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TMI Blog2016 (8) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... ecured loan under sec. 40(a)(ia) - Held that:- The present case on hand, the assessee claims that the recipient had included the interest income in their books of accounts and discharged the tax liability on such interest. The assessee further claims that the assessee was not held as an assessee in default under the provisions of sec. 40(a)(ia) of the Act. Though, assessee filed relevant details before the Bench, we have our own reservations, whether said information was made available to the Assessing Officer at the time of assessment. Therefore, we set aside the issue to the file of the A.O. for the limited purpose of verification, whether the recipient had accounted interest income and discharged his obligation by filing returns of income. In case, it is found that the recipient had considered the interest income in its books of accounts and discharged its obligation by filing return of income, then the A.O. is directed to delete the additions made towards interest paid on unsecured loans u/s 40(a)(ia) of the Act. - I.T.A.No.161/Vizag/2012, I.T.A.No.236/Vizag/2013, I.T.A.No.654/Vizag/2014 - - - Dated:- 17-6-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee observed that the activity carried out by the assessee are akin to normal business activity in the nature of adventure in the nature of trade or commerce, whether or not charitable in nature. The assessee is running educational institutions by collecting fees from the students, therefore the activity is the nature of trade or service which comes under the head income from business or profession. The income from other sources is a residuary head of income, where income of every kind which is not to be excluded from the total income under this act, shall be chargeable to income tax under the head income from other sources, if it is not chargeable to income tax under any of the heads specified in section 14, items A to E of the Income Tax Act, 1961. The activities of the assessee are in the nature of business or trade, therefore, the surplus should be assessed under the head income from business or profession, but not under the head income from other sources. The A.O. has made elaborate discussion and also relied upon plethora of judicial precedents to come to the conclusion that the nature of activity carried out by the assessee are commercial in nature. The A.O. further held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of trade or commerce. The assessee may be having charitable objectives, but the objectives in the trust deed/MOA is not material as for as Income Tax is concerned. Though there is claim of non-profit motive, it is undisputed that there is surplus created out of the same, year after year on continuous basis. Under the provisions of Income Tax Act, income of a person is to be computed under normal commercial principles and the income is to be determined under appropriate head of income as specified under sec. 14, items A to E based on the nature of activity. If any income is not assessable under any head of income in items no A to E, then the same is assessable under the residual head of income from other sources. With these observations, the CIT(A) upheld the action of A.O. As regards the various addition/disallowances, since, assessee could not advance any arguments on merits, the additions made by the A.O. are confirmed. Aggrieved by the CIT(A) order the assessee as well as the Revenue are in appeal before us. 5. The assessee has raised common grounds for both the year s. From these grounds of appeal, the assessee has agitated three issues.i.e.(i) Head of income under which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court, dismissed the SLP filed by the Department. Therefore, in view of the dismissal of SLP, the matter has been reached finality and hence, no disallowance can be made. On the other hand, the Ld. D.R. submitted that the Department has not accepted the Special Bench decision of ITAT, Visakhapatnam and had preferred further appeal before Hon ble Andhra Pradesh High Court. The A.P. High Court, has suspended the operation of Special bench, therefore, the addition made by the A.O. should be upheld. 8. We have heard both the parties and perused the materials available on record. The A.O. disallowed expenditures under the provisions of sec. 40(a)(ia) of the Act, for non deduction of TDS under Chapter XVII-B of the Act. The A.O. was of the opinion that any expenditure on which TDS provisions are not complied with respective TDS provisions, then deduction cannot be allowed towards such expenditure in view of clear provisions of sec. 40(a)(ia) of the Act. It is the contention of the assessee that no disallowance can be made towards any expenditure which is paid within the financial year. The assessee further contended that out of the total disallowance of ₹ 25,12,651/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect to ₹ 1,78,025/- which remained payable as on 31.3.2005. Therefore, the disallowance is reduced to ₹ 1,78,025/- only. Accordingly, the order of the CIT(A) is modified. 9. Considering the facts and circumstances of the case and also respectfully following the coordinate bench decision(supra), we are of the view that no disallowance can be made under the provisions of sec. 40(a)(ia) of the Act, for non compliance of TDS provisions, if expenditure incurred is paid within the financial year. In the present case on hand, the assessee claims that out of the total disallowance of ₹ 25,12,651/- and ₹ 12,90,386/- a sum of ₹ 22,56,980/- and ₹ 9,27,393/- respectively for the A.Y. 2008-09 and 2009-10 has been paid during the financial year before 31st March. Therefore, we set aside the issue to the file of the A.O. for the limited purpose of verification of paid and payable. In case the expenditure is paid during the same financial year within 31st march, then no disallowance can be made. In other words disallowance u/s 40(a)(ia) should be restricted to amounts remain payable at the end of the financial year. 10. The next issue that came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inya Education Society has included the interest income in their income and filed the return of income for the respective years, therefore, in view of the second proviso to sec. 40(a)(ia), which was inserted w.e.f. 1-4-2013, no disallowance can be made, if an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub sec. (1) of sec. 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such some on the date of furnishing of return of income by the resident payee referred to in the said proviso. 12. It is the claim of the assessee that the recipient Sri. Koundinya Education Society has included the interest income in their books of accounts and filed the income tax returns for the relevant years. The assessee has filed a paper book which contains details of Income tax returns along with financial statements of Sri. Koundinya Education Society for the A.Y. 2008-09 and 2009-10. On perusal of paper book filed by the assessee (PB Page No. 54 to 63), we noticed that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of this subclause, it shall be deemed that the assessee has deducted and paid the tax on such some and no disallowance can be made under sec. 40(a)(ia) of the Act. 14. In the present case on hand, the assessee claims that the recipient had included the interest income in their books of accounts and discharged the tax liability on such interest. The assessee further claims that the assessee was not held as an assessee in default under the provisions of sec. 40(a)(ia) of the Act. Though, assessee filed relevant details before the Bench, we have our own reservations, whether said information was made available to the Assessing Officer at the time of assessment. Therefore, we set aside the issue to the file of the A.O. for the limited purpose of verification, whether the recipient had accounted interest income and discharged his obligation by filing returns of income. In case, it is found that the recipient had considered the interest income in its books of accounts and discharged its obligation by filing return of income, then the A.O. is directed to delete the additions made towards interest paid on unsecured loans u/s 40(a)(ia) of the Act. 15. In the result, the Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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