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

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ITA 1071/MUM/2014Status: DisposedITAT Mumbai28 November 2016AY 2008-093 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the delayed payment charges paid to suppliers were compensatory in nature and represented a higher purchase price, not interest on a loan or deposit. Therefore, Section 194A was not applicable, and the disallowance was incorrect.

What were the facts?

The assessee, a steel trader, debited Rs. 8,41,901/- as interest on delayed payment charges to suppliers. The AO disallowed this amount under Section 40(a)(ia) for non-deduction of TDS, treating it as interest on a loan or deposit.

What were the issues?

Whether delayed payment charges to suppliers constitute 'interest' for the purpose of TDS under Section 194A, making them disallowable under Section 40(a)(ia) if TDS is not deducted.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194A

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

For Appellant: Shri Harshal Agarwal, AR
For Respondent: Shri T.A. Khan, DR

This appeal by the assessee is arising out of the order of the CIT (A)-33, Mumbai in appeal No. CIT(A)-33/IT/222/10-11 dated 17-12-2013. The Assessment was framed by ITO ward-22(2)(3), Mumbai for the A.Y. 2008-09 vide order dated 31-12-2010 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

2.

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: -

“1. On the fact and circumstances of the case as well as in law the Learned CIT(A) 33 Mumbai erred in confirming the view of the AO that the amount paid for delayed payment to the supplier beyond the stipulated period of credit as interest, the same is subject to TDS and if TDS not paid then disallowable u/s 40(a)(ia) of I.T. Act, 1961 without appreciating the fact that delayed payment charges are an integral part of purchase cost.”

3.

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.

4.

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.

5.

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

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