Dr.Ganesan's Hitech Diagnostic Centre Pvt Ltd., CHENNAI V. ACIT Corp Range 1, CHENNAI

ITA 1177/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0118 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 06-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C SUBRAMANIAN
• Keywords: Business expenditure; Opportunity of being heard; Rule of consistency; Earning of tax free income; TDS; Rule 8D
• Section: 143(3); 14A; 40(a)(ia)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A. NO. 1177/CHNY/2018 / ASSESSMENT YEAR: 2014-15 M/S. DR. GANESANS HITECH DIAGNOSTIC CENTRE PVT. LTD., NO. 1, MILLERS ROAD, KILPAUK, CHENNAI 600 010. [PAN:AADCD7458H] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE RANGE 1, CHENNAI 600 034. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI C. SUBRAMANIAN, C.A. / RESPONDENT BY : SHRI SRIDHAR DORA, JCIT / DATE OF HEARING : 30.04.2019 /DATE OF PRONOUNCEMENT : 12.06.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 1, CHENNAI, DATED 31.01.2018 RELEVANT TO THE ASSESSMENT YEAR 2014-15. BESIDES CHALLENGING NON ADJUDICATION OF THE DISALLOWANCE OF INTEREST PAYMENTS MADE UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 [ACT IN SHORT], THE ASSESSEE ALSO CHALLENGED CONFIRMATION OF DISALLOWANCE OF COMMISSION PAID TO DR. GANESAN, MANAGING DIRECTOR AS WELL AS CONFIRMATION OF DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. I.T.A. NO. 1177/CHNY/18 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 ON 27.11.2014 ADMITTING A TOTAL INCOME OF .3,06,73,760/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS SERVED ON THE ASSESSEE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, PROFIT AND LOSS ACCOUNT, ETC., THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED BY ASSESSING TOTAL INCOME OF THE ASSESSEE AT .8,34,80,130/- AFTER MAKING VARIOUS DISALLOWANCES. ON APPEAL, THE LD. CIT(A) CONFIRMED VARIOUS ADDITIONS. 3. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. WITH REGARD TO THE DISALLOWANCE OF COMMISSION PAID TO DR. GANESAN, MANAGING DIRECTOR, BY FILING COPIES OF PROFIT AND LOSS ACCOUNTS PERTAINING VARIOUS PREVIOUS YEARS, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE SAID SIMILAR CLAIM OF COMMISSION EXPENDITURE WAS ACCEPTED BY THE DEPARTMENT AND DISPUTING THE SAME IN THE ASSESSMENT YEAR UNDER CONSIDERATION IS NOT LEGALLY VALID IN TERMS OF RULE OF CONSISTENCY. THE COMMISSION PAYMENT IS NEITHER STABLE NOR REGULAR IN NATURE, BUT IT WAS OFFERED ON THE BASIS OF ACHIEVING THE TARGET AND AS PER BOARDS RESOLUTION. THUS, THE LD. COUNSEL PRAYED FOR DIRECTING THE ASSESSING OFFICER TO ALLOW THE DISALLOWANCE CLAIMED BY THE ASSESSEE. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. I.T.A. NO. 1177/CHNY/18 3 4. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE IS IN THE BUSINESS OF RENDERING SERVICES OF SENDING, RECEIVING WITHIN INDIA OR OUTSIDE INDIA FOR PATHOLOGICAL INVESTIGATION PURPOSES, THE HUMAN BLOOD, BLOOD PRODUCTS, PLASMA SERUM, BODY FLUIDS TISSUES, DRUGS, POWDER, ETC. THE ASSESSEE HAS BEEN PAYING COMMISSION CONSISTENTLY FROM THE INCORPORATION OF THE COMPANY TO DR. S.P. GANESAN FOR HIS SERVICES AS A DIRECTOR. SINCE THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO SHOW THE NATURE OF SERVICES