2014 (11) TMI 1108 - AT - Income Tax

Addition u/s 40(a)(ia) - Held that - We are of the opinion that Section 40(a)(ia) would cover not only to the amounts which are payable as on 31st March of a particular year but also which are payable at any time during the year. Of course, as long as the other requirement of the said provision exist. In that context, in our opinion the decision of the Special Bench of the Tribunal in the case of M/s Merilyn Shipping & Transports vs ACIT (2012 (3) TMI 402 - ITAT VISAKHAPATNAM), does not lay down correct law. Deduction u/s 80P - assessee has not filed any return of income within the time allowed either u/s 139(1) or 139(4) or within the time allowed by the assessing officer u/s 142(1) - Held that - This Tribunal, in the case of M/s Kadachira Service Co-operative Bank Ltd & Ors vs ITO (2013 (2) TMI 208 - ITAT COCHIN ) after considering the provisions of section 80A(5) and the judgment of the Apex Court in Prakash Nath Khanna & Another vs CIT (2004 (2) TMI 3 - SUPREME Court ) found that the assessee is not eligible for exemption u/s 80P unless return is filed either u/s 139(1) or 139(4) or within the time provided by the assessee in the notice issued u/s 142(1) of the Act or u/s 148 of the Act and a claim was made for deduction u/s 80P of the Act. In view of the above, this Tribunal do not find any infirmity in the order of the lower authority.

Summary

Issues Involved:
1. Deduction under Section 80P of the Income Tax Act.
2. Disallowance of interest payment under Section 40(a)(ia) of the Income Tax Act.

Detailed Analysis:

1. Deduction under Section 80P of the Income Tax Act:

The primary issue pertains to the eligibility of the assessee for deduction under Section 80P of the Income Tax Act. The Tribunal noted that the assessee had not filed any income tax return within the time allowed under Sections 139(1), 139(4), or within the time specified by the assessing officer under Section 142(1) of the Act. Citing the precedent set in the case of M/s Kadachira Service Co-operative Bank Ltd & Ors vs ITO (2013) 153 TTJ (Cochin) 129 and the Supreme Court judgment in Prakash Nath Khanna & Another vs CIT (2004) 266 ITR 1 (SC), the Tribunal concluded that the assessee is not eligible for exemption under Section 80P unless the return is filed within the specified time. Therefore, the Tribunal found no infirmity in the order of the lower authority denying the deduction under Section 80P.

2. Disallowance of Interest Payment under Section 40(a)(ia) of the Income Tax Act:

The second issue involved the disallowance of interest payment amounting to Rs. 10,24,015 under Section 40(a)(ia) of the Act due to non-deduction of tax at source. The assessee argued that since the interest had already been paid to the depositors, the provisions of Section 40(a)(ia) should not apply, relying on the Special Bench decision in Merilyn Shipping & Transports 136 ITD 23 (Vizag). However, the Department Representative (DR) countered this by citing the Tribunal's decision in ITA Nos 63 & 64/Coch/2014 & Ors in Shri Thomas George Muthoot & Ors, which upheld the disallowance despite the payment being made.

The Tribunal examined the rival submissions and found that the non-deduction of tax at the time of payment made the provisions of Section 40(a)(ia) applicable. The Tribunal referred to the Supreme Court decision in Hindustan Coco Cola Beverages (P) Ltd, which distinguished between the objectives of Section 40(a)(ia) and Section 201. While Section 201 aims to recover tax from the defaulter, Section 40(a)(ia) compels the assessee to deduct tax as a precondition for claiming expenditure.

Further, the Tribunal discussed the applicability of the second proviso to Section 40(a)(ia) introduced by the Finance Act, 2012, effective from 01-04-2013, which deems the assessee to have deducted and paid tax if the payee has furnished the return of income. However, the Kerala High Court in Prudential Logistics & Transports ITA No. 01 of 2014 ruled that this proviso is not applicable to earlier assessment years.

The Tribunal also addressed the argument that Section 40(a)(ia) applies only to amounts payable at the end of the financial year, referencing the Special Bench decision in Merilyn Shipping & Transports and the Allahabad High Court in CIT vs M/s Vector Shipping Services (P) Ltd. However, the Tribunal preferred the judgments of the Calcutta High Court in Crescent Exports Syndicate & Another and the Gujarat High Court in CIT vs Sikandarkhan N Tunwar, which elaborately discussed and disagreed with the Special Bench decision. These judgments clarified that Section 40(a)(ia) applies to amounts payable at any time during the year, not just at the end.

In conclusion, the Tribunal upheld the lower authority's order on both issues, denying the deduction under Section 80P and confirming the disallowance under Section 40(a)(ia).

Result:
The appeal of the assessee was dismissed. The order was pronounced in the open court on 21st November 2014.