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Facts
The assessee company, engaged in real estate development, filed a return declaring a loss. The Assessing Officer (AO) disallowed interest expenses of Rs. 2,81,58,492/- under Section 40(a)(ia) for non-deduction of TDS. The assessee argued that the payees had furnished Form 15G/15H, indicating their income was below the taxable limit and they had paid the tax.
Held
The CIT(A) upheld the AO's disallowance, finding that the assessee had not properly verified the Forms 15G/15H and that Section 197(1B) was applicable, disallowing the claim. However, the Tribunal noted that the assessee presented additional evidence, including a Chartered Accountant's certificate, showing the payees had paid taxes.
Key Issues
Whether the disallowance of interest expenses under Section 40(a)(ia) is justified when the payees have submitted Forms 15G/15H and paid the applicable taxes.
Sections Cited
40(a)(ia), 197(1A), 197(1B), 201, 139
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
This appeal has been filed by the assessee against order dated 17.01.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2018-19.
In grounds raised the assessee is ag In grounds raised the assessee is aggrieved with the grieved with the disallowance of interest of Rs.2,81,58,492/ disallowance of interest of Rs.2,81,58,492/- u/s 40(a)(ia) of the u/s 40(a)(ia) of the Income-tax Act, 1961 (in short ‘the Act’). tax Act, 1961 (in short ‘the Act’).
Briefly stated, facts of the case are that the assessee company Briefly stated, facts of the case are that the assessee company Briefly stated, facts of the case are that the assessee company was engaged in the business of development and re-development of was engaged in the business of development and re was engaged in the business of development and re the buildings at Dadar, Mumbai. The assessee filed return of Dadar, Mumbai. The assessee filed return of Dadar, Mumbai. The assessee filed return of income on 11.10.2018 declaring loss of Rs.21,41,595/-. The return income on 11.10.2018 declaring loss of Rs.21,41,595/ income on 11.10.2018 declaring loss of Rs.21,41,595/ of income was selected for scrutiny assessment and statutory was selected for scrutiny assessment and statutory was selected for scrutiny assessment and statutory notices under the Income notices under the Income-tax Act,1961 ( in short ‘the Act’) ,1961 ( in short ‘the Act’) were issued and complied with. issued and complied with. During scrutiny proceedings , t During scrutiny proceedings , the Assessing Officer observed that assessee debited interest payment Assessing Officer observed that assessee debited interest payment Assessing Officer observed that assessee debited interest payment of Rs.9,38,61,640/- but no tax was deducted at source and but no tax was deducted at source and therefore, invoking section 40(a)(ia) of the Act therefore, invoking section 40(a)(ia) of the Act , he , he disallowed the said amount.
On further appeal, the Ld. CIT(A) observ On further appeal, the Ld. CIT(A) observed as under: as under:
“5.2. Ground 2 (2.1 to 2.4) “5.2. Ground 2 (2.1 to 2.4) Vide this Ground, the Appellant has challenged the action of the AO in Vide this Ground, the Appellant has challenged the action of the AO in Vide this Ground, the Appellant has challenged the action of the AO in making the disallowance of Rs.2,81,58,492/ making the disallowance of Rs.2,81,58,492/- by invoking the provisions of by invoking the provisions of section 40(a)(ia section 40(a)(ia) of the Act. In this regard, the Appellant has submitted that ) of the Act. In this regard, the Appellant has submitted that he had paid interest of Rs.4,39,96,358/ he had paid interest of Rs.4,39,96,358/- and Rs. 4,98,65,282/ and Rs. 4,98,65,282/- to Deepak Devji Patel and Pravin Rambhiya respectively. The Appellant has further Devji Patel and Pravin Rambhiya respectively. The Appellant has further Devji Patel and Pravin Rambhiya respectively. The Appellant has further submitted that tax has not been deducted at sour submitted that tax has not been deducted at source on payments of such ce on payments of such interest in view of section 197(1A) since the dedcutees had furnished Form interest in view of section 197(1A) since the dedcutees had furnished Form interest in view of section 197(1A) since the dedcutees had furnished Form 15G/15H. The Appellant has further submitted that he is in the process of 15G/15H. The Appellant has further submitted that he is in the process of 15G/15H. The Appellant has further submitted that he is in the process of obtaining Form 26A, however, the same has not been submitted so far. obtaining Form 26A, however, the same has not been submitted so far. obtaining Form 26A, however, the same has not been submitted so far. I have consider I have considered the submissions made by the Appellant. I find from the ed the submissions made by the Appellant. I find from the assessment order that while making the disallowance u/s 40(a)(ia), the AO assessment order that while making the disallowance u/s 40(a)(ia), the AO assessment order that while making the disallowance u/s 40(a)(ia), the AO has observed in the assessment order that; has observed in the assessment order that;
