NENSHI L SHAH,MUMBAI vs. AST CIT CEN CIR 17 & 28, MUMBAI

Date of hearing : 22-12-2016 Date of order : 11 -01-2017

O R D E R

Per ASHWANI TANEJA, AM:

“The following grounds of appeal are without prejudice to one another:

1. The Learned Commissioner of Income Tax (Appeals) erred in confirming the assessment order passed u/s. 143 (3) r.w.s.263 determining total income at Rs.89,56,503/-.

in this appeal is with regard to 2. disallowance made u/s 40(a)(ia) on the ground that assessee failed to deduct tax at source on the amount of interest paid. During the course of hearing it was submitted by the Ld. Counsel of the assessee that assessee is an individual and derives income from salaries, income from house property, income from business or profession, capital gains and income from other sources. In the assessment order, which has been passed in pursuance to the revision order u/s 263 of Ld.CIT, it is held that assessee has paid interest without deducting TDS u/s 194A. But AO omitted to properly consider the provisions of section 194A which stipulate that the assessee shall be liable to deduct TDS only if its turnover in the immediately preceding financial year is more than Rs.40 lakhs. Our attention was drawn on the copy of income-tax return as well as assessment order passed u/s 143(3) showing that turnover of the assessee in the immediately preceding year was not more than Rs.40 lakhs. Therefore, provisions of section 194A were not applicable. Thus, no question arises of failure of deduction of tax u/s 194A. Therefore, disallowance made by the AO is absolutely incorrect and the same has been wrongly confirmed by the Ld. CIT(A).

3. Per contra, the Ld. DR relied upon the orders of the lower authorities.

4. We have gone through the facts & circumstances of the case. The only issue that we are required to decide is whether assessee was liable to deduct TDS u/s 194A on the amount of payment of interest. It is noted from the perusal of section 194A that assessee would be required to deduct TDS only if its turnover in the immediately preceding year happens to be more than Rs.40 lakhs. With the assistance of the parties, it was noted that in the immediately preceding year, i.e. AY. 2004-05, the assessee had shown interest income amounting to Rs.71,533/- was shown as income from other sources. The said income was accepted as income from other sources by the AO in the assessment order passed u/s 143(3) dated 30-12-2008. Thus, perusal of the return as well as assessment order of the immediately preceding year shows that turnover of the assessee was not more than Rs.40 lakhs. Even for the year under consideration, the interest income was shown as part of income from other sources. Under these circumstances, the AO should not have artificially treated the interest income as income from business or profession merely for the purpose of attracting provisions of section 194A. Once, the interest income in the preceding year was shown in the return of income as “Income from other sources” and accepted as such by the AO, then, in the present year the same cannot be re-characterised in the assessment order of the present year merely for the purpose of applying provisions of section 194A. Such kind of superfluous exercise is not permitted under the law. Thus, as per law and facts of this case, the case of the assessee is not covered u/s 194A as the mandatory condition of there being turnover exceeding a sum of Rs.40 lakhs is apparently missing in this case. Thus, assessee was not obliged to deduct TDS u/s 194A. Thus, the AO as well as the Ld. CIT(A) have erred in making disallowance u/s 40(a)(ia). The same is directed to be deleted.

Order pronounced in the court on this _11th day of January, 2017.