DCIT (TDS)(OSD) - 2(3), MUMBAI vs. M/S. WOCKHARDT LTD., MUMBAI

PER OM PRAKASH KANT, AM

The Revenue has preferred this appeal against order dated 27.06.2022 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre (NFAC), Delhi (in short ‘the Ld. CIT(A)’) for assessment year 2014-15, in relation to liability raised by the Deputy Commissioner of Income-tax (TDS)-2(3), Mumbai (in short ‘the Ld. Assessing Officer’) for non-deduction of

M/s Wackardt Ltd. 2 ITA No. 2131/M/2022

tax at source on certain payments for assessment year 2014-15. tax at source on certain payments for assessment year 2014 tax at source on certain payments for assessment year 2014 The grounds raised by the Revenue are reproduced as under: The grounds raised by the Revenue are reproduced as under: The grounds raised by the Revenue are reproduced as under:

a. On the facts and in the circumstances of the case and On the facts and in the circumstances of the case and On the facts and in the circumstances of the case and law, the Ld. CIT(A) has erred in relying on the Hon'ble law, the Ld. CIT(A) has erred in relying on the Hon'ble law, the Ld. CIT(A) has erred in relying on the Hon'ble ITAT decision ITAT decision in holding that the transaction of sale in holding that the transaction of sale between the assessee company and Stockist was on between the assessee company and Stockist was on between the assessee company and Stockist was on principal to principal basis and therefore discount principal to principal basis and therefore discount principal to principal basis and therefore discount offered would not come under ambit of 194H, without offered would not come under ambit of 194H, without offered would not come under ambit of 194H, without appreciating the fact that the entire liability in goods appreciating the fact that the entire liability in goods appreciating the fact that the entire liability in goods had n had not been transferred to the Stockist and that the ot been transferred to the Stockist and that the company had to still carry liability in terms of expired company had to still carry liability in terms of expired company had to still carry liability in terms of expired goods and quality of goods etc, and therefore the goods and quality of goods etc, and therefore the goods and quality of goods etc, and therefore the Stockist were working as agents of assessee company, Stockist were working as agents of assessee company, Stockist were working as agents of assessee company, to promote and effect sales on behalf of assessee." to promote and effect sales on behalf of assess to promote and effect sales on behalf of assess b. "On the facts and circumstances of the case and in law, "On the facts and circumstances of the case and in law, "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in relying on the Hon'ble ITAT the Ld. CIT(A) has erred in relying on the Hon'ble ITAT the Ld. CIT(A) has erred in relying on the Hon'ble ITAT decision in holding that bonus and incentive offered by decision in holding that bonus and incentive offered by decision in holding that bonus and incentive offered by the assessee company to Stockist were also in nature of the assessee company to Stockist were also in nature of the assessee company to Stockist were also in nature of discount and therefore not discount and therefore not covered under Section 194H, covered under Section 194H, without appreciating the fact that such bonus/ incentive without appreciating the fact that such bonus/ incentive without appreciating the fact that such bonus/ incentive are offered subsequent to sales and therefore are are offered subsequent to sales and therefore are are offered subsequent to sales and therefore are essentially in nature of commission as envisaged u/s essentially in nature of commission as envisaged u/s essentially in nature of commission as envisaged u/s 194H.» c) 194H.» c) c. "On the facts and circumstances of the case and law, "On the facts and circumstances of the case and law, "On the facts and circumstances of the case and law, the Ld. CIT(A) has erred in holding that provision of Ld. CIT(A) has erred in holding that provision of Ld. CIT(A) has erred in holding that provision of interest made was in nature of liquidation damages and interest made was in nature of liquidation damages and interest made was in nature of liquidation damages and therefore connected to sales or purchase without therefore connected to sales or purchase without therefore connected to sales or purchase without appreciating the fact that the assessee itself categorized appreciating the fact that the assessee itself categorized appreciating the fact that the assessee itself categorized

M/s Wackardt Ltd. 3 ITA No. 2131/M/2022

this expenditure as interest and therefore the same is this expenditure as interest and therefore this expenditure as interest and therefore covered us 194A of the Act." covered us 194A of the Act." 2. We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The ground No. a of the appeal relats to relevant material on record. The ground No. a of the appeal relats to relevant material on record. The ground No. a of the appeal relats to deduction of tax at source u/s 194H on incentives offered to deduction of tax at source u/s 194H on incentives offered to deduction of tax at source u/s 194H on incentives offered to stockiest and liability raised by the Assessing Officer under 201(1) lity raised by the Assessing Officer under 201(1) lity raised by the Assessing Officer under 201(1) of ₹18,97,90,448/- and interest u/s 201(1 and interest u/s 201(1A) of ₹17,19,02,545/ 17,19,02,545/-.

2.1 The assessee is in the business of manufacturing and trading The assessee is in the business of manufacturing and trading The assessee is in the business of manufacturing and trading of pharmaceutical products. During the year under consideration, of pharmaceutical products. During the year under consideration, of pharmaceutical products. During the year under consideration, the assessee has provided incentive to its stockiest in the nature of has provided incentive to its stockiest in the nature of has provided incentive to its stockiest in the nature of discount on maximum retail price. The contention of the assessee is discount on maximum retail price. The contention of the assessee discount on maximum retail price. The contention of the assessee that the discount was was provided on principle to principle basis. provided on principle to principle basis. However, the Assessing Officer relying on clause 10 of agreement However, the Assessing Officer relying on clause 10 of agreement However, the Assessing Officer relying on clause 10 of agreement between the assessee and between the assessee and “Lotus Vaccine House” “Lotus Vaccine House” (one of the stockiest) wherein it has been provided that the assessee should stockiest) wherein it has been provided that the assessee should stockiest) wherein it has been provided that the assessee should give credit notes/replace /replacement and settlement of all claims for date ment and settlement of all claims for date expired goods, to hold the relationship between the assessee an to hold the relationship between the assessee and to hold the relationship between the assessee an stockist in the nature st in the nature, of principle and agent. Therefore, the of principle and agent. Therefore, the incentives provided to incentives provided to the stockist under contract contract was laible for deduction of tax at source u/s 19 source u/s 194H of the Act and and due the failure on the part of the assessee in discharging its obligation, he held on the part of the assessee in discharging its obligation on the part of the assessee in discharging its obligation that the assessee in that the assessee in default and raised liability u/s 201(1) and default and raised liability u/s 201(1) and 201(1a) of the Act. On further appeal, the Ld. CIT(A) deleted the levy 201(1a) of the Act. On further appeal, the Ld. CIT(A) deleted the levy 201(1a) of the Act. On further appeal, the Ld. CIT(A) deleted the levy of liability, against which the Revenue is in appeal raising the against which the Revenue is in appeal raising the against which the Revenue is in appeal raising the

