2017 (12) TMI 749 - AT - Income Tax

Disallowance under section 40(a)(ia) - proof of recipient as offered the finance charges as income - assessee in default - Held that - Commissioner of Income-tax in the impugned revisional order has recorded a finding of fact that neither the certificate from Chartered Accountant nor any other documentary evidence indicating the fact that the recipient of finance charges has offered it as income has not been produced by the assessee either before the Assessing Officer or before him. In view of the aforesaid factual position, while, we hold that the assessee cannot be treated as assessee in default in terms of second proviso to section 40(a)(ia) of the Act in case the recipient has offered the payment received as income, however, the onus is on the assessee to demonstrate with supporting documentary evidence as required under the first proviso to section 201(1) of the Act that the recipient has offered the finance charges as income in the relevant assessment year. Therefore, we direct the Assessing Officer to verify this aspect and in case it is found that the recipient has offered the finance charges of ₹ 7,91,49,028 as income in the return of income filed for the impugned assessment year no disallowance under section 40(a)(ia) of the Act is required to be made. The impugned order is modified to this extent only.

Summary

Issues:
- Disallowance under section 40(a)(ia) of the Income-tax Act, 1961 for non-deduction of tax at source on interest payment
- Revision of assessment order under section 263 of the Act due to non-disallowance of finance charges under section 40(a)(ia)

Analysis:
1. The appeal was against an order passed by the Commissioner (Appeals) for the assessment year 2012-13. The Assessing Officer disallowed interest payment of ?1,68,44,164 under section 40(a)(ia) for non-deduction of tax at source. The Commissioner (Appeals) deleted the disallowance based on the recipients offering the payment as income, citing provisos to section 201(1) and section 40(a)(ia). The Revenue appealed to the Tribunal, leading to the Commissioner invoking section 263 due to non-disallowance of finance charges of ?7,91,49,028 under section 40(a)(ia). The Commissioner found the assessment order erroneous and prejudicial to Revenue's interests for not applying section 40(a)(ia) to finance charges.

2. The Authorized Representative argued that the recipient offering finance charges as income exempts the assessee from being treated as an assessee in default under section 201(1) and section 40(a)(ia). The Representative cited case laws supporting retrospective effect of the second proviso to section 40(a)(ia). The Departmental Representative contended that factual verification is necessary as the Assessing Officer did not inquire about the finance charges during assessment, making the order erroneous.

3. The Tribunal considered the arguments and case laws, agreeing that the assessee is not in default under section 40(a)(ia) if the recipient declared the finance charges as income. However, it emphasized the need for the assessee to provide evidence, like a certificate from a Chartered Accountant, to prove the recipient's declaration. The Tribunal directed the Assessing Officer to verify if the recipient declared the finance charges as income; if so, no disallowance under section 40(a)(ia) is required. The Tribunal modified the order accordingly, partially allowing the appeal for statistical purposes.

This detailed analysis highlights the issues, arguments, legal provisions, case laws, and the Tribunal's decision, providing a comprehensive understanding of the judgment.