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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: Dr. B. R. R. KumarMs. Astha Chandra
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’, NEW DELHI Before Dr. B. R. R. Kumar, Accountant Member Ms. Astha Chandra, Judicial member ITA No. 9268/Del/2019 : Asstt. Year: 2015-16 ITA No. 9269/Del/2019 : Asstt. Year: 2016-17 ITA No. 9270/Del/2019 : Asstt. Year: 2017-18 ER Auto Pvt. Ltd., Vs Income Tax Officer, 197, IDC Hissar Road, Ward-TDS, Rohtak, Haryana-124001 Rohtak, Haryana (APPELLANT) (RESPONDENT) PAN No. AABCE0979N Assessee by : Sh. Ved Jain, Adv. & Ms. Supriya Mehta, CA Revenue by : Sh. Vivek Vardhan, Sr. DR Date of Hearing: 30.08.2023 Date of Pronouncement: 17.11.2023
ORDER Per Bench: The present appeals have been filed by assessee against the orders of ld. CIT(A), Rohtak dated 31.10.2019.
Since, the issue involved in all these appeals are similar, they were heard together and being adjudicated by a common order.
In ITA No. 9268/Del/2019, following grounds have been raised by the assessee:
“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eye of law and on the facts.
2 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. 2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the ITO(TDS) treating the assessee as ‘assessee in default’ under section 201(1)/201(1A) of the Income Tax Act. 3. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the demand of Rs. 9,80,745/- raised by the ITO(TDS) in the order passed under section 201(1) & 201(1 A) of the Income Tax Act. 4. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the demand of Rs. 6,78,993/- on account of non-deduction of Tax on the bill discounting charges/factoring charges of Rs. 67,89,938/- deducted by the NBFC Company under section 194H of the Income Tax Act. (ii) That the abovesaid demand has been confirmed rejecting the contention of the assessee that the payment made by the assessee is not in the nature of ‘commission or brokerage’ and therefore provisions of section 194H are not applicable on such payments. (iii) That the abovesaid demand has been confirmed rejecting the contention of the assessee that in the absence of principal to agent relationship between the assessee and NBFC Company in the alleged transaction, provisions of section 194H would not be applicable. 5. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the ITO(TDS) levying interest of Rs. 2,44,404/- on the alleged demand of Rs. 6,78,993/- under section 201(1A) of the Income Tax Act. 6. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the demand of Rs. 42,190/- on account of non-deduction of Tax on payment of freight charges of Rs. 42,19,087/- invoking section 194C of the Income Tax Act. (ii) That the abovesaid demand has been raised despite the fact that assessee has duly obtained the declaration from the transporter along with their PAN as required
3 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. under section 194C(6) of the Act and accordingly no TDS was required to be deducted. 7. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the ITO(TDS) levying interest of Rs. 15,158/- on the alleged demand of Rs. 42,190/- under section 201(1 A) of the Income Tax Act. 8. Without prejudice to the above and in the alternative, the learned CIT(A) has erred, both on facts and in law, in confirming the above said demands raised by the AO by grossly ignoring the proviso to section 201 according to which assessee shall not be treated as assessee in default if the deductee has included such income in its income tax return and the taxes are paid on such income. 9. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the ITO(TDS) in initiating penalty under section 271C of the Income Tax Act. 10. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the ITO(TDS) in initiating penalty under section 272A(2)(j) of the Income Tax Act on account of delay in furnishing of Form 27C.”
This is an appeal filed by the assessee against the order passed by CIT(A) confirming the additions made by AO u/s 201(1) & 201(1A) of the Act by holding that the assessee in default for not deducting tax on freight charges u/s 194C and on bill discounting charges u/s 194H.
Brief facts of the case are that the assessee is engaged in the business of manufacturing of machined engine parts for Hero MotoCorp Ltd.
During the year under consideration, the assessee company incurred bill discounting charges in order to receive/make immediate payment of a bill and no TDS was
4 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. deducted on such bill discounting charges borne by the assessee. For this purpose, the bills were discounted from Hero FinCorp Ltd.
