2022 (9) TMI 976 - AT - Income Tax

Tribunal overturns disallowances under Income-tax Act, citing no exempt income & timely tax deduction

The Tribunal allowed the appeal of the assessee, setting aside the disallowances made under sections 14A and 40(a)(ia) of the Income-tax Act, 1961. The ... Disallowance u/s. 14A r.w.r 8D - HELD THAT:- As in the instant case there is no exempt income earned by the assessee, the ld.AO was not justified in making disallowance u/s. 14A r.w.r. 8D. Therefore, set aside the finding of the ld. CIT(A) and delete the impugned addition made by the ld.AO u/s. 14A - Ground of assessee’s appeal is allowed. TDS u/s 194A - Disallowance u/s. 40(a)(ia) - HELD THAT:- Assessee had incurred interest expenditure - It was liable to deduct tax at source u/s. 194A - The provisions of section 40(a)(ia) could have been attracted in the case of assessee if the amount of TDS has not been deducted and deposited before the due date of filing of return u/s. 139(1). On perusal of Tax Audit Report provided u/s. 44AB of the Act more specifically annexure 5 for Form 3CB and as stated by the tax of Rs. 3,158/- has been deducted at source on the alleged interest payment of Rs. 31,580/- and the assessee has deposited the amount of Rs.3,158/- on 20-04- 2006, which is much more before the due date of filing return u/s. 139(1). Under these facts and circumstances of the case the ld. AO erred in invoking the provisions of section 40(a)(ia) - therefore, set aside the impugned finding of the ld. CIT(A) and delete the disallowance u/s. 40(a)(ia). Issues:1. Disallowance u/s. 14A r.w.r 8D for no exempt income.2. Disallowance u/s. 40(a)(ia) for non-deduction of tax at source.Issue 1 - Disallowance u/s. 14A r.w.r 8D for no exempt income:The appeal pertains to the assessment year 2006-07 challenging the disallowance made under section 14A of the Income-tax Act, 1961. The assessee contended that since no exempt income was earned, the disallowance u/s. 14A was unwarranted. The Tribunal referred to a Co-ordinate Bench decision and a High Court ruling emphasizing that no disallowance should occur if no tax-free income was earned. Following these precedents, the Tribunal held that as the assessee had not earned any exempt income, the disallowance made by the Assessing Officer was unjustified. Consequently, the Tribunal deleted the disallowance of Rs. 3,87,770 made u/s. 14A, allowing ground no. (i) of the assessee's appeal.Issue 2 - Disallowance u/s. 40(a)(ia) for non-deduction of tax at source:Regarding the disallowance of Rs. 31,580 made u/s. 40(a)(ia) for non-deduction of tax at source, the assessee argued that the tax amount had been deducted and deposited before the due date of filing the return u/s. 139(1) of the Act. The Tribunal examined the Tax Audit Report and confirmed that the tax had indeed been deducted and paid well before the deadline. Consequently, the Tribunal held that the Assessing Officer erred in invoking section 40(a)(ia) and deleted the disallowance of Rs. 31,580. Ground no. (ii) of the assessee's appeal was allowed.General Issue - Ground no. (iii):The third ground raised by the assessee was of a general nature and did not require any specific adjudication.In conclusion, the Tribunal allowed the appeal of the assessee, setting aside both the disallowances made under sections 14A and 40(a)(ia) of the Income-tax Act, 1961. The judgment was delivered on 20/09/2022.