2015 (12) TMI 1536 - AT - Income Tax

TDS u/s 194A - Disallowance made under section 40(a)(ia) - interest paid to Chatrapati Sambhaji Maharaj Patasanstha Limited - Held that - Where the assessee had made payment on account of interest expenditure to which the provisions of section 194A of the Act are applicable the onus was upon the assessee to deduct TDS and in absence of the same the said expenditure is liable to the disallowed in the hands of assessee in view of the provisions of section 40(a)(ia) of the Act. We uphold the order of CIT(A) in this regard. The issue raised in the present appeals is squarely covered by the order of Tribunal in Bhavook Chandraprakash Tripathi (2015 (3) TMI 803 - ITAT PUNE ) and following the same parity of reasoning we deem it fit to restore the matter back to the file of Assessing Officer who shall consider the plea of the assessee based on the provisions of the Act inserted by the Finance Act 2012 w.e.f. 01.04.2013 and in line with earlier order of the Tribunal dated 06.01.2014 (supra) the Assessing Officer is directed to adjudicate the issue in accordance with law after affording reasonable opportunity of hearing to the assessee.

Summary

Issues:
Disallowance under section 40(a)(ia) of the Income-tax Act, 1961 for interest paid to Chatrapati Sambhaji Maharaj Patasanstha Limited.

Analysis:
1. The appeals were filed against the order of CIT(A)-III, Pune, relating to assessment years 2007-08, 2008-09, and 2009-10 under section 143(3) of the Income-tax Act, 1961.
2. The issue in both appeals pertained to disallowance under section 40(a)(ia) of the Act for interest paid to Chatrapati Sambhaji Maharaj Patasanstha Limited.
3. The Assessing Officer disallowed the interest expenditure as the assessee failed to deduct tax at source under section 194A of the Act, invoking section 40(a)(ia).
4. The assessee contended before CIT(A) that since the interest was paid, section 40(a)(ia) was not applicable, but the CIT(A) upheld the disallowance.
5. The Pune Tribunal consistently held that section 40(a)(ia) applies regardless of when the expenditure was paid, emphasizing the obligation to deduct TDS under section 194A.
6. A new legal plea based on the second proviso to section 40(a)(ia) inserted by the Finance Act, 2012 was raised, citing relevant case law. The matter was remanded for fresh consideration.
7. The Tribunal decided to restore the issue to the Assessing Officer to evaluate the plea based on the new proviso inserted in 2012, following previous case law directions.
8. The decision in one appeal applied mutatis mutandis to the other appeal, and both appeals were allowed for statistical purposes.

This judgment clarifies the application of section 40(a)(ia) of the Income-tax Act, 1961 concerning the disallowance of interest expenditure for failure to deduct TDS. It highlights the importance of complying with TDS provisions and addresses the impact of the second proviso inserted in 2012. The Tribunal's decision emphasizes the need for proper TDS compliance and provides guidance on addressing legal amendments affecting such disallowances.