2018 (10) TMI 295 - AT - Income Tax

TDS u/s 194A - interest paid on unsecured loans raised from Bajaj Auto Finance Company - Non deduction of tds - addition u/s 40(a)(ia) - certificates filed by the assessee are not in Form no.26A - whether in view of 2nd proviso to Section 201(1) read with 1st proviso to Section 201(1) the conditions mentioned therein have been met or not? - Held that - Certificate in Form 26A may not have been furnished but once such a declaration has been given, then such an artificial disallowance of Section 40(ia) should not be made. Section 40(ia) is meant for collection of tax at source on behalf of payee and if such taxes has neither been deducted by the payer nor shown by the payee then there is loss to the exchequer which consequently entails disallowance of expenditure claimed by the assessee. Such a provision cannot mean to call for disallowance when payer has paid the taxes on such an income as this proviso was brought to remove such hardship to the payer. Now such a beneficial amendment has been held to be retrospective by the Courts. Therefore, when payee has confirmed that it has accounted such an interest payment as its income, then no disallowance u/s. 40(ia) should be made. Accordingly, the addition made by the Assessing Officer is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
Sole issue: Disallowance under section 40(a)(ia) for interest paid on unsecured loans raised from Bajaj Auto Finance Company.

Analysis:
The appeals were filed against the order passed by the CIT (Appeals) for the quantum of assessment under section 143(3) for the Assessment Year 2012-13. The Assessing Officer disallowed the interest paid on unsecured loans from Bajaj Auto Finance Company under section 40(a)(ia) for non-deduction of tax at source under section 194A. The assessee submitted additional evidence, including a certificate from Bajaj Finance Company, confirming receipt of interest and inclusion in their income for the relevant year. The CIT (Appeals) admitted the additional evidence but rejected the contention due to the certificates not being in Form 26A. The main issue was whether the conditions under the provisos to Section 201(1) were met. The Tribunal observed that the intention of the Legislature was to ease hardships on the assessee for genuine expenditures due to non-deduction of TDS. Referring to case law, the Tribunal held that if the payee acknowledged the interest as income and paid taxes, disallowance under section 40(a)(ia) should not apply. The Tribunal concluded that since the payee confirmed accounting the interest as income, the disallowance by the Assessing Officer was unwarranted, and thus deleted the addition.

The Tribunal noted that the CIT (Appeals) did not consider the issue comprehensively and focused on procedural aspects. The Tribunal highlighted the importance of the payee acknowledging the interest as income and paying taxes to prevent disallowance under section 40(a)(ia). Referring to relevant case law, the Tribunal emphasized that the provision was intended to ensure tax collection at source and should not lead to disallowance when the payee accounted for the income. The Tribunal concluded that the confirmation provided by the payee regarding the interest income being accounted for should override the need for Form 26A, and hence, the disallowance was unjustified. Consequently, the Tribunal allowed both appeals of the assessee, deleting the addition made by the Assessing Officer.

In summary, the Tribunal's decision focused on the interpretation of section 40(a)(ia) regarding the disallowance of interest paid on unsecured loans. The Tribunal emphasized the importance of the payee acknowledging the interest as income and paying taxes to prevent disallowance. By considering the legislative intent and relevant case law, the Tribunal concluded that the disallowance by the Assessing Officer was unwarranted in this case, leading to the deletion of the addition in favor of the assessee.