2014 (1) TMI 927 - AT - Income Tax

Interest paid to parties not allowed u/s 40(a)(ia) for non deduction of TDS Belated filing of non-deduction forms 15G/15H under Rule 29C Held that - The default for non-furnishing of the declarations to the CIT as prescribed may result in invoking penalty provisions u/s. 272A(2)(f) for which separate provision/ procedure was prescribed under the Act - once Form 15G/Form 15H was received by the person responsible for deducting tax there is no liability to deduct tax - Once there is no liability to deduct tax it cannot be considered that tax is deductible at source under Chapter XVII-B as prescribed u/s. 40(a)(ia) - The provisions of section 40(a)(ia) can only be invoked in a case where tax is deductible at source and such tax has not been deducted or after deduction has not been paid - No such default occurred in the present case - the provisions of section 40(a)(ia) are not - Both the Assessing Officer and CIT(A) erred in considering that non-filing of form 15H invites disallowance u/s. 40(a)(ia) Relying upon Vipin P. Mehta vs. Income Tax Officer 2011 (5) TMI 503 - ITAT MUMBAI - thus there is no need to deduct tax at source and there is no default committed by the assessee - Non filing or delayed filing of such forms can not result in disallowance u/s 40(a)(ia) Decided in favour of Assessee.

Issues Involved:
1. Disallowance of interest expenditure under Section 40(a)(ia) for non-deduction of tax at source.
2. Non-filing or delayed filing of Form 15G/15H with the Commissioner of Income Tax (CIT).

Issue-Wise Detailed Analysis:

1. Disallowance of Interest Expenditure under Section 40(a)(ia):

The primary issue revolves around the disallowance of Rs. 5,30,425/- claimed as interest expenditure by the assessee. The Assessing Officer (AO) disallowed this amount under Section 40(a)(ia) due to the assessee's failure to deduct tax at source for payments made to 17 parties. The assessee contended that Form 15G/15H had been obtained from these parties, which exempted them from tax deduction under Section 194A. The AO, however, maintained that non-filing of these forms with the CIT as mandated by Rule 29C warranted the disallowance.

2. Non-filing or Delayed Filing of Form 15G/15H:

The assessee argued that the forms were filed with the correct authority, albeit belatedly, and that this procedural delay should not lead to disallowance under Section 40(a)(ia). The CIT(A) rejected this argument, upholding the disallowance on the grounds of non-compliance with procedural requirements.

Tribunal's Findings:

1. Applicability of Section 40(a)(ia):

The Tribunal scrutinized the provisions of Section 40(a)(ia), which disallows deductions for certain payments if tax deductible at source under Chapter XVII-B has not been deducted or paid. The Tribunal noted that Section 194A, which mandates tax deduction on interest payments, is qualified by Section 197A(1A). This section exempts tax deduction if the payee furnishes a declaration (Form 15G/15H) stating that no tax is payable on their total income. The Tribunal emphasized that once such forms are received, there is no liability to deduct tax, and hence, Section 40(a)(ia) cannot be invoked.

2. Procedural Delay and Penalty Provisions:

The Tribunal acknowledged that the failure to file Form 15G/15H with the CIT as prescribed may attract penalty under Section 272A(2)(f). However, it clarified that this procedural lapse does not justify disallowance under Section 40(a)(ia). The Tribunal cited several precedents, including Vipin P. Mehta vs. Income Tax Officer, where it was held that non-submission of Form 15G/15H to the CIT does not lead to disallowance if the forms were obtained from the payees at the time of interest payment.

3. Reliance on Previous Case Laws:

The Tribunal referred to multiple case laws supporting the view that procedural delays in filing Form 15G/15H do not warrant disallowance under Section 40(a)(ia). These included cases like CIT vs. Larsen & Toubro Ltd. and Valibhai Khandelal Mankad vs. DCIT, which reinforced the principle that the primary condition for disallowance under Section 40(a)(ia) is the failure to deduct tax at source, not procedural lapses in form submission.

Conclusion:

The Tribunal concluded that the provisions of Section 40(a)(ia) were not applicable in the present case as the assessee had obtained the requisite declarations (Form 15G/15H) from the payees, thereby exempting them from tax deduction. The procedural delay in filing these forms with the CIT could attract penalties but did not justify disallowance of the interest expenditure. Consequently, the Tribunal allowed the assessee's appeal and directed the AO to modify the order accordingly.

Result:

The appeal of the assessee was allowed, and the disallowance of Rs. 5,30,425/- under Section 40(a)(ia) was deleted. The order was pronounced in the open court on 10th July 2013.

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