ITAT, BENCH `A’, BANGLAORE,
Rajendra Kumar Vs DCIT,
ITA No. 1180/Bang./2009,
February 12, 2010
Per: A Mohan Alankamony:
This appeal of the assessee is directed against the order of the Ld. CiT(A), Hubli in ITA No; 120/CIT(A) HBL/08-09 dated: 6.11.2009 for the assessment year 2006-07.
2. The assessee had originally raised twelve grounds. Subsequently, the Ld. A R in his communication dated: 1/2/2010 had furnished eleven grounds in a concise manner. On a perusal, ground Nos: 1 and 11 being general and no specific issues involved, they have become non-consequential. In the remaining grounds, the cruxes of the issues raised are two-folds which are reformulated as under:
(i) the Ld. CIT(A) erred in disallowing the claim of interest expenditure u/s 40(a)(ia) of the Act; &
(ii) the CIT(A) erred in sustaining the charge of interest u/s 234B of the Act.
3. During the course of hearing before us, the Ld. A R sought the permission of this Bench to place an application under rule 18(4) of Appellate Tribunal Rules 1963 wherein he had reasoned that –
(i) the ground(s) of the assessee in appeal was that the CIT erred in giving decision without stating point(s) for determination necessary for deciding the appeal which arose particularly from proposition affirmed and denied by parties;
(ii) it was also a ground that the CIT(A) failed to precisely consider the material propositions because the controversy was dis allowance of interest u/s 40(a)(ia) which was paid to the members of the assessee’s family and his close relatives for which the assessee sought for opinion in supposition to know the law;
(iii) in support of this ground, it was necessary to adduce evidence to show that the assessee made effort in seeking remedy available under the Act;
(iv) seeking permission to furnish a copy of the opinion of the CA to establish the bona-fide of the assessee, as the said document was neither produced before the AO nor before the first appellate authority.
4. The issue, in brief, is that the assessee, an individual, trades in iron and steel business. During the course of proceedings for the assessment year in dispute, the AO, while perusing the books of accounts, came across that the assessee had paid Rs.14.55 lakhs to various depositors for which no TDS was effected under the provisions of S.194A of the Act. In compliance with the AO’s query as to why such an expenditure claimed should not be denied by invoking the provisions of s.40(a)(ia) of the Act, the assessee came up with a reasoning that in case of certain payees, applications for No TDS/ lower TDS made by some of the payees in F No. 13 to their respective jurisdictional AOs and that considering the computation of income shown in each case where F.NO.13 was made, TDS obligation was not required. “
5. Brushing aside the contentions of the assessee, the AO, for the reasons set-out in the impugned order, went ahead with the dis allowance of Rs. 14.55 lakhs u/s 40(a)(ia) of the Act. While doing so, he had taken the cue from the finding of the jurisdictional High Court in the case of Divisional manager, New India Assurance Co. ltd. Vs ITO & Another reported in 275 ITR 227.
6. Agitated, the assessee took up the issue before the Ld. CIT (A) for relief. After due consideration of the spirited arguments put-forth by the assessee and also the relevant provisions of the law [s.194A and Rule 29C etc.], the Ld. CIT (A) had observed thus –
“5.1…….. ……… .it is obligatory on the part of the appellant to deduct income-tax at source at the time of the credit of such income to the account of the payee or at the time of payment thereof. The appellant has paid the interest but failed to deduct the tax at source on such interest amount paid which is in contravention to the provisions of section 194A of the Act. It is also unambiguous from the relevant rules cited above that it is mandatory to obtain such certificate in Form No.15G for an individual to be eligible for non-deduction of tax on interest payments. In the case of the appellant, Form No.15G has not been furnished by the parties concerned as claimed by the appellant in his submissions for the year under appeal.”
6.1. Drawing strength and also extensively quoting from the finding of the Hon’ble Tribunal in the case of J.G.Khatawar & Co. [ITA NO:881/B/08 date: 24.7.2009], the CIT(A) went on further to observe that –
“6. In the case on hand Form No. 15G have not been furnished by the parties. Rather the applications made by the payees as claimed by the appellant were never disposed off which makes it abundantly clear that the appellant was not in receipt of form No. 15G at the time of payment of interest, the obligation therefore was cast on the appellant to deduct the tax at source on the payment of interest to the parties….. ……… ……… ……… ……… ……… Whereas in the case of present appellant the F No.15G claimed to have been filed by the payees i.e.., the recipients of interest before the concerned authorities were never disposed off but the appellant failed to deduct the tax at source at the time of payment of interest without any authority. In other words the certificates u/s 197A for non-deduction of tax at sources were never furnished before the competent authority by the payees of such interests as the applications filed in the prescribed form were allegedly not dispose off’. In the facts and circumstances, the ratio of the decision of Honourable ITAT, Bangalore in the case of Khatawar & Co., is squarely applicable to the present appellant. Thus, considering the decision of the Honourable ITAT and the fact that the appellant failed to deduct the tax at source in view of the provisions of section 194A, the action of the AO to disallow the claim u/s 40(a)(ia) in respect of interest is upheld. “
7. Disillusioned with the finding of the Ld.CIT(A), the assessee came up with the present appeal. The Ld. A R reiterated more or less what has been urged before the first appellate authority. In furtherance, the Ld. A.R had furnished a paper book containing 1 -48 pages which consists of, inter alia, copies of (i) applications in Form No.13, (ii) TDS return in Form 26Q etc.
