2022 (12) TMI 66 - AT - Income Tax

TDS u/s 194A - Addition u/s 40(a)(ia) - interest on loan borrowed - Non deduction of TDS - admission of the aforesaid additional evidences - HELD THAT - Failure on the part of the CIT(A) to communicate this (erroneous) requirement, if in her opinion this was a necessary requirement, to the appellant assessee, and, to then instead refuse the admission of additional evidences; was unjust, unfair and harsh. We order the admission of the aforesaid additional evidences in the nature of certificates issued by the learned Chartered Accountants under Rule 201(1) of IT Act, which were filed by the assessee in the course of appellate proceedings in the office of the CIT(A). We restore the issue regarding allowability of interest expenses amounting to rupees aforesaid total amount to the file of the AO with the direction to pass denovo order on the specific issue of allowability of aforesaid amount after taking due cognizance of the aforesaid additional evidences and after providing reasonable opportunity to the assessee. We specifically clarify that the AO will be at liberty to carry out due verification of the aforesaid additional evidences; and further, to examine the purpose of the interest payment to M/s Bajaj Finance Ltd. having regard to the assessee s business/profession; before finalizing fresh order, for coming to a conclusion about its allowability. All the grounds of appeal are treated as disposed of in accordance with aforesaid directions. For statistical purposes this appeal is partly allowed.

Summary

Issues Involved:
1. Legality and validity of the order passed by the Commissioner of Income Tax (Appeals).
2. Disallowance of interest paid to M/s Reliance Capital Ltd. and M/s Bajaj Finance Ltd. due to non-deduction of TDS.
3. Admission of additional evidence under Rule 46A of Income Tax Rules.
4. Verification of the business purpose of the loan from Bajaj Finance Ltd.

Detailed Analysis:

1. Legality and Validity of the Order by CIT(A):
The appellant argued that the order passed by the Commissioner of Income Tax (Appeals)-38 was arbitrary, perverse, bad in law, and invalid. The primary contention was that the CIT(A) presumed incorrect figures for disallowance and ignored the rectification order under Section 154 of the Income Tax Act, 1961.

2. Disallowance of Interest Paid to M/s Reliance Capital Ltd. and M/s Bajaj Finance Ltd.:
The Assessing Officer disallowed interest payments totaling Rs.1,41,84,866/- under Section 40(a)(ia) for non-deduction of TDS under Section 194A. This included Rs.74,88,616/- paid to M/s Reliance Capital Ltd. and Rs.66,96,250/- paid to M/s Bajaj Finance Ltd. The appellant contended that certificates under the first proviso to Section 201(1) of the IT Act were provided, confirming that the interest amounts were offered for tax by the recipients.

3. Admission of Additional Evidence under Rule 46A:
The appellant could not submit the Chartered Accountant's certificates during the assessment proceedings due to time constraints and the non-resident status of the appellant. The CIT(A) refused to admit these additional evidences on the ground that no separate application under Rule 46A was made. The Tribunal held that the CIT(A) erred in refusing to admit the additional evidence merely because a separate application was not filed. The Tribunal emphasized that Rule 46A does not mandate a separate application for the admission of additional evidence.

4. Verification of Business Purpose of the Loan from Bajaj Finance Ltd.:
The CIT(A) observed that the appellant could not substantiate that the loan from Bajaj Finance Ltd. was for business purposes. The Tribunal directed the Assessing Officer to examine this aspect before finalizing the fresh order.

Tribunal's Direction:
The Tribunal ordered the admission of the additional evidence (CA certificates under Section 201(1)) and restored the issue of allowability of interest expenses totaling Rs.1,41,84,866/- to the Assessing Officer. The Assessing Officer was directed to pass a fresh order after considering the additional evidence and verifying the business purpose of the interest payment to Bajaj Finance Ltd.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal directing a fresh examination of the issues by the Assessing Officer, including the admission of additional evidence and verification of the business purpose of the loan. The order was pronounced on 28/11/2022.