M/s Wackardt Ltd. 4 ITA No. 2131/M/2022

grounds as reproduced above. We find that identical issue has been grounds as reproduced above. We find that identical issue has been grounds as reproduced above. We find that identical issue has been allowed in favour of the assessee by the Co allowed in favour of the assessee by the Co-ordinate Bench of the ordinate Bench of the Tribunal in ITA No. 894/M/2022 for assessment year 2011-12 and Tribunal in ITA No. 894/M/2022 for assessment year 2011 Tribunal in ITA No. 894/M/2022 for assessment year 2011 ITA No. 893/M/2022 for assessment year 2012 ITA No. 893/M/2022 for assessment year 2012-13 in order dated 13 in order dated 21.11.2022. The relevant finding of the Tribunal (supra) is 21.11.2022. The relevant finding of the Tribunal 21.11.2022. The relevant finding of the Tribunal reproduced as under : reproduced as under :

“9. We have considered the rival submissions and perused the 9. We have considered the rival submissions and perused the 9. We have considered the rival submissions and perused the material available on record. We find that the Co material available on record. We find that the Co material available on record. We find that the Co–ordinate Bench of the Tribunal in assessee‟s own case in DCIT v/s Bench of the Tribunal in assessee s own case in DCIT v/s Wockhardt Ltd., in ITA no.6803/Mum./2018, vide order dated Wockhardt Ltd., in ITA no.6803/Mum./2018, vide order dated Wockhardt Ltd., in ITA no.6803/Mum./2018, vide order dated 11/12/2020, for the assessment year 2010 11/12/2020, for the assessment year 2010– –11, decided similar issue in favour of the assessee by observing as similar issue in favour of the assessee by observing as similar issue in favour of the assessee by observing as under:–

“11. Considered “11. Considered the rival submissions and material the rival submissions and material placed on record. With the ground no. (a) and (b), we placed on record. With the ground no. (a) and (b), we placed on record. With the ground no. (a) and (b), we notice that the Coordinate Bench of ITAT in ITA No. notice that the Coordinate Bench of ITAT in ITA No. notice that the Coordinate Bench of ITAT in ITA No. 4592 & 4593/Mum/2014 in the case of ITO(TDS) vrs. 4592 & 4593/Mum/2014 in the case of ITO(TDS) vrs. 4592 & 4593/Mum/2014 in the case of ITO(TDS) vrs. Unichem Laboratoreis Ltd. has already decided the Unichem Laboratoreis Ltd. has already decided the Unichem Laboratoreis Ltd. has already decided the similar issue similar issue on the grounds raised by the revenue in on the grounds raised by the revenue in the present case. For the sake of clarity, which is the present case. For the sake of clarity, which is the present case. For the sake of clarity, which is reproduced below: reproduced below:-

“8. We have considered the rival contentions and “8. We have considered the rival contentions and “8. We have considered the rival contentions and perused the material on record, we have observed that perused the material on record, we have observed that perused the material on record, we have observed that the perusal of the clauses of the distrib the perusal of the clauses of the distributor agreement utor agreement dated 01 dated 01-07- 2001 entered into by the assessee 2001 entered into by the assessee company and the Rudra Pharma Distributors Ltd. which company and the Rudra Pharma Distributors Ltd. which company and the Rudra Pharma Distributors Ltd. which

M/s Wackardt Ltd. 5 ITA No. 2131/M/2022

is placed in the paper book page No. 18 to 34 clearly is placed in the paper book page No. 18 to 34 clearly is placed in the paper book page No. 18 to 34 clearly reveals reveals reveals that that that the the the assessee assessee assessee company company company is is is selling selling selling goods/products i.e. drugs goods/products i.e. drugs-medicine to the medicine to the distributor which is being paid by the distributor on principal to which is being paid by the distributor on principal to which is being paid by the distributor on principal to principal basis and property in goods with all risk and principal basis and property in goods with all risk and principal basis and property in goods with all risk and rewards passes to the distributor at the time of selling rewards passes to the distributor at the time of selling rewards passes to the distributor at the time of selling of the goods by the assessee company to the distributor of the goods by the assessee company to the distributor of the goods by the assessee company to the distributor when the goods are d when the goods are delivered by the carrier to the elivered by the carrier to the distributor. In distributor. In-fact the distributors are the customers of fact the distributors are the customers of the assessee company to whom the sales of the the assessee company to whom the sales of the the assessee company to whom the sales of the products i.e. drugs products i.e. drugs-medicine were effected by the medicine were effected by the assessee company. It is pertinent to note that the assessee company. It is pertinent to note that the assessee company. It is pertinent to note that the assessee company is assessee company is dealing in products/goods i.e. dealing in products/goods i.e. drugs- -medicine and not in the services. The distributors medicine and not in the services. The distributors are required to notify any shortages during shipping or are required to notify any shortages during shipping or are required to notify any shortages during shipping or handling within 7 days of arrival of products at final handling within 7 days of arrival of products at final handling within 7 days of arrival of products at final destination to the destination to the assessee company along with assessee company along with endorseme endorsement on Lorry Receipt of the transporter along nt on Lorry Receipt of the transporter along with shortage certificates by the transporter to claim with shortage certificates by the transporter to claim with shortage certificates by the transporter to claim loss from the assessee company, in other situations the loss from the assessee company, in other situations the loss from the assessee company, in other situations the loss or damage to products shall be borne by the loss or damage to products shall be borne by the loss or damage to products shall be borne by the distributor. The drugs being medicines contains certain distributor. The drugs being medicines contains cer distributor. The drugs being medicines contains cer restriction on the sale w.r.1. good governance and restriction on the sale w.r.1. good governance and restriction on the sale w.r.1. good governance and conduct by the distributors to follow first expiry and first conduct by the distributors to follow first expiry and first conduct by the distributors to follow first expiry and first out basis as the medicines having expiry could not be out basis as the medicines having expiry could not be out basis as the medicines having expiry could not be sold after the stipulated date of expiry, otherwise it will sold after the stipulated date of expiry, otherwise it will sold after the stipulated date of expiry, otherwise it will be health hazard to the c be health hazard to the consumers, the assessee onsumers, the assessee company as normal market practice takes back the said company as normal market practice takes back the said company as normal market practice takes back the said expired drugmedicines from distributors which has expired drugmedicines from distributors which has expired drugmedicines from distributors which has

