2019 (11) TMI 1115 - AT - Income Tax

Admission of additional ground regarding chargeable of interest u/s.234B/C - HELD THAT - Additional ground is being legal one, hence, same is admitted in the light of decision of Hon ble Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT 1996 (12) TMI 7 - SUPREME COURT wherein it was held that the additional ground of appeal can be admitted where the issue involved is pure question of law, not involving any investigation of facts. Interest u/s.234B/C - HELD THAT - Counsel has placed reliance on the decision in the case of DIT(IT) Vs. G.E.Packaged Power Ink 2015 (1) TMI 1168 - DELHI HIGH COURT wherein it was held that where the assessee were non-resident companies, entire tax was to be deducted at source of payments made by payer to it then there was no question of payment of advance tax by the assessee, therefore, Revenue could not charge any interest u/s.234B from the assessee. Interest u/s.234B/C is not chargeable, if the entire income of the assessee was subjected to TDS. However, this issue has not been examined by the AO as to whether payer was to deduct TDS or assessee s income was subjected to TDS. Therefore, we deem it fit to remit back this issue to the file of the AO to verify where the entire income of the assessee was liable to TDS on the payments made from the payer, if so then there was no question of payment of advance tax by the assessee and the Revenue could not charge the interest u/s.234B of the Act. In view of this, additional ground is set-aside for limited purpose to the file of the AO. Disallowance being interest debited to the Profit and Loss Account and the balance amount appearing in RA bills - Disallowance u/s.40(a)(ia) in respect of expenses on account of nonpayment of TDS - HELD THAT - We find that the assessee has debited interest in the Profit and Loss Account which itself states that the interest was paid by the assessee of which TDS was required to be made as per provisions of section 194A r.w. 2(28A) of the Act. We find that the interest is defined u/s.2(28)(A) which says that interest payable on any-money borrowed or that debt incurred this means that the assessee as borrowed and mobilize as mobilization advance and debt was incurred. Therefore, the transactions are duly covered by the provisions of section 2(28A) of the Act, therefore the ld.CIT(A) has rightly held that the interest payment was subjected to TDS. Considering the alternative ground of the assessee, we find that the ITAT in the case of Neena Kaul 2019 (5) TMI 1697 - ITAT MUMBAI and Tripura State Electricity Corporation Ltd., 2019 (11) TMI 858 - ITAT GUWAHATI held that the amendment made by Finance Act 2014 w.e.f. 01.04.2015 restricting disallowance made u/s.40(a)(ia) from 100% to 30% is curative in nature and therefore having retrospective effect. We, therefore direct the AO to restrict the impugned disallowance to the extent of 30% only, accordingly the ground no.1 to 4 are partly allowed.

Summary

Issues:
1. Additional ground regarding chargeable interest u/s.234B/C of the Income Tax Act.
2. Disallowance of interest debited to the Profit and Loss Account.
3. Disallowance of expenses on account of nonpayment of TDS.

Analysis:

Issue 1: Additional Ground - Interest u/s.234B/C
The appeal involved an additional ground raised by the Assessee regarding the chargeability of interest u/s.234B/C of the Income Tax Act. The Assessee contended that the entire income was subjected to Tax Deducted at Source (TDS), thus provisions of payment and advance tax u/s.234B were not applicable. The Tribunal admitted the additional ground, citing the decision of the Supreme Court, and remitted the issue back to the Assessing Officer (AO) for verification. The Tribunal held that if the entire income was liable to TDS, the interest u/s.234B/C was not chargeable.

Issue 2: Disallowance of Interest
The appeal also addressed the disallowance of interest debited to the Profit and Loss Account. The Assessee argued that the interest paid was not covered by the definition of interest under the Act. The Tribunal upheld that the interest payment was subject to TDS and directed the AO to restrict the disallowance to 30% only, based on retrospective amendments.

Issue 3: Disallowance of Expenses due to Nonpayment of TDS
Regarding the disallowance of expenses amounting to nonpayment of TDS, the AO disallowed a substantial expenditure for non-deduction of TDS. The Tribunal affirmed the disallowance, stating that the expenditure was subjected to TDS as per the provisions of the Act. However, similar to the previous issue, the Tribunal directed the AO to restrict the disallowance to 30% only, based on retrospective amendments.

In conclusion, the Tribunal partly allowed the appeal of the Assessee, addressing the issues of interest debited, expenses disallowed due to nonpayment of TDS, and the chargeability of interest u/s.234B/C. The decision provided detailed reasoning and referred to relevant legal precedents to support its conclusions.