DCIT, CIRCLE-1(1)(1), SURAT vs. AKANSHA SHIP BREAKING PVT. LTD, SURAT

Grounds of appeal raised by the revenue are as follows: “1. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) is justified in deleting the disallowance of Rs.39,52,119/- made under section 40(a)(ia) of the IT Act on account of non-deduction of TDS, according to the provisions of section 194H of the Act, on Bank Guarantee commission charged by the bank on behalf of assessee for the line of credit facility extended by it, holding that the payment made to the bank in the nature of commission for extending the line of credit facility is not in the nature of commission and therefore the provisions of Section 194H are not applicable to such payments, without appreciating that in the assessee's case the bank charge has the character of commission?

Succinct facts are that assessee before us is a Private Limited Company. The main source of the assessee company for the year under consideration is from shop breaking business and wholesale trading of nylon chips and filter. During the assessment proceedings, the assessing officer noticed that assessee has paid Rs.39,52,119/-, as Bank Guarantee Commission for the Bank Guarantee to Punjab National Bank for letter credit facility utilized, however no TDS was made. The assessing officer observed that as per Boards Notification no. 56/2012 dated 31.12.2012, w.e.f, 01.01.2013 certain payments made to bank were exempted from TDS. So the assessing officer was of view that prior to 01.01.2013, the TDS has to be deducted on these payments by assessee to bank. Therefore, assessing officer noted that assessee was required to deduct TDS u/s 194H of the Act. Since, the assessee failed to deduct the TDS therefore, assessing officer made addition of Rs.39,52,119/- under section 40(a) (ia) of the Act.

On appeal, ld CIT(A) deleted the addition made by the assessing officer. Aggrieved, the Revenue is in appeal before us.

Learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

On the other hand, the Learned Counsel for the assessee defended the order passed by the ld. CIT(A).

After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. Counsel for the assessee, we find that the issue involved in the present appeal is no longer res integra. The question as to whether Bank Guarantee paid to nationalized bank is covered u/s 194H of the Act for TDS obligation, was considered by various judicial forums across India. The assessing officer noticed that the assessee has paid Rs.39,52,119/- as Bank Guarantee Commission for the Bank Guarantee to Punjab National Bank for letter credit facility utilized, however no TDS was made. The assessing officer observed that as per Boards Notification no. 56/2012 dated 31.12.2012, w.e.f, 01.01.2013 certain payments made to bank were exempted from TDS. So, the assessing officer was of view that prior to 01.01.2013 the TDS has to make on these payments by assessee to bank. Thus, assessing officer has opined that assessee was required to make TDS u/s 194H of the Act. It can be seen that assessing officer is guided by the opinion that the above circular exempts the Bank Guarantee Commission or Guarantee fee from TDS w.e.f. 1st January 2013; hence prior to that, the assessee is obligated to deduct tax on the same. However, it can be seen that the notification, is of clarificatory nature and hence has to be applied retrospectively. Identical issue was before the Coordinate Bench of ITAT Delhi in the case of Omkareshwar Properties Ltd. in ITA No.1823/Del/2015 dtd. 21.01.2019,wherein it was held that: "such a circular was brought, to reduce hardship and compliance cost of assessee then it cannot be held that any such payments made prior to the said circular which was causing hardship to the assessee should continue. It is a well settled position, that CBDT circular removing the hardship in favour of the assessee has to be treated as retrospective. 8. The Coordinate Bench of ITAT Delhi in the case of PRL Projects & Infrastructure Ltd, in ITA 5010/Del/2015, wherein the facts in brief are that

Thus, we note that there is no obligation on the assessee to deduct TDS on the Bank Guarantee Commission, hence the impugned disallowance u/s 40a(ia) of the Act was rightly deleted by ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.