M/s Wackardt Ltd. 6 ITA No. 2131/M/2022

expired and pay back the distributors but that does not expired and pay back the distributors but that does not expired and pay back the distributors but that does not in our humble opinion is decisive or change the in our humble opinion is decisive or change the in our humble opinion is decisive or change the character of dealing betw character of dealing between the assessee company een the assessee company and the distributor which primarily continues to be on and the distributor which primarily continues to be on and the distributor which primarily continues to be on principal to principal basis. Such exception of taking principal to principal basis. Such exception of taking principal to principal basis. Such exception of taking back the expired products has its genesis to the back the expired products has its genesis to the back the expired products has its genesis to the sensitivity of the product being drugsmedicine handled sensitivity of the product being drugsmedicine handled sensitivity of the product being drugsmedicine handled by the assessee c by the assessee company otherwise it could have ompany otherwise it could have severe health hazard impacts on the consumer which is severe health hazard impacts on the consumer which is severe health hazard impacts on the consumer which is a normal market practice in the industry but the same is a normal market practice in the industry but the same is a normal market practice in the industry but the same is not decisive to conclude that the property in the goods not decisive to conclude that the property in the goods not decisive to conclude that the property in the goods with all risks and rewards have not passed to the with all risks and rewards have not passed to the with all risks and rewards have not passed to the distribu distributor on sale of products by the assessee company tor on sale of products by the assessee company to the distributor at the time of delivery by the carrier to to the distributor at the time of delivery by the carrier to to the distributor at the time of delivery by the carrier to the distributor as per stipulated terms of distribution the distributor as per stipulated terms of distribution the distributor as per stipulated terms of distribution agreement. We have also observed that the assessee agreement. We have also observed that the assessee agreement. We have also observed that the assessee company is raising sale invoice's on the company is raising sale invoice's on the distributor M/s distributor M/s Rudra Pharma Distributors Limited which are placed on Rudra Pharma Distributors Limited which are placed on Rudra Pharma Distributors Limited which are placed on the paper book filed by the assessee company at page the paper book filed by the assessee company at page the paper book filed by the assessee company at page 35 while the ledger account showing invoices raised 35 while the ledger account showing invoices raised 35 while the ledger account showing invoices raised and payments received from distributor M/s Rudra and payments received from distributor M/s Rudra and payments received from distributor M/s Rudra Pharma Distributors Limited by Pharma Distributors Limited by the assessee company the assessee company is also placed in the paper book filed by the assessee is also placed in the paper book filed by the assessee is also placed in the paper book filed by the assessee company at page 36 to 51. We have also observed that company at page 36 to 51. We have also observed that company at page 36 to 51. We have also observed that the said distributor M/s Rudra Pharma Distributors the said distributor M/s Rudra Pharma Distributors the said distributor M/s Rudra Pharma Distributors Limited is registered with VAT authorities and is raising Limited is registered with VAT authorities and is raising Limited is registered with VAT authorities and is raising its invoices (incl its invoices (including VAT) to their customers, whereby uding VAT) to their customers, whereby all the above facts clearly reflects that the distributors is all the above facts clearly reflects that the distributors is all the above facts clearly reflects that the distributors is buying the products from the assessee company and buying the products from the assessee company and buying the products from the assessee company and

M/s Wackardt Ltd. 7 ITA No. 2131/M/2022

then selling the same in its own right with all risks and then selling the same in its own right with all risks and then selling the same in its own right with all risks and rewards of ownership got vested in the said distributors rewards of ownership got vested in the said dis rewards of ownership got vested in the said dis on the delivery of goods by carrier to the said distributor on the delivery of goods by carrier to the said distributor on the delivery of goods by carrier to the said distributor which is also supported by the clause 5 of the which is also supported by the clause 5 of the which is also supported by the clause 5 of the distribution agreement dated 01 distribution agreement dated 01-07-2001. Thus, we, 2001. Thus, we, therefore, hold that the assessee company has paid therefore, hold that the assessee company has paid therefore, hold that the assessee company has paid discount to MRP to the distributors a discount to MRP to the distributors at the time of sale of t the time of sale of the said goods/products i.e. drugs the said goods/products i.e. drugs-medicine which in medicine which in our considered view is not covered u/s 194H of the Act our considered view is not covered u/s 194H of the Act our considered view is not covered u/s 194H of the Act and no tax was required to be deducted at source on and no tax was required to be deducted at source on and no tax was required to be deducted at source on these discount to MRP given by the assessee company these discount to MRP given by the assessee company these discount to MRP given by the assessee company to the distributors at to the distributors at the time of sale of drugs the time of sale of drugs-medicine to the distributors. We hold accordingly.” to the distributors. We hold accordingly.”

M/s Wackardt Ltd. 8 ITA No. 2131/M/2022

2.2 In view of identical facts and circumstances in the year under In view of identical facts and circumstances in the year under In view of identical facts and circumstances in the year under consideration as compared to the assessment year 2012-13, consideration as compared to the assessment year 2012 consideration as compared to the assessment year 2012 respectfully following the finding of the Tribunal espectfully following the finding of the Tribunal (supra) (supra), the liability u/s 201(1) and 201(1 u/s 201(1) and 201(1A) deleted by the Ld. CIT(A) is upheld. upheld.

4.1 The assessee made The assessee made provision for the interest payable to the interest payable to purchase price of the goods of services. According to the assessee, purchase price of the goods of services. According to the assessee, purchase price of the goods of services. According to the assessee, payment was nothing but added price and therefore not in the payment was nothing but added price and therefore not in the payment was nothing but added price and therefore not in the nature of interest as define nature of interest as defined u/s 2(28A) of the Act. However, the ) of the Act. However, the

M/s Wackardt Ltd. 9 ITA No. 2131/M/2022

Assessing Officer rejected the conte Assessing Officer rejected the contention of the assessee and held ntion of the assessee and held the assessee as in default and raised the corresponding liability. the assessee as in default and raised the corresponding liability the assessee as in default and raised the corresponding liability

4.2 Before us, the Ld. Counsel of the assessee submitted that Before us, the Ld. Counsel of the assessee submitted that Before us, the Ld. Counsel of the assessee submitted that amount for question does not fall in the definition of the interest, amount for question does not fall in the definition of the interest amount for question does not fall in the definition of the interest which covers interest paya which covers interest payable on loans, deposits claims and other loans, deposits claims and other rights or obligation and the payment in question having no nexus rights or obligation and the payment in question having no nexus rights or obligation and the payment in question having no nexus with deposit not falling not falling u/s 2(28A) of the Act. The Ld. Counsel ) of the Act. The Ld. Counsel further submitted that issue further submitted that issue-in-dispute is covered in favour of the dispute is covered in favour of the assessee by the order of the Tribunal in assessment year 2012 er of the Tribunal in assessment year 2012-13 er of the Tribunal in assessment year 2012 (supra). The relevant finding of the Tribunal is reproduced as under: (supra). The relevant finding of the Tribunal is reproduced as under: (supra). The relevant finding of the Tribunal is reproduced as under:

