2017 (11) TMI 1308 - AT - Income Tax

Disallowance U/s 40(a)(ia) - no certificate as prescribed under proviso to Section 201(1) r.w. Rule 31ACB of the Rules certifying that the taxes in respect of interest income were duly paid by NBFCs was filed - Held that - CIT(A) was not justified in sustaining the addition in respect of interest amount paid to Religare Finvest Ltd.. Further the payment of ₹ 22,52,810/- disallowed by the Assessing Officer paid to Religare Finvest Ltd. also includes a sum of ₹ 2,10,765/- which was towards pre EMI payment which is the payment towards principal amount, therefore, no tax deduction was required. As far as the other payments of interest without making any TDS are concerned, we hold that the assessee had not submitted certificate as required by law, therefore we sustain the addition to that extent. Accordingly grounds No. 1 of the assessee s appeal is partly allowed. Addition made by the A.O. U/s 40A(3) - payment to two sellers of the land in cash under the business exigency - Held that - The payment of ₹ 1,82,40,000/- to Shri Ashok Agarwal, power of attorney holder of his daughter, the amount was paid on Sunday and also the seller has given the notice to release the payment by 25/3/2012, which was Sunday. Sunday was a bank holiday. Under these compelling situations, the assessee had to make payment in cash. The revenue has failed to controvert these facts, therefore, we find no merit in this ground of revenue s appeal. The same is dismissed. As far as the assessee s appeal is concerned, we have noticed that the evidences have been filed which establishes that the documents for registration submitted after the banking hours in respect of land purchased from Hira Lal Khetan for ₹ 13,62,658/- and from Smt. Shanta Devi Mittal for ₹ 11,75,000/-. No such evidence is available on record in respect of other purchases. The assessee has also sold his property on 15/09/2011 for which a deed was also executed in favour of M/s Ocean Seven Buildtech (P) Ltd., Gurgaon on the same day after banking hours. It was submitted that Director of M/s Ocean Seven Buildtech (P) Ltd. reached to Jaipur on 15/9/2011 after the banking hours, therefore, the payments against the sale deed were received in cash due to closure of the banking hours and the same cash received from this party was further paid to these two parties from whom the land was purchased by the assessee. These facts are verifiable from these two purchase deeds, which were duly filed before the Assessing Officer. Therefore, it is established that the assessee has to make payment to these two sellers of the land in cash under the business exigency to safeguard the interest and also for genuine and bonafide needs of assessee s business. It is also a fact that these purchases and sale deeds were put forth before the Registrar on the same day after banking hours which strengthen the contention of the assessee. The cash received on the sale of the land was utilized for making payment to two parties. These deeds were registered after 4.00 P.M., which is usually the banking hours. Therefore, considering all these facts and circumstances, we partly allow this ground of assessee s appeal.

Summary

Issues Involved:
1. Deletion of disallowance under Section 40A(3) of the Income Tax Act.
2. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest paid to NBFCs.
3. Condonation of delay in filing the assessee's appeal.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Section 40A(3):

The revenue challenged the deletion of disallowance of ?1,82,40,000 made by the Assessing Officer (A.O.) under Section 40A(3), arguing that the payments were made in cash without any compulsion or business exigency. The assessee contended that the payments were made on a Sunday, a bank holiday, under unavoidable circumstances, and were covered under Rule 6DD(g) of the Income Tax Rules, 1962. The CIT(A) accepted the assessee's explanation, noting that the payments were genuine and made under business exigencies. The ITAT upheld the CIT(A)'s decision, emphasizing that the payments were made on a Sunday due to the seller's ultimatum and were thus covered under Rule 6DD(j).

2. Disallowance under Section 40(a)(ia):

The assessee appealed against the disallowance of ?28,84,313 made by the A.O. under Section 40(a)(ia) for non-deduction of TDS on interest paid to NBFCs. The CIT(A) upheld the disallowance, citing various judicial precedents that Section 40(a)(ia) applies to amounts payable at any time during the year, not just those outstanding at year-end. The assessee argued that the second proviso to Section 40(a)(ia), which provides relief if the payee has paid the tax, should be applied retrospectively. The ITAT accepted the assessee's submission, noting that the assessee had furnished certificates from Chartered Accountants confirming that the NBFCs had paid the taxes on the interest income. Consequently, the ITAT deleted the disallowance to the extent of ?20,42,045 paid to Religare Finvest Ltd. but sustained the disallowance for the remaining amount due to the lack of necessary certificates.

3. Condonation of Delay:

The assessee's appeal had a delay of 17 days in filing, for which an application seeking condonation of delay was submitted. After hearing both sides, the ITAT condoned the delay and proceeded to hear the appeal on merits.

Conclusion:

The ITAT dismissed the revenue's appeal and partly allowed the assessee's appeal. The disallowance under Section 40A(3) was deleted for payments made on a Sunday due to business exigencies, while the disallowance under Section 40(a)(ia) was partly deleted based on the submission of necessary certificates confirming tax payment by the NBFCs. The delay in filing the assessee's appeal was condoned, allowing the appeal to be heard on merits.