2015 (10) TMI 729 - AT - Income Tax

Reopening of assessment - disallowance made under sec.40(a)(ia) for non-deduction of tax at source - Held that - As disallowance made under Sec.40(a)(ia) also becomes part of income in the final computation. Definition of income in sec.2(24) being inclusive and not exhaustive, additions made on account of disallowances also would fall under it, not withstanding sub-clause(va) to (ve) thereof which specifically mentions items falling under 28(iiia)(iiib),(iiic),(iv) and (v). We cannot also say that the reason mentioned by AO was irrelevant, especially since originally the return was subjected only to processing under section 143(1) of the Act. As for the ground raised by the assessee the objection raised by it on the notice under section 148, was not dealt with by the AO, it is necessary to have a look at such objection as a reading of it does not show any specific objection raised by the assessee for the AO to deal with, except narrating the course of events in its appeals on orders of tax deduction officer. - Decided against assessee. Applicability of provision of section 40a(ia) - as per the assessee the recipients furnished Form 15G/H and it had no obligation to deduct tax - Held that - Assesee had obtained 15G/H form from the recipients, though filed belatedly. Irrespective of the date of filing these forms, assertion made therein by the payees that they were not having taxable income or were having income below taxable limits has not been found to be incorrect. When assessee was well aware that recipients had no taxable income, just because the declarations in Form 15G/H were obtained late, it cannot be fastened with the consequence that arise for non-deduction of tax at source. We cannot say that there was a failure on the part of the assessee that would attract the rigours of Sec.40a(ia). - Decided in favour of assessee.

Summary

Issues:
1. Re-opening of assessment for the impugned assessment year.
2. Applicability of Section 40a(ia) regarding deduction of tax at source on interest payments.

Analysis:

Issue 1: Re-opening of assessment for the impugned assessment year
The appeal challenged the re-opening of the assessment for the impugned assessment year. The assessee argued that the re-opening was not justified as the income did not fall under the definition of Sec.147 r.w.s.2((24) of the IT Act, 1961. The Assessing Officer had re-opened the assessment due to non-deduction of tax on interest payments, citing Sec.40a(ia). The tribunal examined the reasons for re-opening and found them relevant, as the return had only undergone processing under Sec.143(1). The tribunal held that the disallowance under Sec.40(a)(ia) constituted income as per Sec.2(24) of the Act, and the reason provided by the Assessing Officer was valid. The objection raised by the assessee regarding the notice under section 148 was considered insufficient, leading to the dismissal of grounds 2 to 4 raised by the assessee.

Issue 2: Applicability of Section 40a(ia) regarding deduction of tax at source on interest payments
The assessee contended that Section 40a(ia) was not applicable as the recipients had furnished Form 15G/H, relieving the assessee from the obligation to deduct tax. The Revenue argued that Form 15G/H was filed after the interest payments and cited judgments in their favor. The tribunal noted conflicting opinions from different High Courts on the paid and payable issue but followed the decision of the Hon'ble Apex Court in favor of the assessee. Despite the late filing of Form 15G/H, the tribunal found that the recipients' declarations regarding taxable income were accurate. As the recipients had no taxable income, the tribunal ruled in favor of the assessee, allowing grounds 5 to 9 and deleting the disallowance made under Sec.40a(ia) of the IT Act, 1961.

In conclusion, the tribunal partly allowed the appeal filed by the assessee, emphasizing the importance of accurate declarations by recipients in Form 15G/H and the relevance of reasons for re-opening assessments within the scope of the IT Act.