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2021 (9) TMI 528 - AT - Income Tax


Issues Involved:
1. Disallowance of Interest due to Non-Deduction of TDS.
2. Inclusion of Interest Paid to NBFCs in their ITR.
3. Restriction of Disallowance to 30% as per FA 2014.
4. Verification of NBFCs' ITR.
5. Levy of Interest under sections 234A, 234B, and 234C.

Detailed Analysis:

1. Disallowance of Interest due to Non-Deduction of TDS:
The assessee firm paid interest of ?2,98,826/- to M/s. Barclays Investment & Loan (India) Ltd. and ?14,74,943/- to M/s. Future Capital, both NBFCs, without deducting TDS. The Assessing Officer (A.O.) invoked the provisions of Section 40(a)(ia) of the Income Tax Act, 1961, and disallowed the entire interest amount of ?17,73,769/-. The assessee argued that the interest was paid in full along with EMI, and thus, no TDS was deducted. The Tribunal noted that the second proviso to Section 40(a)(ia), inserted by the Finance Act, 2012, with retrospective effect, provides that if the payee has filed its return of income, included the interest in its total income, and paid the due tax, the disallowance under Section 40(a)(ia) would not apply.

2. Inclusion of Interest Paid to NBFCs in their ITR:
The assessee contended that the interest paid to the NBFCs was included in their respective returns of income, and they had paid the due taxes. The Tribunal highlighted that the second proviso to Section 40(a)(ia) is remedial and has retrospective effect, as established by various judicial precedents. Therefore, if the NBFCs had included the interest in their income and paid the taxes, the disallowance under Section 40(a)(ia) should not be made.

3. Restriction of Disallowance to 30% as per FA 2014:
The assessee argued that the disallowance should be restricted to 30% of the total payment as per the amendment made by the Finance Act, 2014, effective from 01/04/2015. The Tribunal acknowledged that the amendment aimed to reduce undue hardship and should be given retrospective effect. Therefore, even if the disallowance under Section 40(a)(ia) is warranted, it should be restricted to 30% of the amount of interest paid.

4. Verification of NBFCs' ITR:
The Tribunal directed the A.O. to verify whether the interest income received by the NBFCs had been included in their returns of income and offered to tax. The Tribunal admitted additional evidence submitted by the assessee, including a certificate from a Chartered Accountant confirming that the interest paid to one of the NBFCs, Capital First Limited, was included in its total taxable income. The Tribunal restored the matter to the A.O. for verification of the certificates and directed the assessee to submit the required documents for both NBFCs.

5. Levy of Interest under sections 234A, 234B, and 234C:
The Tribunal did not provide a detailed analysis on this issue, as the primary focus was on the disallowance under Section 40(a)(ia) and the related verifications.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the A.O. to verify the inclusion of the interest income in the NBFCs' returns and decide the matter accordingly. The Tribunal emphasized the retrospective effect of the second proviso to Section 40(a)(ia) and the restriction of disallowance to 30% as per the Finance Act, 2014. The A.O. was instructed to provide an appropriate opportunity of hearing to the assessee and decide the issue within a reasonable time frame.

 

 

 

 

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