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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee against the order of Commissioner of Income Tax (Appeals)-Durgapur dated 20.03.2013. Assessment was framed by ITO Ward-1(4), Asansol u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.12.2010 for assessment year 2008-09.
At the outset it was noticed that the Revenue has neither appeared before us nor moved any adjournment petition. In such situation, we decided Harbhajan Singh Vs. ITO Wd-1(4), Asl. Page 2 to proceed to adjudicate the matter after hearing Shri K.K. Khemka, Ld. Advocate appeared on behalf of assessee.
The assessee has filed the revised grounds of appeal vide letter dated 28.06.2014 which we find relevant and pertinent to the issues. No new issue has been raised in the revised grounds of appeal. All the issues are emanating from the order of lower authorities. Therefore the revised grounds have been admitted in the course of hearing.
4. The first issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of AO by sustaining the addition of Rs. 10,50,000.00 of unsecured loan as income of assessee. 4.1 Briefly, the facts are that the assessee in the present case is an individual and proprietor of M/s Saluja Motors. The assessee derives its income from commission on sale of Motor Cycles, spares & accessories and repairing and servicing. The assessee has shown several loans from various parties in his balance-sheet as on 31.03.2008 including the following loans:- Sl.No. Name of lender Amount 1. Cyrillic Consultancy Pvt. Ltd. 4 lac 2. Smt. Manmit Kour 2.50 lac 3. Simron Pret Singh 4 lac During the course of assessment proceedings, Assessing Officer observed that the balance in the bank account of the aforesaid parties as on 31.03.2007 and 31.03.2008 was insufficient to give the loan of the aforesaid amount to the assessee. The AO, in case of Cyrillic Consultancy Pvt. Ltd. (for short CCP) also observed that loan was taken in cash. According all the loans as discussed above were added to the total income of assessee.
5. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who upheld the order of AO. Being aggrieved by this, assessee has come up in appeal before us.
Harbhajan Singh Vs. ITO Wd-1(4), Asl. Page 3 6. Before us Ld. AR filed paper book which is running pages 1 to 87 and submitted that loan from Cyrillic Consultancy Pvt. Ltd. of ₹ 4 lacs was taken through banking channel. The observation of AO that loan was taken in cash is wrong. Ld. AR in support of his claim has produced copy of bank statement which is placed on page 10 of the paper book. He further submitted that all other loans were also taken through banking channel and in support of his claim has filed the loan confirmation, ledger copies, PAN, cash flow statement, balance sheet of all the parties which were placed on pages 1 to 51 of the paper book.
Having heard Ld. AR and on perusal of materials available on record. In the present case the AO made the addition of loan of Rs.4 lacs from CCP on the ground that such loan was received in cash, violating the provisions of section 269SS of the Act. However on perusal of the records we find that the loan was obtained through banking channel vide cheque number 313760 of dated 17.04.2007. The amount of loan is reflecting in the bank statement of the assessee which is placed on page 10 of the paper book. Similarly the addition was made by the AO for the loan taken from Smt. Manmit Kaur and Simran Prit Singh Saluja for Rs. 2.50 lacs and Rs.4 lacs respectively by observing that the opening and closing account balance of both the parties was very low. However, on perusal of the records we find that the lower authorities have taken only into consideration the opening and closing balance of the assessee ignoring the transactions took place in the banks of both the parties in intervening period. We find that the loan transactions were through banking Channel. The ld AR in support of his claim has submitted the identity proof, confirmation, bank details, cash flow statements of both the parties which are placed on pages from 1 to 51 of the paper book. The lower authorities have not brought any defect in the submission made by the assessee. In view of above, we are inclined to reverse the order of authorities below. Hence this ground of appeal of the assessee is allowed.
Harbhajan Singh Vs. ITO Wd-1(4), Asl. Page 4 8. Next issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of interest paid for ₹ 2,10,184/- on account of non-deduction of TDS u/s. 40(a)(ia) of the Act.
