2018 (9) TMI 146 - AT - Income Tax

Addition u/s 40(a)(ia) with regard to interest paid on loan taken from three parties - applicability of second proviso to section 40(a)(ia) read with first proviso to section 201 - whether assessee comes within the purview of beneficiary provisions? - Held that - Decision of the Hon ble Delhi High Court in the case of CIT vs. Ansal Land Mark township (P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT and Pr. CIT vs. Manoj Kumar Singh 2018 (4) TMI 136 - ALLAHABAD HIGH COURT are absolutely clear that in the realm of welfare legislation, which is main objective of the Income Tax Act beneficial provisions, which are beneficial to the assessee, shall have retrospective effect and these provisions shall have applicability from 2005 onwards. Therefore, in assessment year 2012-13 case of the assessee is covered within these provisions and it is deemed that assessee has deducted and paid tax on the amount paid as interest, since all the payees have paid taxes on such income. If there is tax effect and if the assessee has not complied with, at least the person to whom payment has been made should have paid the tax so that Revenue is protected from incurring any loss. Reading the second proviso to section 40(a)(ia) of the Act and first proviso to section 201 of the Act, it put forth certain conditions where the payee in his return of income has shown amount received from assessee and has paid tax thereon which is also certified by qualified Chartered Accountant, that signifies that there is no loss to the Revenue and in such circumstances second proviso to section 40(a)(ia) automatically comes into play and the assessee will be deemed to be an assessee who has deducted and paid tax. With these observations, we are of the considered view that additions made in the hands of the assessee is arbitrary, harsh, illegal and perverse - Decided in favour of assessee

Summary

Issues:
Confirmation of addition under section 40(a)(ia) of the Act regarding interest paid on loans taken from three parties.

Analysis:
The appeal arose from the order of the ld. CIT(A)-I, Lucknow confirming the addition of ?5,55,294 made by the Ld. A.O. under section 40(a)(ia) of the I.T. Act, 1961. The crux of the grievance was against the confirmation of this addition related to interest paid on loans taken from three parties. The Assessing Officer added the amount to the total income of the assessee under section 40(a)(ia) due to non-deduction of tax at source on the interest paid. The ld. CIT(A) upheld this decision, stating that the assessee was liable to deduct tax at source, which was not done, leading to the confirmation of the addition.

During the hearing, the assessee argued that the disallowance under section 40(a)(ia) was not applicable as they fulfilled the conditions specified in the first proviso to section 201 of the Act. The assessee provided documentary evidence, including ITRs of the payees and form No.26A, to support their case. They also cited relevant judicial pronouncements to demonstrate that the provisions applied retrospectively to their assessment year. The second proviso to section 40(a)(ia) provides relief to the assessee if conditions of the first proviso to section 201 are met, indicating that tax has been deducted and paid by the payee. The documents submitted by the assessee showed that the payees had included the interest amount in their income, paid the tax due, and provided the necessary certifications.

The Tribunal noted that the authorities had not considered the applicability of the second proviso to section 40(a)(ia) and first proviso to section 201 of the Act. By fulfilling the requirements of the first proviso, the assessee automatically fell under the second proviso, relieving them from the rigours of section 40(a)(ia). Citing relevant case law, the Tribunal concluded that the legislative intent was to prevent revenue loss, and if the payees had paid the tax on the income received, the assessee should be deemed to have deducted and paid tax. Therefore, the additions made in the hands of the assessee were deemed arbitrary, harsh, illegal, and perverse. Consequently, the Tribunal set aside the order of the ld. CIT(A) and allowed the appeal of the assessee.