Disallowance u/s 40(a)(ia) for non deduction of tax on payments to well-known NBFCs

Disallowance u/s 40(a)(ia) for non deduction of tax on payments to well-known NBFCs-ITAT remands issue for examination if NBFCs offered income to tax

ABCAUS Case Law Citation:
ABCAUS 2633 (2018) (11) ITAT

Important Case Laws Cited/relied upon:
Shri Azmath Ulla vs. ACIT
ITO vs. Dr. Jaideep Kumar Sharma – (2014) 52 taxmann.com 420
CIT vs. Naresh Kumar – 362 ITR 256

The appellant was a Pvt. Ltd. Company who had filed the present appeal, seeking to set aside the impugned order passed by the CIT (Appeals) in confirming the action of the Assessing Officer (AO) in disallowing the interest paid to Financial Institutions on account of non deduction of TDS.

The AO, from the profit & loss account noted that the assessee had incurred finance cost towards interest and the assessee was called upon to furnish the detail of payment of interest and deduction of tax.

Details furnished by the assessee showed that it had made payments to various parties without deduction of tax at source. Declining the contentions raised by the assessee, AO proceeded to conclude that assessee has committed default u/s 194A of the Income-tax Act, 1961 (the Act) and consequently disallowed the interest expenditure u/s 40(a)(ia) of the Act.

CIT(A) confirmed the disallowance by dismissing the appeal. Feeling aggrieved, the assessee was before the Tribunal.

The assessee contended that that the companies were well-known finance companies (NBFCs) engaged in the business of financing. It was understandable that the said companies had filed their returns on regular basis and have shown the interest received in their books of account and paid due liabilities of income-tax and in such circumstances, no disallowance can be made.

The Tribunal observed that though the assessee had not filed detail of any material if the recipient of interest in question accounted for the interest received in their account and paid due liabilities of the income-tax.

However, the Tribunal took the contentions raised by assessee on its face value as all the companies except two were well-known NBFC and therefore, it remanded the issue in question back to the AO to verify the contentions raised by the assessee and in case, he is satisfied that the concerned NBFCs have included this income in computation of their income offered to tax, then it would be deemed to comply with the provisions contained u/s 40(a)(ia) of the Act.

In other words, in case NBFCs are found to have shown the interest received in their books of account and paid due liabilities of the income-tax for computation of income then no disallowance can be made u/s 40(a)(ia) of the Act.

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