Shri Santosh Singh Raguwanshi, Vidisha V. The ACIT, Bhopal

ITA 398/IND/2009

• Counselvise Citation: 39822714 RSA 2009
• Duration Of Justice: 1 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 31-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR MITRA
• Assessee Lawyers: H P VERMA; GIRISH AGARWAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AAQPR5400H I.T.A.NO. 398/IND/2009 A.Y. : 2006-07 SHRI SANTOSH SINGH RAGHUWANSHI, PROP,. ACIT, 3(1), M/S. PAL ENTERPRISES, SANCHI ROAD, VIDISHA VS BHOPAL. APPELLANT RESPONDENT APPELLANT BY : SHRI H.P. VERMA, ADVOCATE AND SHRI GIRISH AGARWAL, ADV. RESPONDENT BY : SHRI PRADEEP KUMAR MITRA, SR. DR O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 17 TH APRIL, 2009, FOR THE ASSESSMENT YEAR 2006- 07. 2. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWANCE OF DISCOUNTING CHARGES OF RS. 2,70,633 /- PAID TO -: 2: - 2 M/S. HERO HONDA MOTORS LIMITED BY INVOKING PROVISIO NS OF SECTION 40(A)(AI) OF THE INCOME-TAX ACT, 1961. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A DEALER IN HERO HONDA TWO WHEELER AND ITS SPARE PARTS. M/S. HE RO HONDA MOTORS LIMITED ( FOR SHORT HHML ) WAS SUPPLYING TW O WHEELERS AND SPARE PARTS TO THE ASSESSEE. M/S. HERO HONDA FI NLEASE LIMITED ( FOR SHORT HHFL ). HHFL WAS PROVIDING BILL DISCOUNTING FACILITY DRAWN BY HHML. WHENEVER VEHICL ES ARE SUPPLIED TO THE ASSESSEE, HINDUSTAN MOTORS RAISES I NVOICE AND BILL OF EXCHANGE WAS DISCOUNTED BY HHFL AND PAYMENT WAS MADE BY HHFL TO HHML AFTER DEDUCTING DISCOUNTING CH ARGES. THE ASSESSEE WAS REIMBURSING THIS DISCOUNTING CHARG ES TO ITS SUPPLIER HHML. THE DISCOUNTING CHARGES SO REIMBURSE D WAS DEBITED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AND CLAIMED AS EXPENSES. THE AO DISALLOWED THE SAME BY OBSERVING T HAT DISCOUNTING CHARGES WAS IN THE NATURE OF INTEREST, WHICH IS LIABLE TO DEDUCTION OF TAX AT SOURCE AND SINCE THE ASSESSEE WAS NOT DEDUCTING TAX ON SUCH DISCOUNTING CHARGES, THE AO DECLINED CLAIM OF DEDUCTION OF SUCH DISCOUNTING CHA RGES BY -: 3: - 3 INVOKING THE PROVISIONS OF SECTION 40(A)(AI) OF THE INCOME-TAX ACT, 1961. BY THE IMPUGNED ORDER, THE LD. CIT(A) CO NFIRMED THE DISALLOWANCE AND ASSESSEE IS IN FURTHER APPEAL BEFO RE US. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND THAT HINDUSTAN MOTORS LIMITED WAS RAISING BILL OF E XCHANGE, WHICH WAS DISCOUNTED BY HHFL AFTER CHARGING DISCOUN TING CHARGES THEREON. SUCH BILLS WERE RAISED IN RESPECT OF VEHICLES SUPPLIED TO THE ASSESSEE. THEREFORE, THE ASSESSEE W AS REIMBURSING DISCOUNTING CHARGES TO HHML. CONTENTION OF THE AO WAS THAT DISCOUNTING CHARGES SO REIMBURSED BY TH E ASSESSEE WAS IN THE NATURE OF INTEREST AND SINCE TH E ASSESSEE HAS NOT DEDUCTED TAX THEREON WHILE MAKING PAYMENT, THE SAME CANNOT BE ALLOWED AS A DEDUCTION IN VIEW OF TH E PROVISIONS OF SECTION 40(A)(AI) OF THE INCOME-TAX A CT, 1961. THE ISSUE WITH REGARD TO NATURE OF DISCOUNTING CHARGES HAS BEEN ELABORATELY DISCUSSED BY THE I.T.A.T., DELHI