2017 (5) TMI 109 - AT - Income Tax

Assessee's Appeal Dismissed for Interest Deduction Disallowance

The appeal by the assessee was dismissed, upholding the disallowance of interest payment deduction under section 40(a)(ia) due to non-deduction of TDS. ... Section 40(a)(ia) applicability - amount paid or “paid” and “payable.” - TDS on interest - Held that:- The authorities below have specifically brought the material on record that loan was granted to the assessee company and that repayment of loan amount and interest was paid through the account of the assessee company. The asset pledged was owned by the assessee. Since no TDS was deducted on interest payment, authorities below were justified in disallowing interest u/s 40(a)(ia). The issue is covered against the assessee by judgement of Hon’ble Gujarat High Court in the case of CIT vs Sikander Khan N Tunvar [2013 (5) TMI 457 - GUJARAT HIGH COURT] in which it was held that “provisions u/s 40(a)(ia) would cover amount payable at any time during the accounting year”. The issue is also decided against the assessee by judgment of Hon’ble P & H High Court in the case of P.M.S.Diesels [2015 (5) TMI 617 - PUNJAB & HARYANA HIGH COURT] in which on the same principle, the appeal of the assessee has been dismissed. No infirmity has been pointed out in the order of the Ld.CIT(A), therefore, the appeal of the assessee has no merit, the same is accordingly dismissed. Issues:1. Defiance of Supreme Court ruling in a similar case2. Interpretation of 'paid' vs. 'payable'3. Disallowance of interest payment deduction4. Equity and justice principles in the orderIssue 1: Defiance of Supreme Court ruling:The assessee appealed against the order of Ld.CIT(A)-9, New Delhi for A.Y. 2012-13, citing defiance of a Supreme Court ruling in the case of Vector Shipping. The AO disallowed interest paid on a loan under section 40(a)(ia) due to non-deduction of TDS. The assessee argued that TDS was not required as the MD was an individual, and the entire loan amount was used for business. The Ld.CIT(A) dismissed the appeal, stating that the loan was given to the company, not the MD, and upheld the disallowance.Issue 2: Interpretation of 'paid' vs. 'payable':The assessee contended that no sum was payable at the end of the financial year as the interest was fully paid by March 31st. Citing the Allahabad High Court's decision, the assessee argued that disallowance under section 40(a)(ia) applies only if a sum remains payable at year-end. However, the Ld.CIT(A) upheld the disallowance, stating that the Supreme Court's dismissal of the SLP did not confirm the Allahabad High Court's view. The Ld.CIT(A) also referenced decisions by the Calcutta High Court and clarified that non-deduction of tax on interest payment violated section 40(a)(ia).Issue 3: Disallowance of interest payment deduction:The AO disallowed the interest paid on a loan due to non-deduction of TDS, which was confirmed by the Ld.CIT(A). The Ld.CIT(A) referenced judgments by the Gujarat High Court and Calcutta High Court, supporting the disallowance under section 40(a)(ia) for amounts payable during the accounting year. The Ld.CIT(A) dismissed the appeal, stating that the assessee violated the provision by not deducting tax on interest payment.Issue 4: Equity and justice principles:The assessee's appeal was dismissed due to a 6-day time bar, which was condoned based on the counsel's explanation of unintentional delay. The Ld.CIT(A) found no merit in the appeal, as the loan was granted to the company, and no TDS was deducted on interest payment. The appeal was dismissed based on the authorities' findings and previous judgments supporting the disallowance under section 40(a)(ia).In conclusion, the appeal by the assessee was dismissed, upholding the disallowance of interest payment deduction under section 40(a)(ia) due to non-deduction of TDS, despite arguments regarding payment vs. payable status and equity considerations.