2016 (10) TMI 693

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....f disallowance of interest paid u/s. 40(A)(ia) of the I.T. Act, 1961 wrongly interpreting that the interest paid on loan to non banking financial company is covered in exception under section 194(3)(iii) of the I.T. Act, thus holding that no tax is liable to be deducted at source. 2. The appellant craves the right to add, alter or amend any ground of appeal." 2. The brief facts of the case are that the assessee had filed his return of income declaring an income of Rs. 9,80,230/- on 30.9.2012. The assessee is engaged in the business of trading of handloom items under the name and style of M/s Ambica Associates. The case was selected for scrutiny under CASS. During the assessment proceedings the AO has raised various queries and the ass....

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....count of non deduction of TDS on account of interest paid on loan from banking concern of Rs. 35,06,062/- is illegal, unjust and without prejudice. During the course of appellate proceeding the Ld. AR submitted as under: - "Issue No.1: [Addition of Rs. 35,06,062/- on Alc. of U/s 40(a)(ia)] A.O. Observation: In this regard, Ld. AO observed as under: From the perusal of Profit and Loss account it is found that the assessee has claimed interest on loan at Rs. 35,06,062/- on secured loan where no TDS has been deducted as per the provision of section 194A of I.T. Act which attracts the provisions of disallowance U/s 40(a)(ia) of I.T. Act. Therefore, the interest paid on loan amounting to Rs. 35,06,062/- is disallowed and added to ....

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....ut deduction tax." Keeping into consideration the submissions of the appellant as well as the findings of the Ld. AO, I incline to agree with the contention of the appellant that no tax is liable to deduct on account of loan and interest payment to the bank. Therefore, the assessee has not deducted tax. This is exception as per sub-section IIIrd of section 3 of 194A of I.T. Act. Therefore, the assessee is not liable to treat as defaulter as per proviso 40(a) of I.T. Act and A.O. is not justified in disallowing the interest payment to the bank without deduction tax. Accordingly, the addition made on account of non deduction of TDS on account of interest paid on loan from banking concern of Rs. 35,06,062/- is deleted. Hence, this ground of....