2021 (12) TMI 642 - AT - Income Tax

Rectification of mistake u/s 154 - Addition u/s 36(1)(iii) towards interest on loans to subsidiary - HELD THAT - We note that there were transfer of funds from both sides i.e. from the assessee to the subsidiary and from the subsidiary to the assessee however at the financial year end, net payable to the assessee was ₹ 1,36,23,329/-.We have also examined the overall calculation of interest and find that if the cross transactions are taken into consideration for the whole year, then instead of interest receivable, there comes out to be interest payable by the assessee. So certainly the rectification application moved by the assessee was maintainable which was summarily rejected by the AO and so by the ld CIT(A). Therefore considering the facts of the case we are unable to agree to the conclusion drawn by the ld CIT(A) on this issue. Accordingly we set aside the order of ld CIT(A) direct the AO to delete the disallowance of Interest - The appeal of the assessee is allowed. Rectification application qua allowing the credit of TDS - Assessee has returned the income received from M/S M/S Tamilnadu Petroproducts Ltd on which TDS of ₹ 10,04,793/- was deducted and similarly income received from Karvy Stock Broking Ltd as also returned on which TDS of ₹ 55,150/- was deducted by Karvy Stock Broking Ltd. However the deductors deposited the TDS in the nest year and thus it was appearing in the form 26AS of AY 2012-13. In our opinion the assessee should be allowed the benefit of TDS in the current year in which income is offered to tax irrespective of the year in which it was deposited by the deductor. Even this treatment is in accordance with the provisions of section 199 of the Act. Accordingly the we direct the AO to allow the credit of TDS of ₹ 10,59,943/- in the current year. Appeal of assessee allowed.

Summary

Issues:
1. Addition of interest on loans to subsidiary under section 36(1)(iii) of the Act.
2. Rectification of mistake under section 154 of the Act regarding interest calculation.
3. Allowance of credit for TDS deducted by third parties.

Issue 1:
The appeal was against the addition of interest on loans to a subsidiary under section 36(1)(iii) of the Act. The Assessing Officer (AO) disallowed a portion of the interest paid by the assessee to the subsidiary, leading to an appeal. The AO calculated the interest receivable from the subsidiary based on a fixed interest rate, resulting in an apparent mistake in the order. The assessee contended that the overall transactions showed interest payable rather than receivable. The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that no rectification was needed under section 154. However, the ITAT Mumbai disagreed, noting that the rectification application was valid. The ITAT directed the AO to delete the disallowance of interest, allowing the assessee's appeal.

Issue 2:
The second issue involved the rectification application regarding the allowance of TDS credit deducted by third parties. The assessee sought credit for TDS deducted by two entities, which was deposited in the subsequent year but reflected in the form 26AS for a different assessment year. The AO rejected the rectification application based on the form 26AS details. The ITAT Mumbai held that the assessee should be allowed the benefit of TDS in the year the income was offered for tax, irrespective of the deposit year by the deductor. This decision aligned with the provisions of section 199 of the Act. Consequently, the ITAT directed the AO to allow the credit for the TDS deducted by third parties in the current year, in which the income was declared.

Conclusion:
The ITAT Mumbai allowed the appeal of the assessee, directing the AO to delete the disallowance of interest on loans to the subsidiary and to permit the credit for TDS deducted by third parties in the current assessment year. The judgment highlighted the importance of correctly calculating interest on transactions and allowing TDS credit based on the year of income declaration, ensuring compliance with the relevant provisions of the Income Tax Act.