Pinnacle Vastunirman Private Limited Vs DCIT (ITAT Pune)
Payee Paid the Tax, So Payer Escapes ₹1.59-Crore Disallowance: Form 26A Rescues NBFC Interest While Delayed PF/ESI Issue Sent Back for a Second Look – ITAT Pune
Summary: The assessee, a real-estate developer, filed its return declaring a normal loss of ₹71,11,746 and book profit of ₹3,07,193 under MAT. While processing the return u/s 143(1), the CPC determined total income at ₹88,66,360 and raised a demand of ₹27,21,464.
The variation arose from two adjustments. The CPC disallowed employees’ contribution to PF/ESI of ₹49,179 u/s 36(1)(va) on account of delayed deposit. It also disallowed ₹1,59,28,930 u/s 40(a)(ia), being 30% of interest of ₹5,30,96,434 paid to India Infoline Finance Limited, an NBFC, for alleged non-deduction or short deduction of TDS.
The Addl./JCIT(A) sustained both adjustments. Although the assessee had filed written submissions and evidence, it failed to attend the video hearing fixed for producing further reconciliation. The appellate authority held that employees’ contribution deposited beyond the due dates under the respective welfare laws was not allowable merely because it was deposited before the return-filing due date.
Regarding NBFC interest, the Addl./JCIT(A) observed that NBFCs are not excluded from section 194A in the manner applicable to certain banks and specified institutions. He also found partial TDS compliance and declined to grant relief based on Form 26A without further reconciliation.
Before the Tribunal, the assessee argued that the PF/ESI contribution had been deposited before the due date u/s 139(1). It further contended that the allowability of such contribution was a debatable issue during the relevant assessment year and could not have been decided through a summary adjustment u/s 143(1).
The Revenue relied upon Checkmate Services (P.) Ltd. v. CIT [448 ITR 518 (SC)], under which employees’ contribution deposited beyond the due date prescribed under the relevant welfare legislation is not protected by section 43B merely because it was paid before filing the return.
The assessee countered that Checkmate decided the substantive interpretation of sections 2(24)(x), 36(1)(va) and 43B, but did not decide whether such a disallowance could retrospectively be made through the limited adjustment machinery of section 143(1), particularly when conflicting High Court decisions existed on the relevant date.
The assessee relied upon Virendra Singh Saini v. ADIT, where the Pune Tribunal had restored a similar issue following the Supreme Court’s interim order in Woodland (Aero Club) Private Limited v. ACIT. It was argued that, in view of the evolving position, the issue should be reconsidered rather than decided against the assessee outright.
The Tribunal accepted the request for remand. Following Virendra Singh Saini, it restored the PF/ESI issue to the Addl./JCIT(A) for fresh adjudication in accordance with the factual and legal position after granting an opportunity of hearing.
Since the substantive PF/ESI issue was remanded, the Tribunal did not separately adjudicate the assessee’s ground challenging the CPC’s power to make the adjustment u/s 143(1).
The second issue concerned the much larger disallowance of ₹1.59 crore u/s 40(a)(ia). The assessee submitted that India Infoline Finance Limited had included the entire interest in its return for AY 2019-20 and paid the tax due thereon.
To substantiate this claim, the assessee furnished a Chartered Accountant’s certificate in Form 26A, as contemplated by the second proviso to section 40(a)(ia) read with section 201(1).
The second proviso creates a protective mechanism where the payer fails to deduct tax but the resident payee has furnished its return, included the relevant sum in computing income and paid tax thereon, and the payer obtains the prescribed accountant’s certificate. Upon satisfaction of these conditions, the payer is deemed to have deducted and paid the tax for the purpose of section 40(a)(ia).
The assessee relied upon Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT [293 ITR 226 (SC)], along with Perfect Circle India Pvt. Ltd., Ansal Land Mark Township Pvt. Ltd. and the Pune Tribunal decision in Kudale Agro Goods v. ITO.
The Tribunal observed that Form 26A placed in the paper book established that India Infoline Finance Limited had offered the entire interest income to tax and paid the corresponding tax. The Departmental Representative did not produce any material rebutting this evidence.
Following Kudale Agro Goods and Hindustan Coca Cola Beverages, the Tribunal held that the disallowance could not survive once the income had been included and tax paid by the recipient.
The order of the Addl./JCIT(A) was therefore set aside on this issue, and the AO/CPC was specifically directed to delete the disallowance of ₹1,59,28,930 u/s 40(a)(ia).
The appeal was ultimately partly allowed for statistical purposes.
Author’s Comment
The decision gives complete relief on the substantial NBFC-interest issue but only a remand on delayed employees’ contribution.
Form 26A is not merely a supporting letter from the payee. It is the statutory bridge connecting the second proviso to section 40(a)(ia) with section 201(1). Once it establishes that the resident payee filed its return, included the income and paid tax, the expenditure cannot ordinarily be disallowed merely to punish the payer for the TDS lapse. Interest or other consequences under the TDS provisions may still arise separately.