The assessee has paid interest to the following parties:- i) Harpeet Kaaur 47,370/- ii) Cyrillic Consultancy Service 1,20,764/- iii) Bansal Motor Corporation 12,473/- iv) Rudra Motor 29,577/- 2,10,184/- The AO observed that interest expense has been claimed by assessee without deducting TDS u/s. 194A of the Act and he accordingly disallowed the same and added back to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who gave relief to assessee in part by observing as under:- “6. In this ground the appellant is disputing the AO's action in disallowing interest paid by it on the ground that no TDS had been deducted from it. The appellant’s claim is that except for the interest paid to Rudra Motors the TDS on the other amounts have been duly made and have been paid into the credit of the Govt. in respect of Rudra Motors the appellant’s case is that the interest was deducted out of advance lying with Rudra Motors and he had no knowledge of it. I am not agreement with the appellant’s submission on this issue because no fats have been given by the appellant. The disallowance of the interest paid to Rudra Motors is confirmed. For the balance the AO will verify the appellant’s contention regarding payment of tax deducted to the credit of the Govt. and give relief as per law if such contention is seen to be correct. This ground of appeal is partly allowed subject to the directions given above.”
Now being aggrieved by this, assessee has come up an appeal before us.
At the outset, Ld. AR drew our attention on page 52 of the paper book where the details of the payment of TDS deducted on the payment of interest to M/s Harpeet Kour and Cyrillic Consultancy Service were placed along with the copy of challan for TDS. For other payments of interest to Bansal Motor Corporation and Rudra Motor, Ld. AR submitted that the interest was paid in Harbhajan Singh Vs. ITO Wd-1(4), Asl. Page 5 the course of business transactions with the aforesaid parties. He in support of his filed ledger copy of both parties which are placed on pages 53 to 71 of the paper book.
We have gone through the submissions made by ld. AR and order of the lower authorities as well as perused the materials available on record. In the present case, the AO made the addition of interest expenses claimed by the assessee on account of non-deduction of TDS under section 40(a)(ia) of the Act. However, on perusal of the submission of the assessee we find that TDS was duly deducted by the assessee on the payment of interest to Harpreet Kaur and Cyrillic Consultancy Services Limited for Rs. 47,378.00 and Rs.1,20,764/- respectively. The evidence for deduction of TDS along with the copy of challan for the payment TDS is placed on page 52 of the paper book. The TDS was deposited within the due date of filing of income tax returns and the deduction is allowable in terms of judgment of Hon’ble jurisdictional High Court in the case of CIT Vs. Virgin Creations in G.A. No. 3200 of 2011 & ITAT No. 302 of 2011 wherein it was held as under:- “Moreover, the Supreme Court, as has been recorded by the learned Tribunal, in the case of Allied Motors Pvt. Ltd., and also in the case of Alom Extrusions Ltd., as already decided that the aforesaid provision has retrospective application again, in the case reported in 82 ITR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section a well.
In view of the authoritative pronouncement of the Supreme Court, this court cannot decide otherwise. Hence we dismiss the appeal without any order as to costs.”
For the other 2 payments of interest to M/s Bansal Motors Corporation and M/s Rudra Motors for Rs.12,473.00 and Rs.29577.00 respectively, We concur with the argument of the assessee that the transactions are arising in the course of purchases of the goods from these parties as evident from the ledger copies of both the parties placed on the pages 53-71 of the paper book. The interest paid to the parties for the delayed payment of the bills for the Harbhajan Singh Vs. ITO Wd-1(4), Asl. Page 6 purchases does not fall under the provisions of section 194A of the Act. In this connection, we find the guidance and support from the order of Hon’ble ITAT Ahmadabad Benches in the case of ITO vs Parag Mahasukhal Shah reported in 46 SOT 302 wherein it was held as under : “The true character of the term interest has been defined, but the definition appears to be wide, inter alia, covers interest payable in any manner in respect of loans, debts, deposits, claims and other similar rights or obligations. This definition further includes service charges but those charges should be in respect of the money borrowed. By this definition, therefore, it is evident that if the charges are in respect of a debt or in respect of any credit facility then such charges are inclusive in the definition of "interest". Therefore, the interest is a payment of money in lieu of use of borrowings. It is payable by a debtor to the creditor. But it is also worth to note that the said definition is not wide enough to include other payments. There ought to be distinction between the payments not connected with any debt, with a payment having connection with the borrowings. A payment having no nexus with a deposit, loan or borrowing is out of the ambit of the definition of interest as per s. 2(28A).