RENDERED FOR WHICH THE COMMISSION WAS PAID, THE ASSESSING OFFICER HELD THAT THE PROVISIONS OF SECTION 36(1)(II) OF THE ACT IS NOT APPLICABLE. THE ASSESSING OFFICER FURTHER OBSERVED THAT DR. S.P. GANESAN HAS INCURRED LOSSES IN DERIVATIVE TRADING, THE COMMISSION PAYMENT WAS MADE WITH THE INTENTION TO SET OFF THE LOSSES SO THAT TAX CAN BE AVOIDED IN THE HANDS OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER FURTHER OBSERVED THAT THERE WAS NO COMMISSION PAYMENT MADE BY THE ASSESSEE TO DR. S.P. GANESAN IN THE EARLIER YEAR I.E., AY 2013-14. THE COMMISSION PAYMENT WAS MADE ONLY FOR THE ASSESSMENT YEAR 2014-15. THUS, THE COMMISSION PAYMENT MADE BY THE ASSESSEE TO DR. GANESAN IS ARBITRARY WITHOUT ANY BASIS. ACCORDINGLY, THE EXPENDITURE TOWARDS COMMISSION PAYMENT TO DR. GANESAN WAS BROUGHT TO TAX. ON APPEAL, BY FOLLOWING VARIOUS DECISIONS, THE LD. CIT(A) CONFIRMED THE ASSESSMENT ORDER. ON PERUSAL OF THE APPELLATE ORDER, WE FIND THAT THE I.T.A. NO. 1177/CHNY/18 4 ASSESSEE HAS INCURRED SIMILAR COMMISSION EXPENDITURE OF .2.50 CRORES IN THE FINANCIAL YEAR 2012-13. THE PERCENTAGE OF TOTAL PAYMENTS ON TURNOVER BASIS VARIES FROM 29%, 22% AND 25% IN THE FINANCIAL YEARS 2012, 2013 AND 2014 RESPECTIVELY AND THUS, IT IS CLEAR FROM THE ABOVE THAT THERE WAS NO FIXED PERCENTAGE OF COMMISSION PAID BY THE ASSESSEE TO THE DOCTOR. ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR 2012-13, 2013-14 AND, 2014-15 FILED BY THE LD. COUNSEL, THE ASSESSEE HAS INCURRED EXPENDITURE TOWARDS COMMISSION PAYMENT AND THEREFORE, THE ASSESSING OFFICER WAS NOT CORRECT TO SAY THAT NO COMMISSION PAYMENT IN EARLIER YEAR WAS PAID. MOREOVER, THE ASSESSING OFFICER HAS OBSERVED THAT DR. S.P. GANESAN HAS INCURRED LOSSES IN DERIVATIVE TRADING, THE COMMISSION PAYMENT WAS MADE WITH THE INTENTION TO SET OFF THE LOSSES SO THAT TAX CAN BE AVOIDED IN THE HANDS OF THE ASSESSEE COMPANY IS ALSO NOT CORRECT, BECAUSE, DR. GANESAN HAD EARNED AN INCOME OF .6.00 CRORES BEFORE INCLUDING THE COMMISSION INCOME OF .4,28,53,110/-, WHEREAS, HE HAD SUFFICIENT INCOME AGAINST THE AGGREGATE LOSS FROM DERIVATIVE TRADING, WHICH WAS ONLY .5,96,87,293/-. IT IS NOT THE CASE OF THE DEPARTMENT THAT DR. GANESAN HAS NOT RECEIVED THE SAID COMMISSION INCOME PAID BY THE ASSESSEE, BUT THE ASSESSEE HAS NOT FILED ANY EVIDENCE TO ESTABLISH THE NATURE OF SERVICE RENDERED BY HIM. IT WAS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE COMMISSION PAYMENT WAS MADE ONLY ON TURNOVER BASIS. IF THE ASSESSEE COMPANY CROSS THE I.T.A. NO. 1177/CHNY/18 5 TURNOVER, THEN ONLY THE DOCTOR GETS THE COMMISSION AND IT IS ON THE PERCENTAGE FIXED BY THE BOARD. IT WAS FURTHER SUBMISSION THAT THE NATURE OF SERVICE IS TO INCREASE THE TURNOVER OF THE ASSESSEE COMPANY AND OTHERWISE, NOT. WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO ALLOW COMMISSION EXPENDITURE INCURRED BY THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 5. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF .10,85,281/- UNDER SECTION 14A R.W. RULE 8D. DURING THE PREVIOUS YEAR, THE ASSESSEE MADE INVESTMENTS FROM WHICH EXEMPT INCOME HAS BEEN DERIVED. HOWEVER, THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT IN THE COMPUTATION OF INCOME. ACCORDINGLY, THE ASSESSING OFFICER ARRIVED AT THE EXPENDITURE UNDER RULE 8D AND DISALLOWED .10,85,281/-. ON APPEAL, BY FOLLOWING VARIOUS DECISIONS, THE LD. CIT(A) UPHELD THE DISALLOWANCE. 