2022 (1) TMI 1188 - AT - Income Tax

ITAT Partially Allows Assessee's Appeal on Interest Expenses Disallowance

The ITAT ruled in favor of the Assessee, partially allowing the appeal and limiting the disallowance to 30% of the interest expenses incurred due to ... Addition u/s 40(a)(ia) - scope of amendment to section 40(a)(ia) - whether the disallowance of the expense should be restricted to 30% by virtue of the amended provisions of section 40(a)(ia) of the Act which was brought in the statute by the Finance Act (No. 2) 2014 - HELD THAT:- Admittedly, as per the provision of section 40(a)(ia) of the Act, the disallowance has to be restricted to the tune of 30% in respect of the expenses on which TDS was not deducted by the assessee. Such amendment was retrospective as held by the Delhi Tribunal in the case of Muradul Haque [2020 (6) TMI 504 - ITAT DELHI]. Likewise, the Ahmedabad Tribunal in the case of Electronic Instrumentation & Control Pvt. Ltd. [2019 (12) TMI 141 - ITAT AHMEDABAD] has held that the amendment brought under the provisions of section 40(a)(ia) of the Act by the Finance Act (No. 2) 2014 is applicable retrospectively. Thus, in view of the above provisions, the 100% of the expenses incurred by the assessee without incurring the TDS cannot be disallowed. Rather disallowance shall be restricted to the tune of 30% only of such expenses. Accordingly, we direct the AO to restrict the disallowance to the tune of 30% of the interest expenses, as discussed above, incurred by the assessee. Hence, the ground of appeal of the assessee is partly allowed. Issues:1. Disallowance of expenses for non-deduction of TDS under section 194A read with section 40(a)(ia) of the Income Tax Act, 1961.Analysis:The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of Rs. 15,44,543 for non-deduction of tax at source under section 194A. The Assessee contended that there was no requirement to follow the procedure under Rule 31ACB for the relevant year and that TDS cannot be recovered from the payee if tax was already paid by them. The only issue raised was the confirmation of the addition by the AO on account of non-deduction of tax under section 194A read with section 40(a)(ia) of the Act.The facts revealed that the Assessee, a joint-venture engaged in road development/construction, paid interest to SREI Infrastructure Private Ltd without deducting TDS under section 194A. Consequently, the AO disallowed the amount under section 40(a)(ia) and added it to the Assessee's total income. The CIT (A) upheld the AO's decision, leading to the Assessee's appeal before the ITAT.During the proceedings, the Assessee argued for restricting the disallowance to 30% of the expenses under the amended provisions of section 40(a)(ia) by the Finance Act (No.2) 2014, which was deemed retrospective. The ITAT considered this argument along with the contentions of the Revenue. It was established that the disallowance should indeed be limited to 30% as per the amended provisions, citing precedents such as the case of Muradul Haque vs. ITO. The Ahmedabad Tribunal also supported the retrospective application of the amendment.Consequently, the ITAT directed the AO to restrict the disallowance to 30% of the interest expenses incurred by the Assessee, partially allowing the Assessee's appeal. The judgment was pronounced on 20/12/2021 in Ahmedabad.In conclusion, the ITAT ruled in favor of the Assessee, partially allowing the appeal and limiting the disallowance to 30% of the interest expenses incurred due to non-deduction of TDS under section 194A read with section 40(a)(ia) of the Income Tax Act, 1961.