No Section 40(a)(ia) disallowance for delayed Form 15G & 15H submission

Pramod Narayanrao Ghalani Vs ITO (ITAT Nagpur)

In the case of Pramod Narayanrao Ghalani Vs ITO, the Income Tax Appellate Tribunal (ITAT) Nagpur dealt with an appeal challenging the order issued by the Commissioner of Income Tax (Appeals) on May 8, 2019, concerning the assessment year 2009-10. The appellant, Pramod Ghalani, a proprietor of M/s. Chintamani Construction, faced disallowance of interest payments amounting to ₹2,81,733 due to non-compliance with tax deduction at source regulations, specifically under section 40(a)(ia) of the Income Tax Act. During the assessment, the Assessing Officer noted that the appellant had claimed deductions for interest paid to unsecured loan lenders but failed to deduct tax at source on these payments. The appellant submitted Forms 15G and 15H to the Assessing Officer; however, the Assessing Officer contended that these forms were not filed in time with the Commissioner (TDS), leading to disallowance.

Upon review, the ITAT noted that the Assessing Officer had not demonstrated a violation of the tax code that warranted such disallowance. The Tribunal highlighted that under section 197A, there is no obligation to deduct tax at source if the declaration form is filed with the Assessing Officer. The Tribunal found that despite the lack of representation from Ghalani or his representatives during the appeal, the legal framework supported the argument that failure to submit the forms to the Commissioner on time should not penalize the taxpayer. Therefore, the ITAT set aside the disallowance made by the CIT(A), concluding that the additions to the total income were not justified, and the appellant’s grounds for appeal were allowed. The Tribunal’s decision reinforces the importance of understanding procedural requirements in tax law and the implications of timely form submissions.

FULL TEXT OF THE ORDER OF ITAT NAGPUR

The present appeal has been filed by the assessee challenging the impugned order dated 08/05/2019, passed by the learned Commissioner of Income Tax (Appeals)–2, Nagpur, [“learned CIT(A)”], for the assessment year 2009–10.

2. When the case was called for hearing neither the assessee appellant nor any if his authorised representatives appeared before us to assist the Bench and argue the matter. There is no application for adjournment also. Hence, the Bench proceeded on its own to dispose of this appeal qua the assessee and after hearing the learned Departmental Representative and on the basis of material on record, particularly since the matter is quite old and the additions are within a narrow compass of law.

3. In its appeal, the assessee has raised following grounds:–

“1. Whether on the facts and circumstances of the disallowance made by the Assessing Officer and endorsed by the CIT(A) for disallowance under section 40(a)(ia) for late filling of Form 15G & 15H is justified.

2. Appellant craves leave to add or alter any other ground that may be taken at the time of hearing.”

4. Facts in Brief:– The assessee is an individual who is a proprietor of M/s. Chintamani Construction. For the year under consideration, the assessee has filed return of income on 25/09/2009 declaring total taxable income at ` 4,80,280 and agricultural income of ` 90,000. The return of income was processed under section 143(1) of the Income Tax Act, 1961 (“the Act”) on 15/11/2010. The order under section 143(3) of the Act was passed on 29/12/2011, and income was assessed at ` 4,80,280, and agricultural income was assessed at ` 90,000. The case was re–opened for scrutiny and notice under section 148 of the Act which was issued on 22/10/2013, and the same was served on the assessee on 24/10/2013. In response to the notice under section 148, the assessee filed return of income on 20/11/2013, declaring total income at ` 4,80,280. Subsequently, notice under section 142(1) and 143(2) were issued and served on the assessee. The Assessing Officer asked the assessee to file various details like copy of bank statement, copy of Balance Sheet as on 31/03/2009, and details of interest paid, etc. The Assessing Officer noted that the assessee, during the financial year, derived income from Civil Contract Business. The Assessing Officer further noted that the assessee debited an amount of ` 2,81,733, in the Profit & Loss A/c on account of interest paid to the following unsecured loan lenders:–

5. The interest paid on unsecured loans has been claimed as deduction in the return of income so filed. Since the assessee has not deducted tax at source on the above interest payments so made by the assessee, the Assessing Officer sought explanation from the assessee as to why the interest paid on unsecured loans of ` 2,81,733, be not added to the total income of the assessee. The assessee furnished Form no.15G and 15H in respect of the above parties, however, the Assessing Officer stated in the assessment order that the said forms have not been filed before the CIT(TDS). The Assessing Officer, considering these facts, proceeded to disallow the amount of interest of ` 2,81,733, and the same was added to the total income of the assessee. Aggrieved, the assessee carried the matter before the first appellate authority.

6. The learned CIT(A) directed the Assessing Officer to verify as to whether Form no.15G and 15H were filed before the Commissioner in time and if so grant suitable relief to the assessee. The assessee being not satisfied with the order so passed by the learned CIT(A), filed appeal before the Tribunal.

7. None appeared on behalf of the assessee appellant.

8. The learned Departmental Representative supported the order passed by the Assessing Officer vehemently and prayed that the addition be sustained as it is within the four squares of the law.

9. We have heard the learned D.R. and perused the material on record. It is a matter on record that Forms no.15G and 15H, were furnished by the assessee before the Assessing Officer during the course of assessment proceedings. Under section 197A of the Act, there is no requirement of deducting tax at source once the declaration Form is furnished before the Assessing Officer under sub–section (2) of section 197A of the Act. It is the requirement of the assessee to deliver these forms before the Commissioner before the 7^th day of the month next following the month in which the declaration furnished before the Assessing Officer. We do not find any representation from the side of the assessee. However, we have gone through the records. The learned Departmental Representative submitted before us that the assessment order need not be disturbed, but he failed to point out any specific provisions under which the disallowance due to non– deduction of tax can be justified once the declaration forms are submitted before the Assessing Officer. Consequently, we are of the view that even if the assessee fails to furnish the declaration forms before the concerned authority, he cannot be penalised for non–deduction of tax. Addition made under section 50(a(ia) of the Act cannot be made when there was no requirement of deducting tax at source. Further, the Department did not verify whether the payees have declared the interest in the return of income. The direction of the learned CIT(A) is superfluous and does not rest on valid legal foundation. Even if there is any non–compliance by the assessee, additions cannot be perpetrated simply on that basis. In view of the forgoing discussions, we set aside the impugned order passed by the learned CIT(A) and allow the grounds of appeal raised by the assessee.

10. In the result, appeal filed by the assessee is allowed.

Order pronounced in the open Court on 13/08/2024