2025 (4) TMI 1450 - AT - Income Tax

Addition u/s 40(a)(ia) - form 26A was not filed by the assessee in respect of amount of interest paid on which no TDS was deduction at source - HELD THAT - We observe this fact from the appellate order passed in the first round passed by the ld CIT(A) that the payee of the interest has offered the sum to tax by incorporating the same in his return of income and therefore case is clearly covered by the decision of Hindustan Coc Cola Beverages (P) Ltd. 2007 (8) TMI 12 - SUPREME COURT wherein it is held that no disallowance has to be made u/s 40(a)(ia) of the Act if the receiver/ payee of income has offered same to tax in the return of income. Therefore there cannot be any disallowance on this account. Moreover the finding of the CIT (A) that assessee has not filed the form no.26A read with 31ACB a certificate from Chartered Accountant certifying the payee had fulfilled all the conditions mentioned in the First Proviso to Sub Section 1 to Section 201 but after perusing the said section along with Rule 31ACB of the Income Tax Rules 1962 we note that the form 26A was not applicable during the impugned assessment year as the same was brought by IT(11th Amendment) Rules 2012 with effect from 12.09.2012 which provides that under Rule 31ACB the assessee is required to obtain a certificate from Accountant under First Proviso to Section 201 (1) and that certificate should be in form no.26A. Accordingly we set aside the order of ld. CIT (A) and direct the AO to delete the addition. Deduction u/s 80IB - AO noted that the assessee has not made his claim in the return filed u/s 139(1) - AO observed that the assessee has also not made its claim by filing a revised return of income and therefore the same is not allowable to the assessee - HELD THAT - We note that the assessee has filed the return of income within time on 26.09.2008 originally declaring total income without claiming the deduction u/s 80IA of the Act in respect of rail and infrastructure system. In our opinion if the assessee is not made any claim in the return filed u/s 139(1) of the Act then the same could be made before the appellate authority for the first time. CIT (A) in the first round has rightly given the finding while allowing the appeal of the assessee by admitting the additional ground which has been extracted above whereas in the impugned appellate order the CIT (A) has given a perverse finding by misconstruing the facts. In our opinion the assessee is entitled to claim u/s 80IA. Accordingly we set aside the order of ld. CIT (A) and direct the AO to allow the deduction u/s 80IA. The ground raised by the assessee is allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the addition made under section 40(a)(ia) of the Income Tax Act is justified on the ground that the assessee failed to file Form 26A certifying that the interest payee had fulfilled the conditions under the first proviso to section 201(1) of the Act, despite the payee having offered the interest income to tax.

(b) Whether the assessee is entitled to claim deduction under section 80IA of the Act for profit from infrastructure facilities when the claim was not made in the original return of income filed under section 139(1) but was raised for the first time during appellate proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Disallowance under Section 40(a)(ia) for Non-filing of Form 26A

Relevant legal framework and precedents: Section 40(a)(ia) of the Income Tax Act provides for disallowance of certain expenses if tax is not deducted at source (TDS) or, if deducted, not deposited within the prescribed time. The first proviso to section 201(1) provides conditions under which a person is not treated as an assessee-in-default for failure to deduct or pay TDS, subject to furnishing a certificate in Form 26A (as per Rule 31ACB) certifying that the payee has included the income in their return and paid tax thereon.

The Hon'ble Supreme Court decision in Hindustan Coca Cola Beverages (P) Ltd. vs. CIT (2007) 293 ITR 226 (SC) held that no disallowance under section 40(a)(ia) is warranted if the recipient of the income has offered the same to tax in their return of income.

Court's interpretation and reasoning: The Tribunal noted that the interest was paid to M/s Srei Infrastructure Pvt. Ltd., who had offered the same to tax, as established in the first round of litigation and appellate orders. The Tribunal observed that the reliance placed by the lower authorities on the non-filing of Form 26A was misplaced because Form 26A was introduced only by the Income Tax (11th Amendment) Rules, 2012 effective from 12.09.2012, which post-dates the assessment year under consideration (AY 2008-09). Therefore, the requirement to file Form 26A or obtain the accountant's certificate under Rule 31ACB was not applicable for the AY in question.