On PF/ESI, the Tribunal has not granted relief against Checkmate. It has restored the matter due to the evolving controversy and left even the section 143(1) jurisdictional question undecided.
Thus, the final scoreboard is clear: ₹1.59 crore deleted through Form 26A; ₹49,179 returned for fresh adjudication. Sometimes the smaller issue waits while the larger one is settled by a single, properly certified form.
Cases Discussed
- Virendra Singh Saini vs. ADIT
- Woodland (Aero Club) Private Ltd. vs. ACIT
- Checkmate Services (P.) Ltd. vs. CIT
- R.K. & Company Manpower (P.) Ltd. vs. DCIT
- The PCIT v. Perfect Circle India Pvt. Ltd.
- CIT v. Ansal Land Mark Township Pvt. Ltd.
- Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT
- Kudale Agro Goods vs. ITO
- Jai Mata Di
- Karwat Steel Traders vs. ITO
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, PUNE BENCH
The appeal filed by the assessee is directed against the order dated 30-12-2025 of the Ld.ADDL/JCIT(A)-1, Hyderabad, u/s. 250 of the Income Tax Act, 1961 (the “Act”), pertaining to Assessment Year (“AY”) 2019-20.
2. Briefly stated, the facts of the case are that the assessee is a private limited company and engaged in the business of real estate as builder, promoter and developer. For AY. 2019-20, the assessee filed its return of income on 31-10-2019 declaring a total loss of Rs.71,11,746/- under the normal provisions and deemed income under MAT at Rs. 3,07,193/-. The return of the assessee was processed by the Ld. Assessing Officer/Central Processing Centre (“AO/CPC”) and an intimation order u/s.143(1) of the Act was issued on 06-07-2020 determining the total income of the assessee at Rs. 88,66,360/- and raising a demand of Rs. 27,21,464/- thereby making the following additions:
i. Disallowance u/s.36(1)(va) of the Act of Rs.49,179/- on account of delayed deposit of Employees‟ contribution to PF/ESIC; and
ii. Disallowance u/s. 40(a)(ia) of the Act of Rs. 1,59,28,930/- on account of non-deduction of TDS on interest paid to NBFC, India Infoline Finance Limited.
3. Aggrieved by such order of the Ld.AO/CPC, the assessee filed appeal before the Ld.ADDL/JCIT(A). Before the Ld.ADDL/JCIT(A), the assessee filed certain written submissions along with documentary evidence and relied on certain case laws in support of its claim against the above two additions made by the Ld.AO/CPC, which are reproduced in para 6 [ground No.2 and ground No.3 raised before the Ld.ADDL/JCIT(A)] of the impugned order. However, rejecting the contentions raised by the assessee, the Ld.ADDL/JCIT(A) dismissed the appeal of the assessee on both the issues by observing as under:
“7.0 ANALYSIS OF THE FACTS AND ADJUDICATION OF THE GROUNDS:
In accordance with the request made by the appellant, an opportunity of hearing through Video Conferencing was granted and scheduled on 26.12.2025. However, the appellant neither appeared on the said date nor sought any adjournment. It is pertinent to note that the said opportunity was specifically afforded to enable the appellant to place on record the necessary reconciliation and supporting details in respect of the issues under appeal. In the absence of any appearance or further submission, it is evident that the appellant chose not to avail the opportunity so granted. Accordingly, in the absence of any rebuttal or reconciliation forthcoming from the appellant, the appeal is decided on merits on the basis of the material available on record.
1). Employees’ contribution to PF/ESI-49,179 (u/s 36(1)(va))
The appellant challenges the adjustment of 49,179 made on account of delayed deposit of employees’ contribution to PF/ESI. It is noted that employees’ contribution stands on a distinct statutory footing vis-à-vis employer’s contribution, and the legislative scheme treats timely deposit within the due dates under the respective welfare statutes as a strict compliance condition for allowance. The appellant’s plea is essentially that payment before the due date of filing return u/s 139(1) should cure the delay. This contention does not merit acceptance because the issue involved is not a mere technicality; it concerns statutory discipline over employees’ deductions, where any deposit beyond the due dates prescribed under PF/ESI law warrants an adverse view. Accordingly, the disallowance of 49,179 is upheld.
2. Disallowance u/s 40(a)(ia) – 1,59,28,930
It is to be noted that TDS (Tax Deducted at Source) must be deducted when paying interest to a Non-Banking Financial Company (NBFC) primarily because NBFCs are not explicitly exempt from the provisions of Section 194A of the Income Tax Act, 1961, unlike banks and other specific financial institutions. Section 194A of the Income Tax Act mandates TDS on interest payments (other than interest on securities) to residents. While certain entities like banking companies, cooperative societies engaged in banking business, and the Life Insurance Corporation of India (LIC) are specifically exempt from receiving payments without a TDS deduction, NBFCs are not included in this exemption list.
