The Raipur bench of the Income Tax Appellate Tribunal (ITAT) held that the disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 shall be imposed when the assessee failed to deduct the Tax Deducted at Source (TDS) on the amount of interest to Non-Banking Financial Company (NBFC).
The assessee company had failed to deduct tax at source under Section 194A of the Income Tax Act on the amount of interest of Rs.52.97 lacs that was paid to the aforementioned NBFCs.
The claim of the assessee was the respective payee companies had included the aforementioned amounts of interest in their respective returns of income for the year under consideration and paid taxes on the same, it had failed to substantiate its said claim by placing on record any evidence in support thereof.
The Assessing Officer observed that the assessee had failed to comply with its statutory obligation of deducting tax at source on the aforesaid amount of interest paid to the NBFCs, thus triggering the provisions of Section 40(a)(ia) of the Income Tax Act and worked out a disallowance of Rs.15.89 lacs.
The 2nd proviso to Section 40(a)(ia) of the Income Tax Act read with the 1st Proviso to Section 201 of the Income Tax Act carves out an exception where the payee has included the disputed amount in its income and paid taxes on the same.
Then the assessee is not to be treated as being in default and would stand exonerated from the consequential disallowance under Section 40(a)(ia) of the Income Tax Act, but as observed by the lower authorities nothing has been placed on record by the assessee company which would bring its case within the realm of the aforesaid exception.
The Two-member bench comprising of Ravish Sood (Judicial member) and Arun Khodpia (Accountant member) held that the assessee company except for harping on its claim that the respective payees had included the interest incomes in their respective returns of income for the year under consideration and paid taxes on the same had however failed to substantiate the same in the manner required under law.
Therefore, there was no infirmity in the view taken by the lower authorities who had rightly made/sustained the disallowance under Section 40(a)(ia) of the Income Tax Act. Thus, the appeal of the assessee was dismissed.
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