2024 (5) TMI 731 - AT - Income Tax

Disallowance u/s 40(a)(ia) - TDS was not deducted on the interest paid - assessee had not filed the Form 26A before the Director General of Income Tax (Systems) - CIT(A) deleted the disallowance, observing that since the recipients of the interest had included the same in their total income and had paid taxes thereon, the assessee could not be held as an assessee in default - HELD THAT - Apropos the question of non-furnishing of Form 26A before the Director General of Income Tax (Systems), we find that the ld. CIT(A) has correctly placed reliance on the decision of Jai Mata Di 2018 (5) TMI 1481 - ITAT CUTTACK wherein as held that for non-filing of Form 26A before the Director General of Income Tax (Systems), the assessee can be visited with penalty as provided under the Income Tax Act, but no disallowance of the expenditure can be made u/s 40(a)(ia) of the Act. Thus we hold that the assessee cannot be put to disallowance u/s 40(a)(ia) of the Act, holding it to be a person in default, particularly when the AO has not called into question the contents of the Forms 26A. For the mere reason of non-filing of Form 26A before the Director General of Income Tax (Systems) also, where the payee has filed its return of income disclosing the payment received by it and has also paid tax thereon. Accordingly, finding no merit therein, ground Nos. 1 2 are rejected, upholding the order passed by the ld. CIT(A) on this issue. Disallowance u/s 14A r.w.r 8D - Disallowance was suo-moto by the assessee - CIT(A) agreed with the assessee's contention that the disallowance u/s 14A of the Act cannot exceed the amount of exempt income earned by the assessee - HELD THAT - As decided in M/s SEL Manufacturing Co. Ltd 2019 (2) TMI 2057 - ITAT CHANDIGARH disallowance u/s 14A cannot exceed the total exempt income earned by the assessee during the year. No contrary decision has been brought to our notice. We direct that the disallowance u/s 14A of the Act should be restricted which is the amount of dividend income earned by the assessee during the year under consideration. Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing Cross Objections.
2. Disallowance u/s 40(a)(ia) for non-filing of Form 26A.
3. Disallowance u/s 14A read with Rule 8D.

Summary:

Condonation of Delay:

The Cross Objection was time-barred by 113 days. The delay was due to negligence of the office staff who forgot to hand over the documents to the concerned department. The Tribunal found sufficient cause for the delay and condoned it.

Disallowance u/s 40(a)(ia):

The AO disallowed Rs. 1,86,96,356/- u/s 40(a)(ia) because the assessee did not file Form 26A before the Director General of Income Tax (Systems). The CIT(A) deleted the disallowance, noting that the recipients had included the interest in their income and paid taxes. The Tribunal upheld this decision, citing that non-filing of Form 26A can result in a penalty but not disallowance of expenditure. The Tribunal relied on precedents from the Cuttack Bench and the Agra Bench, as well as the Delhi High Court's decision in "CIT-1 Vs Ansal Land Mark Township (P) Ltd." and the Punjab & Haryana High Court's decision in "Pr. CIT-2, Chandigarh Vs Shri Shivpal Singh Chaudhary".

Disallowance u/s 14A read with Rule 8D:

The AO made an additional disallowance of Rs. 2,09,78,997/- u/s 14A, over and above the assessee's suo-moto disallowance of Rs. 48,48,048/-. The CIT(A) restricted the disallowance to Rs. 48,48,048/-. The Tribunal held that disallowance u/s 14A cannot exceed the exempt income earned, which was Rs. 7,12,442/-. The Tribunal cited decisions from the Madras High Court in "M/s Marg Ltd. Vs CIT, Chennai", and other supporting judgments, including those from ITAT Bangalore and ITAT Delhi.

Final Decision:

The Department's appeal was partly allowed, and the Cross Objection filed by the assessee was allowed. The disallowance u/s 14A was restricted to Rs. 7,12,442/-.

Order pronounced on 12th April, 2024.