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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI ARUN KHODPIA
आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee company is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 06.01.2023, which in turn arises from the order passed by the A.O. under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 26.12.2017 for assessment year 2015-16. The assessee has assailed the impugned order on the following grounds of appeal before us :
“1. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), NFAC has erred in confirming disallowance of Rs.15,89,324/- u/s.40(a)(ia) of the Income-tax Act, 1961. 2. In the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has erred in not giving proper opportunity while deciding the appeal especially by relying on the notices issued during pandemic Covid-19. 3. The impugned order is bad in law and on facts. 4. The appellant reserves the right to add, alter or omit all or any of the grounds of appeal in the interest of justice.”
Controversy involved in the present appeal lies in a narrow compass, i.e. as to whether or not the lower authorities are right in law and facts of the case in making/sustaining the disallowance of the assessee’s claim for deduction of interest payment to NBFC’s u/s.40(a)(ia) of the Act?
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Succinctly stated, the A.O while framing assessment, inter alia, observed that the assessee company during the year under consideration had without deduction of tax at source paid interest amounting to Rs.52.97 lacs (approx.) to two NBFCs, as under :
(a) Interest to Reliance Capital : Rs.24,32,749/- (b) Interest to DHFL : Rs.28,65,000/-
On being queried, it was though the claim of the assessee that the respective payee companies had considered the aforementioned amounts of interest in their respective returns of income for the year under consideration and paid taxes on the same, but it failed to substantiate its said claim by producing the requisite certificates in support thereof. Accordingly, the A.O triggered the provisions of Sec. 40(a)(ia) of the Act and disallowed an amount of Rs. 15.89 lac (approx.) i.e 30% of the interest expenses of Rs.52.97 lacs (supra).
On appeal, the CIT(Appeals) finding no infirmity in the view taken by the A.O upheld the disallowance made by him u/s 40(a)(ia) of the Act, observing as under:
“I have carefully considered the facts of the case, during the appellate proceedings, notice of hearing were issued on 06-01-2021, 17-03-2022 and 25-11-2022 under section 250 of the Act to the assessee, no written submissions were made by the appellant. Therefore, the appeal is disposed after considering the submission of the appellant, facts on record and position of law. During the course of assessment proceedings, the assessing officer has observed that
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assessee company has paid interest amounting to Rs.52,97,748.56/- to Reliance Capital and DHFL. The assessing officer has issued show cause notice in respect of the non-deduction of TDS to the assessee. However, the assessee failed to submit any supporting document during the course of assessment proceedings. During the appellate proceedings, I have observed that the assessee has not filed any record or evidence. It is the settled proposition of laws that onus is on the assessee to prove the deduction of TDS. The assessee has not produced any record either before the lower authorities or before me. When the assessee has failed to produce any material or evidence to suggest that deduction of TDS. Thus, I do not find any reason to interfere with the findings given by the AO on this issue. All the grounds taken by the assessee is accordingly dismissed. Thus, the appeal filed by the appellant is Dismissed u/s. 250 read with section 251 of the Income Tax Act, 1961.”
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
We have heard the Ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncement that have been pressed into service by the Ld. AR.
Admittedly, it is a matter of fact borne from record that the assessee company had failed to deduct tax at source u/s.194A of the Act on the amount of interest of Rs.52.97 lacs (supra) that was paid to the aforementioned NBFCs. Although it was the claim of the assessee that the respective payee companies had included the aforementioned amounts of interest in their respective returns of income for the year under consideration and paid taxes on the same, but it had failed to substantiate
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its said claim by placing on record any evidence in support thereof. Accordingly, the AO observing that the assessee had failed in complying with its statutory obligation of deducting tax at source on the aforesaid amount of interest paid to the NBFC’s, thus triggered the provisions of Section 40(a)(ia) of the Act and worked out a disallowance of Rs.15.89 lacs (supra).