The CPC has made a disallowance of 1,59,28,930 u/s 40(a)(ia), stated to be computed at 30% of 5,30,96,434, on the basis of tax audit reporting/particulars in Form 3CD, in respect of interest paid to NBFC – India Infoline Finance Ltd. As per appellant’s submissions and appellant’s own workings shows that against interest payments, the tax deductible was 1,85,76,324, whereas tax actually paid/deposited was only 92,50,790, thereby evidencing that the tax was not deducted and/or not deposited fully and in time. The appellant contends that the payee has offered the corresponding interest to tax and seeks shelter under the second proviso to section 40(a)(ia) by producing Form 26A. While Form 26A can, in law, operate as a limited safeguard subject to strict satisfaction of conditions and reconciliation, it does not dilute the underlying statutory obligation that TDS must be deducted on the whole amount and deposited within prescribed timelines; and in any event, the appellant’s own details reflect partial compliance without any reconciliation, which cannot be treated at par with due and complete compliance. Therefore, the disallowance u/s 40(a)(ia) is sustained on merits.
The appellant asserts that the CPC’s action represents a debatable adjustment beyond the scope of section 143(1). This plea is not acceptable on the facts of the present case because the adjustments relate to TDS default-linked disallowance u/s 40(a)(ia) and employees’ contribution disallowance u/s 36(1)(va) both of which arise from objective compliance parameters and return/audit-report-linked particulars as available on record, and therefore carry a clear negative inference when the statutory timelines/withholding obligations are not met. The mere assertion that the matter is “debatable” cannot override the compliance failure reflected in the appellant’s own figures regarding deductible tax versus tax actually paid. In view of the above facts and findings, the additions/disallowances of 49,179 u/s 36(1)(va) and 1,59,28,930 u/s 40(a)(ia) are confirmed. The appeal is dismissed.
8.0 In the result, the appeal of the appellant is dismissed.
4. Aggrieved the assessee is in appeal before the Tribunal raising the following grounds of appeal:
“The appellant respectfully submits that the order dated 30.12.2025 passed by the learned Commissioner of Income Tax (Appeals), ADDL/JCIT (A)-1, Hyderabad, is bad in law, contrary to facts, and liable to be set aside on the following grounds, which are taken independently and without prejudice to one another:
1. Ground No. 1 General Ground
1.1 The order passed by the Ld. CIT(A) is contrary to law, facts, evidence on record and principles of natural justice.
1.2 The Ld. CIT(A) erred in dismissing the appeal without properly appreciating the facts, submissions and judicial precedents relied upon by the appellant.
2. Ground No. 2 – Disallowance of Employee’s Contribution to PF/ESI – Rs. 49,179/- U/Sec. 36(1) (va) of the Act.
2.1 The Ld. CIT(A) failed to appreciate that the said contributions of amounting to Rs. 49,179/- was made U/Sec. 36(1) (va) of the Act on account of employee’s contribution to PF/ESI were admittedly deposited before the due date of filing of return of income U/Sec. 139(1) of the Act.
2.2 The Ld. CIT(A) erred in ignoring binding judicial precedents of various High Courts holding that where employee’s contribution is deposited before the due date of filing of return, no disallowance can be made for the relevant assessment year.
Ground No. 3 Disallowance U/Sec 40(a)(ia) of the Act- Rs. 1,59,28,930/- for Interest paid to NBFC.
3.1 The Ld. CIT(A) erred in confirming the disallowance of amounting to Rs. 1,59,28,930/- U/Sec. 40(a)(ia) of the Act in respect of interest paid to India Infoline Finance Ltd.
3.2 The Ld. CIT(A) failed to appreciate that the recipient company had duly accounted for the interest income in its return of income and paid due taxes thereon.
3.3 The Ld. CIT(A) erred in disregarding the certificate from Chartered Accountant in Form No. 26A furnished in terms of the second proviso to Section 40(a)(ia) read with Section 201(1) of the Act.
3.4 The Ld. CIT(A) failed to appreciate that once the payee has included the income in its return and paid tax thereon, the payer cannot be subjected to disallowance U/Sec. 40(a)(ia) of the Act.
3.5 The Ld. CIT(A) failed to appreciate that the object of Section 40(a)(ia) is to ensure collection of tax and not to penalize the assessee where there is no loss to revenue.
4. Ground No. 4 Adjustment U/Sec. 143(1)(a) of the Act Beyond Scope of Intimation.
4.1. The Ld. CIT(A) erred in holding that the adjustments made by CPC U/Sec. 143(1)(a) of the Act were valid and within the scope of prima facie adjustment.
