Disallowance of Interest Payments for Non-Deduction of TDS u/s 40(a)(ia): ITAT Remands Matter to AO for Verification of Form 26A [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT) remanded the matter to the Assessing Officer (AO) to verify the submission of Form 26A regarding the disallowance of interest payments under Section 40(a)(ia) of Income Tax Act,1961, for non-deduction of Tax Deducted at Source(TDS).

DushyantsinhYadvendrasinhChudasama,appellant-assessee,was engaged in trading petrol, diesel, and oil through his proprietorship M/s Rudra Petroleum and was also a partner in M/s Rudra Minerals and M/s Rudra Construction. The assessments for both years were completed under Section 143(3) of the Income-tax Act, 1961.

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For Assessment Year 2014-15, the AO disallowed interest of Rs.11,500/- paid to M/s H J Associates and Rs.8,55,000/- paid to related parties due to non-deduction of TDS. Further, an addition of Rs.69,709/- was made for unpaid Value Added Tax(VAT) under Section 43B and Rs.12,83,000/- was added as unexplained unsecured loans under Section 68 of the Act.

The Commissioner of Income Tax(Appeals)[CIT(A)] confirmed all disallowances, noting failure to comply with TDS provisions, delay in VAT payment, and lack of proof for the loan creditors’ creditworthiness.

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The assessee counsel stated that interest of Rs.11,500/- was paid on a loan that was squared off by year-end. It was submitted that the recipient, M/s H J Associates, had included the interest in its return and paid tax on it. The counsel argued that since tax was already paid by the recipient, the assessee should not be treated as a defaulter under Section 201(1), and the disallowance under Section 40(a)(ia) should not apply. He also offered to submit a Form 26A certificate to confirm this. The Departmental Representative had no objection to sending the matter back to the Assessing Officer for verification.

The two member bench comprising Siddhartha Nautiyal(Judicial Member) and Makarand V.Mahadeokar(Accountant Member) sent the matter back to the AO to verify Form 26A. It held that if the assessee submitted a valid certificate showing that M/s H J Associates had paid tax on the interest, the disallowance under Section 40(a)(ia) should be deleted. In short,theappeal was allowed for statistical purposes.

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