2018 (12) TMI 1324 - AT - Income Tax

TDS u/s 194A - assessee has not deducted tax at source in respect of the interest paid to the NBFCs -Disallowance u/s 40(a)(ia) - Held that - Accordingly, the matter is set aside to the record of the Assessing Officer for verification of the fact that the recipients NBFCs has already taken into account the amount of interest received by them in their total income declared in the return of income and paid the tax. The assessee is also directed to furnish the requisite information for verification of the fact.

Summary

Issues Involved:
1. Disallowance of interest expenses under Section 40(a)(ia) of the IT Act, 1961.
2. Disallowance of advertisement expenses under Section 40(a)(ia) of the IT Act, 1961.
3. Legality of the penalty imposed by the authorities.

Issue-wise Detailed Analysis:

1. Disallowance of Interest Expenses under Section 40(a)(ia) of the IT Act, 1961:
The primary issue pertains to the disallowance of interest expenses amounting to ?37,15,215/- paid to Non-Banking Financial Corporations (NBFCs) due to non-deduction of TDS by the assessee. The Assessing Officer invoked Section 40(a)(ia) of the Income Tax Act, 1961, resulting in the disallowance of the said amount. The assessee argued that since the NBFCs had filed their returns and paid taxes, the disallowance should not apply as per the proviso to Section 40(a)(ia) read with Section 201 of the Act. However, the CIT(A) upheld the disallowance due to the absence of certificates from the NBFCs confirming the inclusion of the interest in their income.

Upon appeal, the Tribunal referenced the Bangalore Bench's decision in Shri Azmath Ulla Vs. ACIT, which held that the second proviso to Section 40(a)(ia) has retrospective effect. If the interest recipients have included the interest in their income and paid taxes, disallowance under Section 40(a)(ia) is not warranted. The Tribunal set aside the matter to the Assessing Officer for verification of whether the NBFCs had included the interest in their income and directed the assessee to provide the necessary information.

2. Disallowance of Advertisement Expenses under Section 40(a)(ia) of the IT Act, 1961:
The second issue involved the disallowance of ?2,43,750/- towards advertisement expenses under Section 40(a)(ia) due to non-deduction of TDS. During the hearing, the assessee's representative stated that they did not wish to press this ground. Consequently, the Tribunal dismissed this ground as not pressed, with no objections raised by the Departmental Representative.

3. Legality of the Penalty Imposed by the Authorities:
Although the grounds of appeal mentioned the penalty imposed being bad in law and on facts, the judgment does not provide a detailed analysis or ruling on this specific issue. The focus remained on the disallowances under Section 40(a)(ia).

Conclusion:
The appeal was partly allowed for statistical purposes. The issue of interest disallowance was remanded to the Assessing Officer for verification, while the disallowance of advertisement expenses was dismissed as not pressed. The judgment emphasizes the importance of compliance with TDS provisions and the retrospective applicability of the second proviso to Section 40(a)(ia).