S.S. Viswanethra Rao ORDER
Inturi Rama Rao, Member (A)
1. These are the appeals filed by the assessee directed against the separate orders of the ld. Commissioner of Income Tax (Appeals)-1, Nashik ['the CIT(A)'] dated 01.02.2019 for the assessment years 2013-14 and 2014-15 respectively.
2. Since the identical facts and common issues are involved in both the above captioned appeals of the assessee, we proceed to dispose of the same by this common order.
3. For the sake of convenience and clarity, the facts relevant to the appeal of the assessee in ITA No. 506/PUN/2019 for the assessment year 2013-14 are stated herein.
ITA No. 506/PUN/2019, A.Y. 2013-14:
4. Briefly, the facts of the case that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of dealing in flats construction etc. The Return of Income for the assessment year 2013-14 was filed on 25.09.2013 declaring loss of Rs. 3,10,66,368/-. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income Tax, Cricle-1, Jalgaon ('the Assessing Officer') vide order dated 21.03.2016 passed u/s. 143(3) of the Income Tax Act, 1961 ('the Act') at loss of Rs. 2,47,57,882/-. While doing so, the Assessing Officer disallowed the interest of Rs. 1,11,28,956/- claimed to have been accrued on the following unsecured loans:-
5. The above said interest liability had not been accounted in the books of account nor paid during the year under consideration, but claimed as deduction while computing the taxable income under the head "business". It was contended that there was no liability to deduct tax under the provisions of section 194A, as the interest liability had not accounted in the books of account nor paid placing reliance on the decision of the Mumbai Bench of the Tribunal in the case of Pranik Shipping & Services Ltd. vs. ACIT, MANU/IU/0767/2012 : 146 TTJ 543 (Mum.-Trib.). However, the Assessing Officer was of the opinion that since the assessee had failed to deduct tax at source, the same was not allowable as deduction and in respect of the parties for which Form No. 26AS was filed, was allowed as deduction and the balance amount of Rs. 63,08,486/- was disallowed.
Even on appeal before the ld. CIT(A), the ld. CIT(A) placing reliance on the decision of the Hon'ble Supreme Court in the case of Palam Gas Service vs. CIT, MANU/SC/0571/2017 : 394 ITR 300 (SC) confirmed the action of the Assessing Officer.
6. Being aggrieved, the appellant is in appeal before us in the present appeal.
7. When the appeal was called on, none appeared on behalf of the appellant-assessee despite due service of notice of hearing.
8. On the other hand, ld. Sr. DR submits that the interest liability cannot be allowed as deduction, as the assessee had failed to comply with the provisions of tax deduction at source placing reliance on the decision of the Hon'ble Supreme Court in the case of Palam Gas Service (supra).
9. We heard the ld. Sr. DR and perused the material on record. The issue in the present appeal relates to the allowability of interest expenditure neither accounted in the books of account nor paid during the previous year relevant to the assessment year under consideration. It is settled position of law that in the absence or presence of entries in the books of account does not determine the allowability of interest expenditure while computing the taxable income of an assessee under the head "business". Similarly, the provisions of section 194A have no application in case where no interest is credited to the account of the parties nor was paid during the previous year relevant to the assessment year under consideration. Therefore, in the absence of obligation to deduct tax at source, the assessee cannot be held to be an assessee in default and consequential provisions of section 40(a)(ia) have no application. Even the ratio of the decision of the Hon'ble Supreme Court in the case of Palam Gas Service (supra) has no application to the facts of the present case, as the ratio laid down in the said decision is applicable in case where the interest liability for expenditure was accounted in the books of account and remain paid during the previous year relevant to the assessment year under consideration. Therefore, the ratio of the Co-ordinate Bench of the Mumbai Tribunal in the case of Pranik Shipping & Services Ltd. (supra) is squarely applicable to the facts of the present case. However, the Assessing Officer had no occasion to examine accrual of the interest liability of expenditure since the Assessing Officer had disallowed the same on the ground that no TDS was deducted. Therefore, we remit the matter to the file of the Assessing Officer to allow the interest liability for expenditure as allowable expenditure on satisfying himself that the interest liability had crystallized during the previous year relevant to the assessment year under consideration in terms of the contract entered by the appellant with the lenders. Thus, the grounds of appeal filed by the assessee stand partly allowed.
10. In the result, the appeal filed by the assessee in ITA No. 506/PUN/2019 for A.Y. 2013-14 stands partly allowed.
ITA No. 512/PUN/2019, A.Y. 2014-15:
11. Since the facts and issues involved in both the appeals of the assessee are identical, therefore, our decision in ITA No. 506/PUN/2019 for A.Y. 2013-14 shall apply mutatis mutandis to the appeal of the assessee in ITA No. 512/PUN/2019 for A.Y. 2014-15 respectively. Accordingly, the appeal of the assessee in ITA No. 512/PUN/2019 for A.Y. 2014-15 stands partly allowed.
12. To sum up, both the above captioned appeals of the assessee stands partly allowed.
Order pronounced on this 10th day of January, 2023.
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