No disallowance u/s 40(a)(ia) for merely not filing Form 26A before AO if content of Form not disputed

No disallowance u/s 40(a)(ia) for merely not filing Form 26A before Assessing Officer. Once content of Form-26A not disputed, assessee entitled to benefit

ABCAUS Case Law Citation:
ABCAUS 3220 (2020) (01) ITAT

Important case law relied upon by the parties:
New Alignment Vs ITO(2016)69 122(Kol)
CIT Vs Ansal Land Mark Township (P)Ltd. 347 ITR 647(Del)
Rajeev Kumar Agarwal Vs Add.CIT, Mathura

In the instant case the appeal was filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals) inter alia deleting addition made on account of disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 (the Act).

The assessee was a Private Limited Company, registered under the provisions of The Companies Act, 1956. For the relevant Assessment Year, it had e-filed its return of income claiming a refund of TDS in excess of tax payable on returned income.

During the course of assessment proceedings, the assessee-company had furnished each and every information/documents sought for by the Assessing Officer (AO). However the AO made an addition u/s 40(a)(ia) on account of failure of the assessee to deduct tax at source (TDS) on payments of interest on loan to private NBFC.

In first appeal, the assessee furnished additional evidence in the form of certificate of Chartered Accountant (Form 26A) under first proviso to Section 201(1) of the Act certifying that payee NBFC had furnished his return of income for the relevant A.Y. and included amount of interest in its income and paid due taxes.

The CIT(A) forwarded the additional evidence to the AO for consideration who submitted Remand Report and raised several objections such as Second Proviso to Section 40(a)(ia) was not applicable to the relevant A.Y. and as per Annexure A figure of amount shown to have been received by NBFC was more than interest claimed by the appellant.

The AO also very strongly contended that as per Rule 31ACB assessee is required to furnish Annexure A alongwith Form 26A, but assessee had not filed such Form 26A as required by Rules.

In the rejoinder, the assessee placed reliance on decision  wherein it was held that Second Proviso inserted in Section 40(a)(ia) of the Act by Finance Act 2012 should be given retrospective effect from 01.04.2005.

The CIT(A) observed that courts had been almost unanimous in holding that second proviso to Section 40(a)(ia) should be given retrospective effect.

With regard to difference in amount paid to NBFC, the assessee clarified that the A.O. had made the disallowance for non-deduction of IDS for interest paid to NBFC and thus, there was no discrepancy in both the figures.

The CIT(A) observed that there was no discrepancy in the figure mentioned in Ledger A/c and amount disallowed by A.O. Even if the recipient has shown more amount, then same should not be viewed adversely because assessee is not at fault for such mistake.

Regarding the objection of AO with regard to compliance of Rule 31ACB is concerned which requires submission of Form 26A with certificate Annexure ‘A’, the CIT(A) termed the approach of the AO being hyper-technical in giving more importance to technicalities instead of factual aspect of the case.

The CIT(A) directed the AO to grant the relief representing interest paid to NBFC for which necessary details/evidences in Form 26A & Annexure A had been filed by the appellant.

No disallowance u/s 40(a)(ia) for merely not filing Form 26A before AO

The Tribunal observed that it was clear from the provisions of Section 40(a)(ia) of the Act, if the payee had filed the return of income and shown the interest income in the Profit & Loss A/c the assesee was entitled to relief.

The above facts were clear from the Form-26A filed by the assessee, which was sent by the CIT(A) to the Assessing Officer for verification and the Assessing Officer thereafter had submitted the report but simultaneously taken the objection that the said certificate of Form -26A was not filed before the Assessing Officer.

The Tribunal opined that the objections of Assessing Officer both before the CIT(A) and before the Bench the were technical in nature.

Relying on the judgment of the Hon’ble Supreme Court, the Tribunal held that and once the content of Form-26A were not disputed, then the assessee is entitled to the benefit of proviso to Section 40(a)(ia) of the Act.

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