Madhu Transport Company Private Limited Vs ITO (ITAT Kolkata)
ITAT Kolkata order on Whether disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 is sustainable when the assessee failed to deduct tax at source on payment of interest, but the payee has already offered the income to tax in its return, and Form 26A was not filed by the assessee
This appeal by Madhu Transport Company Private Limited contested the disallowance under Section 40(a)(ia) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed interest paid to M/s Srei Infrastructure Pvt. Ltd. because the assessee failed to deduct tax at source (TDS). The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, citing the non-filing of Form 26A as mandated by Section 201(1) read with Rule 31ACB. Form 26A is a certificate from a Chartered Accountant confirming that the payee has included the income in their return and paid the taxes due.
However, the ITAT Kolkata reversed the CIT(A)’s order. The Tribunal noted that the recipient, M/s Srei Infrastructure Pvt. Ltd., had indeed offered the interest income to tax, a fact already acknowledged by the first appellate authority in an earlier round of litigation. The ITAT relied on the Supreme Court’s judgment in Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT, which established that tax cannot be recovered from the payer if the payee has already paid tax on the income. Crucially, the Tribunal pointed out that Form 26A and Rule 31ACB came into effect only from September 12, 2012, through the Income-tax (11th Amendment) Rules, 2012. Since the assessment year in question was prior to this date (AY 2008-09), the non-filing of Form 26A could not be a valid reason for disallowance. Consequently, the ITAT concluded that the disallowance under Section 40(a)(ia) was unsustainable because the payee had already paid tax on the interest income, and the requirement to file Form 26A was not applicable for the relevant assessment year. The AO was directed to remove the addition. The Tribunal also allowed the assessee’s claim for deduction under Section 80IA, setting aside the CIT(A)’s order on that issue as well.
