No Section 40a(ia) disallowance for non-deduction of TDS if recipient already paid the taxes

PBN Constructions Pvt. Ltd. Vs DCIT (ITAT Kolkata)

The case of PBN Constructions Pvt. Ltd. Vs DCIT (ITAT Kolkata) revolved around disallowances made by the Assessing Officer (AO) under various provisions of the Income Tax Act for the Assessment Year (AY) 2012-13. The AO initially assessed total additions amounting to ₹5.10 crores under sections such as 40a(ia) for non-deduction of TDS, unexplained cash credits under Section 68, and income from other sources. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] provided partial relief, deleting a majority of the additions. Subsequently, the Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)’s decision, except for the TDS-related disallowance under Section 40a(ia), which was remanded to the AO for verification.

The primary dispute focused on the procedural requirements for compliance under Section 40a(ia). The AO disallowed interest payments made to non-banking financial companies (NBFCs), citing the absence of certificates in Form 26A, as mandated by Rule 31ACB of the Income Tax Rules, 1962. However, the assessee contended that the rule was introduced in September 2012 and did not apply retrospectively to AY 2012-13. Certificates from recipients, confirming that the income was included in their tax returns and taxes were paid, were submitted. Despite this, the AO maintained the disallowance, leading to the present appeal.