“13. With the ground no. (c), we notice that the Coordinate “13. With the ground no. (c), we notice that the Coordinate “13. With the ground no. (c), we notice that the Coordinate Bench of ITAT in the case of I Bench of ITAT in the case of Income-tax Officer, Ward tax Officer, Ward-2(2), Ahmedabad Ahmedabad Ahmedabad v. v. v. Parag Parag Parag Mahasukhlal Mahasukhlal Mahasukhlal Shah Shah Shah [2011] [2011] [2011] 12 12 12 taxmann.com 37 (Ahmedabad) has already decided the taxmann.com 37 (Ahmedabad) has already decided the taxmann.com 37 (Ahmedabad) has already decided the similar issue raised by the revenue in the present case. For similar issue raised by the revenue in the present case. For similar issue raised by the revenue in the present case. For the sake of clarity, which is reproduced below: the sake of clarity, which is reproduced below:-

“5. We have heard both the sides at some length. Admitted “5. We have heard both the sides at some length. Admitted “5. We have heard both the sides at some length. Admitted factual position is that the assessee is having a dealership of factual position is that the assessee is having a dealership of factual position is that the assessee is having a dealership of FAG Bearing (India) Ltd. and, therefore, in the business of FAG Bearing (India) Ltd. and, therefore, in the business of FAG Bearing (India) Ltd. and, therefore, in the business of

M/s Wackardt Ltd. 10 ITA No. 2131/M/2022

sales of ball- sales of ball-bearings. This fact has also not been denied that bearings. This fact has also not been denied that there were certain terms and conditions agreed upon between certain terms and conditions agreed upon between certain terms and conditions agreed upon between the two parties in case of delay in payments. Whenever there the two parties in case of delay in payments. Whenever there the two parties in case of delay in payments. Whenever there was delay in payment or the payments got overdue, there was delay in payment or the payments got overdue, there was delay in payment or the payments got overdue, there was a condition to compensate the delay. Likewise, in case of was a condition to compensate the delay. Likewise, in case of was a condition to compensate the delay. Likewise, in case of prompt payment, the terms o prompt payment, the terms of payments have prescribed a f payments have prescribed a facility of cash discount. Therefore, the fundamental and facility of cash discount. Therefore, the fundamental and facility of cash discount. Therefore, the fundamental and primarily argument from the side of the respondent primarily argument from the side of the respondent primarily argument from the side of the respondent-assessee was that the amount paid to compensate the delay in making was that the amount paid to compensate the delay in making was that the amount paid to compensate the delay in making the payment was nothing but the added sales price the payment was nothing but the added sales price the payment was nothing but the added sales price of the said commodity. Inter alia, it has also been argued that the said commodity. Inter alia, it has also been argued that the said commodity. Inter alia, it has also been argued that the impugned nature of payment was not within the definition of impugned nature of payment was not within the definition of impugned nature of payment was not within the definition of interest as prescribed under section 2(284) of the Income interest as prescribed under section 2(284) of the Income interest as prescribed under section 2(284) of the Income-tax Act. With this factual back ground, the case laws relied upon Act. With this factual back ground, the case laws relied upon Act. With this factual back ground, the case laws relied upon is Nirma Industries Ltd. (supra), which now stood upheld and irma Industries Ltd. (supra), which now stood upheld and irma Industries Ltd. (supra), which now stood upheld and SLP of revenue was dismissed as per the citation CIT v. Nirma SLP of revenue was dismissed as per the citation CIT v. Nirma SLP of revenue was dismissed as per the citation CIT v. Nirma Industries Ltd. [2008] 166 Taxman 95 (SLP No. 28). In Industries Ltd. [2008] 166 Taxman 95 (SLP No. 28). In Industries Ltd. [2008] 166 Taxman 95 (SLP No. 28). In addition to this precedent, Learned Authorised Representative addition to this precedent, Learned Authorised Representative addition to this precedent, Learned Authorised Representative has also placed relia has also placed reliance on following decisions:

Sl. No(s). Decision in the case of... Reported in... Sl. No(s). Decision in the case of... Reported in...

M/s Wackardt Ltd. 11 ITA No. 2131/M/2022

"33. "33. "33. However, However, However, the the the parties parties parties having having having made made made elaborate elaborate elaborate submissions, the matter may be examined from a slightly ns, the matter may be examined from a slightly ns, the matter may be examined from a slightly different angle. When the assessee enters into a contract for different angle. When the assessee enters into a contract for different angle. When the assessee enters into a contract for sale of its products it could either stipulate (a) that interest at sale of its products it could either stipulate (a) that interest at sale of its products it could either stipulate (a) that interest at the specified rate would be charged on the unpaid sale price the specified rate would be charged on the unpaid sale price the specified rate would be charged on the unpaid sale price and added to the o added to the outstanding till the point of time of utstanding till the point of time of realisation, or (b) that in case of delay the payment for sale of realisation, or (b) that in case of delay the payment for sale of realisation, or (b) that in case of delay the payment for sale of products worth Rs. 100 to carry the sale price of Rs. 102 for products worth Rs. 100 to carry the sale price of Rs. 102 for products worth Rs. 100 to carry the sale price of Rs. 102 for first month's delay, Rs. 104 for second month's delay, Rs. 106 first month's delay, Rs. 104 for second month's delay, Rs. 106 first month's delay, Rs. 104 for second month's delay, Rs. 106 for third month's delay and for third month's delay and so on. If the contention of revenue so on. If the contention of revenue is accepted, merely because the assessee has described the is accepted, merely because the assessee has described the is accepted, merely because the assessee has described the additional sale proceeds as interest in case of contract as per additional sale proceeds as interest in case of contract as per additional sale proceeds as interest in case of contract as per illustration (a ) above, such payment would not be profits illustration (a ) above, such payment would not be profits illustration (a ) above, such payment would not be profits derived from industrial undertaking, b derived from industrial undertaking, but in case of illustration ut in case of illustration (b) above, if the payment is described as sale price it would be (b) above, if the payment is described as sale price it would be (b) above, if the payment is described as sale price it would be profits derived from the industrial undertaking. This can never profits derived from the industrial undertaking. This can never profits derived from the industrial undertaking. This can never be, because in sum and substance these are only two modes be, because in sum and substance these are only two modes be, because in sum and substance these are only two modes of realising sale consideration, the objec of realising sale consideration, the object being to realise sale t being to realise sale proceeds at the earliest and without delay. Purchaser pays proceeds at the earliest and without delay. Purchaser pays proceeds at the earliest and without delay. Purchaser pays

