2021 (1) TMI 283 - AT - Income Tax

TDS u/s 194A - Disallowance of interest expenditure incurred u/s 40(a)(ia) for non-deduction of TDS - It is the case of the assessee that he was under bonafide belief that Bajaj Finance Ltd. is a banking corporation and therefore TDS is not required to be deducted - HELD THAT - In the backdrop of long line of judicial precedents including judgment of Hindustan Coco Cola Beverage Ltd. 2007 (8) TMI 12 - SUPREME COURT we consider it expedient to set aside the disallowance and restore the issue to the file of the Assessing Officer. The assessee shall be entitled to produce such evidences as may be considered necessary to defend its case for non-deduction of TDS. AO shall be entitled to make such enquiry from the payee (Bajaj Finance Ltd.) as may be considered expedient to ascertain whether there is any loss of Revenue by such non-deduction. Assessing Officer shall delete the disallowance of amount carried out under s. 40(a)(ia) where it is found that the payee concerned has included the receipt obtained from the assessee for the purposes of computation of total income in its return. In other words, disallowance under s. 40(a)(ia) of the Act will not survive in the hands of assessee where deductee has also included the corresponding income in its return of income. The issue raised is restored back to the file of the Assessing Officer for fresh determination. Addition u/s 68 - Nature and source in respect of certain loans taken by assessee is not satisfactory - HELD THAT - As decided in SMT. PK NOORJAHAN 1997 (1) TMI 6 - SUPREME COURT Assessing Officer is not obliged to invoke Section 68/s. 69 of the Act in every case where the explanation offered is found to be 'unsatisfactory' in the opinion of the Assessing Officer. In view of the overriding fact that loans so obtained stood re-paid through banking channel without any real advantage to the assessee, the onus cast upon the assessee is substantially discharged in view of the observations of the Hon'ble Supreme Court. The action of Assessing Officer is thus set aside and the issue is restored back to the file of Assessing Officer in terms of directions noted above. Assessee appeal is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of interest expenditure under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of bad debt under section 36(1)(viii) of the Income Tax Act, 1961.
3. Disallowance of bad debt as business loss.
4. Addition under section 68 of the Income Tax Act, 1961.

Issue 1: Disallowance of interest expenditure under section 40(a)(ia):
The appellant contested the disallowance of interest expenditure of ?1,71,801 under section 40(a)(ia) due to non-deduction of TDS on a loan from Bajaj Finance Ltd. The Assessing Officer disallowed the interest for failure to deduct tax under section 194A. The Tribunal referred to legal precedents and directed the issue back to the Assessing Officer. The appellant was allowed to provide evidence for non-deduction of TDS, and the Assessing Officer was instructed to verify if the payee included the income in their return. The disallowance was to be deleted if the payee reported the income, and the issue was remitted for fresh determination.

Issue 2: Disallowance of bad debt under section 36(1)(viii):
The appellant's claim for bad debt of ?4,50,000 under section 36(1)(viii) was not pressed and dismissed.

Issue 3: Disallowance of bad debt as business loss:
The appellant's claim for bad debt as business loss was not pressed and dismissed.

Issue 4: Addition under section 68 of the Income Tax Act, 1961:
The addition of ?22,91,000 under section 68 was made due to unsatisfactory nature and source of loans. The Tribunal noted the repayment of loans and directed the issue back to the Assessing Officer for verification. The Assessing Officer was instructed to examine the repayment claims, conduct inquiries if necessary, and grant relief if proper. Citing legal precedent, the Tribunal emphasized the discretionary nature of invoking section 68 and set aside the Assessing Officer's action. The issue was remitted back for necessary verification, and the appellant's appeal was partly allowed for statistical purposes.

This judgment addresses various issues related to disallowances and additions under different sections of the Income Tax Act, 1961. The Tribunal provided detailed analysis, considered legal precedents, and directed the matters back to the Assessing Officer for fresh determinations and verifications, ensuring compliance with the law and principles established by higher courts.