4.2. The Ld. CIT(A) failed to appreciate that the issues relating to:
-
-
- Allow ability of employee’s contribution to PF/ESI; and
- Applicability of second proviso to Section 40(a)(ia),
-
were debatable issues and could not be decided by way of summary adjustment U/Sec. 143(1)(a) of the Act.
4.3 The Ld. CIT(A) erred in not appreciating that adjustments U/Sec. 143(1)(a) of the Act can be made only in respect of apparent errors and not on issues requiring detailed examination or interpretation of law.
4. Ground No. 5- Violation of Principles of Natural Justice.
5.1 The Ld. CIT(A) erred in dismissing the appeal on merits in absence of appearance without considering written submissions and documentary evidences already filed on record.
5.2 The order is liable to be set aside on the ground of violation of principles of natural justice.
6. Ground No. 6 – Prayer
The appellant prays that:
6.1 The disallowance of Rs. 49,179/- U/Sec. 36(1) (va) of the Act be deleted.
6.2 The disallowance of Rs. 1,59,28,930/- U/Sec. 40(a)(ia) of the Act be deleted.
6.3 The adjustment made U/Sec. 143(1)(a) of the Act be held as invalid.
6.4 Any other relief deemed fit in the facts and circumstances of the case be granted.
Ground No. 7 General
The appellant craves leave to add, alter, amend or withdraw any of the above grounds at the time of hearing.”
5. We have heard the Ld. Representatives of the Parties and perused the material available on record and the paper book filed by the Ld.AR on behalf of the assessee and the judicial precedents relied on by the Ld.AR as well as the Ld.DR. On the issue relating to disallowance u/s. 36(1)(va) of the Act of Rs. 49,179/- on account of delayed deposit of Employees‟ contribution to PF/ESIC, the Ld.AR submitted that the assessee had made the payment within the time allowed u/s. 139 of the Act. Relying on certain judicial decisions, the Ld.AR contended that although the contribution was paid after the due date under the respective Acts but before the due date of filing the return of income u/s.139(1) of the Act and therefore the said disallowance should be deleted.
5.1. The Ld.AR raised another plank of argument that the impugned issue is a much debated issue on which various Hon‟ble High Courts and Tribunals have rendered decisions in favour of the assessee. He submitted that the Ld.AO/CPC was not entitled to treat this as a prima facie error admitting of summary adjustment u/s.143(1)(a) of the Act and the Ld.ADDL/JCIT(A) erred in sustaining such adjustment made by the Ld.AO/CPC.
5.2. Relying on the decision of the Co-ordinate Bench of the Tribunal in the case of Virendra Singh Saini vs. ADIT, ITA No. 1483/PUN/2024, dt. 20-04-2026, the Ld.AR submitted that under the similar set of facts as that of the assessee in the present case, the Tribunal has restored the issued to the file of the Ld.CIT(A) with a direction to re-adjudicate the issue afresh in view of the decision of the Hon‟ble Supreme Court in the case of Woodland (Aero Club) Private Ltd. vs. ACIT, Special Leave to Appeal (C) No. 1532/2026, dt. 27-01-2026.
6. The Ld.DR on the other hand, relied on the decision of the Ld.ADDL/JCIT(A) and the Ld.AO/CPC. She submitted that the reliance placed by the assessee on the decision of the Co-ordinate Bench of the Pune Tribunal in the case of Virendra Singh Saini vs. ADIT (supra) is misplaced as it is distinguishable on facts. She submitted that the relief granted by the Tribunal was founded upon the factual finding that the employees‟ contribution towards PF and ESIC had in fact been deposited within the due dates prescribed under the respective enactments and hence, the basic condition prescribed u/s.36(1)(va) of the Act stood satisfied. On the contrary, in the present case, the said disallowance has been made specifically on account of the fact that the employees‟ contribution to PF and ESIC having been deposited after the due dates prescribed under the respective Acts. The assessee has neither disputed the fact that the impugned payments were made beyond the statutory due dates nor placed on record any documentary evidence to establish otherwise.
6.1. She further submitted that in the present case it is an admitted position that the employees‟ contribution towards PF and ESIC was deposited after the due dates prescribed under the respective Acts. Consequently, the disallowance in the case of the assessee is squarely covered by the ratio laid down by the Hon‟ble Supreme Court in the case of Checkmate Services (P.) Ltd. vs. CIT [2022] 448 ITR 518 (SC).
