YES POWER & INFRASTRUCTURE P.LTD,MUMBAI vs. ASST CIT 4(3), MUMBAI

The only grievance raised by the assessee which reads as under :- “1. The Commissioner of Income Tax (Appeals)-8 erred in confirming the disallowance of Rs.10,96,728/- u/s.40(a)(ia) of the IT Act out of interest on car loan on the ground that tax has not been deducted as required under Chapter-XVII-B of the Act. Your appellant submits that on the facts and circumstances of the case and as per the provision of the Act no disallowance is called for under sec.40(a)(ia) of the I.T.Act.”

Briefly the facts are that the assessee company filed its return of income on 15-10-2010 declaring total income of Rs.59,31,396/-. In course of assessment proceeding, while verifying the profit and loss account of 2 the assessee for the year under consideration, the AO noticed that assessee has claimed expenditure amounting to Rs.10,96,728/- towards interest paid on car loans. On verification he found that the interest payments were made to some non-banking financial institutions from whom loans were obtained. It was further noticed that the assessee had not deducted tax at source while making interest payment to these non- banking financial institutions. Therefore, invoking the provisions of Section 40(a)(ia) of the Act, the Assessing Officer disallowed the expenditure claimed on account of interest payment amounting to Rs.11,64,221/-. Though the assessee preferred an appeal before the CIT(A) challenging the aforesaid disallowance made by AO, the CIT(A) also sustained the disallowance by concurring with the finding of Assessing Officer.

Learned counsel submitted before us that in course of hearing of the appeal before the CIT(A), the assessee had specifically submitted that as the deductees/recipients have declared/offered the receipts which was subject to deduction of tax as their income in the return filed for the assessment year under consideration and paid taxes, in terms of second proviso to Section 40(a)(ia) read with first proviso to sub-section 1 of Section 201, no disallowance can be made on account of non-deduction of tax at source. He submitted that while disposing off the assessee’s appeal, the CIT(A) has failed to consider the aforesaid submissions of the assessee. In this context, learned counsel drew our attention to the grounds raised and written submission filed before the CIT(A). He, therefore, submitted that matter may be remitted back to the CIT(A) for 3 deciding afresh. Learned counsel also submitted that to demonstrate the fact that the recipients/deductees have offered the income received from the assessee in their respective return of income and paid taxes, the assessee has obtained and filed before the departmental authorities the certificates from Chartered Accountants as prescribed u/s.201(1) of the I.T.Act. In this context, he referred to such certificates filed in the Paper Book.

Learned DR, on the other hand, relied upon the observations of the CIT(A) and Assessing Officer.

We have considered submissions of the parties and perused the materials on record. The limited grievance of the assessee in the present appeal is non-consideration of its plea relating to applicability of second proviso to Section 40(a)(ia) read with first proviso to Section 201(1) of the Act. On perusal of the order of CIT(A) it is noticed that while challenging the disallowance made u/s.40(a)(ia) of the Act, the assessee in its written submission has specifically submitted that in view of second proviso to Section 40(a)(ia) of the Act, no disallowance u/s.40(a)(ia) can be made. The assessee has further submitted that the said proviso being curative and clarificatory in nature will have retrospective effect and will be applicable to the impugned assessment year. It is evident from the order of the CIT(A) that while sustaining the disallowance u/s.40(a)(ia) of the Act, he has not at all considered the aforesaid contentions of the assesse. It is pertinent to mention here that the assessee in support of its claim that recipients/deductees have offered the income received in their return of