M/s Wackardt Ltd. 12 ITA No. 2131/M/2022

higher sale price if it delays payment of sale proceeds. In higher sale price if it delays payment of sale proceeds. In higher sale price if it delays payment of sale proceeds. In other words, this is a converse situation to offering of cash other words, this is a converse situation to offering of cash other words, this is a converse situation to offering of cash discount. Thus, in principle, in reality, the trans discount. Thus, in principle, in reality, the transaction remains action remains the same and there is no distinction as to the source. It is the same and there is no distinction as to the source. It is the same and there is no distinction as to the source. It is incorrect to state that the source for interest is the outstanding incorrect to state that the source for interest is the outstanding incorrect to state that the source for interest is the outstanding sale proceeds. It is not the assessee's business to lend funds sale proceeds. It is not the assessee's business to lend funds sale proceeds. It is not the assessee's business to lend funds and earn interest. The distinction drawn by Revenu and earn interest. The distinction drawn by Revenu and earn interest. The distinction drawn by Revenue is artificial in nature and is neither in consonance with law nor artificial in nature and is neither in consonance with law nor artificial in nature and is neither in consonance with law nor commercial practice." commercial practice."

7.1 Section 2(28A) of the Income 7.1 Section 2(28A) of the Income-tax Act has defined tax Act has defined the term "interest" as follows: "Section 2(28A) : "interest" means interest "interest" as follows: "Section 2(28A) : "interest" means interest "interest" as follows: "Section 2(28A) : "interest" means interest payable in any manner in respect of any moneys borrowed or payable in any manner in respect of any moneys borrowed or payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right debt incurred (including a deposit, claim or other similar right debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other ch or obligation) and includes any service fee or other ch or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect respect of the moneys borrowed or debt incurred or in respect respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized." of any credit facility which has not been utilized." of any credit facility which has not been utilized."

7.2 The true character of the term interest has been defined, 7.2 The true character of the term interest has been defined, 7.2 The true character of the term interest has been defined, but the definition appears to be wide, inter alia, covers but the definition appears to be wide, inter alia, covers but the definition appears to be wide, inter alia, covers interest pay interest payable in any manner in respect of loans, debts, able in any manner in respect of loans, debts, deposits, claims and other similar rights or obligation. This deposits, claims and other similar rights or obligation. This deposits, claims and other similar rights or obligation. This definition further includes service charges but those charges definition further includes service charges but those charges definition further includes service charges but those charges should be in respect of the money borrowed. By this definition, should be in respect of the money borrowed. By this definition, should be in respect of the money borrowed. By this definition, therefore, it is evid therefore, it is evident that if the charges are in respect of a ent that if the charges are in respect of a debt or in respect of any credit facility then such charges are debt or in respect of any credit facility then such charges are debt or in respect of any credit facility then such charges are inclusive in the definition of "interest". Therefore, the interest is inclusive in the definition of "interest". Therefore, the interest is inclusive in the definition of "interest". Therefore, the interest is

M/s Wackardt Ltd. 13 ITA No. 2131/M/2022

a payment of money in lieu of use of borrowings. It is payable a payment of money in lieu of use of borrowings. It is payable a payment of money in lieu of use of borrowings. It is payable by a debtor to by a debtor to the creditor. But it is also worth to note that the the creditor. But it is also worth to note that the said definition is not wide enough to include other payments. said definition is not wide enough to include other payments. said definition is not wide enough to include other payments. There ought to be distinction between the payments not There ought to be distinction between the payments not There ought to be distinction between the payments not connected with any debt, with a payment having connection connected with any debt, with a payment having connection connected with any debt, with a payment having connection with the borrowings. A paymen with the borrowings. A payment having no nexus with a t having no nexus with a deposit, loan or borrowings is out of the ambits of the deposit, loan or borrowings is out of the ambits of the deposit, loan or borrowings is out of the ambits of the definition of interest as per section 2(28A) of the Income definition of interest as per section 2(28A) of the Income definition of interest as per section 2(28A) of the Income-tax Act. While pondering upon the issue, we have come across a Act. While pondering upon the issue, we have come across a Act. While pondering upon the issue, we have come across a decision of Respected National Consumer Disputes Redr decision of Respected National Consumer Disputes Redr decision of Respected National Consumer Disputes Redressal Commission, wherein in the case of Ghaziabad Development Commission, wherein in the case of Ghaziabad Development Commission, wherein in the case of Ghaziabad Development Authority v. Dr. N.K. Gupta [2002] 258 ITR 337 (NCDRC), it Authority v. Dr. N.K. Gupta [2002] 258 ITR 337 (NCDRC), it Authority v. Dr. N.K. Gupta [2002] 258 ITR 337 (NCDRC), it was held as under : was held as under :—

"Held, affirming the order of the State Commission, that "Held, affirming the order of the State Commission, that "Held, affirming the order of the State Commission, that section 194A of the Income section 194A of the Income-tax Act, 1961, did not apply tax Act, 1961, did not apply to the payment made by the petitioner Authority. payment made by the petitioner Authority.

The Authority was asked to pay interest on the amount The Authority was asked to pay interest on the amount The Authority was asked to pay interest on the amount refunded to the complainant because of its failure to construct refunded to the complainant because of its failure to construct refunded to the complainant because of its failure to construct the promised flat and to provide the necessary facilities. The the promised flat and to provide the necessary facilities. The the promised flat and to provide the necessary facilities. The amounts deposited by the amounts deposited by the respondent with the petitioner respondent with the petitioner Authority were not paid by way of deposit, nor had the Authority were not paid by way of deposit, nor had the Authority were not paid by way of deposit, nor had the petitioner petitioner petitioner Authority Authority Authority borrowed borrowed borrowed those those those amounts. amounts. amounts. Interest Interest Interest payment in this payment in this

case was by way of damages. Merely because the damages case was by way of damages. Merely because the damages case was by way of damages. Merely because the damages were described as by way of interest that di were described as by way of interest that did not convert d not convert them into interest under the Act. The word used in the order of them into interest under the Act. The word used in the order of them into interest under the Act. The word used in the order of the State Commission was not "interest" as defined in section the State Commission was not "interest" as defined in section the State Commission was not "interest" as defined in section

