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Facts
The assessee paid interest to NBFCs without deducting TDS. The AO disallowed the payment under Section 40(a)(ia) of the Income Tax Act. The CIT(A) confirmed the addition. The ITAT, in a previous round, set aside the matter to the AO for fresh adjudication and verification. The assessee provided a certificate from a chartered accountant (Form 26A) stating that the NBFCs had disclosed the income and paid taxes, but the AO required further evidence like ITRs and audit reports.
Held
The Tribunal held that while the assessee had provided a certificate (Form 26A) to evidence the payee's disclosure of income and payment of taxes, the AO was empowered to verify the veracity of these claims. The AO had given sufficient opportunity to the assessee to submit necessary evidence, which was not adequately provided. However, to ensure fair play and justice, the matter was restored to the AO for further inquiry to ascertain the correctness of the claim.
Key Issues
Whether the disallowance of interest payment under Section 40(a)(ia) for non-deduction of TDS is justified when the assessee provided a Form 26A certificate, but the AO sought further evidence for verification?
Sections Cited
40(a)(ia), 143(3), 254, 201(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SMT. BEENA PILLAI & SHRI PRABHASH SHANKAR
Per Bench All the above titled appeals filed by the assessee, emanate from the appellate orders passed by the Ld. Commissioner Of Income Tax (Appeals)/NFAC,Delhi dated 27.04.2024 with regard to the assessment order passed under section 143(3)/254 of the Income Tax Act,1961(henceforth the ‘Act’) passed for the Assessment Years 2007-08, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14. Since the grounds of appeal
in all these cases are common apart from slight variations in figures, and have been decided by the ld.CIT(A)/NFAC giving the same finding, they are being adjudicated vide a composite order for the sake of brevity.
2. It may be stated at the outset here that vide a composite order dated 9.4.2018,the Coordinate ‘E’ bench of ITAT,Mumbai in and ors. on the issues involved in appeals for AY 2009-10/2010-11/2012-13/2013-14 had remitted the matter back
ITA No. 3339, 3341, 3342, 3 3413, 3344, 3415/M/2024 Mr. Shekhar Dadarkar, Prop. M/s. S.D. Construction to the ld.AO to examine afresh in the light of 2nd Proviso to section 40(a)(ia) of the Act. As far as AY 2007-08 is concerned, the coordinate “H ‘Bench of ITAT,Mumbai vide order dated 21.09.2021 in has also set aside the same issue following the earlier order of ITAT(SUPRA). It may be worth mentioning here that all these appeals are part of second round of litigation before the Tribunal and arise from orders passed u/s 143(3)/254 of the Act for different assessment years Assessment Year 2007-08-ITA No.3339/M/2024 3. We take up the appeal for AY 2007-08 as a lead case and decision therein would apply mutatis mutandis to all other above appeals. The Tribunal in ITA no.7642/M/2012 and others(supra) on para 7 page 5 had observed that in view of the second proviso if the payees of the interest have disclosed the said income in their respective returns and paid income tax as per applicable provisions of law then there was no requirement of TDS on the said receipts and the assessee cannot be treated as assessee in default. This matter needs further examination and verification at the level of AO whether the payees have disclosed these payments as receipts in their respective returns. To section 40(2)(ia) with an observation that if the payees of the interest in above stated NBFCs have disclosed the said income in their respective returns of income and paid income tax as per applicable provisions of law, then there was no requirement of TDS as the payees have already paid the tax. 3.1 The Assessee has raised following grounds of appeal :
“1. On the facts and in the circumstances of the case and in law, the learned CIT erred in confirming disallowance of Rs. 821,658.
Facts of the case as culled from the records reveal that the assessee is an Individual. As the business receipts exceeded the threshold, he was required under the Act to deduct TDS under respective provisions. The AO observed that the appellant failed to do so in matters , 3341, 3342, 4 3413, 3344, 3415/M/2024 Mr. Shekhar Dadarkar, Prop. M/s. S.D. Construction of payment to NBFCs and to an exempt trust. Accordingly, the AO disallowed the payment u/s 40(a)(ia) of the Act. The ld.CIT(A) confirmed the additions. However, in the first round of appeal, the ITAT set aside the matter back to the file of the AO for fresh adjudication after proper verification. In the de novo assessment proceedings in consequence to the order of the ITAT, it was stated by the AO that the assessee did not submit the necessary evidence called for triggering disallowance again. The AO disallowed payment of interest of Rs. 8,21,658/-to the NBFC during the year.
It may be stated here that in other years, apart from interest payment to NBFC attracting TDS ,there are payments of certain Care- taking charges to a trust to which also same treatment has been given by the AO by invoking section 40(a)(ia) of the Act which has also been upheld by the CIT(A).The issue pertains to appeals for AYS 2010- 11,2012-13 and 2013-14.The Tribunal has set aside such issue also for verification of the trust having disclosed the income and paid taxes thereon or not.