7.1. On the other hand, the Ld. DR was very emphatic in her urge that the assessee had failed to deduct tax at source without any proper authorisation from the payees and that the AO had taken a judicious view in disallowing the expenses claimed by way of interest by resorting to the provisions of s.40(a)(ia) which has been rightly upheld by the first appellate authority. In view of the above, it was pleaded that no interference is called for at this stage.
8. We have carefully considered the rival submissions, perused the relevant records and also the paper book furnished by the Ld. A.R.
8.1. After due consideration of the assessee’s application under rule 18(4) of Appellate Tribunal Rules, 1963, the additional evidence sought to be produced before this Bench is admitted and the registry was directed to take on record.
8.2. Precisely, the issue for consideration is- Whether the assessee was NOT obliged to deduct tax source while making the interest payments?
8.2.1 The assessee’s prime contention is that in the cases of certain payees, applications for No TDS/lower TDS were made by some of the payees in Form No. 13 to their respective jurisdictional AOs with copies to the assessee. Considering the same, the assessee took a view that he was NO obligation to deduct TDS.
8.2.2. At the out-set, we would like to point out that the assessee was, perhaps, under the wrong notion that on the basis of the copies of the letters of the payees – to the jurisdictional AOs for issuance of authorisation etc. he was under no obligation to deduct TDS. Copies of such letters of the payees endorsed to the assessee were nothing but a mere information that the payees have made applications in No.13 to the AOs which, in any stretch of imagination, cannot be construed as an authorisation to the assessee NOT to deduct TDS for the interest due to them.
8.2.3 As rightly highlighted by the first appellate authority in his impugned order which is under dispute that the provisions of s.194A of the Act and Rule 29C of I.T. Rules are very clear that it is obligatory on the part of the assessee to deduct income-tax at source at the time of the credit of such income to the account of the payee or at the time of payment thereof.
8.2.4. The Honourable Tribunal in the case of J. G. Khatawar & Co., cited supra had dealt with an identical issue (which has been extensively quoted in the impugned order of the CIT(A) under dispute) and concluded that the provisions of s.40(a)(ia) of Act are explicitly applicable to the said case.
8.2.5 During the course of hearing, the Ld. AR sought to distinguish the above finding with the case on hand on the ground that the Honourable Tribunal dealt with an issue which-relates to declaration by a person in Form No.15G.
8.2.6. The ratio of finding recorded in the case of J.G.Khatawar & Co. is squarely applicable to the issue on hand.
8.2.7. We have also duly perused the fresh evidence produced by way of an application u/r 18(4) of I.T.Rules, 1963. As pointed out by S.D. Ostawal, Chartered Accountant, (on page 2) 7. In a case where depositor’s income is not exceeding chargeable limits then, as per 197A, no TDS shall be made under sec.l94A, if the depositor furnishes a declaration to you stating that the tax on his/her estimated total income of the period Apr 2005 – Mar 2006 in which the interest income is to be included in computing his/her total income will be nil and the said declaration shall be in Form No. 15G…..” [source: Appln. u/r 18(4) of I.T.Rules 1963]. To our dismay, no copies of F.No.15G were forth-coming to justify the assessee’s stand. Mere intimation to the effect that the payee had approached for issue of an authorisation (F.No.13) cannot be construed as a declaration to that effect.
8.2.8. With regard to RTI Act, we would like to point out that Form No.13 stated to have been furnished by the payees before their respective AOs for authorisation not to deduct TDS etc., which have not appeared to have been acted upon by the AOs concerned.
8.2.9. RTI ACT: For non-issuance of form No.13 the assessee seems to have approached the authorities concerned under RTI Act. This particular issue cannot be a subject matter for adjudication before this Bench as this issue will have to be deliberated in an appropriate forum.
8.2.10. The issue before this Bench is confined to, whether the AO was within his domain to invoke the provisions of s,40(a)(ia) of the Act judiciously?
In our considered view, the AO was within his realm to invoke the provisions of s.40(a)(ia) of the Act on the premise that the assessee had failed to deduct tax at source while making the interest payments. The assessee’s stand that the payees have approached the AOs concerned for issuance of No TDS/ lower TDS etc., authorisation which they have failed to obtain etc., doesn’t hold water. Further contention of the assessee that TDS obligation was not was required, considering the computation of income shown in each case where F No.13 application was made to the AO concerned for authorisation, in our considered view, to put it gently, the assessee had over-stepped in his perception which he was not obliged to do so under any provisions of I.T.Act.
8.2.11. In an overall consideration of the facts and circumstances of the issue and in conformity with the finding of the Honourable Tribunal referred supra, the Ld. CIT(A) was justified in confirming the stand of the AO on this count. It is ordered accordingly.
9. The other grievance of the assessee is with regard to the charging of interest u/s 234B of the Act. Charging of interest u/s 234B of the Act is mandatory and consequential in nature and, thus, this ground is dismissed as not maintainable.
10. In the result, the assessee’s appeal is dismissed.
(Pronounced in the open court on this 16.2.2010.)