Disallowance of expenses while computing business income due to non 8. Disallowance of expenses while computing business income due to non 8. Disallowance of expenses while computing business income due to non- deduction of tax at source under section 194A. of tax at source under section 194A. As per section 40(a)(ia), any sum payable to a resident, which is subject to As per section 40(a)(ia), any sum payable to a resident, which is subject to As per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source. would attract 30% disallowance while deduction of tax at source. would attract 30% disallowance while deduction of tax at source. would attract 30% disallowance while computing income chargeable to tax under the head "Profits and gains of computing income chargeable to tax under the head "Profits and gains of computing income chargeable to tax under the head "Profits and gains of business or profession": ess or profession": If tax is deductible at source but is not deducted. If tax is deductible at source but is not deducted. If tax is deducted during the year, and the same is not paid on or before If tax is deducted during the year, and the same is not paid on or before If tax is deducted during the year, and the same is not paid on or before the due date of filing of return of income specified under section 139(1). the due date of filing of return of income specified under section 139(1). the due date of filing of return of income specified under section 139(1). However, no disallowance shall be However, no disallowance shall be made even if assessee has not made even if assessee has not deducted the tax at source from any sum paid to a payee, if following deducted the tax at source from any sum paid to a payee, if following deducted the tax at source from any sum paid to a payee, if following conditions are satisfied: conditions are satisfied: a) The recipient has furnished his return of income. a) The recipient has furnished his return of income. b) He has taken into account the above income in such return of income b) He has taken into account the above income in such return of income b) He has taken into account the above income in such return of income c) He has paid the tax due on the income declared in such return of has paid the tax due on the income declared in such return of has paid the tax due on the income declared in such return of income. 8.1 In this case, the assessee company has uploaded the copy of 15G/H 8.1 In this case, the assessee company has uploaded the copy of 15G/H 8.1 In this case, the assessee company has uploaded the copy of 15G/H and ITR acknowledgements filed by the deductees along with statement of and ITR acknowledgements filed by the deductees along with statement of and ITR acknowledgements filed by the deductees along with statement of computation of their total income. As per th computation of their total income. As per the Return of income e Return of income acknowledgements the deductees were declared income below the taxable acknowledgements the deductees were declared income below the taxable acknowledgements the deductees were declared income below the taxable limit. On verification of the statement of computation of total income of the limit. On verification of the statement of computation of total income of the limit. On verification of the statement of computation of total income of the deductees uploaded by the assessee company, it is found that the deductees uploaded by the assessee company, it is found that the deductees uploaded by the assessee company, it is found that the deductees were adjusted deductees were adjusted the interest paid by them from the interest the interest paid by them from the interest received, to arrive their total income. The assessee company has blindly received, to arrive their total income. The assessee company has blindly received, to arrive their total income. The assessee company has blindly accepted the form 15G/H submited by the deductees. The assessee accepted the form 15G/H submited by the deductees. The assessee accepted the form 15G/H submited by the deductees. The assessee company is not the appropriate authority to verify and allow such company is not the appropriate authority to verify and allow such company is not the appropriate authority to verify and allow such adjustments/deductions from