Samir Synthetics Mills Vs DCIT (ITAT Ahmedabad)
The issue under consideration is whether the disallowance u/s 40(a)(ia) is justified for non deduction of TDS u/s 194A on financial charges paid for car loan?
ITAT states that they have perused the provisions of section 194A of the Act pertaining of deduction of tax on payment of interest other than interest on securities. The Ld. counsel has neither demonstrated how the financial charges paid for car loan are not covered u/s. 194A of the Act , nor pointed out any specific exception prescribed in section 194(3) of the Act under which the payer of the interest on car loan was covered. However, the alternative contention of the ld. counsel that no TDS to be made if the payee has paid tax as per proviso to section 40(a)(ia) and the judicial pronouncements referred in his submission and the claim that payment made to Navin Tradelink Pvt. Ltd. was towards reimbursement of expenses are required to be considered after examination and verification of the relevant material. Therefore, ITAT restore both the issues as supra to the file of the assessing officer for deciding afresh after examination/verification of the relevant material to be furnished by the assessee at the time of set aside proceedings. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes.
FULL TEXT OF THE ITAT JUDGEMENT
This assessee’s appeal for A.Y. 2010-11, arises from order of the CIT(A)-3, Ahmedabad dated 02-02-2016, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
2. The assessee has raised following grounds of appeal:-
“1. The Ld. C.I.T. (A) has erred in dismissing the appeal preferred by the Appellant in regard to the disallowance made by the A.O. u/s 14A amounting to Rs.5,13,516/- by following the judgement of Hon. Mumbai ITAT in the case of HDFC Ltd.
1.1 It is submitted and contended that the Ld. C.I.T. (A) ought not to have dismissed” referred ground of appeal but ought to have allowed the appeal of the Appellant in view of detailed facts and submission made before him.
2. The Ld. C.I.T.(A) has erred in dismissing the appeal preferred by the Appellant against the disallowance of depreciation on Motor Cars amounting to Rs.l,98,672/-made by the A.O.
2.2 It is submitted and contended that the Ld. C.I.T. (A) ought not to have dismissed the above referred ground of appeal but ought to have allowed the appeal of the Appellant in view of detailed facts and submission made before him.
3. The Ld. C.I.T. (A) has erred in dismissing the appeal preferred by the Appellant against the disallowance made by the A.O. u/s 40(a)(ia) amounting to Rs. 7,34,456/-.
3.1 It is submitted and contended that the Ld. C.I.T. (A) ought not to have dismissed the above” referred ground of appeal but ought to have allowed the appeal of the Appellant in view of detailed facts and submission made before him.
4. The Ld. C.I.T. (A) has erred in dismissing the appeal preferred by the Appellant against the disallowance made by the A.O. u/s 36(1)(iii) amounting to Rs. 3,49,216/-.
4.1 It is submitted and contended that the Ld. C.I.T. (A) ought not to have dismissed the above referred ground of appeal but ought to have allowed the appeal of the Appellant in view of detailed facts and submission made before him.
Under the facts and circumstances of the case, the order of the C.I.T.(A) confirming the disallowance as referred above is requested to be set-aside and appeal of the Appellant may kindly be allowed.”
3. The fact in brief is that assessee has filed return of income disclosing income at nill on 27th Sep, 2010. Subsequently, the case was selected under scrutiny and issued notice u/s. 143(2) of the act on 31st August, 2011. The remaining facts of the case are discussed as under:
Ground No. 1 (Disallowance u/s. 14A amounting to Rs. 5,13,516/-)
4. At the time of assessment, the assessing officer noticed that assessee has earned exempt income. On query , the assessee explained that they have earned dividend income of Rs. 2,48,183/- and this dividend income was earned from the investment made in shares/MF in the past years and no new investment was made during the year. It was further stated that whatsoever investment was made, it was made out of internal accrual or non-interest bearing fund. The assessee has given working of inadmissible amount u/s. 14A to the amount of Rs. 43,634/- for disallowance u/s. 14A of the Act. The assessing officer has not accepted the explanation of the assesse stating that assessee has given only general explanation and not submitted any proof or specific explanation to demonstrate that investment made out of interest free fund and there was no diversion of interest bearing funds for non-business purposes. Therefore, the assessing officer has computed the disallowance u/s. 14A to the amount of Rs. 5,13,516/- u/s. 14A r.w. rule 8D of the I.T. Act.
5. The assesse has filed appeal against the decision of ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee reiterating the facts reported by the assessing officer.
Ground No. 2 ( Depreciation of Motor Car expenses of Rs. 1,98,672/-)
6. At the time of assessment, the assessing officer noticed that assessee has made disallowance of Rs. 20,000/- out of motor car expenses, however, no proportionate disallowance has been made out of depreciation claimed on motor car. The assessing officer has stated that the assessee has treated the part of motor car expenses as pertained to non-business purposes, therefore, the proportionate disallowance of depreciation @ 20% to the amount of Rs. 1,98,672/- was disallowed after attracting provision of section 38(2) of the Act.
7. The assesse has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal stating that assessee could not substantiate that motor car has been exclusively used for business purposes.
Ground No. 3 ( Disallowance of Rs. 7,34,456/- u/s. 40(a)(ia) of the Act)
8. During the course of assessment, the assessing officer asked the assessee to furnish detail of interest paid on car loan and TDS deducted thereupon and further to explain if TDS has not been deducted on such interest paid then why the said interest should not be disallowed u/s. 40(a)(ia) of the Act. The assessee explained that no TDS on interest paid of Rs. 5,51,159/- on car loan was deducted since the amount of monthly EMI determined by the car loan provider was inclusive of principal + interest amount secured by way of post dated cheque presented every month for a clearance on stipulated date. The assessing officer has not accepted the explanation of the assessee and disallowed interest of Rs. 5,51,159/- paid on car loan u/s. 40(a)(ia) of the Act. The assessing officer has also noticed that the assessee has paid sum of Rs 3,54,746/- on account of handling expenses to Mr. Naveen Trade Link Pvt. Ltd. without deduction of tax. The assessing officer was of the view that since the provision of section 194C has been brought on statute by the Finance Act, 2009, therefore, the assessee was requested to explain as to why the payment made to M/s Naveen Trade Link Pvt. Ltd. should not be disallowed u/s. 40(a)(ia) of the Act. The assessee explained that no disallowance u/s. 40(a)(ia) could be made although no TDS has been made since the handling charges was actually paid during the period from 01-04-2009 to 31-09-2009 and no amount remained payable at the year end. The assessing officer has not agreed with the submission of the assessee stating that assessee was liable to deduct tax as per the provision of section 194C of the Act and made disallowance of Rs. 1,83,297/- of payment made upto 31st Sep, 2009 to M/s. Naveen Trade Link Pv. Ltd. Accordingly, the assessing officer has made total disallowance of Rs. 7,34,456/- u/s. 40(a)(ia) of the Act.
9. Aggrieved assesse has filed appeal before the ld. CIT(A) . The ld. CIT(A) has dismissed the appeal of the assessee.
Ground No. 4 (Disallowance of Rs. 3,49,216/- u/s. 36(1)(vii) of the Act.
10. At the time of assessment, the assessing officer observed that assessee has made advances to the following persons for which no business purposes have been explained and no interest has been received. The detail of such loans and advances is reproduced as under:-