Although we principally concur with the Ld. AR that in case the interest paid by the assessee company to the aforementioned NBFCs was included by them in their respective returns of income for the year under consideration and subjected to tax in their hands, then the assessee company could not be deemed as an assessee-in-default, but at the same time in absence of any supporting material cannot summarily accept the said unsubstantiated claim on the very face of it. At this stage, we may herein observe that though the “2nd proviso” to Section 40(a)(ia) of the Act r.w the “1st Proviso” to Section 201 carves out an exception that where the payee has included the disputed amount in its income and paid taxes on the same then the assessee is not to be treated as being in default and would stand exonerated from the consequential disallowance u/s.40(a)(ia) of the Act, but as observed by the lower authorities nothing has been placed on record by the assessee company which would bring its case within the realm of the aforesaid exception. For the sake of clarity the “2nd
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proviso” to Section 40(a)(ia) a/w “1st proviso” to Section 201 of the Act are culled out as under:
“2nd Proviso” to Section 40(a)(ia) of the Act:
“Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purposes of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso.”
“1st Proviso” to Section 201 of the Act:
“Provided that any person, including the principal officer of 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 84[payee] or on the sum credited to the account of a 84[payee] shall not be deemed to be an assessee in default in respect of such tax if such 84[payee]— (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:”
On a conjoint perusal of the aforesaid statutory provisions, it transpires that the concession carved out in the “2nd proviso” to Section 40(a)(ia) of the Act, i.e for not treating the assessee as being in default pre-supposes a cumulative satisfaction of the aforementioned set of three conditions laid down in the “1st proviso” to Section 201 of the Act, viz. (i) that the payee has furnished his return of income u/s.139 of the Act; (ii) that the payee
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has taken into account such sum for computing income in such return of income; and (iii) that the payee has paid the tax due on the income declared by him in such return of income. Also, the legislature in all its wisdom has further cast an obligation upon the assessee-deductor to furnish a certificate from an accountant in “Form 26A” r.w Rule 31ACB, wherein it is certified by the accountant that the payee had fulfilled all the conditions mentioned in the “1st proviso” to Sub-section (1) to Section 201 of the Act.
Considering the aforesaid clear mandate of law, as the assessee company except for harping on its claim that the respective payees had included the interest incomes in their respective returns of income for the year under consideration and paid taxes on the same, had however failed to substantiate the same in the manner required under law, therefore, we find no infirmity in the view taken by the lower authorities who had rightly made/sustained the disallowance u/s.40(a)(ia) of the Act. Before parting, we may herein observe that the assessee company had not only failed to file both before the AO and the CIT(Appeals) the certificates of the accountants in the prescribed form i.e in “Form 26A” r.w 31ACB, certifying that the respective payees had fulfilled all the conditions mentioned in the “1st proviso” to Sub-section (1) to Section 201 of the Act, but the Ld. AR on being queried during the course of hearing of the appeal had candidly admitted that the said certificates had till date have not been obtained by
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the assessee from the said payees. In so far the reliance placed by the ld. AR on the order passed by the ITAT in the case of RKP Company Vs. ITO, Ward-1, Korba, ITA No. 106/RPR/2016, dated 24.06.2016, the same being distinguishable on facts would not assist the case of the assessee company. We, say so, for the reason that a perusal of the record in the present case before us, reveals that both the lower authorities had categorically observed that the assessee had failed to produce the certificates/evidence in support of its claim that the respective payees companies i.e NBFC’s had included the amount of interests in their respective returns of income and paid tax on the same. Considering the fact that the assessee company despite lapse of substantial time period had till date failed to cumulatively satisfy the mandatory conditions contemplated in the “2nd proviso” to Section 40(a)(ia) a/w “1st proviso” to Section 201 of the Act, which were indispensably required to be done on its part as a pre-condition for it not being held as an assessee-in-default, therefore, we find no infirmity in the view taken by the CIT(Appeals) who had rightly sustained the disallowance made by the A.O u/s. 40(a)(ia) of the Act and, thus, uphold the same.
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In the result, appeal of the assessee is dismissed in terms of our aforesaid observations.
Order pronounced in open court on 03rd day of August, 2023. Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 03rd August, 2023 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G.) 4. The Pr. CIT, Raipur-1 (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.