—Ghaziabad Development Authority vs. Dr. N.K. Gupta (2002) 258 ITR 337 (NCDRC) relied on. The term "interest" used in s. 194A relates to and in connection of a debt or a loan or a deposit. The circumstances under which the assessee is required to deduct the tax have also been narrated. Therefore, a conclusion can be drawn that if a payment is compensatory in nature and not related to any deposit/debt/loan, then such a payment is out of the ambit of the provisions of s. 194A.—Nirma Industries Ltd. vs Dy. CIT (2006) 202 CTR (Guj) 198 : (2006) 283 ITR 402 (Guj), CIT vs. Indo Matsushita Carbon Co. Ltd. (2006) 205 CTR (Mad) 493 : (2006) 286 ITR 201 (Mad) and Phatela Cotgin Industries (P) Ltd. vs. CIT (2008) 303 ITR 411 (P&H) relied on. An another interesting feature involved to resolve this controversy is that the Revenue otherwise cannot allow the claim of payment under s. 36(1)(iii) because as per this section, the deduction is provided in respect of the amount of interest paid in respect of capital borrowed for the purpose of business. The only provision under the Act is s. 37 under which this payment/expenditure is allowable being laid out wholly and exclusively for the purpose of the business. The nature of payment is such that it cannot be considered either under s. 56, i.e. "Income from other sources" or under s. 57 prescribing deductions only in respect of "income from other sources". Inter alia, the conclusion is that since the nature of payment did not fall within the category of "income from other sources" as also cannot be allowed as payment of interest under s.
Harbhajan Singh Vs. ITO Wd-1(4), Asl. Page 7 36(1)(iii), therefore, its true nature is nothing but added value of cost of purchase, hence no TDS was required to be deducted. The impugned payment had a direct link and immediate nexus with the trade liability being connected with the delayed purchase payment, hence, did not fall within the category of "interest" as defined in s. 2(28A) for the purpose of deduction of tax at source as prescribed under s. 194A. Resultantly, the assessee cannot be held a defaulter of non-deduction of tax at source under s. 194A. If a payment is compensatory in nature and not related to any deposit/debt/loan, then such a payment is out of the ambit of the provisions of s. 194A; impugned payment had a direct link and immediate nexus with the trade liability being connected with the delayed purchase payment, hence, did not require TDS and no disallowance under s. 40(a)(ia) was called for.” 12.1 Similarly we also rely in the order of Hon’ble ITAT Hyderabad Benches in the case of Venkatesh Paper Agencies (Hyd.) Private Ltd v. DCIT in (HYD) of 2011 wherein it was held as under:- “10. We have heard rival contentions 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 incurred by the assessee but for the delaying payment of bills for purchases effected from M/s Sinermas Pulp & Papers Ltd. Therefore, it has to be seen as to whether such payment is in the nature of interest as envisaged u/s 2(8A) of the Act. As seen from the order of the ITAT Ahmedabad Bench in the case of Prag Mahasukhlal Shah (supra) the Tribunal has held that a payment which has direct link and immediate nexus with the trading liability being connected with the delayed purchase payments will not fall within the category of interest as defined in section 2(28A) of the Act. the payment made by the assessee in the present al being of similar nature also cannot be termed as interest as defined us. 2(28A) of the Act. Even without entering into the controversy as to whether the payment made on overdue bills will come within the ambit of interest as defined in section 2(28A), the assessee is also bound to succeed on its alternative argument that the entire payment having been made during the previous year relevant to the assessment year under dispute no disallowance could be made u/s. 40(a)(ia) in view of the ITAT Special Bench decision in the case of Merilyn Shipping & Transports (supra). In the aforesaid vie of the matter, the disallowance of an amount of Rs.3,12,600 made u/s 40(a)(ia) cannot be sustained. We, therefore, direct the Assessing Officer to delete the same. The ground raised by the assessee is allowed.”
Harbhajan Singh Vs. ITO Wd-1(4), Asl. Page 8 The proposition laid down by the Hon’ble courts as discussed above are very much applicable to the instant case on hand. In the present case, the interest was paid for the delayed payment of the bills which in our considered view is outside the purview of the provisions of section 194A of the Act. Accordingly, the provisions of TDS will not be attracted to the payment of interest in the aforesaid cases. In view of above, we are inclined to reverse the order of authorities below. Hence the ground of appeal of the assessee is allowed.