Section 40(a)(ia) disallowance and capital work in progress interest addition both require factual verification of statutory and accounting conditions.

Disallowance under section 40(a)(ia) depends on whether the payer remains an assessee in default under the first proviso to section 201(1); if the payee has filed its return, accounted for the sum, paid tax due, and the prescribed accountant's certificate is in order, the disallowance cannot be sustained. The Tribunal therefore directed verification of the certificate by the Assessing Officer and deletion of the disallowance if the conditions were satisfied. The notional interest addition relating to capital work in progress also turned on verification of the assessee's supporting details, and was likewise remitted for factual examination, with deletion directed if the particulars were found correct.

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Issues: (i) Whether disallowance under section 40(a)(ia) could survive where the assessee produced an accountant's certificate under the first proviso to section 201(1). (ii) Whether the notional interest disallowance relating to capital work in progress required verification of the details furnished by the assessee.

Issue (i): Whether disallowance under section 40(a)(ia) could survive where the assessee produced an accountant's certificate under the first proviso to section 201(1).

Analysis: The provisions of section 40(a)(ia) operate where tax deductible at source has not been deducted, but the second proviso deems tax to have been deducted and paid if the assessee is not treated as an assessee in default under the first proviso to section 201(1). That proviso requires the payee to have furnished its return, taken the sum into account, paid tax due, and the payer to furnish the prescribed accountant's certificate. The certificate stated to have been filed before the appellate authority therefore required examination.

Conclusion: The issue was remitted to the Assessing Officer for verification, and the disallowance was to be deleted if the certificate was found in order.

Issue (ii): Whether the notional interest disallowance relating to capital work in progress required verification of the details furnished by the assessee.

Analysis: The interest addition was made because the assessee had not furnished adequate details of capital work in progress and related borrowings. The assessee produced details before the appellate forum, and those details required factual verification by the Assessing Officer before any conclusion could be reached on the capitalization issue.

Conclusion: The matter was remitted to the Assessing Officer for verification, with directions to delete the disallowance if the details were found to be in order.

Final Conclusion: Both additions were set aside for verification, and the appeal succeeded only for statistical purposes.

Ratio Decidendi: Where the statutory conditions of the first proviso to section 201(1) are satisfied and supported by the prescribed certificate, disallowance under section 40(a)(ia) cannot be sustained; similarly, a capitalisation-related interest disallowance must rest on verified facts.

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