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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA
O R D E R This is an appeal filed by the assessee against the order of CIT(A)- Mumbai, for the assessment year 2010-2011.
In this appeal, the assessee is aggrieved for addition made u/s.40(a)(ia) on account of interest paid on borrowed funds obtained from financial institution.
Rival contentions have been heard and record perused. During the course of assessment the AO found that assessee has debited interest on secured loans, since no tax was deducted on the payment of such interest the AO disallowed the same u/s.40(a)(ia).
The contention of assessee was that the interest has already been paid during the year and it is not outstanding, in view of the decision of Special Bench in the case of Merilyn Shipping & Transport, 136 ITD 23, no disallowance should be made. However, the CIT(A) did not agree with 2 the assessee’s contention and confirmed the same, against which assessee is in further appeal before the Tribunal.
5. I have considered rival contentions and found that the assessee has obtained secured loan of Rs.6 cr from SREI Infrastructure Finance Limited which is a NBFC company for acquiring windmill from M/s Suzlon Energy Ltd in A.Y. 2008-09. During the year assessee paid interest of Rs.44,85,221/- without deduction of TDS. However, the recipient of interest had already offered the some in its return of Income. However, the Ld. AO disallowed the interest expenditure u/s 40 (a)(ia) on ground that assessee failed to deduct the TDS.
Ld. AR placed on record decision of DCS BPO (P) Ltd., 63 taxmann.com 288, wherein it was held that amount actually paid during the year and not outstanding, no disallowance can be made u/s.40(a)(ia). Further reliance was placed on the decision of Mumbai Tribunal in the case of Jitendra Mansukhlal Shah, ITA No.2293&2294/2013, order dated 4-3-2015, wherein the Tribunal held as under :- 5. We have heard both the parties and their contentions have carefully been considered. Recently, Mumbai Tribunal has decided such issue in favour of the assessee by considering the earlier decisions. Judicial Member is one of the party to the said decision The relevant observations of the Tribunal are as under: “5. We have heard both the parties and their contentions have carefully been considered. After careful consideration, respectfully following the decision of Co-ordinate Bench in the case of M/s. Vivil Exports P. Ltd. vs. ITO (supra), we delete the disallowance. For the sake of completeness relevant observation of the Tribunal from the said decision are reproduced below: 4. Though number of grounds were urged before us in the grounds of appeal annexed to Form No. 36, at the time of hearing the learned counsel for the assessee submitted that 3 the assessee having made the payment, section 40(a)(ia) cannot be attracted because it speaks of the amount “payable” and it does not cover the amount already paid. In this regard he relied upon the following decisions of the ITAT Chennai Benches wherein the Bench had taken into consideration the decision of the ITAT Special Bench in the case of Merilyn Shipping & Transport, the order of which was suspended by the High Court but at the same time there was a subsequent judgement of the Hon'ble Allahabad High Court in the case of M/s. Vector Shipping Services (P) Ltd. wherein it was held that section 40(a)(ia) applies only to those amount which remains payable by the end of the previous year. In other words, in respect of payments already made section 40(a) (ia) is not attracted: - i. ACIT vs. M/s. Eskay Designs - ITA No. 1951/Mds/2012 dated 09.12.2013. ii. ITO vs. Theekathir Press – ITA No. 2076/Mds/2012 & CO No. 155/Mds/2013 dated 18.09.2013. The learned counsel for the assessee also submitted that though there are contrary decisions of the other Hon'ble High Courts, i.e. Hon'ble Calcutta High Court and Hon'ble Gujarat High Court, in the light of the decision of the Hon'ble Allabahad High Court it can be said the there can be two views possible in this matter in which event the one which is in favour of the assessee has to be followed in the light of the decision of the Hon'ble Supreme Court in the case of Vegetable Products Ltd. 88 ITR 192. Accordingly the Chennai Bench held that section 40(a)(ia) is not attracted in respect of the amount already paid by the assessee.
The learned D.R., on the other hand, could not place before us any contrary judgement on this issue. Though the learned D.R. promised to file written submissions within one day, it was not filed. In other words, there is no contrary decision on this issue.
6. Having regard to the circumstances of the case, without going into the other aspects, which were in fact not argued either by the assessee or by the Revenue, we hold that section 40(a)(ia) is not attracted in respect of payment already made by the end of the previous year. The AO is directed to verify the claim of the assessee and if it is in line with the view taken herein the same may be considered accordingly. As regards levy of interest under section 234B and 234C of the Act, the same is consequential in nature and need not to be considered independently.
In the result, the appeal filed by the assessee is treated as allowed for statistical purposes 5.1 Moreover, Hon’ble Allahabad High Court in the case of CIT vs. Vector Shipping Services (P) Ltd.(supra) has held that for disallowing expenses from business and profession on the ground that TDS has not been deducted, amount should be payable and not which has been paid by end of the year. The said decision of Hon’ble Allahabad High Court was made subject to Special Leave Petition filed before Hon’ble Supreme Court and their Lordships