6.2. The Ld.DR also raised an argument that while rendering the decisions in the case of Virendra Singh Saini vs. ADIT (supra), the Co-ordinate Bench of the Tribunal has relied on the decision of the Hon‟ble Supreme Court in the case of Woodland (Aero Club) Private Ltd. vs. ACIT, dt. 27-01-2026 (supra). However, the said order is merely an interim order passed during the pendency of the proceedings and the Hon‟ble Supreme Court has not yet finally adjudicated upon the issue nor has it over ruled, modified or stayed the operation of the earlier judgment in Checkmate Services (P.) Ltd. vs. CIT (supra). She submitted that an interim order does not constitute a declaration of law and cannot be a binding precedent. Further, the judgment in the case of Checkmate Services (P.) Ltd. vs. CIT (supra) was delivered by a Three Judge Bench and hence, the issue continues to be governed by the judgment of the Hon‟ble Supreme Court in the case of Checkmate Services (P.) Ltd. vs. CIT (supra) which squarely applies to the facts of the present case and hence, the impugned disallowance should not be deleted.
7. In its rejoinder, the Ld.AR submitted that the judgment of the Hon‟ble Supreme Court in the case of Checkmate Services (P.) Ltd. vs. CIT (supra) settles only the legal interpretation of the section 36(1)(va) vis-à-vis section 43B of the Act. However, the present appeal does not merely involved interpretation of section 36(1)(va) of the Act, the real controversy is whether such disallowance could have been made by the AO/CPC while processing the return u/s.143(1) of the Act. The Hon‟ble Supreme Court in the case of Checkmate Services (P.) Ltd. vs. CIT (supra) never examined the scope and jurisdiction of adjustments permissible u/s.143(1) of the Act. Therefore, reliance placed by the Department on the said judgment is misplaced. He further argued that during the relevant AY the issue regarding the allowability of employees‟ contribution towards PF and ESIC deposited before the due date of filing the return and was the subject matter of conflicting judicial opinions of various Hon‟ble High Courts. He submitted that it is a settled proposition that a debatable issue cannot be adjusted while processing the return u/s.143(1) of the Act and hence, while making the impugned adjustment the Ld.AO/CPC exceeded the scope of section 143(1) of the Act. Relying on the decision in the case of R.K. & Company Manpower (P.) Ltd. vs. DCIT 185 taxmann.com 986, dt. 29-04-2026, the Ld.AR submitted that the Delhi Tribunal has deleted the addition u/s.36(1)(va) of the Act by holding that the impugned addition is outside the scope of adjustment permissible u/s.143(1) of the Act. The Ld.AR further submitted that in the case of Virendra Singh Saini vs. ADIT (supra), the Co-ordinate Bench of the Tribunal following the interim order of the Hon‟ble Supreme Court in the case of Woodland (Aero Club) Private Ltd. vs. ACIT (supra) did not delete the addition outright, but restored the issue to the file of the Assessing Officer to be adjudicated the matter afresh in the light of the law as clarified/evolving before the Hon‟ble Supreme Court. He, therefore, prayed that the Ld.DR‟s reliance on the decision of Checkmate Services (P.) Ltd. vs. CIT (supra) be rejected and following the decision of the Co-ordinate Bench of the Tribunal in the case of Virendra Singh Saini vs. ADIT (supra), the issue be restored to the file of the Ld.AO for fresh adjudication in the interest of justice.
8. Having considered the above contentions raised by the Ld. Representatives of the parties, since the impugned issue is under consideration and still not settled by the Hon‟ble Apex Court, in our view, in the interest of justice, the impugned issue deserves to be restored to the file of the Ld.ADDL/JCIT(A) with a direction to re-adjudicate the same. We find that the Co-ordinate Bench of the Tribunal in the case of Virendra Singh Saini vs. ADIT (supra) under somewhat similar set of facts, has restored the impugned issue to the file of the Ld.CIT(A)/NFAC with a direction to re-adjudicate the issue in view of the decision of the Hon‟ble Apex Court in the case of Woodland (Aero Club) Private Ltd. vs. ACIT (supra) by observing as under:
“10. I have heard the rival arguments made by both the sides, perused the orders of the CPC and the Ld. CIT(A)/NFAC and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. A perusal of the details furnished by the assessee in the paper book shows that the assessee has deposited the employees’ contribution to PF and ESI before the due date as per their respective Acts. However, this fact is being argued for the first time before the Tribunal. I find the Hon’ble Supreme Court in the case of Woodland (Aero Club) Private Limited vs. ACIT (supra) while deciding an identical issue has held as under:
“2. As per Section 2(24)(x), any amount recovered by the employer from the employees towards their contribution to any provident or superannuation fund or any other fund set up under the provisions of the ESI Act, 1948 or any other fund for the welfare of the employees is income.
3 Section 36(1)(va) of the Act says that any sum so received by the assessee employer from his employees to which provisions of Section 2(24)(x) applies, the assessee – employer shall be entitled to deduction while computing income under Section 28, if such sum is credited by the assessee employer to the employees account before the due date.
The Explanation to Section 36(1) (va) says that the ‘due date’ means the date by which the assessee cemployer is required to credit the employees contribution in the relevant fund under any Act, Rule, Order or Notification issued thereunder.