5.1 ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BY RELYING THE DECISION OF THE TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS LTD. V. DCIY IN I.T.A. NO. 1503 & 1624/MDS/2012, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF I.T.A. NO. 1177/CHNY/18 6 BUSINESS EXPEDIENCY AND THE INVESTMENTS MADE ARE ONLY IN THE SUBSIDIARY COMPANY. ANY DIVIDEND EARNED BY THE ASSESSEE FROM SUCH INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENTAL AND PRAYED FOR DELETING THE ADDITION. ON THE OTHER HAND, WHILE SUPPORTING THE ORDERS OF AUTHORITIES BELOW AND BY RELYING UPON THE DECISION IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT 402 ITR 640 (SC), THE LD. DR HAS PLEADED FOR FOLLOWING THE SAME. 5.2 WE HAVE HEARD RIVAL CONTENTIONS. INVESTMENTS MADE IN THE SUBSIDIARY COMPANY WERE NOT IN DISPUTE. WE HAVE ALSO PERUSED THE DECISION IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT (SUPRA), WHEREIN, THE HONBLE SUPREME COURT HAS OBSERVED AND HELD AS UNDER: 31) WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE ARGUMENT OF COUNSEL FOR THE PARTIES ON BOTH SIDES, IN THE LIGHT OF VARIOUS JUDGMENTS WHICH HAVE BEEN CITED BEFORE US, SOME OF WHICH HAVE ALREADY BEEN TAKEN NOTE OF ABOVE. 32) IN THE FIRST INSTANCE, IT NEEDS TO BE RECOGNISED THAT AS PER SECTION 14A(1) OF THE ACT, DEDUCTION OF THAT EXPENDITURE IS NOT TO BE ALLOWED WHICH HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. AXIOMATICALLY, IT IS THAT EXPENDITURE ALONE WHICH HAS BEEN INCURRED IN RELATION TO THE INCOME WHICH IS INCLUDIBLE IN TOTAL INCOME THAT HAS TO BE DISALLOWED. IF AN EXPENDITURE INCURRED HAS NO CAUSAL CONNECTION WITH THE EXEMPTED INCOME, THEN SUCH AN EXPENDITURE WOULD OBVIOUSLY BE TREATED AS NOT RELATED TO THE INCOME THAT IS EXEMPTED FROM TAX, AND SUCH EXPENDITURE WOULD BE ALLOWED AS BUSINESS EXPENDITURE. TO PUT IT DIFFERENTLY, SUCH EXPENDITURE WOULD THEN BE CONSIDERED AS INCURRED IN RESPECT OF OTHER INCOME WHICH IS TO BE TREATED AS PART OF THE TOTAL INCOME. 33) THERE IS NO QUARREL IN ASSIGNING THIS MEANING TO SECTION 14A OF THE ACT. IN FACT, ALL THE HIGH COURTS, WHETHER IT IS THE DELHI HIGH COURT ON THE ONE HAND OR THE PUNJAB AND HARYANA HIGH COURT ON THE OTHER HAND, HAVE AGREED IN PROVIDING THIS INTERPRETATION TO SECTION 14A OF THE ACT. THE ENTIRE DISPUTE IS AS TO WHAT INTERPRETATION IS TO BE GIVEN TO THE WORDS IN RELATION TO IN THE GIVEN SCENARIO, VIZ. WHERE THE DIVIDEND INCOME ON THE SHARES IS EARNED, I.T.A. NO. 1177/CHNY/18 7 THOUGH THE DOMINANT PURPOSE FOR SUBSCRIBING IN THOSE SHARES OF THE INVESTEE COMPANY WAS NOT TO EARN DIVIDEND. WE HAVE TWO SCENARIOS IN THESE SETS OF APPEALS. IN ONE GROUP OF CASES THE MAIN PURPOSE FOR INVESTING IN SHARES WAS TO GAIN CONTROL OVER THE INVESTEE COMPANY. OTHER CASES ARE THOSE WHERE THE SHARES OF INVESTEE COMPANY WERE HELD BY THE ASSESSEES AS STOCK-IN-TRADE (I.E. AS A BUSINESS ACTIVITY) AND NOT AS INVESTMENT TO EARN DIVIDENDS. IN THIS CONTEXT, IT IS TO BE EXAMINED AS TO WHETHER THE EXPENDITURE WAS INCURRED, IN RESPECTIVE SCENARIOS, IN RELATION TO THE DIVIDEND INCOME OR NOT. 34) HAVING