2022 (2) TMI 332 - AT - Income Tax

Disallowance u/s 40(a)(ia) - AO observed that a sum was paid by the assessee to non-banking financial companies without deduction of tax at source - Demand u/s 201(1) - HELD THAT - Assessee paid ₹ 4.12 crore as interest without deduction of tax at source. Though certificates from some of the payees in non-prescribed form were furnished, but the assessee did not furnish the relevant certificate in the prescribed form from all the payees so as to qualify for the benefit conferred by the second proviso to section 40(ia). Despite that, the ld. CIT(A) deleted the disallowance by taking into account the certificates received from two or three parties confirming that the interest was offered to tax. Not only the certificates from all the payees were not furnished but such certificates were also not in the prescribed form or issued by a Chartered Accountant in terms of the first proviso to section 201(1). This being a case of violation of a procedural provision, we are of the considered opinion that it would be in the fitness of the things if the impugned order on this score is set-aside and the matter is restored to the file of AO for deciding it afresh as per law. Needless to say, the assessee will be allowed an adequate opportunity of hearing and to put forth necessary documents in this regard. Addition to capital work-in-progress on account of property at Bhosari and Hadapsar - Since the capital work-in-progress was not put to use during the year, the AO opined that the amount of interest to that extent was not allowable u/s. 36(1)(iii) - HELD THAT - Since the assessee did not put to use the two projects under consideration, the interest thereon was required to be capitalized, which was not eligible for deduction u/s. 36(1)(iii). The assessee also admitted this fact before the AO and offered disallowance at ₹ 72.00 lakh. However, no detail was filed either before the AO or before the ld. CIT(A) to show which of the total borrowings were utilized in respect of these two projects. The ld. AR accentuated on the availability of sufficient shareholder' funds for canvassing a view that no interference in the impugned order on this score was called for. The argument of the availability of shareholders' fund does not apply on loans specifically taken for the purposes of acquisition of an asset which has still not been put to use during the year. In other words, if a specific loan has been taken for purchasing an asset, notwithstanding the fact that the assessee has sufficient interest-free funds, interest on such loan has to be disallowed within the ambit of proviso to section 36(1)(iii). It is only after exhausting the specific loans taken for the purpose of acquisition of an asset that the proposition of availability of shareholders' fund can be invoked for the balance amount of investment. CIT(A) was swayed by the assessee's submission that only a sum of ₹ 6.25 crore was taken as loan from ICICI bank for these two projects without actually examining the details and purpose of other loans - We are unable to sustain the finding returned by the ld. CIT(A) in deleting the addition. The impugned order is, ergo, set-aside and the matter is remitted to the file of the AO for considering this issue afresh in terms of our discussion made above. Needless to say, the assessee will be allowed reasonable opportunity of hearing. Disallowance u/s 14A - HELD THAT - We find that the Hon'ble Delhi High Court in Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT has held that if there is no exempt income, there can be no question of making any disallowance u/s. 14A of the Act. Also see CIT vs. Holcim India P. Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT . More recently in Pr. CIT VS. Kohinoor Projects Pvt. Ltd. 2020 (1) TMI 1161 - BOMBAY HIGH COURT has also held that in the absence of any exempt income, there cannot be any disallowance of expenses u/s. 14A of the Act. Since the assessee in the instant case earned exempt dividend income and the ld. CIT(A) restricted the disallowance u/s. 14A to that extent, we uphold the same. Addition on account of mismatch in TDS - HELD THAT - The assessee furnished details of the amounts received and TDS thereon. Some amount of TDS in Form No. 26AS was not claimed by the assessee, which fact was also brought to the notice of the AO. Anent to the five parties listed, though the income was declared but no TDS claim was made. The ld. DR was fair enough to accept the reconciliation taken note of by the ld. CIT(A). We, therefore, countenance the action of the ld. first appellate authority on this count.

Summary

Issues:
1. Disallowance of interest payment without deduction of tax at source
2. Deletion of addition related to capital work-in-progress
3. Disallowance under section 14A of the Act
4. Mismatch in TDS leading to addition

Issue 1: Disallowance of interest payment without deduction of tax at source:
The appeal by the Revenue challenges the deletion of disallowance of ?4,12,59,525 made by the Assessing Officer under section 40(a)(ia) of the Income-tax Act, 1961. The assessee failed to deduct tax at source on interest payments to non-banking financial companies. The CIT(A) deleted the disallowance based on certain certificates provided by the assessee. However, the Tribunal noted that the certificates were not in the prescribed form and were not furnished by all payees. The Tribunal set aside the order and remitted the matter to the AO for fresh consideration.

Issue 2: Deletion of addition related to capital work-in-progress:
The second issue pertains to the deletion of an addition of ?2,86,89,546 related to capital work-in-progress. The AO disallowed interest on the closing balance of capital work-in-progress as the projects were not put to use. The CIT(A) directed the AO to restrict the disallowance to ?72.00 lakh offered by the assessee. However, the Tribunal found that no details were provided to ascertain the utilization of loans for the projects. The matter was remitted to the AO for a fresh decision.

Issue 3: Disallowance under section 14A of the Act:
The Revenue contested the restriction of disallowance under section 14A to ?2,48,167 by the CIT(A). The Tribunal upheld the CIT(A)'s decision citing precedents that disallowance under section 14A cannot exceed the exempt income earned by the assessee. As the assessee earned exempt dividend income of ?2,48,167, the disallowance was appropriately restricted.

Issue 4: Mismatch in TDS leading to addition:
The final issue involved the deletion of an addition of ?61,372 due to a mismatch in TDS. The AO made the addition based on Form No. 26AS discrepancies. However, the CIT(A) accepted the assessee's claim after considering the details provided. The Tribunal upheld the CIT(A)'s decision, noting that the reconciliation was satisfactory.

In conclusion, the Tribunal partly allowed the appeal, setting aside certain decisions and remitting the matters to the AO for fresh consideration. The judgments were made based on the provisions of the Income-tax Act and relevant case laws, ensuring adherence to procedural requirements and legal principles.