5. There are two School of thoughts as regards the interpretation of the words “due date”.
6. A combined reading of the Section 2(24)(x) and that Section 36(1) (va) of the Act, prima facie is indicative that any sum received by the assessee employer from any of his employees as contribution towards PF & ESI is the income of the assessee under Section 2(24)(x) and it continues to be so, unless it is credited by the assessee – employer to the employee’s account in the relevant fund on or before the due date specified under the relevant PF, ESI Act.
7. The employee’s contribution towards PF, ESI received by the assessee employer is his income under Section 2(24)(x) and if he wants to have it deducted from his income under Section 36(1)(va), he must credit the same to the employee’s account in the relevant fund on or before the due date specified under the relevant PF, ESI Act.
8. The aforesaid view is supported by the following judgments of the High Courts:-
(i) Unifac Management Services (India) (P.) Ltd. v. Dy. CIT [2018] 100 taxmann.com244 [2019] 260 Taxman 60/[2018] 409 ITR 225 (Mad.), (ii) CIT v. Gujarat State Road Transport Corpn. [2014]41 taxmann.com 100/366 ITR 170/223 Taxman 398 (Guj.), (iii) CIT v. Merchem Ltd. [2015] 61 taxmann.com 119/235 Taxman 291/378 ITR 443 (Ker.), (iv) B.S. Patel v. Dy. CIT [2010] 326 ITR 457/[2008] 171 Taxman 304 (MP) and (v) Popular Vehicles & Services Pvt Ltd v. CIT [2018] 96 taxmann.com 13/257 Тахтап 120/406 ITR (Ker).
9. The other view is that there is no difference between employees and employer contribution to PF, ESI and both would be guided by the provisions of Section 43B of the Act so as to allow deduction in the hands of the assessee employer if the contributions are deposited on or before the due date of filling of return under Section 139(1) of the Income Tax Act, 1961.
10. The aforesaid view is supported by the following Judgments: (1) CII v. Aimil Ltd. [2010] 188 Taxman 265/321 ITR 508 (Delhi HC), (ii) Pr. CIT v. Plamman HR (P) Ltd. (IT Appeal No. 170 of 2018, dated 12.02.2018 (Delhi HC). (iii) CIT v. Nipso Ployfabriks Ltd. [2013] 350 ITR 327/213 Taxman 376/30 taxmann.com90 (HP). (iv) Sagun Foundry (P.) Ltd. v. CIT [2017] 78 taxmann.com 47 (All). (v) CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2014] 366 ITR 163/[2013] 217 Taxman 64 (Mag)/35 taxmann.com 616 (Raj.). (vi) CIT v. Sabari Enterprises [2008] 298 ITR 141 (Kar). (vii) CIT v. Hemla Embroidery Mills (P.) Ltd. [2014] 366 ITR 167/[2013] 217 Taxman 207/37 taxmann.com 160 (Punj. & Har.). (viii) CIT v. Ghatge Patil Transports Lid. [2014] 368 ITR 749/[2015] 53 taxmann.com 141/228 Taxman 340. (ix) Bihar State Warehousing Corpn. Ltd. v. СІТ [2016] 368 ITR 410 (Patna). (x) CIT v. Vijay Shree Ltd. [2014] 43 taxmann.com 396/224 Taxman. 12 (Cal.) (Mag.) (xi) CIT v. Industrial Security & Intelligence India Pvt. Ltd. (Tax Case (Appeal) Nos. 585 and 586 of 2015 & M.P.No.1 of 2015, dated 24-7-2015. (xii) Gauhati High Court in the case of CIT v. George Williamson (Assam) Ltd. [2006] 284 ITR 619 (Gauhati), (xiii) CIT v. Kichha Sugar Lid. [2013] 356 ITR 351/216 Taxman 90/35 taxmann.com 54 (Uttarakhand). (xiv) Pr. CIT v. Plamman HR (P) Ltd, [IT Appeal No. 599 of 2017. dated 11.09.2017]
11. In view of the conflicting opinion, as referred to above, we would like to look into this issue.
11. In view of the above decision of Hon’ble Supreme Court, I deem it proper to restore the issue to the file of the Ld. CIT(A) / NFAC with a direction to re-adjudicate the issue. Needless to say, the Ld. CIT(A) / NFAC shall decide the issue as per fact and law after providing due opportunity of being heard to the assessee. I hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.”
9. Based on the factual matrix of the case enumerated above and following the decision of the Co-ordinate Bench of the Tribunal in the case of Virendra Singh Saini vs. ADIT (supra), we deem it fit and proper, in the interest of justice, to set aside the order of the Ld.ADDL/JCIT(A) and restore the issue back to his file with a direction to re-adjudicate the same as per fact and law, after providing due opportunity of being heard to the assessee. We hold and direct accordingly. The effective ground raised by the assessee i.e. Ground No. 2 (along with its sub-grounds No. 2.1 and 2.2) is therefore, allowed for statistical purposes. Since we have already restored the matter to the file of the Ld.ADDL/JCIT(A) for re-adjudication afresh, the other ground i.e. Ground No. 4 challenging the impugned disallowance made by the Ld.AO/CPC in intimation u/s. 143(1) of the Act, is not adjudicated.