M/s Wackardt Ltd. 14 ITA No. 2131/M/2022

2(28A). Interest, in the order of the Commission, meant 2(28A). Interest, in the order of the Commission, meant 2(28A). Interest, in the order of the Commission, meant compensation or damages for delay in construction or handing compensation or damages for delay in construction or handing compensation or damages for delay in construction or handing over possession of the same causing consequential loss to the over possession of the same causing consequential loss to the over possession of the same causing consequential loss to the complainant by way of escalation in the price of the property complainant by way of escalation in the price of the property complainant by way of escalation in the price of the property and also on account of distress and disappointment faced by and also on account of distress and disappointment faced by and also on account of distress and disappointment faced by him. Interest, in the order, had been used merely as a him. Interest, in the order, had been used merely as a him. Interest, in the order, had been used merely as a convenient metho convenient method to calculate the amount of compensation in d to calculate the amount of compensation in order to standardize it. Otherwise, each case of an allottee order to standardize it. Otherwise, each case of an allottee order to standardize it. Otherwise, each case of an allottee would have to be dealt with differently. Nomenclature did not would have to be dealt with differently. Nomenclature did not would have to be dealt with differently. Nomenclature did not decide the issue. In view of the definition of "interest" in decide the issue. In view of the definition of "interest" in decide the issue. In view of the definition of "interest" in section 2(28A), the provisi section 2(28A), the provisions of section 194A were not ons of section 194A were not applicable and the petitioner Authority was wrong in applicable and the petitioner Authority was wrong in applicable and the petitioner Authority was wrong in deducting tax at source from the interest payable to the deducting tax at source from the interest payable to the deducting tax at source from the interest payable to the respondent (complainant)." respondent (complainant)."

7.3 This decision is very helpful to decide this appeal because 7.3 This decision is very helpful to decide this appeal because 7.3 This decision is very helpful to decide this appeal because it was held that if the na it was held that if the nature of payment is to compensate an ture of payment is to compensate an allottee, then the provisions of section 194A not to be applied allottee, then the provisions of section 194A not to be applied allottee, then the provisions of section 194A not to be applied as far as the question of deduction of TDS on interest is as far as the question of deduction of TDS on interest is as far as the question of deduction of TDS on interest is concerned. Though the said compensation was mentioned as concerned. Though the said compensation was mentioned as concerned. Though the said compensation was mentioned as "interest" but the Hon'ble Members have h "interest" but the Hon'ble Members have held that the word eld that the word used "interest" did not fall within the definition as defined used "interest" did not fall within the definition as defined used "interest" did not fall within the definition as defined under section 2(28A) of the Income under section 2(28A) of the Income-tax Act.

"194A. Interest other than "Interest on securities". "194A. Interest other than "Interest on securities". "194A. Interest other than "Interest on securities".—(1) Any persons. Not being an individual or a Hindu undivided family, persons. Not being an individual or a Hindu undivided family, persons. Not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by who is responsible for paying to a resident any income by who is responsible for paying to a resident any income by way of interest other than income [by way of interest on way of interest other than income [by way of interest on way of interest other than income [by way of interest on

M/s Wackardt Ltd. 15 ITA No. 2131/M/2022

securities], shall securities], shall, at the time of credit of such income to the , at the time of credit of such income to the account of the payee or at the time of payment thereof in cash account of the payee or at the time of payment thereof in cash account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, or by issue of a cheque or draft or by any other mode, or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income whichever is earlier, deduct income-tax thereon at the rates in tax thereon at the rates in force."

8.1 If a person is 8.1 If a person is responsible for paying any income by way of responsible for paying any income by way of interest shall at the time of credit or at the time of payment is interest shall at the time of credit or at the time of payment is interest shall at the time of credit or at the time of payment is required to deduct income required to deduct income-tax. Vide an Explanation annexed tax. Vide an Explanation annexed to this section, it is clarified that where any income by way of to this section, it is clarified that where any income by way of to this section, it is clarified that where any income by way of interest is credited e interest is credited either under the "suspense account" or ither under the "suspense account" or "interest payable account" or "by any other name", then also "interest payable account" or "by any other name", then also "interest payable account" or "by any other name", then also such person is liable to deduct tax. On plain reading of this such person is liable to deduct tax. On plain reading of this such person is liable to deduct tax. On plain reading of this section, it is apparent that the term "interest" used in this section, it is apparent that the term "interest" used in this section, it is apparent that the term "interest" used in this section relates to and in connect section relates to and in connection of a debt or a loan or a ion of a debt or a loan or a deposit. The circumstances under which the assessee is deposit. The circumstances under which the assessee is deposit. The circumstances under which the assessee is required to deduct the tax has also been narrated. Therefore, required to deduct the tax has also been narrated. Therefore, required to deduct the tax has also been narrated. Therefore, a conclusion can be drawn that if a payment is compensatory a conclusion can be drawn that if a payment is compensatory a conclusion can be drawn that if a payment is compensatory in nature and not related to any deposit/debt/loan in nature and not related to any deposit/debt/loan in nature and not related to any deposit/debt/loan, then such a payment is out of the ambits of the provisions of section a payment is out of the ambits of the provisions of section a payment is out of the ambits of the provisions of section 194A of the Income 194A of the Income-tax Act. To buttress this legal proposition, tax Act. To buttress this legal proposition, we hereby placed reliance on the decision of Hon'ble Gujarat we hereby placed reliance on the decision of Hon'ble Gujarat we hereby placed reliance on the decision of Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. (supra), High Court in the case of Nirma Industries Ltd. (supra), High Court in the case of Nirma Industries Ltd. (supra), wherein the question was the admissibility of deduction under erein the question was the admissibility of deduction under erein the question was the admissibility of deduction under sections 80HH and 80 sections 80HH and 80-I of the Income-tax Act in respect of tax Act in respect of interest received from trade debtors. The observation was that interest received from trade debtors. The observation was that interest received from trade debtors. The observation was that when an assessee enters into a contract for sale of its product, when an assessee enters into a contract for sale of its product, when an assessee enters into a contract for sale of its product, it could either stipulate that interest at the specified rate either stipulate that interest at the specified rate either stipulate that interest at the specified rate would be charged on the unpaid sale price or it can be agreed would be charged on the unpaid sale price or it can be agreed would be charged on the unpaid sale price or it can be agreed

M/s Wackardt Ltd. 16 ITA No. 2131/M/2022

upon that in case of delay the sale price shall escalate. As per upon that in case of delay the sale price shall escalate. As per upon that in case of delay the sale price shall escalate. As per the Hon'ble Court, the sum and substance of the discussion the Hon'ble Court, the sum and substance of the discussion the Hon'ble Court, the sum and substance of the discussion was that only two was that only two modes are plausible for realization of sale modes are plausible for realization of sale consideration. However, for a businessman the object is to consideration. However, for a businessman the object is to consideration. However, for a businessman the object is to realize the sale proceeds at the earliest and without any realize the sale proceeds at the earliest and without any realize the sale proceeds at the earliest and without any delay. When the purchaser pays a higher sale price on delay. When the purchaser pays a higher sale price on delay. When the purchaser pays a higher sale price on account of delay in payments of the sale account of delay in payments of the sale proceeds, then the proceeds, then the source being trade activity, therefore, held as eligible profit of source being trade activity, therefore, held as eligible profit of source being trade activity, therefore, held as eligible profit of the Industrial Undertaking for the purpose of computation of the Industrial Undertaking for the purpose of computation of the Industrial Undertaking for the purpose of computation of deduction.

