KUNDU BROTHERS,SILIGURI vs. DCIT, CIRCLE - 2, SILIGURI, SILIGURI

The common issue involved in Grounds No. 1 & 2 of this appeal relates to the disallowance of Rs.3,50,769/- made by the Assessing Officer under section 40(a)(ia) of the Act and confirmed by the ld. CIT(Appeals).

The assessee in the present case is a partnership firm, which is engaged in the business of dealing in hardware goods. The return of income for the year under consideration was filed by it on 29.09.2012 declaring total income of Rs.12,57,390/-. As noticed by the Assessing Officer during the course of assessment proceedings, the assessee had made payment of interest aggregating to Rs.3,54,569/- on account of delay in settling accounts of sundry creditors. According to the Assessing Officer, the assessee was liable to deduct tax at source from the said payment under section 194A of the Act and since no such deduction was made by the assessee, he invoked section 40(a)(ia) and disallowed the interest of Rs.3,54,569/-. On appeal, the ld. CIT(Appeals) confirmed the said disallowance by observing that the Income Tax Act nowhere provides that interest paid on overdue payments to the creditors for the supplies does not attract the provision of section 194A.

I have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that this issue involved in Grounds No. 1 & 2 of assessee’s appeal is squarely covered in favour of the assessee, inter alia, by the decision of Ahmedabad Bench of this Tribunal in the case of ITO –vs.- Parag Mahasukhlal Shah [46 SOT 302], wherein it was held that interest of compensatory nature paid in respect of trading liability being connected with delayed purchase payment does not fall within the category of “interest” as defined in section 2(28A) for the purpose of deduction of tax at source as prescribed under section 194A. Respectfully following the said decision of the Coordinate Bench of this Tribunal, I hold that the assessee was not liable to deduct tax at source from the interest paid on the delayed payments to trade creditors and the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40(a)(ia) for non-deduction of tax at source is not sustainable. I accordingly delete the said disallowance and allow Grounds No. 1 & 2 of the assessee’s appeal.

The common issue involved in Grounds No. 3 & 4 relates to the addition of Rs.4,00,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 68 of the Act.

During the year under consideration, the assessee had received advances from its customers, which were claimed to be adjusted against the sale bills subsequently raised on the said customers. During the course of verification of these advances, the Assessing Officer found that an advance of Rs.4,00,000/- was received by the assessee from one Shri Anand Chettri, Malbazar, Jalpaiguri, while the same was adjusted against the sale bill raised in the name of Anand Chettri, Naxalbari, Darjeeling. Since the assessee could not offer any satisfactory explanation to establish that both these parties having different addresses are one and the same person and also failed to prove the creditworthiness of the said party from whom the amount of Rs.4,00,000/- in question was received, he treated the same as unexplained cash credit and made addition to that extent to the total income of the assessee under section 68. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer for the same reasons as given by the Assessing Officer.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that a similar addition on account of advance received by the assessee from its customers was made by the Assessing Officer under section 68 in the case of Sri Pawan Kumar Saboo –vs.- ITO and vide its order dated 14.02.2013 passed in cited by the ld. Counsel for the assessee, the same was deleted by the Division Bench of this Tribunal holding that the said addition made by the Assessing Officer could not be sustained as the amount was merely an advance received by the assessee from the customers, which had been duly adjusted against the sales subsequently made to the said customers. Respectfully following the said decision of Assessment year: 2012-2013 Page 4 of 4 Division Bench of this Tribunal, I delete the addition of Rs.4,00,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 68 and allow Grounds No. 3 & 4 of the assessee’s appeal.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on May 30, 2018.