2016 (11) TMI 1686 - AT - Income Tax

Addition u/s 40(a)(ia) - disallowance of interest expenses - technical error in furnishing the declaration in Form 15G/15H wherein certain columns of the Forms were not filled-up by the payee - HELD THAT - Genuineness of the deposit received and the payment of interest on the same for the relevant assessment years has never been doubted by the income tax authorities. The declaration has been furnished by the persons who are in receipt of the interest stating that their income is below the threshold limit for taxation and no tax need to be deducted. The disallowance made for the relevant assessment year is for the reasons that there is a technical error in furnishing the declaration in Form 15G/15H wherein certain columns of the Forms were not filled-up by the payee. The mistakes found in the declaration are of technical nature and the assessee could have got it corrected, had he been given an opportunity, instead of taking to the extreme step of adding back the entire interest payment. AO and the CIT(A) instead of giving an opportunity to the assessee to correct the Form 15G/15H had straight away invoked the provisions of section 40(a)(ia) of the Act and disallowed the interest expenditure. Non furnishing of statement to CIT as mentioned in Rule 29C(5) only entails the assessee for penalty u/s 272A(2) of the Act and not for a automatic disallowance of interest expenditure by invoking the provision of section 40(a)(ia). Non filling up of the column in Form 15G/15H by the payee s are only technical default, which could have been corrected had the assessee been given an opportunity. The assessee should be given an opportunity to correct the technical error with regard to the defaults that is containing in Forms 15G/15H. Therefore, the matter is remitted to the Assessing Officer. The assessee shall produce the corrected Form 15G/15H for the relevant period from the payee and shall submit the same to the Assessing Officer. If the corrected forms in 15G/15H are submitted, there shall be no disallowance of interest expenditure. Appeal filed by the assessee is allowed for statistical purpose.

Summary

Issues:
1. Disallowance of interest payment under section 40(a)(ia)
2. Technical defects in Form 15G leading to disallowance of interest
3. Curability of defects in Form 15G/15H
4. Invocation of section 40(a)(ia) only when tax is deductible at source
5. Obligation to deduct tax upon submission of Form 15G/15H
6. Burden of verifying payees' declarations

Analysis:
1. The appeal was against the CIT(A)'s order upholding the disallowance of interest payment under section 40(a)(ia) for the assessment year 2008-09. The Assessing Officer invoked section 40(a)(ia) due to non-deduction of tax on interest payments exceeding ?5000, despite Form 15G/H filings by payees. The AR did not provide a satisfactory explanation for the technical defects in the forms.

2. The CIT(A) affirmed the disallowance, emphasizing the importance of proper verification of Form 15G. The Tribunal noted that while the payees declared their income below the taxable limit, technical errors in the forms led to the disallowance. The Tribunal criticized the Assessing Officer and CIT(A) for not allowing the assessee to rectify the errors before disallowing the interest expenditure.

3. The Tribunal referred to a Supreme Court case to support its decision that technical defaults in Form 15G/H could be corrected given an opportunity. It ruled in favor of the assessee, remitting the matter to the Assessing Officer for rectification of the forms. The Tribunal emphasized that non-furnishing of statements to the CIT would lead to a penalty, not automatic disallowance under section 40(a)(ia).

4. The Tribunal highlighted that the burden of proof regarding the truth of declarations filed by payees should not fall solely on the appellant. It stressed that the appellant's obligation to deduct tax was based on the information provided in the forms, and the technical defects should have been curable without invoking section 40(a)(ia).

5. Ultimately, the Tribunal allowed the appeal for statistical purposes, directing the assessee to correct the technical errors in Form 15G/H and submit them to the Assessing Officer. If the corrected forms were submitted, there would be no disallowance of interest expenditure. The Tribunal's decision aimed to uphold justice and equity by giving the assessee an opportunity to rectify the forms and avoid the disallowance under section 40(a)(ia).