10. Now coming to the second issue regarding disallowance u/s. 40(a)(ia) of the Act of Rs. 1,59,28,930/- on account of non-deduction of TDS on interest paid to NBFC, India Infoline Finance Limited. The said disallowance has been made by the Ld.AO/CPC on the basis of details provided in Form-3CD of Tax Audit Report @ 30% of Rs. 5,30,96,434/- being the interest paid by the assessee to India Infoline Finance Limited during the relevant AY. 2019-20. The Ld.ADDL/JCIT(A) has confirmed the addition/disallowance made by the Ld.AO/CPC for the reasons reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the recipient company, India Infoline Finance Limited (NBFC) is regularly assessed to tax and has included the entire interest income in its return of income for AY. 2019-20 and has paid due taxes thereon. The assessee has obtained and furnished a certificate in Form- 26A duly filled by the Chartered Accountant of the receipt company as required under the 2nd proviso to section 40(a)(ia) r.w.s. 201(1) of the Act. Referring to the 2nd proviso to section 40(a)(ia) inserted w.e.f. 01-04-2013, the Ld.AR submitted that all the conditions for applicability of the said proviso have been fulfilled and hence, no disallowance u/s.40(a)(ia) of the Act is called for. In support thereof, the Ld.AR relied on the following decisions:
i. The PCIT v. Perfect Circle India Pvt. Ltd. (2019) 104 CCH 8 (HC-Bombay);
ii. CIT v. Ansal Land Mark Township Pvt. Ltd. [2015] 377 ITR 635 (Del.);
iii. Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT [2007] 293 ITR 226 (SC);
iv. ITO v. Prasad Productions (P.) Ltd. [2010] 3 ITR(T) 594 (ITAT Chennai);
v. Kudale Agro Goods vs. ITO, ITA No. 1619/Pun/2024 (order dt. 07-02-2025)
11. The Ld.DR relied on the order of the Ld.ADDL/JCIT(A) and the Ld.AO/CPC. She, however, did not bring on record any material to rebut the above submission of the Ld.AR.
12. We find that an identical issue had come up before the Co-ordinate Bench of the Pune Tribunal in the case of Kudale Agro Goods vs. ITO (supra), wherein the Tribunal in turn relying on the decision of the Hon‟ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT (supra), directed the Ld.AO to delete the impugned addition, by observing as under:
“7. We have heard the Ld. Representatives of the parties, perused the material on record and judicial precedents relied upon by the Ld. AR. The facts of the case are not disputed. The paper book filed by the Ld. AR of the assessee shows that the three parties vis. Bajaj Finance Ltd., IDFC First (Capital First) Ltd. and Tata Capital Finvest Ltd. have issued Form 26A and confirmed that the interest payments made to them were included in their respective total income and that they have paid the due tax thereon (page 9 to 15 of the paper book refers containing copies of Form 26A). Admittedly, the assessee failed to deduct the TDS in respect of payment made to the fourth party i.e. M/s Religare Finvest Ltd. at lower rate as per section 197 certificate and no supporting document in terms of income tax return of the payee and/or Form 26A has been furnished before the Ld. CIT(A)/AO. The assessee has filed only a copy of e-mail and letter received from M/s Religare Finvest Ltd. acknowledging the loan given to the assessee and a copy of certificate for TDS at lower rate u/s 197 of the Act (page 7 and 8 of the paper book refers).
7.1 We have perused the decision of the Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. (supra) and find that the Hon’ble Supreme Court in the context of section 201(1) of the Act which also applies to the provisions of section 40(a)(ia) of the Act held that where deductee being recipient of income has already paid taxes on amount received from deductor, the department once again cannot recover tax from deductor on same income by treating deductor-assessee to be assessee-in-default for The relevant shortfall in its amount of tax deducted at source. observations and findings of the Hon’ble Supreme Court are as under:
“7. The Tribunal upon rehearing the appeal held that though the appellant-assessee was rightly held to be an assessee-in-default, there could be no recovery of the tax alleged to be in default once again from the appellant considering that Pradeep Oil Corporation had already paid taxes on the amount received from the appellant. It is required to note that the department conceded before the Tribunal that the recovery could not once again be made from the tax deductor where the payee included the income on which tax was alleged to have been short deducted in its taxable income and paid taxes thereon. There is no dispute whatsoever that Pradeep Oil Corporation had already paid the taxes due on its income received from the appellant and had received refund from the tax department. The Tribunal came to the right conclusion that the tax once again could not be recovered from the appellant (deductor-assessee) since the tax has already been paid by the recipient of income.”
