ITAT Limits Non-TDS Interest Disallowance to 30% as per Finance Act 2014 Amendment [Read Order]
The tribunal emphasised that, as per the Finance Act 2014 amendment effective from A.Y. 2015–16, disallowance should be restricted to 30% of the interest claim
Non-TDS Interest
Non-TDS Interest
The Nagpur bench of the Income Tax Appellate Tribunal (ITAT) has partially allowed a doctor’s appeal concerning interest disallowance under Section 40(a)(ia) for non-deduction of Tax Deducted at Source (TDS).
The appeal pertains to Dr. Vinit Vishwasrao Hingankar for the Assessment Year 2015–16 against the order passed by the CIT(A), Bhubaneswar, under Sections 143(3) and 250 of the Income Tax Act, 1961.
The issue arose from the AO’S disallowance of interest paid to two unsecured creditors amounting to Rs. 12,717 on account of non-deduction of TDS under Section 194A. The full disallowance was imposed under Section 40(a)(ia) of the Income Act.
During appellate proceedings, the assessee contended that the Finance Act (No.2) 2014, effective 1-4-2015, amended Section 40(a)(ia) such that disallowance for failure to deduct TDS should be limited to 30% of the interest payable, and not the entire amount.
The assessee highlighted that the AO overlooked this amendment while making the disallowance, resulting in an excessive adjustment against the assessee’s income.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The CIT(A) had dismissed the appeal, confirming the full disallowance. However, the ITAT examined the statutory provisions, including the amended Section 40(a)(ia), and concluded that the amendment clearly restricts disallowance to 30% of the interest amount in cases of non-deduction of TDS.
Accordingly, the single bench of Pavan Kumar Gadale (Judicial Member) directed the AO to recompute the disallowance at 30% of the interest paid to unsecured creditors, ensuring compliance with the amendment.
The ruling highlights the significance of keeping pace with legislative changes when applying provisions relating to TDS defaults.
By restricting disallowance to 30%, the tribunal also mitigated the undue financial burden on the assessee, while maintaining the compliance intent of Section 40(a)(ia). The decision sets a precedent for other taxpayers and AOs to follow the amended provision when determining disallowances for non-deduction of TDS on interest payments.
The appeal was thus partly allowed by the Tribunal for statistical purposes, limiting the disallowance to 30% of the claimed interest amount.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
