2024 (12) TMI 429 - AT - Income Tax

Addition u/s 40(a)(ia) - interest paid on loans - assessee did not deduct TDS - HELD THAT - An identical issue came up before the Tribunal in the case of Smt. Kanta Yadav . 2017 (5) TMI 1565 - ITAT NEW DELHI wherein the Tribunal restricted the disallowance u/s 40(a)(ia) to 30%. Similar view has been taken in the case of Priyamda Media Infotainment Private Limited vs. DCIT 2023 (12) TMI 882 - ITAT DELHI . Facts being identical respectfully following above, AO is directed to restrict the disallowance u/s 40(a)(ia) of the Act in respect of interest on loans to 30% of interest.

Summary

Issues:
- Disallowance of interest paid on loans under section 40(a)(ia) of the Income Tax Act, 1961
- Applicability of the amendment to Section 40(a)(ia) vide Finance Act 2014
- Verification of income tax payments by finance companies before disallowance
- Initiation of penalty proceedings under section 271(1)(c) of the Act

Analysis:
The appeal was filed against the order of the Ld. Addl./JCIT(Appeals)-9, Mumbai for the AY 2012-13, which upheld the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act concerning interest paid on loans. The assessee contended that the impugned order was arbitrary and bad in law, seeking its quashing. The primary issue was the disallowance of interest on loans made to finance companies, amounting to Rs. 5,08,969, due to non-deduction of TDS. The assessee argued that the disallowance was erroneous and should be restricted to 30% as per the Finance Act 2014 amendment to Section 40(a)(ia), supported by legal precedent.

The assessee's counsel relied on various judgments, including those of the Delhi Tribunal and Jaipur Bench, which restricted disallowance under section 40(a)(ia) to 30% of the total addition. The Tribunal observed that the issue was squarely covered by previous decisions and directed the Assessing Officer to restrict the disallowance to 30% of the total addition made on account of TDS deduction under section 40(a)(ia). The Tribunal emphasized the mandatory nature of the provisions and the need to consider the Finance Act 2014 amendment in determining the disallowance percentage.

Regarding the initiation of penalty proceedings under section 271(1)(c) of the Act, the Tribunal noted that such action by the Assessing Officer was unwarranted due to the non-satisfaction of mandatory statutory ingredients and the legal unsustainability of the impugned addition. The Tribunal, in line with previous decisions, allowed the assessee's appeal, directing the Assessing Officer to restrict the disallowance to 30% of the interest amount on loans. The decision was based on the consistent interpretation of the amended provisions of section 40(a)(ia) by various benches, ensuring uniformity in treatment across similar cases.

In conclusion, the Tribunal's judgment favored the assessee by restricting the disallowance under section 40(a)(ia) to 30% of the total addition, in line with previous decisions and the Finance Act 2014 amendment. The Tribunal emphasized the importance of following legal precedent and ensuring equitable application of tax provisions in similar cases.