2015 (10) TMI 1460 - AT - Income Tax

Non deduction of TDS as per the provisions of sec.194A - CIT (Appeals) has deleted the addition on the ground that M/s. L & T Finance has shown the said amount as income in the return of income filed and has paid the tax due thereon - Held that - The purpose of deducting tax at source is that there is no loss to the Government for tax due on income embedded in the amount paid by the assessee to the recipient of the amount. When the recipient of the amount includes the said receipt in its income and pays tax thereon, then there is no loss of revenue to the Government and, therefore, in our considered view, the Commissioner of Income Tax (Appeals) was fully justified in deleting the addition. Our view is supported by the insertion of the second proviso to sec. 40(a)(ia) of the Act by the Finance Act 2012 w.e.f. 01/04/2013 wherein held that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso - Decided in favour of assessee.

Summary

Issues:
- Addition of finance cost without deducting TDS under sec.194A of the Act.

Analysis:
1. The Revenue appealed against the Commissioner of Income Tax (Appeals) order deleting the addition of Rs. 46,82,700 claimed as finance cost by the assessee, paid without deducting TDS under sec.194A of the Act.
2. The Assessing Officer disallowed the deduction of Rs. 64,00,659 as the assessee failed to deduct TDS on interest paid to specific parties as required by sec. 194A.
3. The Commissioner of Income Tax (Appeals) deleted the disallowance of Rs. 46,82,700. The appellant argued that TDS on interest was introduced recently, and confusion existed regarding its applicability to Non-Banking Financial Companies (NBFCs).
4. The Commissioner relied on the decision of the Hon'ble Supreme Court in a similar case to support the deletion of the addition. The appellant had already paid taxes on the interest income, justifying the deletion of the addition.
5. Disagreement arose regarding the applicability of TDS provisions to a payment made to Indian Oil Corporation Ltd. The Commissioner confirmed the disallowance of Rs. 5,30,320 paid to the corporation.
6. The Tribunal upheld the Commissioner's decision, emphasizing that when the recipient includes the income in their return and pays taxes, there is no loss of revenue to the Government. The Tribunal referred to the second proviso to sec. 40(a)(ia) inserted by the Finance Act 2012 to support its decision.
7. Consequently, the Tribunal found no fault in the Commissioner's order and dismissed the Revenue's appeal, confirming the deletion of Rs. 46,82,700 as justified. The appeal of the Revenue was ultimately dismissed.