8.2 Almost on identical situation in the case of Phatela Cotgin 8.2 Almost on identical situation in the case of Phatela Cotgin 8.2 Almost on identical situation in the case of Phatela Cotgin Industries (P.) Ltd. (supra), th Industries (P.) Ltd. (supra), the Hon'ble Court has stated that e Hon'ble Court has stated that the interest which was received on delayed payment on the interest which was received on delayed payment on the interest which was received on delayed payment on account of sale to customers has to be termed as income account of sale to customers has to be termed as income account of sale to customers has to be termed as income derived from the Industrial Undertaking and such an income derived from the Industrial Undertaking and such an income derived from the Industrial Undertaking and such an income was held as distinct from interest income which is rece was held as distinct from interest income which is rece was held as distinct from interest income which is received from Fixed Deposit. The Courts have delivered these from Fixed Deposit. The Courts have delivered these from Fixed Deposit. The Courts have delivered these judgements by taking into consideration the immediate source judgements by taking into consideration the immediate source judgements by taking into consideration the immediate source of said receipt. If the immediate source is a loan, deposit, etc., of said receipt. If the immediate source is a loan, deposit, etc., of said receipt. If the immediate source is a loan, deposit, etc., then the payment is in the nature of "interest" but if the then the payment is in the nature of "interest" but if the then the payment is in the nature of "interest" but if the immediate so immediate source of receipt of payment is trade activity, then urce of receipt of payment is trade activity, then the nature of receipt is not "interest payment" but in the nature the nature of receipt is not "interest payment" but in the nature the nature of receipt is not "interest payment" but in the nature of payment of compensation. of payment of compensation.

M/s Wackardt Ltd. 17 ITA No. 2131/M/2022

be directly relatable to the business of the assessee. If be directly relatable to the business of the assessee. If be directly relatable to the business of the assessee. If the purchaser did not make the payment in time and agreed to purchaser did not make the payment in time and agreed to purchaser did not make the payment in time and agreed to pay the interest on the belated payments, the said interest pay the interest on the belated payments, the said interest pay the interest on the belated payments, the said interest would have direct nexus with the business activity. The true would have direct nexus with the business activity. The true would have direct nexus with the business activity. The true test would be whether such interest would have been test would be whether such interest would have been test would be whether such interest would have been available to the asse available to the assessee otherwise also; and the answer to ssee otherwise also; and the answer to the question as per the Hon'ble Court was in negative. Hence, the question as per the Hon'ble Court was in negative. Hence, the question as per the Hon'ble Court was in negative. Hence, it was held that the interest being directly relatable only to the it was held that the interest being directly relatable only to the it was held that the interest being directly relatable only to the amounts receivable by the assessee during the course of its amounts receivable by the assessee during the course of its amounts receivable by the assessee during the course of its business on account of sale, business on account of sale, the interest would have to be the interest would have to be included as the profits and gains derived from the business of included as the profits and gains derived from the business of included as the profits and gains derived from the business of the assessee. An another decision cited therein was CIT v. the assessee. An another decision cited therein was CIT v. the assessee. An another decision cited therein was CIT v. Madras Motors Ltd. [2002] 257 ITR 60 / 122 Taxman 516 Madras Motors Ltd. [2002] 257 ITR 60 / 122 Taxman 516 Madras Motors Ltd. [2002] 257 ITR 60 / 122 Taxman 516 (Mad.).

M/s Wackardt Ltd. 18 ITA No. 2131/M/2022

purpose of business. The only provision under the Act is purpose of business. The only provision under the Act is purpose of business. The only provision under the Act is section section section 37 37 37 under under under which which which this this this payment/expenditure payment/expenditure payment/expenditure is is is allowable being laid out wholly and exclusively for the allowable being laid out wholly and exclusively for the allowable being laid out wholly and exclusively for the purpose of the business. The nature of payment is such that it purpose of the business. The nature of payment is such that it purpose of the business. The nature of payment is such that it cannot be considered either under section 56 of the Act, i.e., not be considered either under section 56 of the Act, i.e., not be considered either under section 56 of the Act, i.e., "Income from other sources" or under section 57 of the Act "Income from other sources" or under section 57 of the Act "Income from other sources" or under section 57 of the Act prescribing deductions only in respect of "income from other prescribing deductions only in respect of "income from other prescribing deductions only in respect of "income from other sources". Inter alia, the conclusion is that since the nature of sources". Inter alia, the conclusion is that since the nature of sources". Inter alia, the conclusion is that since the nature of payment did payment did not fall within the category of "income from other not fall within the category of "income from other sources" as also cannot be allowed as payment of interest sources" as also cannot be allowed as payment of interest sources" as also cannot be allowed as payment of interest under section 36(1)(iii), therefore, it's true nature is nothing but under section 36(1)(iii), therefore, it's true nature is nothing but under section 36(1)(iii), therefore, it's true nature is nothing but added value of cost of purchase, hence no TDS was required added value of cost of purchase, hence no TDS was required added value of cost of purchase, hence no TDS was required to be deducted. to be deducted.

Income-tax Act for the purpose of deduction of Tax at Source tax Act for the purpose of deduction of Tax at Source tax Act for the purpose of deduction of Tax at Source as prescribed under section 194A of the Act. Resultantly, this as prescribed under section 194A of the Act. Resultantly, this as prescribed under section 194A of the Act. Resultantly, this assessee cannot be held a defaulter of non assessee cannot be held a defaulter of non-deduction of tax at deduction of tax at source under sec source under section 194A of the Act. The Learned CIT tion 194A of the Act. The Learned CIT (Appeals) has rightly reversed the findings of the Assessing (Appeals) has rightly reversed the findings of the Assessing (Appeals) has rightly reversed the findings of the Assessing Officer. Ground raised of the revenue is, therefore, dismissed.” Officer. Ground raised of the revenue is, therefore, dismissed.” Officer. Ground raised of the revenue is, therefore, dismissed.”