Key evidence and findings: The appellate order in the first round had clearly found that the payee had included the interest income in its return and paid tax thereon. The assessee had failed to file Form 26A, but the Tribunal held this was irrelevant for the AY 2008-09. The lower authorities had also not produced any evidence contradicting the payee's inclusion of income in its return.

Application of law to facts: Since the payee had offered the interest income to tax, and the Form 26A requirement was not applicable for the AY under consideration, the addition under section 40(a)(ia) was not sustainable.

Treatment of competing arguments: The Revenue contended that the non-filing of Form 26A and failure to produce accountant's certificate justified the disallowance. The Tribunal rejected this, distinguishing the facts from the precedent cited by the assessee and emphasizing the inapplicability of Form 26A for the AY in question.

Conclusion: The Tribunal set aside the disallowance under section 40(a)(ia) and directed the Assessing Officer (AO) to delete the addition.

Issue (b): Claim of Deduction under Section 80IA when not Claimed in Original Return

Relevant legal framework and precedents: Section 80IA provides deduction in respect of profits from infrastructure facilities. Section 80AC mandates that such deductions shall not be allowed unless the return of income is furnished on or before the due date under section 139(1). The issue of whether a claim for deduction not made in the original return but raised for the first time on appeal is allowable is central.

The CBDT Circular No. 733 dated 03.01.1996 clarifies that rolling stock forming part of the railway system qualifies as infrastructure for deduction under section 80IA.

Court's interpretation and reasoning: The Tribunal referred to the first round of proceedings where the CIT(A) had admitted the additional ground filed by the assessee and allowed the deduction under section 80IA after detailed examination of facts, statutory audit reports, and the terms of the Build-Own-Lease-Transfer (BOLT) scheme agreement with Indian Railways.

The Tribunal noted that the assessee's operations involved providing railway wagons under a ten-year agreement, after which ownership would transfer to Indian Railways. The wagons were integral to the railway system, qualifying as rolling stock under the Indian Railways Act, 1989, and hence eligible for deduction.

The AO and CIT(A) in the second round disallowed the deduction on the ground that the claim was not made in the original return filed under section 139(1) within time, relying on section 80AC. The Tribunal found this reasoning perverse and factually incorrect, emphasizing that the assessee had filed the return within time but had not claimed the deduction therein. The Tribunal held that the claim could be made for the first time before the appellate authority and upheld the earlier finding allowing the deduction.

Key evidence and findings: The statutory audit report certified the facts of the agreement with Indian Railways, the nature of the wagons as rolling stock, and the operational details. The agreement with Indian Railways was verified, and the Tribunal found no dispute on compliance with conditions under section 80IA(7).

Application of law to facts: The Tribunal applied the legal provisions and circular clarifications to hold that the assessee was entitled to deduction under section 80IA despite the claim being raised at the appellate stage, as the return was filed within time and the claim was bona fide.

Treatment of competing arguments: The Revenue strictly relied on section 80AC to deny deduction on the ground of non-claim in the original return. The Tribunal rejected this rigid approach, finding the dismissal of the claim as perverse and contrary to the facts and earlier appellate findings.

Conclusion: The Tribunal set aside the order of the CIT(A) and directed the AO to allow the deduction under section 80IA of Rs. 1,08,41,626/-.

3. SIGNIFICANT HOLDINGS

The Tribunal established the following core principles and final determinations:

"No disallowance under section 40(a)(ia) of the Act is warranted if the recipient of the income has offered the same to tax in the return of income, and the requirement of filing Form 26A or obtaining accountant's certificate under Rule 31ACB is not applicable for the assessment year under consideration."

"The claim for deduction under section 80IA of the Act, though not made in the original return of income filed under section 139(1), can be admitted for the first time before the appellate authority, provided the return was filed within the due date and the assessee fulfills the conditions stipulated for such deduction."

"Rolling stock provided under the Build-Own-Lease-Transfer (BOLT) scheme to Indian Railways qualifies as an infrastructure facility eligible for deduction under section 80IA, as it forms part of the railway system as defined under the Indian Railways Act."

In conclusion, the Tribunal allowed the appeal of the assessee by setting aside the addition under section 40(a)(ia) and directing the AO to allow the deduction under section 80IA, thereby reversing the orders of the CIT(A) and AO on these issues.

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