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2023 (9) TMI 603 - AT - Income TaxTDS liability u/s 194A - Nature of amount paid as per the scheme - Non-Availing Compensation (NAC) - In the nature of "Interest" or not? - it was alleged that the scheme has been disguised as a time share scheme, and it is actually a borrowing activity. Thus, in the reasons for re-opening the assessment, it was concluded that the assessee has booked NAC in the form of repayment of unsecured loan/deposits, and interest paid, is not allowable under section 40(a)(ia) of the Act due to non–deduction of TDS. HELD THAT:- We find that a similar issue came up for consideration in the case of sister concern in M/s. Royal Twinkle Star Club Pvt. Ltd [2023 (5) TMI 786 - ITAT MUMBAI] held that approach of the Revenue, on one hand treating the NAC paid by the assessee to its members as interest and on the other hand treating the amount received from the members as the income of the assessee is self-contradictory since only when the deposits are considered as a loan, which was one of the allegations in the reasons recorded while reopening the assessment, the interest can be charged on it. Thus, when the assessee’s business was considered to be in the nature of CIS, all the consequences in relation thereto must follow. It is trite law that entries in the books of account are not decisive or determinative of the true nature of the entries. Therefore, the amount received by the assessee from its members, to the extent the same is treated as income in its books of account, is directed to be reduced while calculating the total income of the assessee, since the same is in the nature of capital receipt. We find that in the present case, the NAC paid to the members also includes the repayment of membership amount collected from the members and the same has been claimed as a deduction by the assessee. Since the said repayment has already been claimed as a deduction, therefore the said amount need not be again reduced while calculating the total income of the assessee for the year under consideration. Decided in favour of assessee. Considering 30% of NAC for the purpose of disallowance under section 40(a)(ia) of the Act instead of the entire amount - HELD THAT:- CBDT, while explaining the provisions of the Finance (No.2) Act, 2014, vide Circular No.1 of 2015, dated 21/01/2015, clarified that the amendment by the Finance (No.2) Act, 2014 to the provisions of section 40(a)(ia) of the Act takes effect from 1st April 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. We further find that in Shree Choudhary Transport Company [2020 (8) TMI 23 - SUPREME COURT] held that the amendment by the Finance (No.2) Act, 2014 is with effect from 01/04/2015, and shall be applicable from the assessment year 2015-16. Since it is settled that the amendment to section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014 is with effect from the assessment year 2015-16, the AO is directed to apply the said amended provision while computing disallowance under section 40(a)(ia) of the Act. As a result, ground no.1.f, raised in assessee’s appeal is allowed. Disallowance u/s 14A r/w rule 8D - HELD THAT:- As in the present case, the assessee has not earned any dividend income, therefore, disallowance of expenditure under section 14A read with Rule 8D is not sustainable. Scope of amendment - We find that while dealing with the issue of whether the aforesaid amendment by the Finance Act, 2022 is prospective or retrospective in operation, as in PCIT vs M/s Era infrastructure (India) Ltd, [2022 (7) TMI 1093 - DELHI HIGH COURT] held that the amendment by Finance Act, 2022, in section 14A is prospective and will apply in relation to the assessment year 2022-23 and subsequent assessment years. Thus, even in view of the aforesaid amendment also, the disallowance under section 14A r/w rule 8D is not permissible in the present case.
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