2021 (8) TMI 1211 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Assessee in default under the first proviso to 201(1) - Assessee did not file Form 26A which is the certificate of auditor certifying that the payee has included the amount received from the assessee in his return of income filed for the relevant assessment year and paid taxes thereon - HELD THAT - Assessee filed before us certificate of a Chartered Accountant under the 1st proviso to sub-section 1 of section 201 of the Act certifying that M/s. Cholamandalam Investment and Finance Company Ltd., has filed the return of income for Assessment Year 2014-15 and has included the income received form the assessee in such return of income - in the light of the certificate of the Chartered Accountant filed by the assessee, the issue with regard to the disallowance under section 40(a)(ia) of the Act should be remanded to the AO for fresh consideration - Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues:
Non-deduction of tax at source on interest paid to a Non-Banking Finance Company, applicability of section 40(a)(ia) of the Income Tax Act, 1961, interpretation of the 2nd proviso to section 40(a)(ia), requirement of Form 26A and certificate of accountant under the 1st proviso to section 201(1), condonation of delay in filing appeal before the Tribunal.

Analysis:
The appeal before the Appellate Tribunal ITAT Bangalore concerned the non-deduction of tax at source by an individual engaged in the business of running vehicles on hire on interest paid to a Non-Banking Finance Company. The Assessing Officer (AO) added the interest amount to the total income of the assessee for non-deduction of tax at source under section 40(a)(ia) of the Act. The assessee argued that the 2nd proviso to section 40(a)(ia) exempted disallowance if the assessee was not treated as an assessee in default under the 1st proviso to section 201(1) of the Act. The 1st proviso required the payee to include the payment in their income, pay taxes, and provide a certificate from an accountant. The Tribunal noted that if the tax due was ultimately received by the exchequer, no disallowance should be made, citing the decision of the Supreme Court in a similar context.

The CIT(A) acknowledged the assessee's argument but refused to interfere as the required certificate was not submitted. The Tribunal, however, considered the delay in filing the appeal and condoned it, emphasizing that tax proceedings aim to ensure tax collection in accordance with the law. The Tribunal then directed a fresh consideration by the AO based on the certificate of a Chartered Accountant provided by the assessee regarding the inclusion of income in the payee's return. The AO was instructed to decide on the disallowance under section 40(a)(ia) after giving the assessee an opportunity to be heard. Consequently, the appeal of the assessee was treated as allowed for statistical purposes.

In conclusion, the Tribunal's decision highlighted the importance of complying with tax deduction provisions, the significance of providing necessary documentation, and the need for a fair opportunity for the assessee in tax proceedings. The judgment balanced the requirements of the law with the practical considerations of tax collection and procedural fairness.