2014 (3) TMI 1218 - AT - Income Tax

TDS u/s 194A - Disallowances of interest payment - non deduction of TDS - addition u/s 40(a)(ia) - ssessee before CIT(A) contended that it had paid/debited interest and TDS was deducted of all interest paid/debited except from these three parties for the reason that they have furnished Form No.15G for non deduction of tax in the interest income. Copies of Form No.15G as submitted by the loan creditors with the assessee company was furnished before AO during the course of scrutiny assessment. These were filed before CIT(A) also but CIT(A) confirmed the disallowance for the reason that Form No.15G was not submitted in the office of the Commissioner of Income Tax concerned - HELD THAT - We find that once Form No.15G is submitted by the payee the assessee is not obliged to deduct TDS and once this is the position, the AO cannot make disallowance by invoking provision of section 40(a)(ia) of the Act. This position has been explained by the Coordinate Bench of ITAT Mumbai in the case of Vipin P. Mehta vs ITO 2011 (5) TMI 503 - ITAT MUMBAI wherein as accepts the assessee s claim that since he had the declarations of the payees in the prescribed form before him at the time when the interest was paid, he was not liable to deduct tax therefrom under section 194A, if he was not liable to deduct tax, section 40(a)(ia) is not attracted. Disallowance u/s 14A r.w.r 8D - HELD THAT - As we find that the exempted income i.e. the dividend is only to the extent of Rs.62,087/- and 1% of the exempted income will suffice the issue. Accordingly we direct the AO to restrict the disallowance to 1% of the exempted income. This issue is partly allowed. Unexplained investment in the mutual fund - HELD THAT - As assessee has got clarification from Primary Mutual Fund thereby it has been clarified that assessee has made investment of Rs.2,00,000 only and not Rs.3,00,000/- as added by the lower authorities. We feel that addition is unwarranted and we delete the same. This ground of assessee s appeal is allowed.

Summary

Issues:
1. Disallowance of interest payment for non-deduction of TDS.
2. Disallowance of expenses under section 14A read with Rule 8D for exempted income.
3. Addition of unexplained investment in mutual fund.

Issue 1: The first issue involved the disallowance of interest payment for non-deduction of TDS under section 40(a)(ia) of the Income Tax Act. The Assessing Officer (AO) disallowed interest payments made without TDS deduction, leading to an appeal by the assessee. The assessee argued that TDS was not deducted as the payees had submitted Form No.15G for non-deduction of tax on interest income. The Appellate Tribunal referred to a similar case and held that if the payee provides the required declaration, the assessee is not obligated to deduct TDS. Therefore, the disallowance made by the CIT(A) was deemed unwarranted, and the appeal of the assessee was allowed.

Issue 2: The second issue pertained to the disallowance of expenses under section 14A read with Rule 8D for exempted income. Both the AO and CIT(A) erred in applying Rule 8D retrospectively. The Tribunal referred to a Bombay High Court decision and restricted the disallowance to 1% of the exempted income, which was Rs.62,087. Consequently, the disallowance was partly allowed.

Issue 3: The third issue involved the addition of unexplained investment in a mutual fund. The AO added Rs.3 lakhs as unexplained investment based on AIR information, despite the assessee's claim that only Rs.2 lakhs was invested. The Tribunal considered documentary evidence from the mutual fund confirming the correct investment amount of Rs.2 lakhs. As a result, the addition of Rs.3 lakhs was deemed unwarranted, and the Tribunal allowed the appeal of the assessee.

In conclusion, the Tribunal partially allowed the appeal of the assessee, ruling in favor of the assessee on all three issues discussed in the judgment.