CLARIFIED THE AFORESAID POSITION, THE FIRST AND FOREMOST ISSUE THAT FALLS FOR CONSIDERATION IS AS TO WHETHER THE DOMINANT PURPOSE TEST, WHICH IS PRESSED INTO SERVICE BY THE ASSESSEES WOULD APPLY WHILE INTERPRETING SECTION 14A OF THE ACT OR WE HAVE TO GO BY THE THEORY OF APPORTIONMENT. WE ARE OF THE OPINION THAT THE DOMINANT PURPOSE FOR WHICH THE INVESTMENT INTO SHARES IS MADE BY AN ASSESSEE MAY NOT BE RELEVANT. NO DOUBT, THE ASSESSEE LIKE MAXOPP INVESTMENT LIMITED MAY HAVE MADE THE INVESTMENT IN ORDER TO GAIN CONTROL OF THE INVESTEE COMPANY. HOWEVER, THAT DOES NOT APPEAR TO BE A RELEVANT FACTOR IN DETERMINING THE ISSUE AT HAND. FACT REMAINS THAT SUCH DIVIDEND INCOME IS NON-TAXABLE. IN THIS SCENARIO, IF EXPENDITURE IS INCURRED ON EARNING THE DIVIDEND INCOME, THAT MUCH OF THE EXPENDITURE WHICH IS ATTRIBUTABLE TO THE DIVIDEND INCOME HAS TO BE DISALLOWED AND CANNOT BE TREATED AS BUSINESS EXPENDITURE. KEEPING THIS OBJECTIVE BEHIND SECTION14A OF THE ACT IN MIND, THE SAID PROVISION HAS TO BE INTERPRETED, PARTICULARLY, THE WORD IN RELATION TO THE INCOME THAT DOES NOT FORM PART OF TOTAL INCOME. CONSIDERED IN THIS HUE, THE PRINCIPLE OF APPORTIONMENT OF EXPENSES COMES INTO PLAY AS THAT IS THE PRINCIPLE WHICH IS ENGRAINED IN SECTION 14A OF THE ACT. THIS IS SO HELD IN WALFORT SHARE AND STOCK BROKERS P LTD., RELEVANT PASSAGE WHEREOF IS ALREADY REPRODUCED ABOVE, FOR THE SAKE OF CONTINUITY OF DISCUSSION, WE WOULD LIKE TO QUOTE THE FOLLOWING FEW LINES THEREFROM. THE NEXT PHRASE IS, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. IT MEANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE RELATED EXPENDITURE IS OUTSIDE THE AMBIT OF THE APPLICABILITY OF SECTION 14A. XXX XXX XXX THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14 A. 35) THE DELHI HIGH COURT, THEREFORE, CORRECTLY OBSERVED THAT PRIOR TO INTRODUCTION OF SECTION 14A OF THE ACT, THE LAW WAS THAT WHEN AN ASSESSEE HAD A COMPOSITE AND INDIVISIBLE BUSINESS WHICH HAD ELEMENTS OF BOTH TAXABLE AND NON-TAXABLE INCOME, THE ENTIRE EXPENDITURE IN RESPECT OF SAID BUSINESS WAS I.T.A. NO. 1177/CHNY/18 8 DEDUCTIBLE AND, IN SUCH A CASE, THE PRINCIPLE OF APPORTIONMENT OF THE EXPENDITURE RELATING TO THE NON-TAXABLE INCOME DID NOT APPLY. THE PRINCIPLE OF APPORTIONMENT WAS MADE AVAILABLE ONLY WHERE THE BUSINESS WAS DIVISIBLE. IT IS TO FIND A CURE TO THE AFORESAID PROBLEM THAT THE LEGISLATURE HAS NOT ONLY INSERTED SECTION 14A BY THE FINANCE (AMENDMENT) ACT, 2001 BUT ALSO MADE IT RETROSPECTIVE, I.E., 1962 WHEN THE INCOME TAX ACT ITSELF CAME INTO FORCE. THE AFORESAID INTENT WAS EXPRESSED LOUDLY AND CLEARLY IN THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, 2001. WE, THUS, AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COURT, AND ARE NOT INCLINED TO ACCEPT THE OPINION OF PUNJAB & HARYANA HIGH COURT WHICH WENT BY DOMINANT PURPOSE THEORY. THE AFORESAID REASONING WOULD BE APPLICABLE IN CASES WHERE SHARES ARE HELD AS INVESTMENT IN THE INVESTEE COMPANY, MAY BE FOR THE PURPOSE OF HAVING CONTROLLING INTEREST THEREIN. ON THAT REASONING, APPEALS OF MAXOPP INVESTMENT LIMITED AS WELL AS SIMILAR CASES WHERE SHARES WERE PURCHASED BY THE ASSESSEES TO HAVE CONTROLLING INTEREST IN THE INVESTEE COMPANIES HAVE TO FAIL AND ARE, THEREFORE, DISMISSED. 