On 15.02.2018, an inspection/survey u/s 133A was conducted on the assessee wherein it was noticed that the assessee had not deducted TDS u/s 194H on the bill discounting charges. Thereafter, the assessee was asked to submit the details of bill discounting charges vide notice dated 19.02.2018.
The assessee submitted its reply dated 23.02.2018 wherein complete details of bill discounting charges was given and it was also explained that bill discounting charges are in the nature of factoring charges and therefore applicability of the provisions of TDS does not arise. A copy of ledger A/c of bill discounting charges is placed at PB Pg.17-19. A copy of ledger A/cs of Hero Fin Ltd. and Hero Moto Corp Ltd. is also placed at PB Pg.20-96.
The held that the amount on account of bill discounting charges is in the nature of commission and thus TDS is liable to deducted on such amount. Thereafter, AO proceeded to make an addition of Rs.6,78,993/- being 10% of Rs.67,89,938/- paid as bill discounting charges in AY 2015-16.
Further, it was also held by the AO that the assessee having failed to deduct such TDS is deemed to be an assessee in default u/s 201(1) and thus consequential interest thereon of Rs.2,44,404/- is to be applied u/s 201(1A) of the Act in AY 2015-16. Thus the total addition amounting to Rs.9,23,397/- (i.e. Rs.6,78,993/- plus Rs.2,44,404/-) was made on account of
5 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. non-deduction of tax u/s 194H in AY 2015-16. Similar addition was made in AY 2016-17 & AY 2017-18 totaling to Rs.9,59,673/- and Rs.8,00,564/- respectively.
Aggrieved by the order of the AO, the assessee filed an appeal before CIT(A).
During the appellate proceedings, the assessee submitted that,
a) The transaction of bill discounting charges was not between a Principal & Agent. b) The charges were paid as a consideration for immediate payment received/paid for an invoice whose realization was due after a certain period. Thus, such charges were in the nature of factoring charges which are customarily termed as bill discounting charges. c) Also, when an factor deducts amount for immediate payment of a bill, all that it is doing making immediate payment by purchasing the invoices whose payment will be further collected from the debtor directly by the factor. Thus, all the risks and rewards shift to the factor in such a case and it is in no way such factor can be termed as an agent of the assessee. d) No basis or rationale was given by the AO for holding that such bill discounting charges are in the nature of commission or suspense account. e) The addition was made arbitrarily by the AO without furnishing any cogent reason for bringing bill discounting charges under the ambit of commission u/s 194H.
6 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. 13. The ld. CIT(A) disregarded the submissions filed by the assessee and upheld the action of AO by holding that the nature of payment of discount falls u/s 194H(iv) of the Act.
Aggrieved by the order of the ld. CIT(A), the assessee filed appeal before the Tribunal.
It is pertinent to note that,
a) no principal to agent relationship exists between the assessee company and Hero Moto Corp Ltd and Hero Fin Corp Ltd. b) the amount of bill discounting charges borne by the assessee company do not constitute commission.
For deducting tax in terms of Section 194H of the Act –
a. Income should be in the nature of commission or brokerage which is not the case here. The incurrence of bill discounting charges is fee charged by Hero Fin Corp Ltd. for rendering the service of Bill Discounting in a Principal capacity. b. Payment should be received by a person acting on behalf of other, in the course of rendering services to third parties. It may be relevant to note here that none of the charges received by factor i.e. Hero Fin Corp Ltd. is on the behalf of any other party. All of the bill discounting charges are received by Hero Fin Corp Ltd. in its own capacity and all the risks and rewards of the ultimate collection is also borne by the factor alone i.e. Hero Fin Corp Ltd. Thus, in no way it
7 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. can be construed that Hero Fin Corp Ltd. has acted on the behalf of any other party. c. Thus, when the charges in itself are not in the nature of commission and more particularly when there’s no principal & agent relationship, the transaction falls out of the ambit of section 194H and no TDS is liable to be deducted.