total income of the deductees. Since the ts/deductions from total income of the deductees. Since the ts/deductions from total income of the deductees. Since the interest income received by the deductee is known to the assessee interest income received by the deductee is known to the assessee interest income received by the deductee is known to the assessee company, being paid by the assessee company, the assessee company company, being paid by the assessee company, the assessee company company, being paid by the assessee company, the assessee company cannot escape from the liability of deduction of tax at source a cannot escape from the liability of deduction of tax at source a cannot escape from the liability of deduction of tax at source after accepting the incorrect form 15G/15H violating the clause 10 of Part Il of accepting the incorrect form 15G/15H violating the clause 10 of Part Il of accepting the incorrect form 15G/15H violating the clause 10 of Part Il of 15G and Clause 12 of 15H. In this clauses, it is clearly mentioned that the 15G and Clause 12 of 15H. In this clauses, it is clearly mentioned that the 15G and Clause 12 of 15H. In this clauses, it is clearly mentioned that the deductor shall not accept the declaration, where the aggregate of the deductor shall not accept the declaration, where the aggregate of the deductor shall not accept the declaration, where the aggregate of the amounts of income credited or amounts of income credited or paid or likely to be credited or paid during paid or likely to be credited or paid during the previous year exceeds the maximum amount which is not chargeable to the previous year exceeds the maximum amount which is not chargeable to the previous year exceeds the maximum amount which is not chargeable to tax. In view of the above, I hereby disallow 30% of inerest on unsecured tax. In view of the above, I hereby disallow 30% of inerest on unsecured tax. In view of the above, I hereby disallow 30% of inerest on unsecured loan paid of Rs. 9,38,61,640/ loan paid of Rs. 9,38,61,640/- ie.Rs.2,81,58,4921- under section 4 under section 40(a)(ia) of the Act and add it to the income returned by the assessee company. of the Act and add it to the income returned by the assessee company. of the Act and add it to the income returned by the assessee company. Hence the assessment is completed as under: all Hence the assessment is completed as under: all Loss returned by the assessee: (Rs.21,41,595/ Loss returned by the assessee: (Rs.21,41,595/-) Total income assessed: Rs.2,60,16,897/ Total income assessed: Rs.2,60,16,897/-
Thus, on careful consideration of the sub Thus, on careful consideration of the submissions made by the Appellant missions made by the Appellant and the assessment order passed by the AO, I find that the Appellant has and the assessment order passed by the AO, I find that the Appellant has and the assessment order passed by the AO, I find that the Appellant has erred in accepting Form 15G/15H submitted by the deductees. The erred in accepting Form 15G/15H submitted by the deductees. The erred in accepting Form 15G/15H submitted by the deductees. The Appellant has not taken into consideration provisions of section 197(1B) Appellant has not taken into consideration provisions of section 197(1B) Appellant has not taken into consideration provisions of section 197(1B) which clearly lays down that provisions of section 197(1)/197(1A) are not lays down that provisions of section 197(1)/197(1A) are not lays down that provisions of section 197(1)/197(1A) are not applicable if the total income of the deductees exceed the maximum income applicable if the total income of the deductees exceed the maximum income applicable if the total income of the deductees exceed the maximum income which is not chargeable to tax. In this regard it would be appropriate to which is not chargeable to tax. In this regard it would be appropriate to which is not chargeable to tax. In this regard it would be appropriate to refer to section 197(1B) as reproduced below: refer to section 197(1B) as reproduced below: (1B) The provisions of this section shall not apply where the amount of any B) The provisions of this section shall not apply where the amount of any B) The provisions of this section shall not apply where the amount of any income of the nature referred to in sub income of the nature referred to in sub-section (1) or sub-section (1A), as section (1A), as the case may be, or the aggregate of the amounts of such incomes credited the case may be, or the aggregate of the amounts of such incomes credited the case may be, or the aggregate of the amounts of such incomes credited or paid or likely to be credited or paid or likely to be credited or paid during the previous year in which or paid during the previous