5.2 FROM THE ABOVE JUDGEMENT OF THE HONBLE SUPREME COURT, IT IS AMPLY CLEAR THAT ANY INVESTMENTS MADE IN THE SUBSIDIARY, WHICH MAY NOT BE FOR THE PURPOSE OF EARNING DIVIDEND AND MAY BE FOR THE PURPOSE OF BUSINESS EXPEDIENCY OR HAVING CONTROLLING INTEREST THEREIN, SHALL ATTRACT THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. THUS, THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT WAS RIGHTLY CONFIRMED BY THE LD. CIT(A). HENCE, THE GROUND RAISED BY THE ASSESSEE STANDS DISMISSED. 6. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF INTEREST PAYMENTS MADE, WHICH WAS NOT ADJUDICATED BY THE LD. CIT(A). THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED .14,12,000/- UNDER SECTION 40(A)(IA) OF THE ACT IN RESPECT OF PAYMENT MADE TO RAJAN & CO. BILL DISCOUNTING CHARGED. IT WAS A SUBMISSION THAT THERE WAS NO AMOUNT OUTSTANDING AT THE END OF THE FINANCIAL I.T.A. NO. 1177/CHNY/18 9 YEAR AND HENCE THE PROVISIONS OF 40(A)(IA) OF THE ACT ARE NOT APPLICABLE AND THUS, PRAYED FOR DELETING THE ADDITION. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ASSESSMENT ORDER. IT WAS FURTHER SUBMITTED THAT IT IS A SETTLED LAW THAT WHETHER ANY AMOUNT IS OUTSTANDING AT THE END OF THE FINANCIAL YEAR OR NOT, ONCE TDS WAS NOT DEDUCTED ON ANY PAYMENT MADE, THE DISALLOWANCE IS VERY WELL WARRANTED UNDER SECTION 40(A)(IA) OF THE ACT. 6.1 WE HAVE HEARD RIVAL CONTENTIONS. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON THE INTEREST PAYMENTS MADE TO RAJAN & CO. TOWARDS BILL DISCOUNTING CHARGES. BY APPLYING SECTION 40(A)(IA) OF THE ACT, THE ASSESSING OFFICER DISALLOWED THE ENTIRE PAYMENT AND BROUGHT TO TAX. AT PARA 3.2 OF THE ASSESSMENT ORDER, IT IS MENTIONED THAT IN RESPONSE, THE AR SUBMITTED THAT THE SAME WERE ALSO INTEREST PAYMENTS MADE TO THE PARTY BUT ADMITTED THAT THE ASSESSEE FAILED TO DEDUCT TAX AS REQUIRED ON THE SAME, WHEREAS, IN THE GROUNDS OF APPEAL, THE ASSESSEE CLAIMS THAT THE ABOVE PAYMENT REPRESENTS BILL DISCOUNTING CHARGES PAID TO M/S. RAJAN & CO. FROM THE ASSESSMENT ORDER IT IS NOT CLEAR AS TO WHETHER THE ENTIRE AMOUNT OF .14,12,000/- REPRESENTS INTEREST OR BILL DISCOUNTING CHARGES. IF IT IS INTEREST PAID WITHOUT DEDUCTING TDS, THEN, SECTION 40(A)(IA) OF THE ACT APPLIES WARRANTING DISALLOWANCE. IN CASE, THE NORMAL BILL DISCOUNTING CHARGES CANNOT TECHNICALLY BE HELD AS INTEREST AND THEREFORE, NO TAX NEED BE DEDUCTED AT SOURCE FROM SUCH PAYMENTS. UNDER THESE FACTS AND CIRCUMSTANCES, THE I.T.A. NO. 1177/CHNY/18 10 ASSESSING OFFICER IS DIRECTED TO VERIFY AS TO WHAT PURPOSE BILL DISCOUNTING CHARGES WERE PAID TO M/S. RAJAN & CO., WHAT THIS COMPANY IS DOING OR ANY SHORT TERM LOAN AVAILED BY THE ASSESSEE AGAINST WHICH, INSTEAD OF SHOWING UNDER INTEREST PAYMENT WARRANTING TDS, IN NATURE OF INTEREST FALLING IN THE DEFINITION OF INTEREST UNDER SECTION 2(28A) OF THE ACT, THE ASSESSEE HAS BOOKED THE AMOUNT AS BILL DISCOUNTING CHARGES BY MAKING THE SAME AS A COLOURABLE DEVICE TO EVADE TAXATION AND PASS SPEAKING ORDER ON THIS ISSUE AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 12 TH JUNE, 2019 IN CHENNAI. SD/- SD/- (INTURI RAMA RAO) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 12.06.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.