2018 (9) TMI 70 - AT - Income Tax

TDS u/s 194A - disallowance u/s 40(a)(ia) - assessee has paid the amount to Tata Finance Ltd. towards interest on loan availed for purchasing a vehicle - Held that - Merely because the amount in question was debited from the account of the assessee through ECS it does not absolve the assessee from deducting tax at source as the nature of payment made clearly comes within the ambit of section 194A of the Act. The claim of the assessee that the amount in dispute was paid in the relevant previous year and nothing remained outstanding at the end of the year is of no relevance as the provisions contained under section 40(a)(ia)does not make any distinction between the amount paid or payable. Therefore, disallowance under section 40(a)(ia) has to be made even in respect of amount paid in the relevant previous year without deduction of tax at source under section 194A. Therefore, reversing the order of the learned Commissioner (Appeals) on this issue, we sustain the addition made by the Assessing Officer. Ground raised is allowed. Disallowance under section 14A r/w rule 8D - Held that - Assessing Officer has treated the dividend income earned by the assessee as exempt for the purpose of making disallowance under section 14A, however, while computing the income of the assessee he has not excluded the exempt income. AO is directed to exclude the exempt income, if any, while determining the total income of the assessee. Further, in case it is found that the dividend income earned by the assessee or any part of it is exempt as per the provisions of the Act, then, the disallowance under section 14A r/w rule 8D, if warranted, is to be restricted to the quantum of exempt income earned during the relevant previous year. We, therefore, restore this issue to the Assessing Officer for adjudicating afresh. Addition on account of non payment of Employees Contribution to Provident Fund and Employees State Insurance Corporation - Held that - Decisions of the Hon ble jurisdictional High Court in case of CIT v/s Hindustan Organics Ltd. 2014 (7) TMI 477 - BOMBAY HIGH COURT and CIT v/s Ghatge Patil Transport Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT clearly apply to the facts of the assessee s case. As regards disallowance of employer s contribution to ESIC, undisputedly, such payment is covered by the proviso to section 43B - DR has not controverted the factual finding of the learned Commissioner (Appeals) that the aforesaid payments were made by the assessee before the due date of filing of return of income for the relevant assessment year. In view of the aforesaid, we do not find any infirmity in the decision of the learned Commissioner (Appeals) on the issue.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance under section 14A r/w rule 8D.
3. Addition on account of non-payment of Employees’ Contribution to Provident Fund and Employees State Insurance Corporation.

Issue 1: Disallowance under section 40(a)(ia) of the Income Tax Act, 1961
The appellant challenged the deletion of disallowance of ?2,10,800 under section 40(a)(ia) of the Act. The Assessing Officer disallowed the amount as the assessee failed to deduct tax at source under section 194A. The Commissioner (Appeals) deleted the disallowance, stating the amount was paid through ECS and nothing remained payable at the end of the year. However, the ITAT held that the nature of payment falls under section 194A, and disallowance must be made even if the amount was paid in the relevant previous year without deduction of tax at source. Thus, the ITAT sustained the addition made by the Assessing Officer.

Issue 2: Disallowance under section 14A r/w rule 8D
The Revenue challenged the deletion of disallowance of ?52,547 under section 14A r/w rule 8D. The Assessing Officer disallowed the amount as dividend income was considered exempt. The Commissioner (Appeals) deleted the disallowance as no exempt income was earned or claimed. The ITAT directed the Assessing Officer to exclude any exempt income while determining the total income and to restrict disallowance under section 14A r/w rule 8D to the quantum of exempt income earned in the relevant previous year. The issue was restored for fresh adjudication.

Issue 3: Addition on account of non-payment of Employees’ Contribution to Provident Fund and Employees State Insurance Corporation
The Revenue challenged the deletion of addition of ?1,16,74,801 due to non-payment of Employees’ Contribution to Provident Fund and Employees State Insurance Corporation. The Assessing Officer disallowed the amount as payments were made after the due date. The Commissioner (Appeals) found the payments were made before the due date and deleted the disallowance. The ITAT upheld the Commissioner's decision, noting that the payments were made on time and employer’s contribution to ESIC was allowable under the amended provisions of section 43B of the Act. The ground raised by the Revenue was dismissed.