2021 (12) TMI 1303 - AT - Income Tax

TDS u/s 194A - Addition u/s 40(a)(ia) - assessee did not discharge the required onus and failed to file Form 26A which justify the confirmation of impugned disallowance - HELD THAT - As decided in case of M/s Royal India Gems Jewels Pvt. Ltd. 2018 (9) TMI 2072 - ITAT CHENNAI by virtue of the judgment of Hon ble Delhi High Court in the case of Ansal Land Mark Township P. Ltd (supra) first proviso to Section 201(1) as well as proviso to Section 40(a)(i) of the Act had to be construed retrospectively. Considering the facts and circumstances of the case we are of the opinion that issue requires a fresh look by the ld. Assessing Officer. Ld. Assessing Officer can use the powers vested on him for getting the required information from M/s. Reliance Capital Ltd so as to ascertain whether they had included the interest paid by the assessee as a part of their income and filed return after paying due taxes. We find that the assessee could escape the rigors of Sec.40(a)(ia) in terms of second proviso to Section 40(a)(ia) read with first proviso to sub-section (1) of Section 201 by demonstrating that the payee had duly offered the payment in their Income tax returns and paid due taxes thereon. In such a case no disallowance u/s 40(a)(ia) is called for. As per the submissions of Ld. AR the assessee could demonstrate the fulfillment of these conditions and is ready to file the requisite certificate / declaration from the payee. Therefore we deem it fit to restore the matter back to the file of AO on similar lines as above to provide an opportunity to the assessee to demonstrate fulfillment of these conditions by adducing requisite documentary evidences - Appeal stand allowed for statistical purposes.

Summary

Issues:
1. Disallowance u/s 40(a)(ia) for non-deduction of TDS on interest payment.
2. Failure to produce Form 26A as required for TDS deduction.
3. Applicability of second proviso to Section 40(a)(ia) and first proviso to Section 201(1) of the Income Tax Act.

Analysis:
1. The appeal before the Appellate Tribunal concerned the disallowance u/s 40(a)(ia) amounting to Rs. 18.49 Lacs for non-deduction of TDS on interest payment made to M/s Hero Motors Corp. Ltd. The Assessing Officer disallowed the expenditure due to the absence of TDS deduction. The appellant contended that they had requested Form 26A from the payee but failed to produce it during assessment, leading to the confirmation of disallowance by the lower authorities.

2. The Tribunal considered a similar case where disallowance u/s 40(a)(ia) was imposed on the assessee for not furnishing Form 26A for interest paid to M/s. Reliance Capital Ltd. The Tribunal emphasized that if the payee included the payment as income, filed returns, and paid taxes, the assessee could argue against being deemed in default. Referring to relevant legal provisions, the Tribunal directed the Assessing Officer to obtain necessary information from the payee to ascertain tax compliance, and if the payee failed to respond, to request the required certificate. The Tribunal highlighted that the assessee could avoid disallowance by demonstrating tax compliance by the payee.

3. In light of the above, the Tribunal allowed the appeal for statistical purposes and directed the matter back to the Assessing Officer. The Assessing Officer was instructed to provide the appellant with an opportunity to present documentary evidence demonstrating tax compliance by the payee, in line with the legal provisions discussed. The appellant was directed to substantiate their claim accordingly, and the Tribunal emphasized that no other arguments were presented during the proceedings.

This detailed analysis of the judgment provides insights into the issues of TDS deduction, non-production of Form 26A, and the application of relevant legal provisions to determine tax compliance and potential disallowance under Section 40(a)(ia) of the Income Tax Act.