year in which such income is to be included exceeds the maximum amount which is not such income is to be included exceeds the maximum amount which is not such income is to be included exceeds the maximum amount which is not chargeable to income chargeable to income-tax.] In fact, above provision has also been incorporated in Form 15G/15H In fact, above provision has also been incorporated in Form 15G/15H In fact, above provision has also been incorporated in Form 15G/15H wherein it is mentioned at the bottom of the For wherein it is mentioned at the bottom of the Form that the person m that the person responsible for paying the amount referred to in column 16 of part I shall responsible for paying the amount referred to in column 16 of part I shall responsible for paying the amount referred to in column 16 of part I shall not accept the declaration where the total income of the nature referred to not accept the declaration where the total income of the nature referred to not accept the declaration where the total income of the nature referred to in sub-section 1 or sub section 1 or sub-section (1A) of section 197A or the aggregate of the section (1A) of section 197A or the aggregate of the amounts of such income paid or credited or likely to be paid or credited such income paid or credited or likely to be paid or credited such income paid or credited or likely to be paid or credited exceeds the maximum amount which is not chargeable to tax. exceeds the maximum amount which is not chargeable to tax. exceeds the maximum amount which is not chargeable to tax. Thus, the Appellant was well aware that the income of the deductees Thus, the Appellant was well aware that the income of the deductees Thus, the Appellant was well aware that the income of the deductees exceeded the maximum income not chargeable to tax and therefore, h exceeded the maximum income not chargeable to tax and therefore, h exceeded the maximum income not chargeable to tax and therefore, he was not required to accept Form 15G/15H submitted by the deductees in was not required to accept Form 15G/15H submitted by the deductees in was not required to accept Form 15G/15H submitted by the deductees in view of section 197A1B) but still he proceeded toaccept the same and did view of section 197A1B) but still he proceeded toaccept the same and did view of section 197A1B) but still he proceeded toaccept the same and did not deduct tax a source which is in contravention to provisions of section not deduct tax a source which is in contravention to provisions of section not deduct tax a source which is in contravention to provisions of section 40(a)(ia) of the Act. In view of the 40(a)(ia) of the Act. In view of the same, I uphold the action of AO in same, I uphold the action of AO in making the addition of Rs.2,81,58,492/ making the addition of Rs.2,81,58,492/- u/s 40(a)(ia) of the Act. Ground u/s 40(a)(ia) of the Act. Ground is,thus, dismissed. is,thus, dismissed. 5.2.1. Ground 2.5 5.2.1. Ground 2.5 As regards submissions of the Appellant the two dedcutees have As regards submissions of the Appellant the two dedcutees have As regards submissions of the Appellant the two dedcutees have furnished IT returns for the relevant year an furnished IT returns for the relevant year and have included the d have included the interest income in their total taxable income, the same is not interest income in their total taxable income, the same is not interest income in their total taxable income, the same is not accepted in absence of any supporting documents. accepted in absence of any supporting documents. The Appellant is The Appellant is not to be treated as an assessee in default provided it meets all the not to be treated as an assessee in default provided it meets all the not to be treated as an assessee in default provided it meets all the conditions laid down under 1st provis conditions laid down under 1st proviso to section 201 of the Act. Since, the o to section 201 of the Act. Since, the Appellant does not meet the same, it will not get the benefits of the 1st Appellant does not meet the same, it will not get the benefits of the 1st Appellant does not meet the same, it will not get the benefits of the 1st proviso to section 201 of proviso to section 201 of the Act. Hence, the ground is dismissed. the Act. Hence, the ground is dismissed.” ( emphasis supplied by us) ( emphasis supplied by us) 5. We have heard rival submission of the We have heard rival submission of the parties and perused the parties and perused the relevant material on record including the Paper Book containing relevant material on record including the Paper Book containing relevant material on record including the Paper Book containing pages 1 to 113 filed by the assessee. pages 1 to 113 filed by the assessee.
