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2015 (6) TMI 1045 - AT - Income TaxDisallowance of interest u/s 40a(ia) - claim of the appellant that the interest has to be allowed U/s 36(1)(iii) - Held that:- Section 36(1)(iii) and section 37(1) so far as the allowance of interest is concerned, run parallel to each other. But these two sections do differ and it can be discerned that under section 36(1)(iii) the borrowed amount may be utilized even for procuring a capital asset related to the business. However, on the other hand, under section 37(1) the debt incurred must not be utilized for procuring a capital asset. Hence considering the totality of the facts and circumstances of the case, even the alternative plea is acceptable that the interest in question is otherwise allowable under section 37(1) of the I.T. Act being wholly and exclusively for the purpose of business. Thus considering the totality of the facts and circumstances of the case, we are of the considered opinion that, there was no logical basis by the Assessing Officer to disallow the claim of interest under section 36(1)(iii) of the IT. Act. Accordingly this part of the action of the Assessing Officer is hereby reversed. The insertion of Second Proviso appears to be on the ground of equity and natural justice because the income-tax cannot be levied two times on the same income. Further, according to us, there should be one more reasons that the provisions of section 40(a)(ia) are otherwise harsh in nature because an expenditure which is otherwise allowable under section 37 or under General provisions of I.T. Act are forced to be disallowed by invoking this section simply because of the reason that the requirement of TDS was not followed. The consequence of the provisions of section 40(a)(ia) is that a genuine expenditure which is incurred wholly and exclusively for the purpose of business although allowable under the normal provisions of IT. Act should be curtailed simply because of the reason that the payee or the assessee who has incurred the expenditure has not deducted the tax. Therefore, to overcome this hardship, specially when the deductee has paid the tax on the said amount, the respected legislature, in our humble view, seems to be justified in inserting this new Proviso, Therefore, we are also of the opinion, as expressed by the respected coordinate Bench Agra, that the amendment has brought into the statute was mainly to mitigate the rigour of harsh provisions of disallowance of expenditure under section 40(a)(ia), therefore, intended to be applied retrospectively, specially when there is no indication in the language of the said Proviso about the prospective applicability. We, therefore, conclude that after laying down the applicability of Second Proviso to section 40(ia) with retrospective effect, we here by remit the issue back to the file of the Assessing Officer to decide according to law after having verified the payment of tax by the recipient of the interest income in his respective hands by filing the return as prescribed in the statute. The assessee is side by side directed to furnish the requisite details to the Assessing Officer and fully cooperate with the proceedings - the ground raised by the assessee being restored back for readjudication, hence may be treated as allowed for statistical purposes.
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