Section 40(a)(ia) Disallowance Overturned Due to Valid Certificate Submission

The Income Tax Appellate Tribunal (ITAT), Jabalpur Bench, in the case of Rajsila Stone Crusher vs. ITO, has deleted the disallowance of made under Section 40(a)(ia) of the Income Tax Act for the non-deduction of Tax Deducted at Source (TDS) on deferred interest payments. The Tribunal ruled that the assessee was protected from disallowance because the payee, M/s Tata Motor Finance Ltd., had confirmed that the interest income had been offered and taxed in their hands, thereby nullifying the consequences of the assessee’s technical default.

ITAT Deletes Lakh Disallowance on Deferred Interest Citing Payee Tax Compliance

The assessee, Rajesila Stone Crusher, a business involved in the manufacturing and trading of gitti (crushed stone aggregate), was subjected to scrutiny assessment for the Assessment Year (AY) 2012-13. During the proceedings, the Assessing Officer (AO) noted that the assessee had debited an amount of as “Deferred Interest” paid to M/s Tata Motor Finance Ltd. for vehicle financing.

The AO found that the assessee failed to deduct tax at source under Section 194A (TDS on Interest other than interest on securities). Consequently, the AO disallowed the entire expenditure by invoking Section 40(a)(ia) of the Act, which prohibits the deduction of certain expenditures if TDS has not been deducted or deposited. The disallowance was sustained by the Addl. Commissioner of Income-tax (Appeals) [CIT(A)], who only deleted minor additions related to other expenses.