VASAI ROLLER FLOUR MILLS P.LTD,MUMBAI vs. DCIT 13(3)(2), MUMBAI
What did the Tribunal hold?
The Tribunal held that while the assessee was in error for not deducting TDS, the second proviso to Section 40(a)(ia) might be applicable. The matter was restored to the AO to verify if the recipients had offered the interest income in their returns.
What were the facts?
The assessee paid interest on loans to NBFCs without deducting TDS. The AO disallowed this interest under Section 40(a)(ia). The CIT(A) partly allowed the appeal, confirming a disallowance of Rs. 2,65,445/-.
What were the issues?
Whether disallowance under Section 40(a)(ia) is applicable when interest paid is not outstanding at the year-end, and whether the second proviso to Section 40(a)(ia) can be invoked.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
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- Modi Builders v. JCIT8 citing60 Taxmann.com 54 · 2015 · ITAT
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: HON’BLE S/SHRI JOGINDER SINGH (JM), & RAJESH KUMAR,(AM)
Per RAJESH KUMAR, Accountant Member:
This is an appeal filed by the assessee and is directed against the order of the Ld. CIT(A)-21, Mumbai dated 18.9.2015 pertaining to A.Y.2012-13.
Only issue raised in the sole ground of appeal is against the sustaining the disallowance of Rs.2,65,445/- by ld.CIT(A) as made by the AO under the provisions of section 40(a)(ia) of the Income Tax Act, 1961.
Brief facts of the case are that the assessee filed its return of income on 29.9.2012 declaring total income of Rs.97,82,430/-. The return so filed by the assessee was processed u/s 143(1) of the Act. Thereafter, scrutiny proceedings were initiated against the assessee and statutory notices under section 143(2) and 142(1) were issued and served upon the assessee. During the course of assessment proceedings, the AO found that the assessee has charged interest on loans of Rs.3,23,567/- paid to M/s Kotak Mahindra Prime Ltd, M/s Magma Finance Ltd and to M/s Reliance Capital Ltd on which the assessee had not deduced any tax at source. Thus the assessee committed default in not complying with the provisions of section 194A of the Income Tax Act and accordingly disallowed the said amount under section 40(a)(ia) of the Act by framing the assessment under section 143(3), vide order dated 11.2.2015 at an income of Rs.1,01,06,000/-. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A) who partly allowed the appeal of the assessee by observing and holding as under : 4.4 and 4.5 “4.4 I have considered the submission, the facts on record and assessment order, carefully. It is clear that the appellant was in error in treating the interest paid to NBFC as exempted from requirement of TDS. The argument that the NBFC must have paid taxes on the interest received from Appellant is mere presumption and not a substitute for evidence. Having not made and effected the TDS the prayer for this Office to call for necessary certificate from the payees is not acceptable. The approach of the A. R. to contend that no TDS was liable since interest was already paid as on 31.03.2012 and no amount was payable at the end of the year is also not acceptable. It is not out of place to note that the decision referred to by the appellant were subsequent to the payment of interest and filing of return of income by appellant and could not have been basis for non deduction of tax at source. It also noted that the Tax Audit Report did not made any mention of any such belief or opinion of the Auditor that TDS is not to be effected on the ground at interest is already paid. It is also noted from the papers filed before me that the Reliance Capital Ltd. had informed the appellant its PAN for deduction of TDS, but the appellant did not make TDS. In the case of P.M.S. Diesels vs CIT (2015) 119 DTR (P & H) 212, and (2015) 60 taxmann.com 54 (Pune Trib), the argument that section 40(a)(ia) applies only to the amount payable at the end of the financial year was rejected. 4.5 However, the A.R. has also pointed out that the interest paid to Kotak Mahindra Prime Limited is Rs.1,44,524/- and to that extent the Assessing officer is wrong in considering Rs.2,02,645/- as the amount of interest disallowable in respect of Car loan. The Assessing Officer submitted that the amount of Rs.323,567/- includes interest of Rs.58,121/- in respect of loan from Federal Bank which should be excluded. Accordingly, the disallowance confirmed to the extent of Rs.265,445/- only.
The ld. AR vehemently submitted before that the additions as sustained by the ld. CIT(A) to the tune of Rs.2,65,445/- were wrong and against the provisions of law. He relied upon the decision of the co-ordinate Bench of the Tribunal in the case of Jitendra Mansukhlal Shah V/s DCIT in and 2294/Mum/2013 (AYs-2005-06 and 2006-07) dated 4.3.2015 wherein it has been decided that in case the expenses are incurred by the assessee which were not outstanding at the year end then the provision of section 40(a)(ia) were not applicable. The assessee submitted that the interest payment to the above non banking finance companies was not outstanding at the year end and disallowance as made u/s 40(a)(ia) be deleted by allowing the appeal of the assessee.
The ld. DR, on the contrary relied upon the orders of authorities below.
We have carefully considered the submissions of the parties, perused the material placed before us including the orders of authorities below. We find that the assessee has paid interest to NBFCs, comprising of Rs. Rs.1,44,52 to Kotak Mahindra Prime Limited, Rs.37,378/- to M/s Reliance Capital Ltd, Rs.83,544/- and Rs.37,378/- to M/s Magma Finance Ltd on which no TDS was deducted and which was paid before the end of the financial year. The ld.AR submitted before us that since the payment was not outstanding at the year end the provisions of section 40(a)(ia) were not applicable. We are not in agreement with the submissions and arguments of the ld.AR that tax is not deductible on the payment which are not outstanding at the year end as has been held by Various High Courts that in different manner and there is no agreement on this issue. However, we are of the considered view that in view of second proviso to section 40(a)(ia) of the Act applicable to the facts of the case, then provisions of TDS are not applicable. Therefore, we restore the matter to the file of the AO to verify whether the recipients of interest i.e. three parties i.e. have returned the receipt of interest in their return for the respective assessment year then the disallowance u/s 40(a)(ia) to the extent of Rs.2,65,445/- deserved to be deleted. Accordingly, we set aside the order of the ld. CIT(A) and restore the matter to the file of the assessing officer with a direction to verify whether the recipient have shown the said amount in their return of income and if so, delete the addition of Rs.2,65,445/-.
More judgments on Section 40(a)(ia)
- Rekha Agarwal, Jaipur vs ITO WD 4(1), JaipurITA 844/JPR/2025[2021-22]Status: Disposed21 Oct 2026AY 2021-22
- Cdg Petchem Limited, Hyderabad vs ITO, Ward - 1(1), HyderabadITA 1900/HYD/2025[2018-2019]Status: Disposed16 Oct 2026AY 2018-2019
- M/S. Shree Laminators Ltd., Kolkata vs DCIT, Circle 4(4), KolkataITA 1534/KOL/2026[2011-2012]Status: Disposed15 Oct 2026AY 2011-2012
- J.D. Marketing, Kolkata vs ITO, Ward 37(1), KolkataITA 1493/KOL/2026[2015-2016]Status: Disposed15 Oct 2026AY 2015-2016
- J.D. Marketing, Kolkata vs ITO, Ward 37(1), KolkataITA 1492/KOL/2026[2013-2014]Status: Disposed15 Oct 2026AY 2013-2014
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