Tribunal upholds disallowance of JCB rent under section 40(a)(ia) and interest on unexplained interest-free advances

5-Second Takeaway

The Tribunal upheld disallowance of JCB rent under section 40(a)(ia) because the assessee failed to deduct tax at source under section 194I. It also sustained disallowance of interest on borrowed funds advanced interest-free to a relative, as no commercial expediency was shown.

The assessee had claimed JCB rent paid to a sister concern without deducting tax at source under section 194I. The Assessing Officer treated the payment as liable to TDS and made a disallowance under section 40(a)(ia), which the Tribunal sustained.

The assessee argued that the payee had already offered the lease rent to tax and had paid due taxes. The Tribunal rejected that contention, holding that the payer’s obligation to deduct tax at source is mandatory, and failure to do so attracts disallowance. It relied on the authorities cited in the editorial material.

The Tribunal also considered an interest disallowance arising from advances made to a relative without charging interest, while the assessee was paying interest on borrowed funds. It found no material showing that the advance was made out of commercial expediency.

On that basis, the disallowance of interest was also upheld. The appeal therefore failed on both issues.