No disallowance u/s 40(a)(ia) can be made merely for not e-filing form 26A

No disallowance u/s 40(a)(ia) can be made merely for not e-filing form 26A which is a procedural lapse.

In a recent judgment, ITAT Mumbai has held that no disallowance u/s 40(a)(ia) can be made merely for not e-filing form 26A which is a procedural lapse.

ABCAUS Case Law Citation:
4618 (2025) (06) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) NFAC in confirming disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 (the Act) only on the basis that Chartered Accountant Certificate in Form 26A was not filed in electronic form.

The assessee was engaged in the development of a real estate project. The case was selected for scrutiny to examine the assessee’s income from the real estate business and other issues. 

The AO noted that the assessee had incurred interest expenses during the year under consideration. The assessee was required to deduct TDS on the expenses as per the provisions of section 194A of the Act.

The assessee claimed that its case falls within the second proviso of section 40(a)(ia), as per which the assessee was not in default as per section 201 of the Act, as it had submitted Form No. 26A in respect of all the three parties.

The AO noted that the electronic filing of Form 26A is mandatory from AY 2017-18, and therefore, assessee was asked to furnish the acknowledgement of e-filing of Form 26A.

The assessee submitted that the Form 26A had not been e-filed with CPC TDS. Accordingly, AO proceeded to make an addition on account of disallowance of 30% interest paid u/s 40(a)(ia) of the Act and added amount of interest paid to the assessee’s income. 

The CIT(A) confirmed the order of AO after observing that for claiming immunity u/s 201, there should be a valid Form 26A issued by the Chartered Accountant and filed in the electronic mode as prescribed. Mere production of physical form does not entitle the assessee to benefit of the 1st proviso to section 201 of the Act.

Before ITAT assessee pointed that the issue is covered in favour of the assessee by several decisions of the coordinate benches. In particular, he has relied upon the order of the coordinate bench wherein the coordinate bench in turn relied on the order of the Bengaluru Bench of ITAT.

The Co-ordinate Bench observed that the Bengaluru Bench of ITAT had held that the assessee had substantiated the fact that the payee had included the interest as income and had paid taxes on the same and the condition of filing of Form No. 26A was complied in substance. Therefore, the assessee cannot be denied the substantial benefit of claiming the interest expense as a deduction on the ground off a procedural lapse.

The Co-ordinate Bench on the basis of above had held that assessee cannot be denied the substantial benefit of claiming the interest expense as a deduction, on the ground of a procedural lapse and deleted the identical addition made u/s 40(a)(ia) of the Act.

Following the decision of the coordinate bench, the Tribunal held that the assessee was entitled to the benefit of the first proviso of section 40(a)(ia) of the Act he Act, and hence, the disallowance was deleted.

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