2014 (6) TMI 400 - AT - Income Tax

Disallowance of interest expenditure Violation of Rule 46A of the Income tax Rules - Held that - There is violation of Rule 46A on the part of CIT(A) in not confronting the additional details furnished by the assessee to him revenue pleaded that this issue may be set aside to the file of the AO for considering the fresh consideration by duly considering the additional details that were furnished by the assessee before CIT(A) assessee did not object to the plea - thus, the matter is required to be remitted back to the AO for fresh consideration Decided in favour of Revenue. Disallowance made u/s 40(a)(ia) of the Act Non-deduction of TDS - Held that - Following Commissioner of Income Tax Versus M/s Vector Shipping Services (P) Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT - tax was deducted as TDS from the Salaries of the employees paid by M/s Mercator Lines Ltd and the circumstances in which such salaries were paid by M/s Mercator Lines Ltd for M/s Vector Shipping Services, the assessee were sufficiently explained - both the parties pleaded that the matter requires fresh adjudication, since the AO has made the addition without properly examining the applicability of the TDS provisions to the quantum of payment made to each of the parties thus, the matte is remitted back to the AO for fresh adjudication Decided in favour of Revenue.

Summary

Issues:
1. Disallowance of interest expenditure.
2. Disallowance made u/s 40(a)(ia) for non-deduction of tax at source.

Analysis:

1. Disallowance of Interest Expenditure:
The appeal pertains to the assessment year 2009-10, involving the disallowance of interest expenditure claimed by the assessee on unsecured loans borrowed, totaling Rs. 21,79,500. The assessing officer disallowed the entire claim, suspecting diversion of interest-bearing funds to partners through their current accounts due to heavy debit balances. In the appellate proceedings, additional details were submitted to refute the diversion assumption. However, the CIT(A) did not confront these details with the assessing officer, resulting in the revenue's contention of a Rule 46A violation. Consequently, the ITAT directed the matter back to the assessing officer for a fresh examination, considering all additional details and information provided by the assessee.

2. Disallowance u/s 40(a)(ia) for Non-Deduction of Tax at Source:
The second issue concerns disallowance under section 40(a)(ia) for failure to deduct tax at source on certain payments totaling Rs. 6,71,887. The CIT(A) upheld the disallowance related to the outstanding amount while deleting the balance based on a Special Bench decision. The revenue challenged this citing conflicting interpretations by different High Courts. The ITAT analyzed various decisions and settled on following the Mumbai bench's view, setting aside the CIT(A)'s order. The matter was remanded to the assessing officer for a fresh examination of the TDS provisions' applicability to the payments, ensuring the assessee's opportunity to provide necessary information.

In conclusion, both issues were remanded for fresh assessment, emphasizing proper examination by the assessing officer and adherence to legal provisions. The ITAT's decision favored the revenue for statistical purposes, emphasizing due process and comprehensive review in both matters.