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of <h1>Section 40(a)(ia) Disallowance Set Aside Pending Further Verification of Interest Payments and Lease Charges</h1> The ITAT Kolkata set aside the orders of the AO and CIT(A) regarding disallowance under section 40(a)(ia) for interest paid to financers, lease rent, and ... Disallowance u/s 40(a)(ia) - interest paid to Financers, Lease rent for Land & Dumber Hire Charges paid - HELD THAT:- The financers to whom the interest was paid by the assessee are apparently regular assessees and some of them are listed companies and, therefore, the possibility that the interest received from the assessee had been shown in their returns of income on which tax is been paid cannot be ruled out. The assessee failed to furnish any evidence in support of the claim that the interest had been shown in their returns of income, the onus for which lay on the assessee. Even before the CIT(A), proper compliance could not be made. Therefore, in the interest of justice and fair play and since the assessee could not get the required evidence despite making efforts and as per the 2nd proviso of section 40(a)(ia), where an assessee fails to deduct the whole or any part of the tax on any such sum, but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payees referred to in the said proviso. Since the matter needs verification and adequate opportunity to the assessee, therefore, the orders of the Ld. CIT(A) as well as of the Ld. AO are hereby set aside and the Ld. AO is directed to frame the assessment order de novo - Appeal filed by the assessee is allowed for statistical purposes. ISSUES: Whether delay in filing the appeal before the Tribunal can be condoned on grounds of sufficient cause.Whether the addition of interest payments to financiers to the assessee's income under section 40(a)(ia) of the Income Tax Act, 1961 is justified in absence of proof of TDS deduction or evidence that financiers declared such interest as income.Whether the assessment order can be set aside and remanded for fresh adjudication when the assessee fails to produce evidence but requests issuance of notices to financiers under section 133(6) for verification. RULINGS / HOLDINGS: The delay in filing the appeal was condoned as there was 'sufficient cause' due to the advocate's severe illness requiring extensive medical treatment and rest, justifying the delay.The addition of Rs. 12,00,600/- under section 40(a)(ia) was upheld initially due to the assessee's failure to furnish evidence that the interest paid was shown by the financiers in their taxable income, placing the onus on the assessee to prove otherwise.In view of the 2nd proviso to section 40(a)(ia), and since the assessee made efforts to obtain evidence but could not produce it, the orders of the Assessing Officer and Commissioner of Income Tax (Appeals) were set aside, and the matter was remanded for de novo assessment with directions to verify the interest payment after the assessee furnishes necessary evidence. RATIONALE: The legal framework applied includes section 143(3), 133(6), and particularly section 40(a)(ia) of the Income Tax Act, 1961, which deals with disallowance of expenses where tax deduction at source is not made or paid.The 2nd proviso to section 40(a)(ia) was interpreted to mean that if the payees have filed their returns declaring the income and paid tax thereon, the assessee shall be deemed to have deducted and paid the tax on such sum on the date of furnishing of the return by the payees.The Court emphasized the onus on the assessee to produce evidence to avoid disallowance, but also recognized the assessee's right to have the matter verified through notices under section 133(6) to payees, ensuring 'adequate opportunity' and 'interest of justice and fair play'.This approach reflects a balanced doctrinal stance, allowing remand for fresh adjudication rather than outright dismissal or confirmation of addition, promoting procedural fairness.
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