2019 (12) TMI 591 - AT - Income Tax

Revision u/s 263 - Addition u/s 40(a)(ia) - amount paid or payable during year - HELD THAT - In the present case, the assessee is covered by jurisdiction of Hon'ble Allahabad High Court and in the case of Vector Shipping Services Hon'ble Allahabad High Court 2013 (9) TMI 1073 - ALLAHABAD HIGH COURT had held that tax is required to be deducted only on the amounts payable and assessee is not required to deduct tax on the amounts paid during the year. In the present case, the assessee had credited the interest amount to the credit of the parties and to examine as to whether such credit to the account of a party amounts to payment or not, the definition of word paid as per section 43(2) has to be analyzed. Definition of amount paid, clearly demonstrates that in case the assessee is following the mercantile system of accounting, which system records revenues and expenses when they are incurred, regardless of when cash is exchanged, therefore, the amount credited to the payee account will also amount to payment. Since the assessee was following the mercantile system of accounting, the entries of interest credited by him to the payees accounts were entries of accrual in the absence of cash transactions, which amounted to payment and, therefore, the Assessing Officer had rightly not made the disallowance as per the judgment of the jurisdictional Hon'ble Allahabad High Court and as per the Board Circular, which was binding on him. In view of the above, the order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue, as the AO had rightly not made the disallowance. In view of the above, the appeal of the assessee is allowed and the order passed by learned CIT u/s 263 is quashed. - Decided in favour of assessee.

Summary

Issues involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of deduction under section 40(a)(ia) for interest paid without TDS deduction.
3. Validity of addition made without incriminating material under section 263.

Detailed Analysis:

1. Condonation of delay:
The appellant filed an appeal against the order of the CIT, citing a 19-day delay in filing. The appellant submitted an application for condonation of delay, explaining the reasons. The delay was condoned by the Tribunal after considering substantial justice and the explanation provided by the appellant.

2. Disallowance of deduction under section 40(a)(ia):
The primary objection raised by the Principal CIT was regarding the appellant's payment of interest on a loan without deducting TDS, leading to a disallowance under section 40(a)(ia). The appellant argued that complete details of the interest were submitted to the Assessing Officer and CIT, emphasizing that the interest was already paid during the year and appeared in the loan account. The appellant referred to queries raised by the Assessing Officer and submitted evidence to support the genuineness and correctness of the interest payment. It was contended that the Assessing Officer rightly did not make the disallowance as the liability to deduct TDS was only for interest payable, as per a judgment by the Allahabad High Court. The Tribunal found that the Assessing Officer had applied due diligence and correctly assessed the situation, ultimately allowing the deduction claimed by the appellant.

3. Validity of addition without incriminating material under section 263:
The appeal in question was a consequence of an assessment order made by the Assessing Officer following proceedings under section 263. The appellant argued that the addition made without any incriminating material was unsustainable, citing a decision by the Delhi High Court. The Tribunal considered the arguments presented but ultimately quashed the order under section 263. Consequently, the appeal related to this order was deemed infructuous and dismissed.

In conclusion, the Tribunal allowed the appeal against the order passed under section 263 while dismissing the appeal related to the consequential order. The detailed analysis highlighted the arguments presented by the appellant regarding the delay in filing, disallowance of deduction under section 40(a)(ia), and the validity of the addition made without incriminating material. The Tribunal's decision was based on a thorough examination of the facts and legal provisions involved in each issue.