2020 (12) TMI 1279 - AT - Income Tax

Tribunal's Decision on Interest Income Tax Verification and Disallowance

The Tribunal directed the Assessing Officer to verify if the recipient had included the interest income and paid tax on it, and if so, no disallowance ... Disallowance under section 40(a)(ia) - second proviso to section 40(a)(ia) - tax deduction at source under section 194A - certificate under section 201(1) - remand for verification by Assessing OfficerDisallowance under section 40(a)(ia) - second proviso to section 40(a)(ia) - certificate under section 201(1) - remand for verification by Assessing Officer - Whether disallowance of interest paid to India Bulls under section 40(a)(ia) should stand where the recipient has included the interest in income and paid tax. - HELD THAT: - The Tribunal accepted the assessee's contention and supporting Chartered Accountant certificate under section 201(1) that India Bulls had included the interest in its income and paid tax thereon. Having regard to those materials and the legal position advanced by the assessee, the Tribunal did not adjudicate finally on the merits but directed that the Assessing Officer verify the facts and, on satisfaction, grant relief to the assessee in accordance with law. The assessee was directed to furnish necessary evidence to the Assessing Officer to enable such verification. [Paras 6]Matter remitted to the Assessing Officer for verification of whether the recipient included the interest in income and paid tax; Assessing Officer to grant appropriate relief if verified.Disallowance under section 40(a)(ia) - tax deduction at source under section 194A - Whether the disallowance in respect of interest paid to L & T Finance Ltd. is pressed before the Tribunal. - HELD THAT: - The assessee made no submission contesting the disallowance relating to L & T Finance Ltd. before the Tribunal. In view of the absence of challenge, that part of the disallowance was treated as not pressed and the Tribunal confirmed the disallowance to that extent. [Paras 7]Disallowance in respect of interest paid to L & T Finance Ltd. is upheld as not pressed before the Tribunal.Final Conclusion: Appeal partly allowed: disallowance relating to India Bulls remitted to the Assessing Officer for verification and appropriate relief if the recipient is shown to have included the interest and paid tax; disallowance relating to L & T Finance Ltd. upheld as not pressed. Issues:1. Disallowance of interest expenses under section 40(a)(ia) for non-deduction of tax at source.2. Applicability of the second proviso to Sec. 40(a)(ia) of the Income Tax Act.3. Interpretation of the second proviso's retrospective effect.Issue 1: Disallowance of Interest Expenses under Section 40(a)(ia):The appellant's appeal was against the order of the Commissioner of Income Tax (Appeals) confirming the assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act for the Assessment Year 2012-13. The Assessing Officer disallowed interest expenses of Rs. 34,49,439/- under section 40(a)(ia) due to non-deduction of tax at source on payments made to NBFCs. The appellant contended that the interest recipients had included the income and paid tax on it. The Tribunal directed the Assessing Officer to verify this fact and allow relief accordingly.Issue 2: Applicability of the Second Proviso to Sec. 40(a)(ia):The appellant argued that the second proviso to Sec. 40(a)(ia) is declaratory and curative in nature, with retrospective effect from April 1, 2005. The Commissioner of Income Tax (Appeals) held that the second proviso is applicable from April 1, 2013, and dismissed the appellant's appeal. However, the Tribunal noted that if the recipient had included the interest income and paid tax on it, no disallowance could be made in the hands of the assessee.Issue 3: Interpretation of the Second Proviso's Retrospective Effect:The appellant contended that the second proviso to Sec. 40(a)(ia) should have retrospective effect from April 1, 2005. The Tribunal observed that various benches had considered the second proviso as curative and declaratory in nature. The Tribunal directed the Assessing Officer to verify if the recipient had included the interest income, and if so, no disallowance should be made. The Tribunal upheld the disallowance of Rs. 3,689/- related to interest payment to L & T Finance Ltd. as the appellant did not contest it.This detailed analysis of the judgment addresses the issues of disallowance of interest expenses, the applicability of the second proviso to Sec. 40(a)(ia), and the interpretation of its retrospective effect. The Tribunal's decision to direct the Assessing Officer to verify the recipient's tax payments and provide relief accordingly demonstrates a thorough consideration of the legal and factual aspects of the case.