7.2 We have also perused the order of the Cuttack Bench of the Tribunal in the case of Jai Mata Di (supra) wherein the Tribunal under the similar set of facts to that of the assessee, has deleted the addition made by the Ld. AO/CITIA) on account of disallowance of expenditure u/s 40(a)(ia) of the Act due to non-deduction of TDS. The relevant findings and observations of the Tribunal are as under:
“7. We have heard the rival submissions, perused the orders of lower authorities and materials available on record. We find that the Mumbai Bench A’ of the Tribunal in the case of Karwat Steel Traders vs ITO, 145 ITD 370 (Mum) has held as under:
“The amount cannot be allowed as deduction only in the event when tax is deductible at source under Chapter XVII- B and such tax has not been deducted or, after deduction has not been paid. In this case, the assessee was to deduct tax under provisions of section 1944. Section 194A is further qualified by the provisions of section 197A(1A) wherein if a person furnishes a declaration in writing in prescribed Form and verified in the prescribed manner to the effect that tax on his estimated total income is to be included in computing his total income will be nil there is no need to deduct tax. The assessee has received such forms as prescribed from those persons to whom interest was paid/being paid and, accordingly, no deduction of tax was to be made in such cases. The default for non-furnishing of the declarations to the Commissioner as prescribed may result in invoking penalty as per provisions under section 272 A(2)fi), for which separate provision/procedure was prescribed under the Act. However, once Form 15G/Form 15H was received by the person responsible for deducting tax, there is no liability to deduct tax. Once there is no liability to deduct tax, it cannot be considered that tax is deductible at source under Chapter XVII-B as prescribed under section 40 (a)(ia). The provisions of section 40(a)(ia) can only be invoked in a case where tax is deductible at source and such tax has not been deducted or after deduction has not been paid. No such default occurred in this case. Accordingly, the provisions of section 40(a)(ia) are not applicable to the facts of the case. Both the Assessing Officer and Commissioner (Appeals) erred in considering that non-filing of form 15H invites disallowance under section 40(a)(ia). Suffice to say that on the facts of the case, there is no need to deduct tax at source and thus, there is no default committed by the assessee. Accordingly, disallowance under section 40(a)(ia) does not arise. Non- filing or delayed filing of such forms cannot result in disallowance under section 40(a)(ia). The grounds raised by assessee are allowed. Assessing Officer is directed to modify the order accordingly”
In the instant case, we find that it is not in dispute that the assessee filed Form 26A together with income tax return of the recipients of the amount before the CIT(A). The only ground for rejecting the explanation of the assessee was that the said Form was not filed with Director General of Income Tax (Systems) or his authorised persons. Hence, in our considered view, for non-filing of the said Form before the Director General of Income Tax (Systems), the assessee can be visited with penalty as provided under the income Tax Act but no disallowance of the expenditure can be made u/s.40(a)(ia) of the Act in view of the above quoted decision of the Tribunal in the case of Karwat Steel Traders (supra). Hence, we set aside the order of the CIT(A) and delete the addition of Rs.2,24,662/ and Rs.11,24,266/-made by the Assessing Officer.”
8. In view of the factual and legal position set out above and the decision of the Tribunal (supra), in our view no disallowance of the interest payment made to the three parties; namely-Bajaj Finance Ltd., IDFC First (Capital First) Ltd. and Tata Capital Finvest Ltd. can be made u/s. 40(a)(ia) of the Act as these three parties have already included the said interest payment(s) as their income in their respective income tax return and have already paid the taxes due thereon which has been duly substantiated by production of the necessary documentary evidence by way of additional evidence before the Ld. CIT(A). We, therefore, set aside the order of the Ld. CIT(A) in respect of interest payment(s) made to these three parties and restore the issue back to the file of the Ld. AO with a direction to delete the addition made by him and confirmed by the Ld. CIT(A) in respect of these three parties and modify the assessment order accordingly.”
13. Since in the present case also, the assessee has produced similar evidence including Form-26A (placed at pgs. 116-118 of the paper book) which establishes that the recipient company, India Infoline Finance Limited has offered the entire interest income to tax in its return of income and paid the due taxes thereon and therefore, in our view, following the decision of the Co-ordinate Bench of the Tribunal in the case of Kudale Agro Goods vs. ITO (supra), we set aside the order of the Ld.ADDL/JCIT(A) on this issue and restore the same back to the file of the Ld.AO/CPC with a direction to delete the impugned disallowance of Rs. 1,59,28,930/- u/s.40(a)(ia) of the Act. The Ground No. 3 (along with its sub-grounds i.e. 3.1 to 3.5) raised by the assessee is accordingly allowed.
14. Ground No.5 is relating to violation of principles of natural justice, is not argued by the Ld.AR and therefore, dismissed as such. Ground Nos. 1 & 7 are general in nature requiring no adjudication.
15. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 10-09-2026
