Khandesh Builders Ltd,, Jalgaon vs Deputy Commissioner Of Income Tax - (Income Tax Appellate Tribunal) (10 Jan 2023)

In the absence of obligation to deduct tax at source, the assessee cannot be held to be an assessee in default

MANU/IP/0024/2023

Direct Taxation

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 declaring loss of Rs.3,10,66,368. Against the said return of income, the assessment was completed by the Deputy Commissioner of Income Tax, ('the Assessing Officer') vide order passed under Section 143(3) of the Income Tax Act, 1961 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 unsecured loans

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 of IT Act 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.

Therefore, the ratio of the Co-ordinate Bench of the Mumbai Tribunal in the case of Pranik Shipping & Services Ltd. 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, the matter remitted 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. Appeal partly allowed.

Tags : ASSESSMENT INTEREST LIABILITY