4.1 In the original assessment order passed u/s 143(3) of the Act, the AO observed during assessment proceedings that the assessee had paid interest to Non-Banking Finance Companies without deducting TDS. The assessee argued that TDS provisions were not applicable as the NBFCs were engaged in banking activities. However, the AO disagreed and added the sum to the income of the assessee under section 40(a)(ia) of the Act. The CIT(A) upheld this decision, but the Income Tax Appellate Tribunal (ITAT) though accepted liability of TDS in this case, remanded the case to the AO to verify if the NBFCs had disclosed the said income and paid taxes on the income. Subsequently, the assessee was asked to submit the necessary evidence, in response the assessee provided only a certificate from an accountant. As per the Finance Act 2012, failure to deduct tax without meeting specific conditions results in the assessee , 3341, 3342, 5 3413, 3344, 3415/M/2024 Mr. Shekhar Dadarkar, Prop. M/s. S.D. Construction being deemed in default. Accordingly, in the set-aside assessment order passed u/s 143(3) rws 254 dated also the same addition was made.
4.2 It was observed by the ld.CIT(A) that in the set aside assessment the AO was directed to verify whether the interest payment has been included in the Income and the taxes have been paid thereon by the respective deductees. The AO allowed sufficient opportunity to the appellant to submit the documentary evidence to verify the truth in question. The Appellant however filed only a certificate from chartered accountant in form no-26A but did not submit the necessary evidence proving the conditions specified under the section. In view of the order of ITAT, onus was cast upon the appellant to prove with necessary evidence like the ITRs, audit reports, the proof of tax payments etc by the NBFCs/trust that the conditions laid down in the section was satisfied allowing non-deduction of TDS. The appellant failed to discharge the onus by submitting the necessary evidence. According to him,the certificate of chartered account can be a starting point, however, the AO is empowered to examine and ensure that the conditions are actually satisfied.It was concluded that the appellant has failed to prove with necessary evidence that the conditions laid down in the section entitling it not to deduct TDS, has not been submitted before the AO. The addition on this issue was therefore sustained and the grounds were dismissed.
The learned AR has vehemently argued that all the requirements in view of specific direction of hon’ble Tribunal were duly furnished in accordance with the provisions of the Act in the matter. Thus, the burden cast on it were duly discharged. Per contra, the learned Sr.DR.relied on the orders of authorities below.
We have carefully considered all the relevant facts of the case.The assessee before the CIT(A) claimed that in view of the 2nd proviso the payee should file his return of income including such income in return. For this a certificate in Form 26A is required to be furnished.
, 3341, 3342, 6 3413, 3344, 3415/M/2024 Mr. Shekhar Dadarkar, Prop. M/s. S.D. Construction This form issued by an Accountant gives the said information that the payee has filed the return of income, the income paid by the payer is included therein and amount of tax paid by it. Accordingly, the assessee furnished relevant details in Form 26A.The certificate of an Accountant was also filed. The ld.CIT(A) has laid emphasis on production of ITRs, audit report, proof of tax payment etc as well which according to him, the assessee failed to produce leading to upholding the disallowance made by the AO.
6.1 It would be relevant to reproduce the extract of Section 40(a)(ia) of the Income Tax Act,1961 which reads as under – “Section 40(a) (ia) thirty per cent of any sum payable to a resident, 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 :
Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :
Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, 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. …………………………… 6.2 As stated above, the assessee furnished the certificate of Chartered Accountant (Form 26A) under first proviso to Section 201(1) of the Act certifying that payee NBFC had furnished his return of income for the relevant A.Y. and included amount of interest in its income and paid due taxes. As per Rule 31ACB, assessee is required to furnish Annexure A alongwith Form 26A.It is undisputed fact that the assessee is liable to deduct TDS on payments made to NBFC on interest payments.
, 3341, 3342, 7 3413, 3344, 3415/M/2024 Mr. Shekhar Dadarkar, Prop. M/s. S.D. Construction However,2nd proviso does reduce the rigours of section 40(a)(ia) where the payee has disclosed the said interest and paid taxes thereon by filing its return. The assessee in this case, has duly submitted Form no.26A evidencing such disclosures by the payees. However, the AO was not amused and needed further details such as relevant ITRs, audit report,tax challans etc. Evidently, the assessee has discharged the primary onus in the matter as neither the AO nor CIT(A) have doubted the correctness of the said form duly certified by the Chartered Account. However, the AO is well within his powers to examine the veracity of the said forms and for which he is adequately empowered under the Act and to seeks relevant information from relevant payees rather than expecting the taxpayers to obtain such details from big NBFCs. The Bench proposed restoring the issue back to the ld.AO which neither the Departmental representative nor the representative of the assessee had any objection. To meet the ends of justice and fairplay, the matter is therefore, restored to the AO or making further enquiries and obtain necessary details so as to satisfy himself about the correctness of the claim as per Form 26A submitted. Needless to say, he would allow reasonable opportunity of hearing to the assessee.If the payees are found to have disclosed the said receipts in their respective returns and paid taxes thereon, no liability to deduct TDS would arise.
In the result, all the above appeals are allowed for statistical purposes.
Order pronounced in the open court on 24.10.2024.
Sd/- Sd/- (BEENA PILLAI) (PRABHASH SHANKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER , 3341, 3342, 8 3413, 3344, 3415/M/2024 Mr. Shekhar Dadarkar, Prop. M/s. S.D. Construction Poonam Mirashi, Stenographer Copy to: The Appellant The Respondent The Pr.CIT, Concerned, Mumbai The DR Concerned Bench //True Copy//
By Order Dy/Asstt. Registrar, ITAT, Mumbai.