2024 (11) TMI 683 - AT - Income Tax

Disallowance of payment u/s 40(a)(ia) - Scope of second proviso to section 40(a)(ia) - As the business receipts exceeded the threshold, he was required under the Act to deduct TDS under respective provisions - AO observed that the appellant failed to do so in matters of payment to NBFCs and to an exempt trust - HELD THAT - The assessee before the CIT(A) claimed that in view of the 2nd proviso the payee should file his return of income including such income in return. For this a certificate in Form 26A is required to be furnished. This form issued by an Accountant gives the said information that the payee has filed the return of income, the income paid by the payer is included therein and amount of tax paid by it. Accordingly, the assessee furnished relevant details in Form 26A.The certificate of an Accountant was also filed. CIT(A) has laid emphasis on production of ITRs, audit report, proof of tax payment etc as well which according to him, the assessee failed to produce leading to upholding the disallowance made by the AO. The assessee furnished the certificate of Chartered Accountant (Form 26A) under first proviso to Section 201(1) of the Act certifying that payee NBFC had furnished his return of income for the relevant A.Y. and included amount of interest in its income and paid due taxes. As per Rule 31ACB, assessee is required to furnish Annexure A alongwith Form 26A. It is undisputed fact that the assessee is liable to deduct TDS on payments made to NBFC on interest payments. However, 2nd proviso does reduce the rigours of section 40(a)(ia) where the payee has disclosed the said interest and paid taxes thereon by filing its return. The assessee in this case, has duly submitted Form no.26A evidencing such disclosures by the payees. AO was not amused and needed further details such as relevant ITRs, audit report, tax challans etc. Evidently, the assessee has discharged the primary onus in the matter as neither the AO nor CIT(A) have doubted the correctness of the said form duly certified by the Chartered Account. AO is well within his powers to examine the veracity of the said forms and for which he is adequately empowered under the Act and to seeks relevant information from relevant payees rather than expecting the taxpayers to obtain such details from big NBFCs. The matter is therefore, restored to the AO or making further enquiries and obtain necessary details so as to satisfy himself about the correctness of the claim as per Form 26A submitted. Assessee appeals are allowed for statistical purposes.

Summary

Issues:
1. Interpretation of second proviso to section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of interest payment to Non-Banking Finance Companies (NBFCs) under section 40(a)(ia) of the Act.
3. Requirement of submission of necessary evidence to prove non-deduction of TDS.
4. Verification of whether payees disclosed income and paid taxes.
5. Burden of proof on the appellant regarding TDS deduction.

Analysis:

Issue 1: Interpretation of second proviso to section 40(a)(ia)
The Tribunal observed that if payees disclose income in their returns and pay taxes, there is no requirement for TDS. The appellant argued that the payees had filed returns and paid taxes, supported by Form 26A. However, the AO required additional evidence beyond Form 26A. The Tribunal emphasized the need for further verification by the AO to ensure correctness before disallowing TDS.

Issue 2: Disallowance of interest payment to NBFCs
The AO disallowed interest payment to NBFCs for non-deduction of TDS under section 40(a)(ia). The CIT(A) upheld this decision. The Tribunal remanded the case to verify if NBFCs disclosed income and paid taxes. The appellant failed to provide sufficient evidence beyond a certificate from an accountant, leading to the sustained disallowance.

Issue 3: Submission of necessary evidence
The appellant submitted Form 26A certifying payees' tax disclosures. However, the AO requested additional documentation like ITRs and tax challans. The Tribunal acknowledged the primary burden discharged by the appellant but emphasized the AO's authority to verify the submitted forms and seek further details from payees.

Issue 4: Verification of payees' disclosures
The Tribunal restored the matter to the AO for further inquiries to confirm payees' income disclosures and tax payments. The Tribunal highlighted the importance of the AO satisfying himself about the accuracy of the claim based on the evidence submitted by the appellant.

Issue 5: Burden of proof
The appellant contended that all requirements were fulfilled as per the Tribunal's directions. However, the AO sought additional evidence. The Tribunal stressed the need for the AO to conduct thorough verification to determine the correctness of the claim and ensure compliance with TDS provisions.

In conclusion, the Tribunal allowed all appeals for statistical purposes, emphasizing the importance of proper verification and submission of necessary evidence to support claims related to TDS deductions under the Income Tax Act, 1961.