the total interest paid is only Rs.54,77,288/- and the
processing fee and pre-closure charges were also disallowed as part
of interest for non deduction of TDS u/s 40(a)(ia) of the Act.
In our considered view, the Assessing Officer shall examine all
the above contentions of the assessee and should decide afresh
keeping in view the decisions of Delhi High Court in the case of CIT
vs. Ansal Landmark Township P. Ltd. (supra) and CIT Vs. Dr. Jaideep
Kumar Sharma (supra) after providing adequate opportunity of being
heard to the assessee. Thus, this issue in ground nos. 3 to 3.2 is
restored to the file of the AO for deciding afresh keeping in view
our above observations made. These grounds are allowed for
statistical purpose.
ITA No.5174/Del/2018
In the result, appeal of the assessee is partly allowed as
indicated above.
Order pronounced in the open court on 09.04.2024
Sd/- Sd/- (M BALAGANESH) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 09.04.2024 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT.
By order
Assistant Registrar, ITAT: Delhi Benches-Delhi