2021 (2) TMI 1080 - AT - Income Tax

Disallowance u/s. 40(a)(ia) - interest paid by the assessee to Indiabulls - HELD THAT - We find that Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT has held that the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and should be given retrospective effect from 1st April 2005. As long as the respective payee/resident has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, then no disallowance can be made u/s. 40(a)(ia). We find that the assessee had made the submissions to the effect that the interest paid by the assessee to Indiabulls and Reliance have been included by the respective payees in their respective income, but there is no finding of the lower authorities on the aforesaid contention. We are therefore of the view that the issue needs re-examination by the AO in the light of the aforesaid decision rendered by Hon'ble Delhi High Court. We therefore, restore the issue back to the file of the AO to decide the issue afresh .

Summary

Issues:
Challenge to reassessment proceedings
Disallowance of interest expense under section 40(a)(ia) of the Act

Reassessment Proceedings:
The appeal challenged the reassessment proceedings under section 147/143(3) of the Income-tax Act, 1961, arguing that the order was bad in law and void-ab-initio. The appellant contended that the reassessment was based on conjectures and surmises, emphasizing that the case had already been assessed under section 143(3) and could not be reopened due to a change in opinion. However, the appellant failed to appear during the hearing, leading to an ex parte disposal of the appeal. The Tribunal found no grounds to interfere with the Commissioner of Income Tax (Appeals) decision, dismissing the appellant's challenge to the reassessment proceedings.

Disallowance of Interest Expense:
The appellant contested the disallowance of ?3,35,921 under section 40(a)(ia) of the Act concerning interest payments to Indiabulls and Reliance without deducting TDS. The Assessing Officer disallowed the amount despite the appellant's claim that the payees had included the interest in their income and paid the taxes. The Commissioner of Income Tax (Appeals) upheld the AO's decision. However, the Tribunal referred to a Delhi High Court case, CIT vs. Ansal Land Mark Township (P) Ltd., stating that no disallowance could be made under section 40(a)(ia) if the payee had disclosed the payment in their income and paid the tax. As the lower authorities did not address this contention, the Tribunal remanded the issue to the AO for fresh consideration in light of the Delhi High Court decision. The Tribunal allowed this ground of the appellant while dismissing other challenges to the reassessment proceedings.

In conclusion, the Tribunal partly allowed the appellant's appeal, remanding the disallowance of interest expense for reconsideration and dismissing the challenge to the reassessment proceedings.