M/S STANDARD FINANCIAL CONSULTANTS PVT. LTD. ,KOLKATA vs. DCIT, CIR.7(2), KOLKATA

आयकर अपीलीय अधिकरण कोलकाता 'ए' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA श्री राजेश कुमार, लेखा सदस्य एवं श्री संजय शमाा, न्याधयक सदस्य के समक्ष Before SRI RAJESH KUMAR, ACCOUNTANT MEMBER & SONJOY SARMA, JUDICIAL MEMBER I.T.A. No.: 178/KOL/2021 Assessment Year: 2015-16 M/s. Standard Financial Consultants Private Limited……………………………………………………………Appellant [PAN: AALCS 8120 R] Vs. DCIT, Circle-7(2), Kolkata.....................................Respondent Appearances: Assessee represented by – Sh. Miraj D. Shah, A/R. Department represented by – Sh. B.K. Singh, JCIT, Sr. D/R. Date of concluding the hearing : December 12th, 2023 Date of pronouncing the order : January 8th, 2024 ORDER Per Rajesh Kumar, Accountant Member: This appeal preferred by the assessee is against the order passed by Learned Commissioner of Income-tax (Appeals)-NFAC, Delhi [hereinafter referred to Ld. ‘CIT(A)’] dated 19.03.2021 for the Assessment Year (in short ‘AY’) 2015-16.

I.T.A. No.: 178/KOL/2021 Assessment Year: 2015-16 M/s. Standard Financial Consultants Private Limited. 2. The only effective issue raised by the assessee is against the confirmation of addition of Rs. 24,68,080/- which was made by the Assessing Officer (in short ld. 'AO') in respect of interest paid on delayed payment to the share broker for purchase of shares due to non-deduction of tax at source. 3. The facts in brief are that during the course of assessment proceedings the AO observed that the assessee has charged a sum of Rs. 82,56,935/- under the head finance cost for delayed payments and accordingly called upon the assessee to furnish the details thereof. It was submitted before the AO that whenever the shares are purchased from the share broker, the amount becomes payable to a broker and the same has to be paid within two days. In case of delay interest is charged by the broker which has been shown as finance cost for delayed payments. The AO further, called upon the assessee as to why the TDS has not been deducted on such interest on delayed payments and why should the same not be disallowed u/s 40(a)(ia) of the Act which was duly replied by the assessee. However, the AO observed that in the instant case the assessee is not purchasing shares/securities from the broker rather than the broker is purchasing shares on behalf of or on the direction of the assessee and hence, as soon as the broker purchases share on the direction of the assessee that is incurred by the assessee with the broker and on delayed payment of such amount, interest is charged by the broker which comes under the purview of Section 2(28A) of the Act and therefore, the AO distinguished the case laws relied by the assessee. Finally, the AO observed that TDS has not been deducted on the interest on

Page 2 of 7

I.T.A. No.: 178/KOL/2021 Assessment Year: 2015-16 M/s. Standard Financial Consultants Private Limited. delayed payments and therefore, 30% of the interest payments of Rs. 82,56,935/- becomes disallowable u/s 40(a)(ia) of the Act and accordingly Rs. 24,68,080/- was added to the income of the assessee. Ld. CIT(A) simply upheld the order of the AO.

“12. We have gone through the submissions made by Id. 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

Page 3 of 7

I.T.A. No.: 178/KOL/2021 Assessment Year: 2015-16 M/s. Standard Financial Consultants Private Limited. 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 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 Page 4 of 7

I.T.A. No.: 178/KOL/2021 Assessment Year: 2015-16 M/s. Standard Financial Consultants Private Limited. 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)(Hi) 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. 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 Page 5 of 7

I.T.A. No.: 178/KOL/2021 Assessment Year: 2015-16 M/s. Standard Financial Consultants Private Limited. delayed purchase payment, hence, did not require TDS and no disallowance unders. 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. DC IT in IT A No. 636 (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.” 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. 13. In the result, assessee’s appeal stands allowed.”

Page 6 of 7

I.T.A. No.: 178/KOL/2021 Assessment Year: 2015-16 M/s. Standard Financial Consultants Private Limited. 5. Since the facts before us are materially same vis-à-vis the facts of the case decided by the Coordinate Bench as stated above, therefore, we are inclined to set aside the finding of ld. CIT(A) and direct the AO to delete the addition.

Kolkata, the 8th January, 2024. Sd/- Sd/- [Sonjoy Sarma] [Rajesh Kumar] Judicial Member Accountant Member Dated: 08.01.2024 Bidhan (P.S.) Copy of the order forwarded to: 1. M/s. Standard Financial Consultants Private Limited, 8, Camac Street, Shantiniketan Building, 7th Floor, Room No. 11 & 12, Kolkata-700 017. 2. DCIT, Circle-7(2), Kolkata. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. //True copy // By order

Assistant Registrar ITAT, Kolkata Benches Kolkata

Page 7 of 7