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2017 (1) TMI 1035 - AT - Income TaxDisallowance u/s.40(a)(ia) - retropectivity - Held that - High Court in the case of CIT Vs. Ansal Land Mark Township (I) Pvt.Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005. Once it is held that the Assessee is entitled to the benefit of 2nd proviso to Sec.40(a)(ia) of the Act, the CIT(A) ought to have directed the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act ought to have been sustained by the CIT(A). CIT(A) ought to have also directed the AO that in case the recipient parties are not cooperating in providing details, the AO should call for the information u/s. 133(6) or 131 of the Act, for verification of the same. In this regard we also find that the Assessee has furnished all the details of assessment particulars of the recipients of payment from the Assessee. The AO therefore should not have any difficulty in making the required verification. We therefore set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the disallowance u/s.40(a)(ia) of the Act and remand the issue to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not cooperating in providing details, the AO should be directed to call for the information u/s. 133(6) or 131 of the Act, for verification of the same. - Decided in favour of assessee for statistical purpose
Issues Involved:
1. Disallowance of interest expenditure under Section 40(a)(ia) due to non-deduction of TDS. 2. Validity of Form No.15G submitted after the financial year. 3. Verification of tax payment by recipients of interest income. Issue-wise Detailed Analysis: 1. Disallowance of Interest Expenditure under Section 40(a)(ia) Due to Non-Deduction of TDS: The Assessee, engaged in the business of trading in plastic, paid interest on unsecured loans amounting to ?4,87,418/-. The Assessing Officer (AO) disallowed this expenditure under Section 40(a)(ia) of the Income Tax Act, 1961, on the ground that the Assessee did not deduct tax at source as required by Section 194A. The AO held that since Form No.15G was obtained by the Assessee after the close of the financial year, the Assessee could not rely on it for non-deduction of TDS. The CIT(A) confirmed this disallowance, stating that the Assessee failed to prove timely submission of Form No.15G to the department. 2. Validity of Form No.15G Submitted After the Financial Year: The Tribunal examined Section 197A, which allows non-deduction of tax if the recipient furnishes a declaration in Form No.15G. The Tribunal noted that the section does not specify the time at which such a declaration must be given. It concluded that the rule-making authority cannot impose a requirement not contemplated by the Act. Therefore, the rejection of Form No.15G by the AO for being submitted after the financial year cannot be sustained. Consequently, there was no default under Section 194A, and no disallowance under Section 40(a)(ia) was warranted. 3. Verification of Tax Payment by Recipients of Interest Income: The Tribunal referenced the ITAT Kolkata decision in the case of Ramakrishna Vedanta Math, which held that if the Assessee provides details of recipients, the AO should verify whether the recipients have paid taxes on the income. The Tribunal also cited the Delhi High Court's judgment in CIT Vs. Ansal Land Mark Township, which held that the second proviso to Section 40(a)(ia) is retrospective and applies from 1.4.2005. The Tribunal directed the AO to verify whether the recipients included the interest income in their returns and paid taxes. If verified, no disallowance under Section 40(a)(ia) should be made. If recipients do not cooperate, the AO should use powers under Sections 133(6) or 131 to obtain information. Conclusion: The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO for verification. The Assessee's appeal was allowed for statistical purposes, and the stay application was dismissed as infructuous due to the decision on the appeal. The Tribunal emphasized that the AO must verify the recipients' tax payments before invoking disallowance under Section 40(a)(ia). Order Pronounced: The order was pronounced in the Court on 02.09.2016.
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