ITAT Upholds No TDS Liability for Patel Engineering Ltd, Confirms Deletion of Disallowance u/s 40(a)(ia) [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) ruled in favor of Patel Engineering Ltd. and upheld that the company is not liable for Tax Deducted at Source ( TDS ) and confirmed the deletion of disallowance under Section 40(a)(ia) of the Income Tax Act, 1961. 

One of the grounds raised by the revenue in its appeal was that the Commissioner of Income Tax ( Appeals ) [ CIT( A ) ], wrongly deleted the disallowance made under Section 40(a)(in) of the Income Tax Act, 1961, without appreciating the fact that the assessee is liable to deduct tax under 194A while making payment of interest of Rs. 18,53,35,410 to AGE Patel JV.

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Coming to the facts of the case, the assessing officer disallowed payments made by Patel Engineering Ltd. to AGE Patel Joint Venture (JV), arguing that the company failed to deduct TDS as required under Section 194A of the income tax statute on interest payments.

The revenue contended that the JV was a separate taxable entity, and Patel Engineering Ltd. was responsible for withholding tax on interest payments made to it. The total amount under dispute was Rs. 11.55 crore for the assessment year (AY) 2017-18 and Rs. 18.53 crore for AY 2018-19.

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The assessee’s counsel contended that the JV had ceased to exist as a separate taxable entity after an amendment agreement in 2016, under which the entire project execution and financial responsibility were transferred to the company.

The CIT(A) also noted that Patel Engineering Ltd. had taken full financial and operational control over the JV’s contract and that interest payments routed through the JV were effectively in favor of IRCON, a government entity exempt from TDS obligations.

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The tribunal noted that the JV had effectively ceased to exist as a separate entity for tax purposes.

The bench held that no TDS is to be deducted, and thus the bench confirmed the deletion disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.

The order was passed by Girish Agrawal ( Accountant Member) and Amit Shukla (Judicial Member).

To Read the full text of the Order CLICK HERE

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