2023 (4) TMI 233 - AT - Income Tax

Appeal allowed for interest deduction despite TDS issue.

M/s. Hamosons Exports P. Ltd Versus The Deputy Commissioner of Income Tax, Corporate Circle-2 (2) Chennai.

The Supreme Court condoned the delay in filing the appeal due to the Covid-19 pandemic and admitted it for adjudication. The appellant's claim for ... Disallowance of deduction of interest paid to Canara bank in the computation of total taxable income - HELD THAT:- As following the decision of the Tribunal in the case of assessee’s sister concern in identical facts and circumstances [2021 (12) TMI 140 - ITAT CHENNAI] the deduction claimed regarding interest expenditure need to be allowed. Disallowance made since no TDS was deducted while making payment to M/s.Edelweiss under Section 40(a)(ia) of the Act - In light of this particular reason emanating from this appeal, we set aside the impugned order of the Ld.CIT(A) and restore the matter back to the file of the AO with a direction that if M/s.Edelweiss has shown the amount in question in the return of income for AY 2015-16 and offered for tax the same, then there is no need of ANY disallowance u/s.40(a)(ia) of the Act. Therefore, only for limited purpose, we remit this issue back to the file of the AO - Appeal of the assessee is allowed for statistical purposes. Issues Involved:1. Delay in filing the appeal.2. Disallowance of the claim for deduction of interest paid to Canara Bank.3. Non-deduction of TDS on the repayment of interest.Summary:1. Delay in filing the appeal:At the outset, the appellant's counsel submitted that the delay of 41 days in filing the appeal was due to the Covid-19 pandemic. The Supreme Court had extended the limitation period during the pandemic, and the delay of 41 days falls within this period. Respectfully following the Supreme Court's order, the delay was condoned, and the appeal was admitted for adjudication.2. Disallowance of the claim for deduction of interest paid to Canara Bank:The assesse company, engaged in the business of purchase and sale of readymade garments, had claimed expenses of Rs.5,20,39,358/- towards finance charges. The AO disallowed the claim on the grounds that the interest part was penal in nature and not allowable as per Section 37 of the Act. Additionally, the finance cost included recovery charges by M/s. Edelweiss, which were not related to the business activity of the assesse company. The CIT(A) upheld the AO's decision, also noting that the assesse failed to deduct TDS on the repayment of interest, attracting Section 40(a)(ia) of the Act.Upon appeal, it was noted that a similar issue had been adjudicated in favor of the assesse's sister concern, M/s. Amex Garments Pvt. Ltd., by the Tribunal in ITA No.2513/Chny/2018 for AY 2015-16. The Tribunal had allowed the deduction claimed by the assesse, stating that interest on loans borrowed for business purposes is deductible on a payment basis as per Section 43B of the Act. Following this precedent, the Tribunal allowed the deduction claimed by the assesse for interest expenditure.3. Non-deduction of TDS on the repayment of interest:The CIT(A) had also disallowed the claim on the grounds of non-deduction of TDS while making payment to M/s. Edelweiss under Section 40(a)(ia) of the Act. The Tribunal set aside the impugned order and remitted the matter back to the AO with the direction to verify if M/s. Edelweiss had shown the amount in question in its return of income for AY 2015-16 and offered it for tax. If so, no disallowance under Section 40(a)(ia) would be warranted. The AO was instructed to call for necessary details directly from M/s. Edelweiss and verify, granting the assesse an opportunity to file relevant documents during verification.Conclusion:The appeal of the assesse was allowed for statistical purposes, with the matter remitted back to the AO for limited verification regarding the TDS issue. The order was pronounced in the open court on 24th March 2023.