Servewell Household Appliance Vs ITO (ITAT Rajkot)
Interest to NBFC Not Automatically Disallowable u/s 40(a)(ia): ITAT Rajkot Remands Matter to Verify Payee’s Tax Compliance
The Rajkot Bench of the Income Tax Appellate Tribunal, Rajkot Bench allowed the assessee’s appeal for AY 2014-15 for statistical purposes and set aside the order of the CIT(A), remanding the matter to the Assessing Officer for fresh adjudication.
The assessee, engaged in manufacturing and trading of household appliances, had paid EMIs on a car loan taken from Daimler Financial Services India Pvt. Ltd. (an NBFC). The AO disallowed the interest component of ₹3.86 lakh under section 40(a)(ia) on the ground of non-deduction of TDS. The AO also made disallowances of professional tax ₹46,025 u/s 43B and added ₹1,416 as interest on income-tax refund, all of which were confirmed by the CIT(A) through a non-speaking order.
Before the Tribunal, the assessee contended that the EMI payments included interest, that the NBFC is regularly assessed to tax, and that the interest income had already been offered to tax by the payee. Reliance was placed on judicial precedents holding that the second proviso to section 40(a)(ia) is curative and retrospective, and that no disallowance can survive if the payee has paid tax on the corresponding income.
The ITAT observed that it is the duty of the AO to verify the tax compliance of the payee by exercising powers under sections 133(6)/131, before invoking disallowance under section 40(a)(ia). The Tribunal noted that the assessee had not produced Form 26A or supporting evidence earlier, and the issue was not properly adjudicated by the lower authorities.
Accordingly, the ITAT set aside the order of the CIT(A) and restored the matter to the AO with a direction to re-examine the disallowance after giving the assessee an opportunity to furnish relevant documents and evidence, including proof that the NBFC had included the interest income in its return. Other grounds were treated as not pressed or general.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
