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2021 (8) TMI 1206 - AT - Income TaxTDS u/s 194A - disallowance of interest paid to non-banking finance companies - Non deduction of TDS - AR submitted that the recipient of the payment has already been paid the tax and as such the same cannot be disallowed in the hands of the assessee - HELD THAT - In view of the above order of the Tribunal 2019 (12) TMI 1537 - ITAT BANGALORE we inclined to remit the issue to the files of the A.O. to allow the claim to the extent that the recipient of the payment paid the tax to the department. Accordingly, this issue is remitted to the files of the A.O. for verification of the issue and deciding the same in accordance with law. Disallowance u/s. 14A - AR submitted that the assessee earned dividend income which is exempt from Income-tax and the amount used for investments yielding exempt income, was made from assessee's own funds - HELD THAT - It is the claim of the assessee that the assessee has earned dividend income which is exempt from income tax and the funds used for investment is from its own funds. However, the assessee could not demonstrate the availability of its own funds for investment in exempt income. We, therefore, remit this issue to the files of the A.O. to examine the issue afresh and also direct the assessee to prove the availability of own funds for making investment in such exempted income yielding assets. Disallowance of interest on advances made to Naveen Hotels towards purchase of land - Contention of the learned AR is that the assessee is having own funds to make investments to its sister concern - HELD THAT - As the assessee has to prove that it is having sufficient interest free own funds to make investment to its sister concern - Case of Reliance Industries Limited 2019 (1) TMI 757 - SUPREME COURT correctly relied - assessee has also to prove that it has not used any borrowed funds. With these observations, we remit the matter to the files of the A.O. to examine whether the assessee is having availability of interest free funds to make investment in sister concern. This ground is partly allowed.
Issues involved:
1. Disallowance of interest paid to non-banking finance companies under Section 40(a)(ia) of the Act. 2. Disallowance under Section 14A of the Act related to interest expenses and investments yielding exempt income. 3. Disallowance of interest on advances made to a sister concern for land purchase. 4. Levy of interest under Sections 234B and 234D of the Act. Issue 1: Disallowance of interest paid to non-banking finance companies under Section 40(a)(ia) of the Act: The assessee did not deduct tax at source on payments made to non-banking finance companies. The AR argued that the recipients had already paid the tax. The Tribunal referred to a similar case and remitted the issue to the AO for verification, allowing the claim if the recipient had paid the tax. Issue 2: Disallowance under Section 14A of the Act related to interest expenses and investments yielding exempt income: The AR contended that since the dividend income was exempt and investments were made from own funds, disallowance under Section 14A was not justified. However, the Tribunal remitted the issue to the AO for further examination and proof of the availability of own funds for such investments. Issue 3: Disallowance of interest on advances made to a sister concern for land purchase: The AO disallowed interest claimed on advances made to a sister concern for land purchase. The AR argued that the assessee had own funds for such investments, citing a Supreme Court judgment. The Tribunal agreed but required the assessee to prove the availability of interest-free own funds and no use of borrowed funds, remitting the matter to the AO for verification. Issue 4: Levy of interest under Sections 234B and 234D of the Act: The appeal was partly allowed for statistical purposes, with the Tribunal noting that the levy of interest under Sections 234B and 234D was consequential and mandatory in nature. In conclusion, the Tribunal addressed various issues related to disallowances and levies under the Income Tax Act, remitting some matters to the Assessing Officer for further verification and examination. The decision provided insights into the requirements for proving availability of own funds, the necessity of tax deductions at source, and the consequential nature of interest levies under the Act.
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