2021 (5) TMI 627 - AT - Income Tax

Disallowance of interest paid on unsecured loans - assessee pleaded that the aforesaid interest was paid to five parties without deduction of tax at source and those parties had also furnished Form Nos.15H 15G before the assessee - HELD THAT - As submission of the assessee was rejected by the ld. CIT(A) by stating that the said second proviso to Section 40(a)(ia) was introduced only w.e.f. 01/07//2012 and cannot be made applicable for A.Y.2011-12. We find that the additional evidences filed by the assessee containing Form15G 15H ought to have been admitted by the ld. CIT(A) as assessee was genuinely prevented from filing the same before the ld. AO as no questions were received by the ld. AO regarding the same. Once Form No. 15G 15H are duly submitted by the assessee before the department, then assessee cannot be fastened with the disallowance u/s.40(a)(ia) of the Act for non-deduction of tax at source. However, these forms i.e. Form 15G 15H have not been subjected to verification by the ld. AO. Hence, in the interest of justice and fair play, we deem it fit and appropriate to remand this issue to the file of the ld. AO for examining the Form 15G 15H submitted by the assessee and decide the issue of disallowance of interest on unsecured loans afresh in accordance with law. The ld. AO is also directed to give a specific finding with regard to applicability of second proviso of Section 40(a)(ia) r.w.s. 201(1) of the Act while deciding the issue. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues:
1. Disallowance of interest made by the ld. AO.
2. Admission of additional evidences containing Form 15G & 15H.
3. Applicability of second proviso to Section 40(a)(ia) r.w.s. 201 for A.Y. 2011-12.

Issue 1: Disallowance of Interest:
The appeal pertains to the disallowance of interest by the ld. AO. The assessee argued that it borrowed funds from shareholders' relatives for working capital needs, on which interest was paid. The correct interest amount was contested to be ?2,34,000 instead of ?2,70,000 disallowed by the ld. AO. The assessee presented evidence of interest payments to five parties without TDS deduction, supported by Form Nos. 15H & 15G. The ld. CIT(A) rejected these additional evidences, citing sufficient opportunity before the ld. AO. The Tribunal found the forms should have been admitted as the assessee wasn't questioned on them earlier. The issue was remanded to the ld. AO for verifying the forms and deciding on the disallowance, emphasizing the applicability of the second proviso to Section 40(a)(ia) r.w.s. 201.

Issue 2: Admission of Additional Evidences:
The assessee submitted Form 15G & 15H as additional evidences before the ld. CIT(A) under Rule 46A, which were refused admission. The ld. CIT(A) contended that the assessee had ample opportunity before the ld. AO to present these forms. However, the Tribunal held that since no queries were raised by the ld. AO, the forms should have been accepted. The Tribunal emphasized that once these forms are submitted, the assessee cannot be penalized for TDS non-deduction. The ld. AO was directed to verify the forms and decide on the disallowance issue.

Issue 3: Applicability of Second Proviso to Section 40(a)(ia) r.w.s. 201:
The assessee argued that the second proviso to Section 40(a)(ia) r.w.s. 201 should be considered, stating that payees had paid taxes on the interest income received. The ld. CIT(A) rejected this argument, noting that the proviso was effective only from 01/07/2012 and not applicable for A.Y. 2011-12. The Tribunal directed the ld. AO to specifically address the applicability of this proviso while re-evaluating the disallowance issue. The assessee's appeal was allowed for statistical purposes.

In conclusion, the Tribunal ruled in favor of the assessee, remanding the issue of interest disallowance to the ld. AO for re-examination in light of the submitted Form 15G & 15H and the applicability of the second proviso to Section 40(a)(ia) r.w.s. 201 for A.Y. 2011-12.