2016 (1) TMI 1347 - AT - Income Tax

Appeal success in tax liability case due to legislative change, highlighting importance of fair consideration.

M/s S. & S. Wire Products, Versus The Income Tax Officer, Ward 2 (1), Nashik

The appeal challenged the disallowance of Rs. 2,00,377 under section 40(a)(ia) for non-deduction of TDS on interest paid to a non-banking finance company. ... Disallowance u/s 40(a)(ia) - non-deduction of tax at source (TDS) on interest paid on borrowings from India Bulls Finance Ltd., a non-banking finance company (NBFC)- as per assessee has as per amendment made by Finance Act, 2012, w.e.f. 01.04.2013 the assessee ought not to be treated in default when the payee has discharged the tax liability on its corresponding income - Held that:- We find that the Co-ordinate Bench of the Tribunal on the identical point has decided the issue in favour of the assessee in the case of The Beed District Central Co-op. Bank Ltd. vs. ACIT [2015 (12) TMI 1747 - ITAT PUNE] wherein restored the matter back to the file of the Assessing Officer who shall consider the plea of the assessee based on the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act w.e.f. 01.04.2013. Following the parity of reasoning, we deem it fit and proper to restore the matter back to the file of Assessing Officer, who shall consider the plea of the assessee based on the provisions of the Act inserted by the Finance Act, 2012 w.e.f. 01.04.2013 - Decided in favour of assessee for statistical purposes Issues:1. Disallowance of Rs. 2,00,377 under section 40(a)(ia) for non-deduction of TDS on interest paid to a non-banking finance company.Analysis:1. The appeal was against the order of CIT(A)-2, Nashik for the assessment year 2010-11 under section 143(3) of the Income-tax Act, 1961. The assessee raised various grounds challenging the disallowance of Rs. 2,00,377 under section 40(a)(ia) for non-deduction of TDS on interest paid to India Bulls Finance Ltd., a NBFC. The assessee argued that the recipient had already discharged the tax on its income, thus should not be treated as an assessee in default. The appeal proceeded without the assessee's representation, and the Departmental Representative was heard as per Rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963.2. The main contention was whether the disallowance under section 40(a)(ia) was justified for interest paid to M/s Indiabulls Financial Services Ltd. The assessee cited the amendment by Finance Act, 2012, which stated that the assessee should not be treated as in default if the payee had paid the tax. Referring to a previous Tribunal decision, the bench decided to restore the matter to the Assessing Officer to consider the plea based on the second proviso to section 40(a)(ia) inserted by the Finance Act, 2012. The Assessing Officer was directed to re-adjudicate the issue after providing a reasonable opportunity of being heard to the assessee.3. The Tribunal's decision was based on the precedent set by a similar case and the interpretation of the second proviso to section 40(a)(ia) of the Act. The order emphasized the need for the Assessing Officer to consider the assessee's plea in light of the legislative amendment and the directions given by the Tribunal. Consequently, the appeal of the assessee was treated as allowed for statistical purposes, and the matter was remanded back to the Assessing Officer for fresh adjudication in accordance with the law.4. The judgment focused on the interpretation of the legal provisions related to TDS disallowance under section 40(a)(ia) and the impact of the Finance Act, 2012 amendment on the assessee's liability. The Tribunal's decision to restore the matter for re-examination highlighted the importance of considering legislative changes and providing a fair opportunity for the assessee to present their case.