INCOME TAX ACT, 1961

Section 40(a)(ia)

Business disallowance under section 40(a)(ia) - Disallowance of interest expenditure incurred for non-deduction of TDS - Assessee having bona fide belief that section 194A not applicable -

AO made disallowance of interest expenditure incurred by invoking the provisions of section 40(a)(ia) for non-deduction of TDS. Assessee was stated to have availed of a loan from a company and had paid interest amount during the assessment year 2013-14. It was the case of assessee that he was under bona fide belief that the said company was a banking corporation and therefore, TDS was not required to be deducted under section 194A. However, AO observed that the said company was a NBFC and therefore, provisions of section 194A are squarely applicable. Consequently, AO invoked provisions of section 40(a)(ia) and disallowed interest incurred by the assessee on loans availed of from NBFC Company owing to failure of the assessee to deduct tax thereon. Held: In the backdrop of long line of judicial precedents, including judgment of Hindustan Coco-Cola Beverage Ltd. (2007) 293 ITR 226 (SC) : 2007 TaxPub(DT) 1452 (SC), disallowance was set aside and the issue was restored to AO. Assessee shall be entitled to produce such evidences as may be considered necessary to defend its case for non-deduction of TDS. AO shall be entitled to make such enquiry from the payee as may be considered expedient to ascertain whether there is any loss of revenue by such non-deduction. AO shall delete the disallowance of amount carried out under section 40(a)(ia) where it was found that the payee concerned had included the receipt obtained from the assessee for the purposes of computation of total income in its return.

Followed:Hindustan Coca-Cola Beverage Pvt. Ltd v. CIT (2007) 293 ITR 226 (SC) : 2007 TaxPub(DT) 1452 (SC)

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2013-14

INCOME TAX ACT, 1961

Section 68

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