Rule 31ACB Filing Lapse Cannot Sustain Section 40(a)(ia) Disallowance: ITAT Bangalore

Kayyar Subbanna Shetty Vs ITO (ITAT Bangalore)

Form 26A Is Sufficient to Prevent Section 40(a)(ia) Disallowance-Procedural Filing Default Cannot Defeat Statutory Relief: ITAT Bangalore

Summary: The Bangalore Bench of the Income Tax Appellate Tribunal has held that once an assessee furnishes the prescribed Chartered Accountant’s certificate in Form 26A establishing that the resident payee has declared the relevant income and paid tax thereon, the payer cannot be treated as an assessee in default and no corresponding disallowance can be made under Section 40(a)(ia).

The Tribunal further held that failure to electronically furnish Form 26A before the Director General of Income-tax (Systems), as contemplated under Rule 31ACB, is a procedural lapse that cannot override the substantive relief granted by Sections 201(1) and 40(a)(ia).

Facts of the case

The assessee was an individual carrying on business as proprietor of Akshaya Power Services, Mangaluru.

During the relevant year, the assessee paid interest of ₹2,97,146 on a car loan obtained from Tata Capital. The interest expenditure was debited to the profit and loss account and claimed as a deduction while computing business income.

The assessee was required to deduct tax at source from the interest payment. Since no tax was deducted, the Assessing Officer invoked Section 40(a)(ia) and disallowed the entire interest expenditure of ₹2,97,146.