ITAT Deleted the Disallowance as Payee Declared Income and Paid Taxes despite Absence of Form 26A
Here is an interesting case wherein ITAT deleted the Disallowance as Payee Declared Income and Paid Taxes despite Absence of Form 26A
Let us have a Short Overview of the case:
PBN Constructions Pvt. Ltd. faced scrutiny assessment under Section 143(3) of the Income Tax Act for AY 2012-13. The Assessing Officer (AO) made additions totaling ₹5,10,93,540, including ₹1,08,42,694 disallowed under Section 40a(ia) for non-deduction of TDS.
While the CIT(A) deleted most additions, the TDS disallowance was sustained.
The ITAT directed the AO to verify if the recipients declared the interest payments in their tax returns and paid taxes.
Following the ITAT’s order, the AO reassessed the total income at ₹2,09,03,092 but retained the TDS disallowance, citing the absence of Form 26A certificates. The assessee argued that the recipients had already reported the interest as income and paid taxes. The assessee highlighted that Rule 31ACB, requiring Form 26A, was introduced in 2012 and was irrelevant for AY 2012-13. The assessee claimed the AO’s insistence on Form 26A was a technical formality.
The ITAT referred to landmark cases such as Hindustan Coca-Cola Beverages Pvt. Ltd. (Supreme Court) and Grindlays Bank vs. CIT (Calcutta High Court). Both decisions confirmed that if the recipient declared the income and paid taxes, no further TDS recovery should be made. The ITAT also cited CBDT Circular No. 275/201/95-IT(B), which supports this position. The assessee had also submitted valid certificates from NBFC creditors confirming the income disclosure.
The ITAT ruled that the AO’s demand for Form 26A was unjustified since the recipients had already declared the amounts in their tax returns. The tribunal emphasized that substantive tax compliance should take priority over procedural formalities. Since the AO did not challenge the factual evidence confirming tax payment by the recipients, the tribunal concluded that the disallowance was purely technical.
The ITAT deleted the disallowance of ₹1,08,42,694 and allowed the appeal filed by PBN Constructions Pvt. Ltd. The ruling highlighted that technical issues like missing Form 26A should not invalidate legitimate claims when the payee has admitted the income and paid taxes. The decision reinforced the principle that procedural lapses should not override genuine tax compliance.
The Copy Of the Appellate is as under:
