OLYMPIC OIL INDUSTRIES LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX , MUMBAI

This appeal by the assessee is preferred against the order of the ld. CIT(A)/Addl./JCIT(A)-4, Delhi dated 25/06/2024, pertaining to AY 2016-17.

The grievance of the assessee reads as under:- “1. That, on the facts and circumstances of the case and in law, the Lil. CIT(A) erred in passing the appellate order dated 25.06.2024 against the Assessee, without appreciating that the Assessee had suo motu made a disallowance of 30% of the expenditure, in respect of which tax was not deducted at source, while filing the income tax return, thus complying with the provisions of Section 40(a)(0) of the Act. 2. That, on the facts and circumstances of the case and in law, the Ld CIT(A) erred in not appreciating that the interest under the first proviso to s. 201(JA) of the Actis not leviable in a case where a voluntary disallowance under s. 40(a)(ia) of the Act is made by the Assessee at the time of filing of return. 3. That, on the facts and circumstances of the case and in law, the Ld CIT(A) erred in considering the there was no loss to the revenue as the recipients has paid the due taxes while filling their returns.”

The assessee challenged the order before the ld. CIT(A) and the ld. CIT(A) found that since the assessee has suo moto disallowed 30% of the interest expenditure, he deleted the said disallowance of Rs.1,99,65,854/-. However, directed the AO to charge interest as per the 1st proviso to Section 201(1A) of the Act.

Before us, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities. It is the say of the ld. Counsel of the assessee that since the assessee has voluntarily disallowed 30% of the expenditure, impliedly it has complied with the provisions of Section 40(a)(ia) of the Act. Therefore, any further addition is unwarranted. The ld. Counsel for the assessee further stated that interest under 1st proviso 3 to Section 201(1A) of the Act is not leviable in a case where voluntary disallowance u/s 40(a)(ia) of the Act is made by the assessee at the time of filing of the return. Per contra, the ld. D/R strongly supported the findings of the ld. AO.

We have given a thoughtful consideration to the orders of the authorities below. The undisputed fact is that the assessee has suo moto disallowed the interest expenditure on which no tax was deducted at source. In our considered opinion, once an amount is disallowed u/s 40(a)(ia) of the Act for non-deduction of tax, it should not be subject to TDS provisions again so as to make an assessee liable to interest u/s 201(1A) of the Act. 6.1. We draw support from the decision of the Co-ordinate Bench in the case of Robert Bosch Engineering and Business Solutions (P.) Ltd. reported in [2022] 137 taxmann.com 150 (Bangalore- Trib.). The relevant findings of the Co-ordinate Bench read as under:- “14. Now the issue that needs to be considered is in a situation where the assessee has not been treated to be an assessee in default, interest under section 201(1A) deserves be levied. In our humble opinion, the provision of TDS provisions cannot applicable where there is no claim of expenditure made by the assessee. In the present facts assessee made suo motu disallowance of the entire provision under section 40(a)(i)/(ia) of the Act. Once the amount is disallowed u/s. 40(a)(i)/(ia) for non-deduction of tax, it cannot be subject to TDS provisions again so as to make the assessee liable to interest u/s. 201(1A). In our considerate view, the assessee(deductor) gets exonerated from the applicability of TDS provisions on disallowance of the expenditure in question under section 40(a)(i)/(ia) of the Act. This rational is based on the scheme of section 40(a)(i)/(ia), which is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee(deductor) in a situation in which income embedded in such expenditure remained untaxed due to tax withholding lapses by such assessee (deductor).”