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TMI Blog2018 (12) TMI 1324X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 37,15,215/-. 2. That the authorities below have further erred in disallowing U/s 40(a)(ia) of the IT Act, 1961 out of advertisement expenses amount to ₹ 2,43,750/-. 3. That the penalty so imposed by the authorities below is bad in law as well as on facts. 4. That the petitioner craves to add, alter or amend all or any of the grounds of appeal on or before the date of hearing. 2. Ground No. 1 of the appeal is regarding disallowance of interest payment to the Non Banking Financial Corporations (NBFCs) U/s 40(a)(ia) of the Income Tax Act, 1961 (in short the Act) for want of TDS. The assessee has claimed interest expenditure of ₹ 37,15,215/- to NBFCs since no TDS was deducted by the assessee prior to the payment or credit of the said interest amount, the Assessing Officer invoked the provisions of Section 40(a)(ia) of the Act and made disallowance of the said amount of ₹ 37,15,215/-. 3. The assessee challenged the action of the Assessing Officer before the ld. CIT(A) and submitted that since the payment was made to the NBFCs, who have furnished the return of income and paid the tax, therefore, in view of proviso to Section 40(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en taken into account while filing the return of income by the recipient. The Bangalore Benches of the Tribunal in the case of Shri Azmath Ulla Vs ACIT (supra) has considered an identical issue in para 5 and 6 as under: 5. I have considered the rival submissions as well as relevant material on record. As regards the applicability of the second proviso to section 40(a)(ia) retrospectively an identical issue was considered by the Hon ble Delhi High Court in case of CIT Vs Naresh Kumar (362 ITR 256) and held that the proviso inserted in section 40(a)(ia) is an explanatory and remedial in nature and therefore will be applicable with retrospective effect in para 26 to 29 as under. 26. Principle of matching which is disturbed by Section 40(a)(ia) of the Act, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses as they have necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low G.P. rate and when expenditure which becomes subject-matter of an order under Section 40(a)(ia) is substantial, can suffer severe adver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t previous year. Accordingly, a proviso was added by Finance Act, 1987 applicable with effect from 1st April, 1988. The proviso stipulated that when statutory dues covered by Section 43B were paid on or before the due date for furnishing of the return under Section 139(1), the deduction/expense, equal to the amount paid would be allowed. The Supreme Court noticed the purpose behind the proviso and the remedial nature of the insertion made. Of course, the Supreme Court also referred to Explanation 2 which was inserted by Finance Act, 1989 which was made retrospective and was to take effect from 1st April, 1984. Highlighting the object behind Section 43B, it was observed that the proviso makes the provision workable, gives it a reasonable interpretation. It was elucidated: 12. In the case of Goodyear India Ltd. v. State of Haryana this Court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act. 13. Therefore, in the well-known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is made the same would be allowed as a deduction even if the assessee is following the mercantile system of accountancy. The proviso, however, stipulates that deduction would be allowed where the statutory dues covered by Section 43B stand paid on or before the due date of filing of return of income. Section 40(a)(ia) is applicable to cases where an assessee is required to deduct tax at source and fails to deduct or does not make payment of the TDS before the due date, in such cases, notwithstanding Sections 30 to 38 of the Act, deduction is to be allowed as an expenditure in the year of payment unless a case is covered under the exceptions carved out. The amended proviso as inserted by Finance Act, 2010 states where an assessee has made payment of the TDS on or before the due date of filing of the return under Section 139(1), the sum shall be allowed as an expense in computing the income of the previous year. The two provisions are akin and the provisos to Sections 40(a)(ia) and 43B are to the same effect and for the same purpose. 24. In Podar Cement (P.) Ltd. (supra), the Supreme Court considered whether term owner would include unregistered owners who had paid sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beginning and the relevant details are available with the revenue regarding the income offered by these NBFCs. Therefore, in view of the facts and circumstances of the case if the certificates filed in support of the claim that the NBFCs have included this amount of interest in computation of their income offered to tax are found to be correct then the compliance u/s. 40(a)(ia) is deemed to have been made and no disallowance is called for. Therefore this issue is set aside to the record of the AO for verification of the fact that the recipient NBFCs have already taken into account the amount of interest received by them for computing the income in their return of income. In case the AO is satisfied that the NBFCs have considered this amount for computation of income in their return of income then no disallowance is called for u/s. 40(a)(ia). Accordingly, the matter is set aside to the record of the Assessing Officer for verification of the fact that the recipients NBFCs has already taken into account the amount of interest received by them in their total income declared in the return of income and paid the tax. The assessee is also directed to furnish the requisite informati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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