M/s Wackardt Ltd. 19 ITA No. 2131/M/2022

taxmann.com 52 (Hyd.) has decided the similar issue. For the taxmann.com 52 (Hyd.) has decided the similar issue. For the taxmann.com 52 (Hyd.) has decided the similar issue. For the sake of clarity, which is reproduced below: sake of clarity, which is reproduced below:-

Held

“It is not disputed that the interest paid is not for any loan or “It is not disputed that the interest paid is not for any loan or “It is not disputed that the interest paid is not for any loan or debt incurred by the assessee but for the delay in payment of debt incurred by the assessee but for the delay in payment of debt incurred by the assessee but for the delay in payment of bills for purchases effected from company. Therefore, it has to bills for purchases effected from company. Therefore, it has to bills for purchases effected from company. Therefore, it has to be seen as to whether such payment is in the nature of be seen as to whether such payment is in the nature of be seen as to whether such payment is in the nature of interest as envisaged under section 2(28A). As seen from the as envisaged under section 2(28A). As seen from the as envisaged under section 2(28A). As seen from the order of the ITAT Ahmedabad Bench in the case of ITO v. order of the ITAT Ahmedabad Bench in the case of ITO v. order of the ITAT Ahmedabad Bench in the case of ITO v. Parag Mahasukhlal Shah [2011] 46 SOT 302 / 12 Parag Mahasukhlal Shah [2011] 46 SOT 302 / 12 Parag Mahasukhlal Shah [2011] 46 SOT 302 / 12 taxmann.com 37 the Tribunal has held that a payment which taxmann.com 37 the Tribunal has held that a payment which taxmann.com 37 the Tribunal has held that a payment which has direct link and immediate nexus with the has direct link and immediate nexus with the trading liability trading liability being connected with the delayed purchase payments will not being connected with the delayed purchase payments will not being connected with the delayed purchase payments will not fall within the category of interest as defined in section 2(28A). fall within the category of interest as defined in section 2(28A). fall within the category of interest as defined in section 2(28A). The payment made by the assessee in the present appeal The payment made by the assessee in the present appeal The payment made by the assessee in the present appeal being of similar nature also cannot be termed as intere being of similar nature also cannot be termed as intere being of similar nature also cannot be termed as interest as defined under section 2(28A). Even without entering into the defined under section 2(28A). Even without entering into the defined under section 2(28A). Even without entering into the controversy as to whether the payment made on overdue bills controversy as to whether the payment made on overdue bills controversy as to whether the payment made on overdue bills will come within the ambit of interest as defined in section will come within the ambit of interest as defined in section will come within the ambit of interest as defined in section 2(28A), the assessee is also bound to succeed on its 2(28A), the assessee is also bound to succeed on its 2(28A), the assessee is also bound to succeed on its alternative arg alternative argument Annexure 2 that the entire payment ument Annexure 2 that the entire payment having been made during the previous year relevant to the having been made during the previous year relevant to the having been made during the previous year relevant to the assessment year under dispute no disallowance could be assessment year under dispute no disallowance could be assessment year under dispute no disallowance could be made under section 40(a)(ia) in view of the ITAT Special Bench made under section 40(a)(ia) in view of the ITAT Special Bench made under section 40(a)(ia) in view of the ITAT Special Bench decision in the case of Merilyn Shippin decision in the case of Merilyn Shipping & Transports v. Addl. g & Transports v. Addl. CIT [2012] 136 ITD 23/ 20 taxmann.com 244 (Visakha) . In CIT [2012] 136 ITD 23/ 20 taxmann.com 244 (Visakha) . In CIT [2012] 136 ITD 23/ 20 taxmann.com 244 (Visakha) . In the afore said view of the matter, the disallowance made the afore said view of the matter, the disallowance made the afore said view of the matter, the disallowance made under section 40(a)(ia ) cannot be sustained. Therefore, the under section 40(a)(ia ) cannot be sustained. Therefore, the under section 40(a)(ia ) cannot be sustained. Therefore, the

M/s Wackardt Ltd. 20 ITA No. 2131/M/2022

Assessing Officer is to be directed to delete the same. T Assessing Officer is to be directed to delete the same. T Assessing Officer is to be directed to delete the same. The appeal is to be allowed. 10. We have heard rival contentions appeal is to be allowed. 10. We have heard rival contentions appeal is to be allowed. 10. We have heard rival contentions and perused the material on record. It is not disputed that the and perused the material on record. It is not disputed that the and perused the material on record. It is not disputed that the interest paid of Rs. 3,12,600 is not for any loan or debt interest paid of Rs. 3,12,600 is not for any loan or debt interest paid of Rs. 3,12,600 is not for any loan or debt incurred by the assessee but for the delay in payment of bills incurred by the assessee but for the delay in payment of bills incurred by the assessee but for the delay in payment of bills for purchases effected from M/s. Sinermas Pulp & Papers Ltd. chases effected from M/s. Sinermas Pulp & Papers Ltd. chases effected from M/s. Sinermas Pulp & Papers Ltd. Therefore, it has to be seen as to whether such payment is in Therefore, it has to be seen as to whether such payment is in Therefore, it has to be seen as to whether such payment is in the nature of interest as envisaged u/s. 2(28A) of the Act. As the nature of interest as envisaged u/s. 2(28A) of the Act. As the nature of interest as envisaged u/s. 2(28A) of the Act. As seen from the order of the ITAT Ahmedabad Bench in the case seen from the order of the ITAT Ahmedabad Bench in the case seen from the order of the ITAT Ahmedabad Bench in the case of Parag Mahasukh of Parag Mahasukhlal Shah (supra) the Tribunal has held that lal Shah (supra) the Tribunal has held that a payment which has direct link and immediate nexus with a payment which has direct link and immediate nexus with a payment which has direct link and immediate nexus with the trading liability being connected with the delayed the trading liability being connected with the delayed the trading liability being connected with the delayed purchase payments will not fall within the category of interest purchase payments will not fall within the category of interest purchase payments will not fall within the category of interest as defined in section 2(28A) of the as defined in section 2(28A) of the Act. The payment made by Act. The payment made by the assessee in the present appeal being of similar nature also the assessee in the present appeal being of similar nature also the assessee in the present appeal being of similar nature also cannot be termed as interest as defined u/s. 2(28A) of the cannot be termed as interest as defined u/s. 2(28A) of the cannot be termed as interest as defined u/s. 2(28A) of the Act.”

M/s Wackardt Ltd. 21 ITA No. 2131/M/2022

impugned order passed by the learned CIT(A) on this issue. As impugned order passed by the learned CIT(A) on this issue. As impugned order passed by the learned CIT(A) on this issue. As a result, ground no. (c) raised in Revenue a result, ground no. (c) raised in Revenue‟s appeal is ‟s appeal is dismissed.”

Order pronounced under Rule 34(4) Order pronounced under Rule 34(4) of the ITAT Rules, of the ITAT Rules, 1963 on 30/12/2022. /12/2022. Sd/- Sd/ Sd/- (ABY T VARKEY ABY T VARKEY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/12/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, BY ORDER, //True Copy// (Sr. Private Secretary) (Sr. Private Secretary) ITAT, Mumbai ITAT, Mumbai