2017 (1) TMI 991 - AT - Income Tax

TDS u/s 194A - disallowance u/s 40(a)(ia) - assessee failed to deduct tax at source on the amount of interest paid - Held that - Once, the interest income in the preceding year was shown in the return of income as Income from other sources and accepted as such by the AO, then, in the present year the same cannot be re-characterised in the assessment order of the present year merely for the purpose of applying provisions of section 194A. Such kind of superfluous exercise is not permitted under the law. Thus, as per law and facts of this case, the case of the assessee is not covered u/s 194A as the mandatory condition of there being turnover exceeding a sum of ₹ 40 lakhs is apparently missing in this case. Thus, assessee was not obliged to deduct TDS u/s 194A. Thus, the AO as well as the Ld. CIT(A) have erred in making disallowance u/s 40(a)(ia). - Decided in favour of assessee

Summary

Issues involved:
- Appeal against order passed by CIT(A) confirming assessment order determining total income
- Disallowance made under section 40(a)(ia) for failure to deduct TDS on interest paid

Analysis:
1. Appeal against CIT(A) order:
The appeal was filed against the order passed by the Commissioner of Income-tax (Appeals) confirming the assessment order determining total income at a specific amount. The grounds of appeal challenged the jurisdiction and legality of the assessment order passed under section 143(3) read with section 263 of the Income Tax Act for the assessment year 2005-06. The issues raised pertained to the correctness of the assessment order and the addition made on account of disallowance under section 40(a)(ia).

2. Disallowance under section 40(a)(ia):
The main issue in this appeal was the disallowance made under section 40(a)(ia) for the failure to deduct tax at source on the interest paid. The argument presented was that the assessee, an individual with various sources of income, was not liable to deduct TDS under section 194A as the turnover in the immediately preceding financial year was below the threshold of ?40 lakhs. The contention was supported by the income tax return and assessment order showing the turnover did not exceed the specified limit. It was emphasized that the provisions of section 194A were not applicable in this case, and the disallowance made by the Assessing Officer was incorrect. The tribunal noted that the turnover in the preceding year was below ?40 lakhs, and the interest income was correctly categorized as income from other sources. Therefore, the disallowance under section 40(a)(ia) was deemed unjustified and directed to be deleted.

In conclusion, the tribunal allowed the appeal filed by the assessee, emphasizing that the disallowance made under section 40(a)(ia) was unwarranted due to the absence of the mandatory condition for TDS deduction under section 194A. The judgment highlighted the importance of correctly applying tax deduction provisions based on turnover thresholds, ensuring compliance with the law and preventing erroneous disallowances.