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2016 (7) TMI 1607 - AT - Income TaxAddition u/s 40(a)(ia) - addition made on account of interest paid on EMI for purchase of vehicles - Assessee contended that since no amount was outstanding payable to the above parties as at the end of the year on 31st March, 2011, the assessee was not liable to deduct TDS from the payments made to the five parties during the year under consideration - HELD THAT - We find that recently in RKP COMPANY VERSUS INCOME TAX OFFICER WARD 1, KORBA 2016 (7) TMI 447 - ITAT RAIPUR similar issue decided in favour of assessee. Further, the second proviso appended to Section 40(a)(ia) by the Finance Act, 2012, w.e.f. 01.04.2013, provides that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVIIB, 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 Section (1) 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. We find that the assessee filed certificates from the Chartered Accountants of the five payee companies before the ld. CIT(A) to contend that as the payee companies have shown the amount of interest in the return of income filed and paid due taxes thereon, therefore, in view of the second proviso to Section 40(a)(ia) of the Act, no disallowance was exigible in the case of the assessee u/s 40(a)(ia) of the Act. The ld. CIT(A) has not adjudicated on this plea of the assessee while confirming the disallowance made by the AO. Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Market Township Private Limited 2015 (9) TMI 79 - DELHI HIGH COURT has held that second proviso to Section 40(a)(ia) of the Act is declaratory and curative and has retrospective effect. Therefore, we hold that the disallowance cannot be made u/s 40(a)(ia) of the Act on this count also. Thus, this ground of appeal of the assessee is allowed. Addition under the head unsecured loan and interest paid thereon - HELD THAT - In the instant case, there was some enquiry made by the DDIT in the case of Shri Shailendra Biyani, where it was found that the company did not have the creditworthiness to advance loan and that the Directors of the Company did not appear before the DDIT. This information and material was not confronted to the assessee by the AO during the course of the assessment proceedings or even during the course of first appellate proceedings. Therefore, the said material cannot be used or read against the assessee, as the same has not been controverted to the assessee. We rely on a very recent decision of H. R. Mehta vs. ACIT, 2016 (7) TMI 273 - BOMBAY HIGH COURT wherein held that on a very fundamental aspect, the Revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statement relied upon by the ACIT. Quite apart denial of an amount of cross examination, the Revenue did not even provide the material on the basis of which the Department sought to conclude that the loan was bogus transaction. This is not having been done, the denial of such opportunity goes to the root of the matter and strikes at the very foundation of the reassessment and, therefore, renders the orders passed by the CIT(A) and the Tribunal vulnerable. We hold that the addition of unsecured loan and interest paid thereon was not justified in the present case as the material collected in the case of Shri Shailendra Biyani in the case of the M/s. East West Finvest India Limited was neither confronted to the assessee nor the assessee was allowed any opportunity of cross-examination of the giver of the statement. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest payments. 2. Addition under Section 68 for unsecured loans and interest thereon. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest payments: The assessee's grievance was that the CIT(A) confirmed the addition made by the AO for ?39,47,854/- on account of interest paid on EMI for vehicle purchases without deducting TDS, invoking Section 40(a)(ia) of the Income-tax Act, 1961. The AO observed that the assessee made payments to five finance companies without deducting TDS, leading to the disallowance. The assessee contended that since no amount was outstanding as of 31st March 2011, TDS was not required, relying on the decision of the Hon'ble Allahabad High Court in CIT vs. Vector Shipping Service (P) Limited, which held that Section 40(a)(ia) applies to amounts payable, not paid. However, the CIT(A) relied on the decision of the Hon'ble Kolkata High Court in CIT vs. Crescent Exports Syndicate and a CBDT Circular, which interpreted "payable" to include amounts paid during the year. Before the Tribunal, the assessee argued that all finance companies had offered the interest income for tax and provided Chartered Accountant certificates to support this. The Tribunal noted the conflicting High Court decisions and followed the principle that when two interpretations are possible, the one favoring the assessee should be adopted, as per the Supreme Court's judgment in CIT vs. Vegetable Products Ltd. Additionally, the Tribunal referenced the Supreme Court's dismissal of the SLP in the Vector Shipping case, supporting the assessee's position. Furthermore, the Tribunal considered the second proviso to Section 40(a)(ia), introduced by the Finance Act, 2012, which deems TDS deducted if the payee has paid tax on the income. The Tribunal found that the assessee had provided necessary certificates showing the finance companies had paid taxes on the interest income. Citing the Hon'ble Delhi High Court's decision in CIT vs. Ansal Landmark Townships Pvt. Ltd., which held the proviso to be retrospective, the Tribunal concluded that disallowance under Section 40(a)(ia) was not justified. Thus, this ground of appeal was allowed. 2. Addition under Section 68 for unsecured loans and interest thereon: The assessee contested the addition of ?35 lakhs as unsecured loans and ?3,80,921/- as interest thereon under Section 68. The AO disallowed these amounts, citing an enquiry that revealed the loan creditor, M/s. East West Finvest India Limited, was a paper company with no real worth, and its directors did not appear for verification. The CIT(A) upheld the AO's decision, stating that the onus to prove the genuineness of the loan and the creditor's creditworthiness lay on the assessee, which was not satisfactorily discharged. Before the Tribunal, the assessee argued that it had provided confirmations, PAN numbers, and proof of TDS deduction on interest payments. The AO's addition was based on findings from another case without confronting the assessee with the material or allowing cross-examination. The Tribunal emphasized that any material or statements used against the assessee must be confronted to them, citing the Hon'ble Bombay High Court's decision in H. R. Mehta vs. ACIT. Since the material from the enquiry was not shared with the assessee, the Tribunal held that the addition was unjustified. Consequently, the Tribunal deleted the addition of ?38,80,921/- and allowed this ground of appeal. Conclusion: In the result, the appeal of the assessee was allowed, with the Tribunal pronouncing the order on 5th July 2016 at Indore.
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