Disallowance made u/s 40(a)(ia) of Income Tax Act due to Non Disclosure of Amortization Expenditure on Books of Accounts: ITAT Directs Re-adjudication [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) directed the assessing officer to re-adjudicate the disallowance made under section 40(a)(a) of the Income Tax Act,1961 due to nondisclosure of amortization expenditures on books of account. 

AVR Swarnamahal Jewellery Pvt. Ltd, the respondent-assessee claimed expenditure of some amount as ‘Amortization of discount on debentures’. The assessing officer disallowed the claim under section 40(a(a) of the Income Tax Act and the Commissioner of Income Tax (Appeals) deleted the disallowance made by the assessing officer. 

Thus the revenue appealed against the order passed by the Commissioner of Income Tax (Appeals) for deleting the disallowance made by the assessing officer. 

T. Banusekar, the counsel for the assessee contended that the assessee has deducted Tax at source under section 194A of the Income Tax Act only against the amortization expenditure and claimed for that year and had not deducted TDS against interest claimed in all the earlier years. 

It was further submitted that the debentures were converted into shares and this transaction would not amount to a transfer hence, the recipient would not be liable for any tax. 

D. Hema Bhupal, the counsel for the revenue relied on the decision made by the assessing officer and contended that the the benefit of circulars would be available for public limited companies with large public participation only.

While considering the high return of 24.45% per annum, the provisions of section 40A(2)(b) of the Income Tax Act would also apply since the market rate would be around 9.5% to 10% and the balance was excessive and would need to be disallowed. 

The two-member panel comprising V Durga Rao (judicial) and Manoj Kumar (Accountant) directed the assessing officer to re-adjudicate the matter in light of additional evidence filed by the revenue while allowing the appeal filed by the revenue. 

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