BENCH IN THE CASE OF ACIT VS. CARGILL GLOBAL TRADING (I)(P.) LIMITED, 34 SOT 424, WHEREIN AFTER RELYING ON THE DECISION OF HON'BLE SU PREME COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION, 129 TAXMAN -: 4: - 4 120, IT WAS HELD THAT DISCOUNTING CHARGES ON THE BI LL OF EXCHANGE IS NOT IN THE NATURE OF INTEREST. IT WAS A LSO OBSERVED THAT THE WORD INTEREST IS DIFFERENTLY DEFINED UND ER THE INCOME-TAX ACT, 1961, AS COMPARED TO DEFINITION OF SUCH INTEREST UNDER THE INTEREST TAX ACT, 1974. AS PER S ECTION 2(7) OF INTEREST TAX ACT, INTEREST MEANS INTEREST ON L OANS AND ADVANCES MADE IN INDIA AND INCLUDES (A) COMMITMEN T CHARGES ON UNUTILIZED PORTION OF ANY CREDIT SANCTIO NED FOR BEING AVAILED AND (B) DISCOUNT ON PROMISSORY NOTE A ND BILL OF EXCHANGE DRAWN. THUS, WHERE THE LEGISLATURE WAS CON SCIOUS OF THE FACT THAT IF THE DISCOUNT OF BILL OF EXCHANGE W AS TO BE INCLUDED WITHIN THE DEFINITION OF INTEREST, THE SAM E WAS BASICALLY SO PROVIDED FOR. HOWEVER, UNDER THE SCHEM E OF THE ACT, THE WORD INTEREST AS DEFINED U/S 2(28A) OF T HE INCOME- TAX ACT, 1961, DOES NOT INCLUDED DISCOUNTING CHARGE S ON DISCOUNTING OF BILL OF EXCHANGE. CIRCULAR NO. 65 IS SUED ON 2.9.1971 BY THE C.B.D.T. CLARIFIES AND EXPLAINS THE TRANSACTION FOR USAGE OF BILLS AND ITS DISCOUNTING ACCORDING TO WHICH SUCH PAYMENT CAN NOT TECHNICALLY BE HELD AS INCLUDING IN TEREST AND, THEREFORE, NO TAX NEED TO BE DEDUCTED AT SOURCE. TH US, IT IS -: 5: - 5 CLEAR FROM THE CIRCULAR THAT FOR SUCH CASES OF IMME DIATE DISCOUNTING THE NET PAYMENT MADE TO THE SUPPLIER IS IN THE NATURE OF PRICE PAID FOR THE BILL. HON'BLE SUPREME COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION (SUPRA) HEL D THAT DISCOUNTING CHARGES WAS NOT IN THE NATURE OF INTERE ST PAID BY THE ASSESSEE, WHICH WAS ALSO CONSIDERED BY I.T.A.T. , DELHI BENCH IN THE CASE OF CARGILL GLOBAL TRADING (I)(P. ) LIMITED. 5. APPLYING THE PROPOSITION OF LAW AS LAID DOWN IN JUD ICIAL PRONOUNCEMENT AND CIRCULAR OF C. B. D. T. TO THE FA CTS OF THE INSTANT CASE, WHERE DISCOUNTING CHARGES WAS PAID BY HHML TO HHFL ON THE BILL OF EXCHANGE AND WHICH WAS REIMBURS ED BY THE ASSESSEE TO HHML IS NOT COVERED BY THE PROVISIO NS OF CHAPTER XVIIB OF THE INCOME-TAX ACT, 1961. LD. AUTH ORIZED REPRESENTATIVE ALSO PLACED ON RECORD ORDER OF THE I .T.A.T. IN ASSESSEES OWN CASE DATED 30 TH JUNE, 2009, WHEREIN SUCH DISCOUNTING CHARGES WAS HELD TO BE ALLOWABLE AS BUS INESS EXPENDITURE. SUCH DISCOUNTING CHARGES WAS PAID BY T HE ASSESSEE TO HHML AS A PART OF THE PRICE PAID FOR TH E VEHICLES PURCHASES FROM IT. ACCORDINGLY, WE ARE IN AGREEMENT WITH THE LD. AUTHORIZED REPRESENTATIVE THAT THE AO WAS NOT J USTIFIED IN -: 6: - 6 TREATING SUCH DISCOUNTING CHARGES AS INTEREST FOR D ISALLOWING THE SAME BY INVOKING THE PROVISIONS OF SECTION 40(A )(AI) OF THE INCOME-TAX ACT, 1961. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 13 TH JUNE, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH JUNE, 2011. CPU* 136