5.1 Before us, the Ld. counsel filed an application for additional Before us, the Ld. counsel filed an application for additional Before us, the Ld. counsel filed an application for additional evidence including evidence including prescribed form issued by the Chartered issued by the Chartered Accountant explaining that the payee untant explaining that the payees have already paid tax on the have already paid tax on the interest income received by them therefore, interest income received by them therefore, invoking proviso to invoking proviso to section 201 of the Act, the assessee is not deemed to an assessee in 201 of the Act, the assessee is not deemed to an assessee in 201 of the Act, the assessee is not deemed to an assessee in default and hence no disallowance would be required in terms of default and hence no disallowance would be required in terms default and hence no disallowance would be required in terms section 40(a)(ia) of the Act 40(a)(ia) of the Act 5.2 The relevant proviso to section The relevant proviso to section 201 of the Act has already been 201 of the Act has already been referred by the ld CIT(A) in para reproduced above. The said first referred by the ld CIT(A) in para reproduced above. The referred by the ld CIT(A) in para reproduced above. The Proviso to s. 201 (1) as inserted by the Finance Act 2012 w.e.f. Proviso to s. 201 (1) as inserted by the Finance Act 2012 w.e.f. Proviso to s. 201 (1) as inserted by the Finance Act 2012 w.e.f. 1.7.2012 provides that 1.7.2012 provides that any person, including the principal officer of any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in a company, who fails to deduct the whole or any part of the tax in a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a accordance with the provisions of this Chapter on the sum paid to a accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall resident or on the sum credited to the account of a resident shall resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if deemed to be an assessee in default in respect of such tax if deemed to be an assessee in default in respect of such tax if such resident— (i) has furnished his return of income under section 139; (i) has furnished his return of income under section 139; (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such (ii) has taken into account such sum for computing income in such (ii) has taken into account such sum for computing income in such return of income; and return of income; and (iii) has paid the tax due on (iii) has paid the tax due on the income declared by him in such the income declared by him in such return of income, and the person furnishes a certificate to this return of income, and the person furnishes a certificate to this return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed: effect from an accountant in such form as may be prescribed: effect from an accountant in such form as may be prescribed:
5.3 Vide Notification No. 37/2012 [f.no. 142/18/2012 Vide Notification No. 37/2012 [f.no. 142/18/2012 Vide Notification No. 37/2012 [f.no. 142/18/2012-so(tpl)] dated 12-9-2012, the CBDT has inserted Rule 31ACB 2012, the CBDT has inserted Rule 31ACB of Income-tax 2012, the CBDT has inserted Rule 31ACB Rules 1962 and Form No. 26A to prescribe the format in which the and Form No. 26A to prescribe the format in which the and Form No. 26A to prescribe the format in which the CA’s certificate should be obtained by the payee. CA’s certificate should be obtained by the payee.
5.3 We find that the Ld. CIT(A) in para 5.2.1 has not accepted the e Ld. CIT(A) in para 5.2.1 has not accepted the e Ld. CIT(A) in para 5.2.1 has not accepted the claim of the assessee for invoking proviso claim of the assessee for invoking proviso to section 201 of the Act to section 201 of the Act for the reason that no supporting documents were filed before him. for the reason that no supporting documents were filed before him. for the reason that no supporting documents were filed before him. Now before us, the assessee has filed the relevant document Now before us, the assessee has filed the relevant document Now before us, the assessee has filed the relevant document supporting its claim that payee ts claim that payees have already paid taxes on the said already paid taxes on the said income, therefore, we feel therefore, we feel it appropriate to set aside the finding of appropriate to set aside the finding of the Ld. CIT(A) on the issue in dispute and restore the matter back the Ld. CIT(A) on the issue in dispute and restore the matter back the Ld. CIT(A) on the issue in dispute and restore the matter back to the file of the Assessing Officer for verification of the additional to the file of the Assessing Officer for verification of the a to the file of the Assessing Officer for verification of the a evidences containing the certificate of the Chartered Accountant as containing the certificate of the Chartered Accountant as containing the certificate of the Chartered Accountant as required under the proviso to section 40(a)(ia) of the Act. The required under the proviso to section 40(a)(ia) of the Act. The required under the proviso to section 40(a)(ia) of the Act. The grounds raised by the assessee are accordingly allowed for grounds raised by the assessee are accordingly allowed for grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal of In the result, the appeal of the assessee is allowed for the assessee is allowed for statistical purposes.
Order pronounced in the open Court on nounced in the open Court on 27/09/2024. /09/2024. Sd/ Sd/- Sd/- Sd/ (SANDEEP SINGH KARHAIL (SANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 27/09/2024 Rahul Sharma, Sr. P.S.