2022 (5) TMI 274 - AT - Income Tax

Disallowance u/s. 40(a)(ia) - Interest Paid to Non-banking Finance Company (NBFCs) without deduction of TDS - HELD THAT - Assessee had availed loans from the aforesaid three NBFCs. Further, the learned CIT(A) also refused to grant any relief to the assessee on this issue even when the assessee had furnished the certificate in Form no.26A, in respect of Tata Capital Financial Services Ltd., and Reliance Capital Ltd. The second proviso to section 40(a)(ia) of the Act inserted by Finance Act, 2012, w.e.f. 01.04.2013, provides that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII B on any such sum but is not deemed to be an assessee in default under the first proviso to section 201(1) of the Act, then, for the purpose of this sub clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee. Assessee though has taken the plea on the basis of second proviso to section 40(i)(ia) of the Act and has also furnished certificates in Form no.26A in respect of two NBFCs, however, no relief was granted by the learned CIT(A) and disallowance made by the Assessing Officer was upheld. Now in the present appeal, the assessee by way of additional evidences has produced copies of Form no.26A in respect of all the three NBFCs in support of its aforesaid plea based on second proviso to section 40(a)(ia) of the Act. Additional evidences as filed by the assessee are admitted and the Assessing Officer is directed to verify the details as submitted before us. We further direct that if it is found that the NBFCs have taken into account the sum received as interest from the assessee while computing its taxable income in the return of income filed, then, to that extent, relief be granted to the assessee as per second proviso to section 40(a)(ia) of the Act. With above directions, this issue is restored to the file of the Assessing Officer for de novo adjudication, and the impugned order passed by the learned CIT(A) is set aside. Appeal by the assessee is allowed for statistical purpose.

Summary

Issues:
1. Delay in filing the appeal and condonation of delay.
2. Disallowance under section 40(a)(ia) of the Income Tax Act on interest paid to Non-Banking Finance Companies (NBFCs).

Issue 1: Delay in filing the appeal and condonation of delay:
The assessee filed an appeal against the order dated 25.02.2020, passed by the Commissioner of Income Tax (Appeals) for the assessment year 2013-14. The appeal was delayed by 251 days. The assessee sought condonation of delay due to the pandemic situation in Mumbai, which affected the regular operation of the assessee's office. The Supreme Court's order extended the limitation for filing appeals, and based on this, the delay was condoned. The Tribunal heard the appeal on merits as there was no delay in filing it.

Issue 2: Disallowance under section 40(a)(ia) on interest paid to NBFCs:
The primary issue in this appeal was the disallowance under section 40(a)(ia) of the Act concerning interest paid to Non-Banking Finance Companies (NBFCs). The assessee, engaged in the sales and services of automobiles and spare parts, e-filed its return of income for the relevant year but failed to deduct TDS on interest payments to NBFCs. The Assessing Officer disallowed the interest amount under section 40(a)(ia) for non-deduction of TDS. In the appeal before the CIT(A), the assessee submitted certificates issued by the Accountant, but the disallowance was upheld.

During the appeal hearing, the assessee sought admission of additional evidence, including Form no.26A certificates, which indicated that the NBFCs had considered the interest received while computing taxable income. The Tribunal admitted the additional evidence and directed the Assessing Officer to verify the details. If it is confirmed that the NBFCs included the interest in their income tax returns, relief should be granted to the assessee as per the second proviso to section 40(a)(ia). Consequently, the appeal was allowed for statistical purposes, and the order of the CIT(A) was set aside.

In conclusion, the Tribunal addressed both the delay in filing the appeal and the substantive issue of disallowance under section 40(a)(ia) of the Income Tax Act. The decision to admit additional evidence and remit the issue to the Assessing Officer for further verification demonstrates a fair consideration of the facts and legal provisions involved in the case.