The Mumbai bench of Income Tax Appellate Tribunal (ITAT) held that the disallowance under section 40(a)(ia) of the Income Tax Act will not be attracted in the case if the payee has offered for tax the interest payments received by it from the assessee.
The assessee, an individual- aggrieved by the order of the Revenue whereby the AO disallowed the claim of interest expenditure by invoking section 40(a)(ia) r.w.s. 194A of the Act in respect of payments to Adlabs Films Ltd. for non-deduction at source.
The assessee claimed that since M/s.Adlabs Films Ltd. has offered the same amount of `10,08,795/- as interest income earned by it in its return of income for A.Y. 2007-08, the disallowance is unwarranted.
The bench noted that the Delhi High Court in CIT vs. Ansal Land Mark Township Pvt. Ltd and the co-ordinate benches of the Tribunals in various cases had found that the disallowance under section 40(a)(ia) of the Income Tax Act will not be attracted, if the respective payee has paid the required taxes thereon in accordance with law.
Allowing the appeal on the basis of the above precedents, the bench stated that“the disallowance under section 40(a)(ia) of the Act will not be attracted in the case on hand if the payee M/s. Adlabs Films Ltd. has offered for tax the interest payments received by it from the assessee in its return of income for A.Y. 2007-08 as claimed, subject to restoration of this issue to the file of the AO for verification of the actual position, i.e. as to whether the payee/recipient M/s. Adlabs Films Ltd. has offered the said interest receipts for taxation in its return of income for A.Y. 2007-08.”
Read the full text of the order below.
