Tribunal allows appeals, directs AO to verify evidence. No disallowance under Section 40(a)(ia) if payee accounted for income.

The Tribunal allowed both appeals of the assessee, directing the Assessing Officer to verify the evidences provided. The decision in ITA.No. 386/Mum/2016 (A.Y. 2013-14) was applied to ITA.No. 385/Mum/2016 (A.Y. 2013-14), stating that no disallowance under Section 40(a)(ia) is warranted if the payee has accounted for the interest income and filed the return. The Tribunal emphasized the retrospective effect of the second proviso to Section 40(a)(ia) from April 1, 2005, citing relevant case law to support its decision.

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Issues Involved:
1. Disallowance of interest expenses under Section 40(a)(ia) of the Income Tax Act due to non-deposit of TDS within the due date of filing the return of income.

Detailed Analysis:

Background and Facts:
The appeals were filed by different assessees of the same group against the orders of the Learned Commissioner of Income Tax (Appeals) dated 14.11.2018 for the Assessment Year 2013-14. The central issue in both appeals was the disallowance of interest expenses under Section 40(a)(ia) of the Income Tax Act because the tax deducted at source (TDS) was not deposited within the due date of filing the return of income.

Assessee's Argument:
The assessee contended that the disallowance of interest expenses under Section 40(a)(ia) was incorrect and invalid for several reasons:
- The assessee's group was experiencing a liquidity crunch, preventing timely TDS payment.
- The purpose of Section 40(a)(ia) is to ensure that income embedded in expenditure is taxed, not to penalize for non-deduction of TDS, especially when the recipient has paid taxes on the income.
- The second proviso to Section 40(a)(ia) is declaratory, curative, and retrospective from April 1, 2005. The proviso states that if the payee has included the income in their return and paid the tax, the payer should not be treated as a defaulter.
- The assessee cited CBDT Instruction No.275/201/95-IT(B) and the Supreme Court decision in Hindustan Coca-Cola Beverages Pvt. Ltd. (293 ITR 226) to support their arguments.

CIT(A)'s Decision:
The Ld.CIT(A) was not convinced by the assessee's submissions and sustained the disallowance made by the Assessing Officer.

Tribunal's Analysis:
The Tribunal examined the rival submissions, the orders of the authorities below, and the written submissions. The Tribunal noted that the assessee argued that the provisions of Section 40(a)(ia) were not applicable because the interest amount paid was already accounted for by the payee in its return and taxes were paid. The Tribunal also considered the following key points:
- The second proviso to Section 40(a)(ia) is retrospective and applicable from April 1, 2005.
- The payee had included the interest income in its return and paid the requisite taxes.
- The Tribunal referenced the decisions of the Hon'ble Supreme Court in Hindustan Coca-Cola Beverages Pvt. Ltd. and the Hon'ble Delhi High Court in CIT v. Ansal Land Mark Township (P) Ltd., which supported the assessee's position.

Tribunal's Decision:
The Tribunal found that identical issues had been decided in favor of the assessee by various Tribunals and High Courts. The Tribunal cited the case of E-Commerce Magnum Solutions Ltd., where it was held that the second proviso to Section 40(a)(ia) is declaratory and curative, having retrospective effect from April 1, 2005. The Tribunal also referred to the decision of the Hon'ble Bombay High Court in Pr.CIT v. Perfect Circle India Pvt. Ltd., which dismissed the revenue's appeal, holding that the second proviso to Section 40(a)(ia) is retrospective.

The Tribunal concluded that no disallowance under Section 40(a)(ia) is warranted if the payee has accounted for the interest income in its books and filed its return of income under Section 139(1) of the Act. However, since the lower authorities had not examined the evidences provided by the assessee, the Tribunal directed the Assessing Officer to verify these evidences. If verified, the disallowance should be deleted.

Conclusion:
The Tribunal allowed both appeals of the assessee, subject to verification of the evidences by the Assessing Officer. The decision in ITA.No. 386/Mum/2016 (A.Y. 2013-14) was applied mutatis-mutandis to ITA.No. 385/Mum/2016 (A.Y. 2013-14).

The order was pronounced on 02.06.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list on the notice board.

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