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2017 (6) TMI 489 - ITAT BANGALORE

2017 (6) TMI 489 - ITAT BANGALORE - TMI - Tds u/s 194A - interest payment to Non Banking Financial Corporations (NBFCs) - addition u/s. 40(a)(ia) - applicability of the second proviso to section 40(a)(ia) retrospectively - Held that:- Having held that the second proviso to section 40(a)(ia) shall have retrospective effect the question arises that if the recipients of interest in question have already considered the same for computing their income offered to tax then the disallowance u/s. 40(a)(i .....

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)(ia) is deemed to have been made and no disallowance is called for. Therefore this issue is set aside to the record of the AO for verification of the fact that the recipient NBFCs have already taken into account the amount of interest received by them for computing the income in their return of income. Appeal of the assessee is allowed for statistical purposes. - ITA No. 144/Bang/2017 - Dated:- 7-6-2017 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER For The Appellant : Shri C.R. Nulvi, CA For The Respon .....

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for the loan availed, as the Section 194A(1) is not applicable to financial corporation s i.e., NBFC s. 3. On the facts and circumstances of the case and under the provisions of the law, the A.O erred in making the addition u/s 40(a)(ia), as the said section is not applicable for the interest paid during the year without TDS prior to the assessment year 2014-15. 4. On the facts and circumstances of the case and under the provisions of the law, the A.O erred in making the addition u/s 40(a)(ia) f .....

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s in the appeal of the assessee is whether in the facts and circumstances of the case the authorities below have erred in disallowing the interest payment to Non Banking Financial Corporations (NBFCs) u/s. 40(a)(ia). 3. In the course of assessment proceedings the AO made a disallowance of ₹ 17,79,823/- on account of interest payment made by the assessee to NBFCs without deduction of tax at source by invoking the provisions of section 40(a)(ia). The assessee challenged the action of the AO .....

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ates issued by the auditors of the NBFCs thereby it has been certified that all these NBFCs namely M/s. Bajaj Finance Limited, M/s. Kotak Mahindra Prime Limited and Reliance Capital Limited have considered these interest amounts in computation of their incomes for the purpose of tax in accordance with the provisions of Act. Thus the ld. AR has submitted that in view of the second proviso to section 40(a)(ia) no disallowance can be made when the recipients of the amount have already considered th .....

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essee for admitting the additional evidences. He has relied upon the orders of the authorities below. 5. I have considered the rival submissions as well as relevant material on record. As regards the applicability of the second proviso to section 40(a)(ia) retrospectively an identical issue was considered by the Hon ble Delhi High Court in case of CIT Vs Naresh Kumar (362 ITR 256) and held that the proviso inserted in section 40(a)(ia) is an explanatory and remedial in nature and therefore will .....

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er under Section 40(a)(ia) is substantial, can suffer severe adverse consequences as is apparent from the case of Naresh Kumar. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe off the adverse effect and the financial stress. Nevertheless the Section 40(a)(ia) has to be given full play keeping in mind the object and purpose behind the section. At the same time, the provision can be and should be interpreted liberally and equitable so that an assessee should no .....

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unintended or harsh consequences which were not intended, the remedial or correction action taken is not to be disregarded but given due regard. 28. It is, in this context, that we had in Rajinder Kumar's case (supra) observed as under: '22. Now, we refer to the amendments which have been made by the Finance Act, 2010 and the effect thereof. We have already quoted the decision of the Calcutta High Court in Virgin Creations (supra). The said decision refers to the earlier decision of the .....

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ity had accrued. Section 43B states that the statutory liability would be allowed as a deduction or as an expense in the year in which the payment was made and would not be allowed, even in cases of mercantile system of accountancy, in the year of accrual. It was noticed that in some cases hardship would be caused to assessees, who paid the statutory dues within the prescribed period though the payments so made would not fall within the relevant previous year. Accordingly, a proviso was added by .....

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s made retrospective and was to take effect from 1st April, 1984. Highlighting the object behind Section 43B, it was observed that the proviso makes the provision workable, gives it a reasonable interpretation. It was elucidated: 12. In the case of Goodyear India Ltd. v. State of Haryana this Court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act. 13. Therefore .....

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lies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. 14. This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand, the Gujarat High Court has held that the first proviso to Section 43-B is retrospective and sales tax for the last quarter paid before .....

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Gujarat High court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to Section 43-B will be available only prospectively does not appear .....

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es that the year in which the payment is made the same would be allowed as a deduction even if the assessee is following the mercantile system of accountancy. The proviso, however, stipulates that deduction would be allowed where the statutory dues covered by Section 43B stand paid on or before the due date of filing of return of income. Section 40(a)(ia) is applicable to cases where an assessee is required to deduct tax at source and fails to deduct or does not make payment of the TDS before th .....

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ovisos to Sections 40(a)(ia) and 43B are to the same effect and for the same purpose. 24. In Podar Cement (P.) Ltd. (supra), the Supreme Court considered whether term "owner" would include unregistered owners who had paid sale consideration and were covered by Section 53A of the Transfer of Property Act. The contention of the assessees was that the amendments made to the definition of term "owner" by Finance Bill, 1987 should be given retrospective effect. It was held that th .....

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provision. The issue was accordingly decided holding that in such cases the amendments were retrospective though it was noticed that as per Transfer of Property Act, Registration Act, etc. a legal owner must have a registered document. 25. In view of the aforesaid discussion in paras 18,19 and 20, it is apparent that the respondent assessee did not violate the unamended section 40(a)(ia) of the act. We have noted the ambiguity and referred their contention of Revenue and rejected the interpretat .....

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