2018 (11) TMI 1959 - AT - Income Tax

Disallowance u/s 40(a)(ia) - interest paid to the NBFC - as argued since the recipient of interest has included the said amount in the total income and filed the return of income therefore in view of the second proviso to section 40(a)(ia) of the IT Act no disallowance is called for - HELD THAT - We note that an identical issue has been considered by the Coordinate Bench of this Tribunal in the case of ACIT vs. M/s. Vastuvedik Colonizers Developers 2017 (3) TMI 483 - ITAT JAIPUR the second proviso to section 40(a)(ia) is curative in nature and is applicable retrospectively. Having held that the benefit of second proviso is available to the assessee if the recipient of interest has already taken this amount in its total income and filed the return of income we direct the AO to verify this fact and decide the issue in the light of the above observations and decisions. Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:
Disallowance under section 40(a)(ia) of the IT Act in respect of interest paid to NBFC.

Analysis:
1. The appeal concerns the disallowance made by the Assessing Officer under section 40(a)(ia) of the IT Act regarding interest paid to a Non-Banking Financial Company (NBFC) for the assessment year 2013-14.

2. The assessee argued that since the recipient of interest included the amount in their total income and filed the return, no disallowance should be made as per the second proviso to section 40(a)(ia). The assessee relied on previous Tribunal decisions to support this contention.

3. The Departmental Representative (D/R) contended that the issue was not raised earlier and required verification. The D/R relied on the decisions of the authorities below.

4. The Tribunal noted that a similar issue was addressed by a Coordinate Bench in a previous case involving the nature of payment and TDS deduction. The Tribunal referenced the judgment of the Hon'ble Calcutta High Court to emphasize that if tax is deducted, even under a wrong provision, the provisions of section 40(a)(ia) cannot be invoked.

5. The Tribunal further referred to another case where it was held that if tax is deducted under one TDS provision, the assessee cannot be considered in default, even if another provision was applicable. Consequently, the disallowance made by the Assessing Officer was deleted.

6. Regarding a second disallowance related to interest payment to another entity, the Tribunal directed the Assessing Officer to verify if the recipient had included the amount in their total income and paid tax. The Tribunal cited a decision of the Hon'ble Delhi High Court to highlight the retrospective applicability of the second proviso to section 40(a)(ia).

7. The Tribunal concluded that the benefit of the second proviso is available to the assessee if the recipient has already included the amount in their total income. The Assessing Officer was instructed to verify this fact and decide accordingly.

8. As a result, the appeal of the assessee was partly allowed for statistical purposes, with the Tribunal emphasizing the retrospective application of the second proviso to section 40(a)(ia) based on established legal principles.

9. The judgment was pronounced in open court on 27/11/2018.