Reliance is also placed on the following judicial pronouncement wherein it has been held that Bill Discounting Charges do not constitute the nature of commission u/s 194H:
• AHMEDABAD STAMP VENDORS ASSOCIATION VERSUS UNION OF INDIA, 2002 (6) TMI 32 - GUJARAT HIGH COURT, Dated June 28, 2002
“It is also not possible to accept the contention of Mr. Naik for the Revenue that the definition of "commission or brokerage" as contained in the Explanation to section 194H is so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods and that, therefore, the discount availed of by the stamp vendors constitutes commission or brokerage within the meaning of section 194H. If this contention were to be accepted, all transactions of sale from a manufacturer to a wholesaler or from a wholesaler to a semi wholesaler or from a semi-wholesaler to a retailer would be covered by section 194H. To fall within the aforesaid Explanation, the payment received or receivable, directly or indirectly, is by a person acting on behalf o f another person (i) for services rendered (not being professional services), or (ii) for any services in the course of buying or selling of goods, or (Hi) in relation to any transaction relating to any asset, valuable article or thing. The element of agency is to be there in
8 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. case of all services or transactions contemplated by Explanation (i) to section 194H. If a car dealer purchases cars from the manufacturer by paying price less discount, he would be the purchaser and not the agent of the company, but in the course of selling cars, he may enter into a contract of maintenance during the warranty period, with the customer (purchaser of the car) on behalf of the company. However, such services rendered by the dealer in the course of selling cars does not make the activity of selling cars itself an act of agent of the manufacturer when the dealings between the company and the dealer in the matter of sale of cars are on "principal to principal" basis. This is just an illustration to clarify that a service in the course of buying or selling of goods has to be something more than the act of buying or selling of goods. When the licensed stamp vendors take delivery of stamp papers on payment of full price less discount and they sell such papers to retail customers, neither of the two activities (buying from the Government and selling to the customers) can be termed as the service in the course of buying or selling of goods.
In view of the above discussion, we uphold the contention urged on behalf of the petitioner's association that the discount made available to the licensed stamp vendors under the provisions of the Gujarat Stamps Supply and Sales Rules, 1987, does not fall within the expression "commission" or "brokerage" under section 194H of the Income-tax Act, 1961. The impugned communication dated March 14, 2002, from the Income-tax Officer, TDS 4, Ahmedabad, to the Senior Treasury Officer, Ahmedabad, is, therefore, quashed and set aside, and so also the consequential instructions dated March 19, 2002 (annexure "D" to the petition), issued by the Senior Treasury Officer, Ahmedabad, to the secretary of, the petitioner's association are quashed and set aside.”
9 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. 18. Also, it has been held by various courts that factoring/bill discounting charges do not fall within the definition of interest u/s 2(28A) and thus are also not eligible for tax deduction u/s 194A. Reliance is placed on the following judicial pronouncements in this regard:
• CIT DELHI-I VERSUS CARGIL GLOBAL TRADING IP. LTD., 2012 (5) TMI 502 - SC ORDER, Dated May 10, 2012
“The special leave petitions are dismissed.”
• COMMISSIONER OF INCOME-TAX VERSUS CARGILL GLOBAL TRADING (P.) LTD., 2011 (2) TMI 209 - DELHI HIGH COURT, Dated February 17, 2011
“9. On the aforesaid facts, it was concluded by the CIT(A) as well as the Tribunal that the discounting charges paid by the assessee is not an interest as neither any money is borrowed nor any debt is incurred. The expression 'interest' is defined under section 2(28A) of the Act, which reads as under:
"Interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debit incurred or in respect of any credit facility which has not been utilized."
It is clear from the above that before any amount paid is construed as interest, it has to be established that the same is payable in respect of any money borrowed or debt incurred. In the present case, on the aforesaid facts appearing on record, in our opinion, the Tribunal rightly held that the discount charges paid were not in respect of any debt incurred or money borrowed. Instead, the
10 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. assessee had merely discounted the sale consideration respectively on sale of goods. The following discussion of the Tribunal in this behalf is relevant:
………….
Having regard to the aforesaid, we are of the opinion that no substantial question of law arises, as the matter stands settled by the dicta of the Supreme Court as well as clarification of CBDT itself.”
