2011 (5) TMI 503 - AT - Income Tax

TDS - Interest - Merely because there is a failure on the part of the assessee to submit the declarations to the income-tax department within the time-limit it cannot be said that the assessee did not have declarations with him at the time when he paid the interest to the payees - That would be a separate matter and separate proof and evidence is required to show that even when the assessee paid the interest he did not have the declarations from the payees with him and therefore he ought to have deducted the tax from the payment - No such evidence or proof has been brought by the department - Hence accept the assessee s claim that since he had the declarations of the payees in the prescribed form before him at the time when the interest was paid he was not liable to deduct tax therefrom under section 194A - If he was not liable to deduct tax section 40(a)(ia) is not attracted - There is no other ground taken by the Income-tax authorities to disallow the interest - Therefore accept the assessee s appeal and delete the disallowance of interest

Summary

Issues:
Whether interest disallowed under section 40(a)(ia) is justified.

Analysis:
The appeal pertains to the assessment year 2006-07 concerning the disallowance of interest under section 40(a)(ia) of the Income-tax Act. The Assessing Officer disallowed interest of Rs. 7,87,291 paid by the assessee to various parties for not deducting tax at source under section 194A. The assessee claimed that the payees had submitted declarations in form No. 15H/15G, relieving the assessee from tax deduction. The Assessing Officer, however, rejected this explanation, alleging that the declarations were submitted after being prompted during assessment proceedings. The CIT(A) upheld the disallowance, emphasizing the timely submission of declarations to the CIT(TDS). The Tribunal considered the provisions of sections 194A and 197A, highlighting that if the payee furnishes a declaration stating no tax liability, the payer is exempt from tax deduction. The Tribunal found no direct evidence disproving the assessee's claim, emphasizing the stringent burden of proof required to reject the claim. Notably, the Tribunal stressed that the failure to submit declarations within the specified time does not automatically imply non-receipt of declarations at the time of payment. The Tribunal ruled in favor of the assessee, concluding that since the payees had provided declarations relieving the assessee from tax deduction, section 40(a)(ia) was inapplicable, thereby deleting the disallowance of interest.

This detailed analysis of the judgment showcases the meticulous consideration of legal provisions, factual circumstances, and burden of proof in determining the justification of interest disallowance under section 40(a)(ia). The Tribunal's decision underscores the importance of adhering to statutory requirements while also emphasizing the need for concrete evidence to refute a taxpayer's claims in tax matters.