TMI Blog2022 (11) TMI 776X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct tax at source or payment of tax after deduction, the logical consequence is that the provisions of section 40(a)(ia) do not get magnetized. Be that as it may, the relevant point to be accentuated in this regard is that the second proviso to section 40(a)(ia), considering failure of the assessee to deduct tax at source as not an assessee in default under the first proviso to section 201(1), unlike the first proviso to section 201(1), has been inserted w.e.f. 01-04-2013, which further strengthens the case of the assessee. The second point of view espoused by the AO as well as the ld. CIT(A) is that the assessee did not comply with the requirement of section 201(1) inasmuch as the certificate from the Chartered Accountant in Form 26A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This appeal by the assessee assails the correctness of the order dated 07-02-2020 passed by the CIT(A)-1, Pune in relation to the assessment year 2013-14. 2. The only issue raised herein is against the confirmation of addition of Rs.86,88,000/- made by the Assessing Officer (AO) u/s.40(a)(ia) of the Income-tax Act, 1961 (Act) on account of failure of the assessee to deduct tax at source on interest paid by it to Muthoot Mini Finance Corporation Ltd. 3. Succinctly, the facts of the case are that the assessee is a Non-banking finance company (NBFC) set up with the object of carrying on business of hire-purchase, housing, industrial and general finance. For this purpose, the assessee made borrowings from various financial institutions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary evidence to the effect that the amount of interest paid by it to the four NBFCs was accounted for by them in their respective returns. The assessee furnished Chartered Accountants‟ certificate in Form 26A in respect of three parties, viz., (i) Future Capital Financial Services Ltd.; (ii) India Info line Finance Ltd; and (iii) Shriram City Union Financial Ltd. For the fourth lender, namely, Muthoot Mini Finance Corp. Ltd., the assessee furnished a certificate from the company initially, which was later on replaced with certificate in Form 26A. The ld. CIT(A), after taking remand report from the AO, deleted the disallowance u/s.40(a)(ia) of the Act in respect of the first three amounts. He, however, sustained the disallowance for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h tax. The first proviso to section 201(1) provides that if the concerned person who fails to deduct tax at source on a sum credited to the account of a payee, he shall not be deemed to be an assessee in default, if the payee has furnished his return of income u/s.139; has taken into account such sum for computing income in such return; and has paid taxes due on the income declared in such return of income. When these conditions are cumulatively fulfilled and the person responsible for paying furnishes a certificate in this regard from a Chartered Accountant in Annexure A to Form 26A, then the payer cannot be treated as an assessee in default. The first proviso has been inserted by the Finance Act, 2012 w.e.f. 01-07-2012. 7. At this junc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account such income and has paid tax due on the income declared in the return. Whereas the Explanation to section 191 provided for non-deduction of tax at source by the payer followed by the payee failing to pay such tax directly resulting in the payer becoming an assessee in default, the first proviso to section 201 clarified the position beyond doubt by stipulating that where the non-deduction by the payer is followed by the payee, inter alia, paying the tax due on the income declared by him in the return of income. One-to-one co-relation between the amount of tax not deducted by the payer and payment of such tax by the payee as given in section 191 has been given a go-by in the proviso to section 201 by stipulating that the failure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial year 2012-13 - is taken to a logical conclusion, it will violate the principle laid down in Hindustan Coca Cola Beverage (supra). The further fact that the legislature has given statutory recognition to the judgment in Hindustan Coca Cola Beverage (supra) amply demonstrates that the law declared by the Hon‟ble Supreme Court prevails even during the period 01-04-2012 to 30-06-2012 before the insertion of the proviso to section 201(1). Once a person is not deemed to be an assessee in default for failure to deduct tax at source or payment of tax after deduction, the logical consequence is that the provisions of section 40(a)(ia) do not get magnetized. Be that as it may, the relevant point to be accentuated in this regard is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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