• PR. CIT-06 VERSUS M. SONS GEMS N JEWELLERY PVT. LTD. (FORMERLY: M SONS ENTERPRISES PVT. LTD.) C/O SSAR & ASSOCIATES, 2016 (4) TMI 1132 - DELHI HIGH COURT, Dated April 25, 2016
“8. Further the Court finds that the term sheet issued by the GTFL showed that the interest at 13% pa will be charged in the event of repayment of any borrowings. This is different from the factoring charges @ 0.10% payable to GTFL. As a matter of fact, the assessee has debited the above sum to its P&L account towards “factoring/discounting charges”. In light of the above factors, there was no factual basis for the AO to have disbelieved the assessee's explanation and simply treat the entire amount as interest. The question of disallowing the entire amount under Section 40(a) (ia) on the ground that the TDS was not deducted in terms of Section 194A of the Act did not arise.
In the facts and circumstances of the case, the Court is unable to find any legal infirmity in the view expressed by the IT AT that the factoring/discounting charges in the present case cannot be treated as interest for the purpose of 194A. No substantial question of law arises.”
11 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. Therefore, considering the above mentioned position and catena of judgments, the addition made by AO and confirmed by CIT(A) on account of non-deduction of tax u/s 194H by holding that bill discounting charges are in the nature of commission and liable for tax deduction 194H is bad and liable to be deleted.
Deduction of TDS u/s 201(1) – Freight Charges
During the year under consideration the assessee has paid freight charges to the transporter for carriage of goods. The survey u/s 133A was conducted on 15.02.2018 wherein it was noticed that the assessee had not deducted TDS u/s 194C on the freight charges borne by the assessee. During the course of survey, the assessee has submitted that the declaration was duly taken from the transporter under section 194C(6) of the Act.
Further, vide notice dated 19.02.2018, the assessee was asked to furnish the details regarding non-deduction of TDS on freight charges u/s 194C.
The assessee vide letter dated 23.02.2018 submitted that freight charges are paid to a transporter who is engaged in the business of plying, hiring or leasing goods carriages and owns ten or less goods carriages at any time during the previous year. The assessee has also furnished a declaration to that effect along with their PAN. The assessee at the time of survey clearly stated that declaration was taken by the transporters whenever required. Thus, as per the provisions of section 194C(6), tax is not required to be deducted on the payments made to these transporters .
12 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. 22. However, the AO rejected the submissions and documents filed by the assessee and made the addition u/s 201(1) of the Act amounting to Rs.42,190/- which is 1% of Rs.42,19,087- paid as freight charges for AY 2015-16 The Id.AO also charged consequential interest thereon of Rs.15,158/- u/s 201(1A) of the Act for AY 2015-16. Similar additions have been made in AY 2016-17 and AY 2017-18 totaling to Rs.52,849/- and Rs.51,466/- respectively.
Aggrieved by the order of the AO, the assessee filed appeal before the ld. CIT(A).
During the appellate proceedings, the assessee submitted that the declaration from the transporters was duly taken under section 194C(6) of the Act and were also duly submitted before the AO and accordingly no TDS was liable to be deducted on such freight payments.
The Id. CIT(A) rejected the submissions filed by the assessee and upheld the action of the AO.
Aggrieved by the order of the Ld. CIT(A), the assessee filed an appeal before the Tribunal.
It is relevant to note that,
a) During the year under consideration the assessee paid freight charges to three parties namely Ankit Tempo Service prop. Fateh Singh, Rambir Transport Company prop. Rambir Sharma and SCO Cargo. b) All these three transporters owned not more than 10 goods carriages at any time during the previous year.
13 ITA Nos. 9268, 9269 & 9270/Del/2019 ER Auto Pvt. Ltd. c) A declaration to this effect along with PAN was duly submitted before the AO. d) The AO had arbitrarily rejected these declarations filed by the assessee.
There is no dispute with regard to the fact that once the assessee submits declaration to substantiate that the transporters did not own more than 10 goods carriages, question of deductibility of tax u/s 194C does not arise.
Thus, in the present case, assessee has duly submitted declarations and PAN of the transporters. Thus, in light of the above mentioned facts and circumstances of the case, addition made by AO and confirmed by CIT(A) on account of non- deduction of tax u/s 194C is bad and liable to be deleted.
In the result, the appeals of the assessee are allowed. Order Pronounced in the Open Court on 17/11/2023.
Sd/- Sd/- (Astha Chandra) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 17/11/2023 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR