2022 (2) TMI 1193 - AT - Income Tax

Addition u/s 40(a)(ia) - assessee had failed to deduct tax at source on the interest/finance charges that was paid/credited by it to M/s Magna Fincorp Limited - default u/s 201(1) - HELD THAT - We find that the aforementioned payee, viz. M/s Magna Fincorp Limited (supra) had duly accounted for the aforesaid interest/finance charges received from the assessee in its return of income for the year under consideration and had paid the corresponding taxes on the same. The aforesaid factual position can safely be gathered from the certificate of the Chartered Accountant, dated 19.12.2014(supra) that has been filed by the assessee before us In our considered view, now when the aforesaid payee, viz. M/s Magna Fincorp Limited(supra) had duly accounted for the interest/finances charges in its return of income and had paid the corresponding taxes, therefore, as per the 2nd proviso to Sec.40(a)(ia) of the Act the aforementioned amount could not have been brought within the realm of the disallowance contemplated under the said statutory provision. Apart from that, as stated by the Ld. AR, and rightly so, we find that the Hon'ble Supreme Court in the case of M/s. Hindustan Coca Cola Beverages Pvt. Ltd. 2007 (8) TMI 12 - SUPREME COURT had observed, that in case the payee of the amount in question had paid the taxes on the same, then, the payer cannot be held as an assessee-in-default as regards the said amount for the purpose of enforcing the recovery of the corresponding tax liability u/s. 201(1) - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening of the case u/s.147 and issue of notice u/s.148
2. Disallowance of ?3,71,587/- made by the Assessing Officer u/s.40(a)(ia)

Issue 1: Validity of reopening of the case u/s.147 and issue of notice u/s.148

The appeal was filed against the order passed by the CIT(Appeals)-II, Bilaspur, which arose from the order dated 27.01.2014 passed by the Assessing Officer (A.O) under Sec. 143(3)/147 of the Income-tax Act, 1961 for assessment year 2008-09. The assessee challenged the legality of proceedings u/s.147 and the issue of notice u/s.148. The original assessment was framed by the A.O assessing the total income of the assessee at ?1,85,943. The A.O reopened the case u/s.147 due to the assessee's failure to deduct tax at source on interest/finance charges of ?3,71,587 paid to a NBFC. The A.O disallowed this amount u/s.40(a)(ia) and determined the total income at ?5,57,530. The CIT (Appeals) upheld the disallowance, leading to the appeal before the ITAT.

Issue 2: Disallowance of ?3,71,587/- made by the Assessing Officer u/s.40(a)(ia)

The assessee contended that the payee, M/s. Magna Fincorp Limited, had accounted for the interest/finance charges in its return of income and paid the corresponding taxes, making the disallowance u/s.40(a)(ia) unjustified. The assessee relied on the judgment of the Hon'ble Supreme Court in M/s. Hindustan Coca Cola Beverages Pvt. Ltd. Vs. CIT, highlighting that if the payee has paid the taxes, the deductor cannot be held liable. The ITAT admitted additional evidence, a certificate from a Chartered Accountant, supporting the payee's tax compliance. The ITAT found that the payee had indeed paid taxes on the amount received, as evidenced by the certificate. Referring to the "2nd proviso" to Sec. 40(a)(ia) and the Supreme Court's ruling, the ITAT concluded that the disallowance was unwarranted. Consequently, the ITAT set aside the CIT (Appeals) order and vacated the disallowance of ?3,71,587. The appeal on this issue was allowed.

In conclusion, the ITAT ruled in favor of the assessee, allowing the appeal and setting aside the disallowance made by the Assessing Officer. The ITAT emphasized the importance of the payee's tax compliance in determining the deductor's liability under Sec. 40(a)(ia) and cited relevant legal precedents to support its decision.