SHALIN P. SELARKA,MUMBAI vs. ITO 22(2)(3), NAVI MUMBAI

The only issue in this appeal of assessee against the order of CIT(A) confirming the action of the AO in disallowing the amount paid for delayed payment to the suppliers treating the same as interest for non-deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act. For this assessee has raised following ground No.1: -

Briefly stated facts are that the assessee is a Steel Trader having proprietary concern M/s Ankur Steel. During the course of assessment proceedings, the AO noted that the assessee has debited the sum of Rs.8,41,901/- as interest on delayed payment charges and this was claimed as expenditure as interest on delayed payment to various parties. According to AO, the assessee has claimed the payment as interest and no TDS was deducted u/s194 A of the Act. Accordingly, he disallowed this delayed payment charges of Rs.8,41,901/- by invoking the provision of section 40(a)(ia) of the Act. Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO. Aggrieved assesse is in second appeal before Tribunal.

We have heard rival contentions and gone through the facts and circumstances of the case. Admittedly the assessee has made payment to suppliers in the course of trading, the assessee could not make payment to the suppliers in time and due to which those suppliers charged interest on late payment. The assessee paid interest to suppliers for delay in payment amounting to Rs.8,41,901/-. The assessee claimed that this delayed payment is nothing but compensation paid to the suppliers. For this learned Counsel for the assessee relied on the decision of Hon’ble Gujarat High Court in the case of Nirma Industries Ltd. Vs Dy. CIT(A) (2006) 283 ITR 402 (Guj), wherein it is held that the term interest used in Section 194 A of the Act relates in connection of debt or loan or a deposit. It was held that if the payment is compensatory in nature and do not relate to any deposit/bad debt/ loan, then such payment is out of the ambit of the provisions of Section 194A of the Act. We find from the above facts of the case that the assessee purchased the material for trading and could not make payment to the supplier in time. The dues which were payable to those suppliers attracted interest as late payment charges and this interest is for delay in payment to suppliers. It is clear that this interest is in the nature of compensation to suppliers and to be treated as higher purchase price and it is on account of rate difference, as held by Hon’ble Gujarat High Court in the case of Nirma Industries Ltd. (Supra). This payment is compensatory in nature and do not relate to any loan or deposit and hence such payment is out of ambit of the provisions of Section 194A of the Act. Accordingly, we allow the claim of the assessee and this disallowance made by invoking the provisions of Section 41(a) (ia) of the Act is deleted. The orders of the lower authorities are reversed and this issue of assessee’s appeal is allowed.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 28-11-2016.