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2016 (10) TMI 693 - AT - Income TaxTDS u/s 194A - disallowance of interest paid u/s. 40(A)(ia) - non deduction of tds - assessee in default - as per assessee the interest on Loans A/c has already been filed with the AO - Held that - During the year in question the assessee TOP-UP his loan from another banker for which the processing fees was paid. That the loans were taken for his business. That the proportionate interest of housing at the rate of 15% was separately shown against the rental income. That a demand of ₹ 15,30,000/- has been credited U/s 143(3) of I.T. Act, 1961 for the above said assessment year. That the assessee has filed an appeal before the Higher Authorities against the said assessment order. However, the assessee directed to pay the above said demand within 30-days. In respect of which the assessee paid ₹ 4,00,000/- (i.e., more than 25% of the total demand) on 30-01-2015 in Corporation Bank Ltd. Challan. As no tax is liable to deduct on account of loan and interest payment to the bank. Therefore, the assessee has not deducted tax. In my view, this is exception as per sub-section III of section 3 of 194A of I.T. Act. Therefore, the assessee is not liable to treat as defaulter as per proviso 40(a) of I.T. Act and A.O. was in error in disallowing the interest payment to the bank without deduction tax CIT(A) after considering the submissions of the assesee as well as the findings of the Ld. AO, rightly inclined to agree with the contention of the assessee that no tax is liable to deduct on account of loan and interest payment to the bank. Therefore, the assessee has not deducted tax. This is exception as per sub-section III of section 3 of 194A of I.T. Act. Therefore, the assessee is not liable to treat as defaulter as per proviso 40(a) of I.T. Act and A.O. was not justified in disallowing the interest payment to the bank without deduction tax. Accordingly, the addition made on account of non deduction of TDS on account of interest paid on loan from banking concern of ₹ 35,06,062/- was rightly deleted by the Ld. CIT(A) - Decided in favour of assessee.
Issues:
1. Disallowance of interest paid under section 40(A)(ia) of the Income Tax Act, 1961. 2. Interpretation of exception under section 194(3)(iii) of the Income Tax Act. Analysis: 1. The Department appealed against the CIT(A)'s order deleting the addition of ?35,06,062 made by the AO on account of disallowance of interest paid under section 40(A)(ia) of the Income Tax Act, wrongly interpreting the exception under section 194(3)(iii) of the Act. The AO disallowed the interest paid on a loan where no TDS was deducted. The CIT(A) considered the submissions and ruled in favor of the assessee, stating that no tax was liable to be deducted on the interest payment to the bank, as it fell under an exception in section 194A of the Act. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. 2. The assessee, engaged in trading handloom items, filed a return declaring income of ?9,80,230. The AO, during assessment, raised queries and made additions to the income. The CIT(A) partly allowed the appeal, leading to the Revenue's appeal before the Tribunal. The Department argued for setting aside the CIT(A)'s order, while the Assessee's Counsel supported the CIT(A)'s decision. The Tribunal, after reviewing the submissions and orders, found in favor of the assessee, agreeing that no tax was required to be deducted on the interest payment to the bank, as per the relevant provisions of the Income Tax Act. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision. This detailed analysis highlights the key issues, arguments presented, and the Tribunal's decision in the legal judgment.
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