MR. SHEKHAR DADARKAR PROP. M/S S.D. CONSTRUCTION ,MUMBAI vs. ACIT-31(1) , MUMBAI

“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.

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.

, 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.

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.