2023 (8) TMI 1500 - AT - Income Tax

Interest payments to NBFCs disallowed under Section 40(a)(ia) without proper TDS deduction certificates

The ITAT Raipur upheld the disallowance under Section 40(a)(ia) for interest payments made to NBFCs without TDS deduction under Section 194A. The assessee ... TDS u/s 194A - Addition u/s.40(a)(ia) - claim for deduction of interest payment to NBFC’s - claim of the assessee that the respective payee companies had considered the aforementioned amounts of interest in their respective returns of income for the year under consideration and paid taxes on the same, but it failed to substantiate its said claim by producing the requisite certificates in support thereof. HELD THAT:- As the assessee company except for harping on its claim that the respective payees had included the interest incomes in their respective returns of income for the year under consideration and paid taxes on the same, had however failed to substantiate the same in the manner required under law, therefore, we find no infirmity in the view taken by the lower authorities who had rightly made/sustained the disallowance u/s.40(a)(ia). The assessee company had not only failed to file both before the AO and the CIT(A) the certificates of the accountants in the prescribed form i.e in “Form 26A” r.w 31ACB, certifying that the respective payees had fulfilled all the conditions mentioned in the “1st proviso” to Sub-section (1) to Section 201 of the Act, but the Ld. AR on being queried during the course of hearing of the appeal had candidly admitted that the said certificates had till date have not been obtained by the assessee from the said payees. As both the lower authorities had categorically observed that the assessee had failed to produce the certificates/evidence in support of its claim that the respective payees companies i.e NBFC’s had included the amount of interests in their respective returns of income and paid tax on the same - assessee company despite lapse of substantial time period had till date failed to cumulatively satisfy the mandatory conditions contemplated in the “2nd proviso” to Section 40(a)(ia) a/w “1st proviso” to Section 201 of the Act, which were indispensably required to be done on its part as a pre-condition for it not being held as an assessee-in-default, therefore, no infirmity in the view taken by the CIT(Appeals) who had rightly sustained the disallowance made by the A.O u/s. 40(a)(ia) - Decided against assessee. Issues:Interpretation of Sec. 40(a)(ia) of the Income-tax Act, 1961 regarding disallowance of interest payment to NBFCs without deduction of tax at source.Assessment of whether the assessee company substantiated its claim of deduction of tax at source on interest payments to NBFCs.Analysis:The appeal concerns the disallowance of Rs.15,89,324/- under Sec. 40(a)(ia) of the Income-tax Act, 1961 by the Commissioner of Income Tax (Appeals), National Faceless Appeal Center (NFAC). The controversy revolves around whether the lower authorities were correct in disallowing the deduction of interest payment to NBFCs by the assessee company. The Assessing Officer (A.O) disallowed the amount as the assessee failed to produce certificates supporting the deduction of tax at source on interest payments to two NBFCs totaling Rs.52.97 lacs. The CIT(Appeals) upheld the disallowance, citing the assessee's failure to provide evidence during the appellate proceedings. The A.O observed that the assessee did not comply with its obligation to deduct tax at source, triggering Sec. 40(a)(ia) of the Act.During the appeal before the ITAT, it was argued that if the NBFCs included the interest payments in their income and paid taxes, the assessee should not be considered in default. However, the ITAT found no supporting evidence from the assessee to substantiate this claim. The provisions of the Act require the payee to fulfill certain conditions, including furnishing a return of income, computing income, and paying due taxes. The assessee failed to provide the necessary certificates in Form 26A as required by law. The ITAT noted that the case cited by the assessee was not applicable due to the lack of evidence supporting the claim made. Both lower authorities had emphasized the absence of evidence from the assessee regarding the tax deduction at source.Ultimately, the ITAT upheld the decision of the CIT(Appeals) to dismiss the appeal, as the assessee failed to meet the statutory requirements for not being considered an assessee-in-default. The ITAT highlighted the importance of fulfilling the conditions set out in the Act to avoid disallowance under Sec. 40(a)(ia). The failure of the assessee to provide the necessary documentation and certificates led to the dismissal of the appeal.In conclusion, the ITAT affirmed the disallowance made by the A.O and upheld by the CIT(Appeals) under Sec. 40(a)(ia) of the Act. The appeal of the assessee was dismissed based on the failure to substantiate the claim of deduction of tax at source on interest payments to NBFCs.