ITO, Nagapattinam V. T.Rajendran, Mayiladuthurai

ITA 744/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96297 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-09-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 09-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: N DEVANATHAN
• Keywords: Non-deduction of tax
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO .744/MDS/2015 ( / ASSESSMENT YEAR: 2011-12) THE INCOME TAX OFFICER, WARD-2, NAGAPATTINAM. VS MR. T.RAJENDRAN, 1/68A, EAST STREET, ERAVANCHERY,SANKARANPANDAL MAYILADUTHURAI. PAN:AFRPR5560G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.B.KOLI, JCIT /RESPONDENT BY : MR. N.DEVANATHAN, ADVOCATE /DATE OF HEARING : 10 TH SEPTEMBER, 2015 /DATE OF PRONOUNCEMENT : 28 TH OCTOBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, TIRUCHI RAPALLI DATED 9.12.2014 FOR THE ASSESSMENT YEAR 2011-12. TH E GRIEVANCE OF THE REVENUE IN ITS APPEAL IS THAT COMM ISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDIT ION OF ` 72,54,609/- MADE UNDER SECTION 40(A)(IA) OF THE ACT FOR NON- DEDUCTION OF TAX ON DELAYED PAYMENT OF DUES ON PURC HASE OF TRACTORS FOR ASSESSEES BUSINESS M/S. RAJ MOTORS. 2 ITA NO.744/MDS/2015 2. THE ASSESSEE, AN INDIVIDUAL, IS A DEALER AND DIS TRIBUTOR OF ESCORT TRACTORS FILED RETURN OF INCOME ON 15.07 .2011 ADMITTING INCOME OF ` 7,24,940/-. ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 29.03.2014 DETERMINING THE INCOME AT ` 1,49,27,010/-. WHILE COMPLETING THE ASSESSMENT ASSESSING OFFICER DISALLOWED INTEREST PAYMENTS MADE TO ESCORTS LTD. OF ` 72,54,609/- FOR NON-DEDUCTION OF TAX ON SUCH INTEREST. THE ASSESSEE CONTENDED THAT INTEREST WAS PAID TO ESCORTS LTD. FOR DELAYED PAYMENT OF DUES ON ACCOUNT OF PURCHASE OF TRACTORS FOR ASSESSEES BUSINESS AS A DEALER. THE INTEREST PAID TO ESCORTS LTD. IS A TRADING LIA BILITY AND IT WILL NOT PARTAKE THE CHARACTER OF INTEREST WITHIN T HE DEFINITION OF INTEREST UNDER THE PROVISIONS OF 2(28A) OF THE A CT, THUS NO TDS IS REQUIRED TO BE MADE. HOWEVER, REJECTING THE CONTENTIONS OF THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED THE SAID INTEREST INVOKING THE PROVISION S OF SECTION 40(A)(IA) READ WITH SECTION 194A OF THE ACT. ON APP EAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE HOLDING THAT INTEREST MADE BY THE ASSE SSEE IS NOT INTEREST ON ANY LOAN TAKEN AND IT IS ONLY THE P AYMENT ON ACCOUNT OF DELAYED TRADING LIABILITY AND HENCE NO N EED TO 3 ITA NO.744/MDS/2015 DEDUCT TAX UNDER SECTION 194A OF THE ACT, CONSEQUEN TLY NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(IA) OF THE ACT. WHILE COMING TO SUCH CONCLUSION, COMMISSIONER OF IN COME TAX (APPEALS) CONSIDERED THE DECISION OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SRI VENKATESH PAPER AGENCIES P.LTD. IN ITA NO.636/HYD/2011 DATED 22.06.2012 AND THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. PARAG MAHASUKHLAL SHAH (143 TTJ 606) AND T HE DECISION OF MADRAS HIGH COURT IN THE CASE OF INDIA PISTONS (282 ITR 632). 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN INVOKING THE PRO VISIONS OF SECTION 40(A)(IA) FOR NON-DEDUCTION OF TDS ON DELAY ED PAYMENT OF INTEREST ON PURCHASES MADE BY THE ASSESS EE. 4. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE ASSESSEE PAID INTE REST TO ESCORTS LTD. FOR DELAY IN MAKING THE OUTSTANDING DU ES IN PURCHASING OF TRACTORS. THE ASSESSING OFFICER DISAL LOWED SUCH INTEREST AS THE ASSESSEE DID NOT DEDUCT TDS UNDER SECTION 194A READ WITH SECTION 40(A)(IA) OF THE ACT. THE 4 ITA NO.744/MDS/2015 COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE HOLDING THAT IT IS NOT THE AMOUNT PAID TOWARDS INTEREST WHICH CANNOT BE DISALLOWED FOR NON-DEDUCTI ON OF TDS AS SUCH INTEREST WAS NOT PAID ON A LOAN OR DEPOSIT BUT IT IS ONLY ON ACCOUNT OF TRADING LIABILITY. WE HAVE PERUS ED THE CASE LAWS RELIED ON BY THE ASSESSEE. HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SRI VENKATESH PAPER INDUSTR IES P.LTD. (SUPRA) CONSIDERED A SIMILAR SITUATION, WHEREIN IT WAS HELD THAT INTEREST PAID ON DELAYED PAYMENT OF PURCHASES IS NOT INTEREST WITHIN THE DEFINITION OF SECTION 2(28A) OF THE ACT AND THEREFORE DISALLOWANCE IS NOT WARRANTED. WHILE HOLD ING SO, THE TRIBUNAL OBSERVED AS UNDER:- 5. BRIEFLY, THE FACTS OF THE ISSUE ARE THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF PAPER AND BOARDS. FOR THE ASSESSMENT YEAR UNDER DISPUTE THE ASSESSEE FILED RE TURN OF INCOME ON 1.11.2005. SUBSEQUENTLY, A REVISED RET URN WAS FILED ON 20.12.2005 CLAIMING CREDIT FOR ENHANC ED TDS. IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ON EXAMINATION OF BOOKS OF ACCOUN T FOUND THAT THE ASSESSEE HAS CLAIMED INTEREST PAYMEN T OF RS. 3,12,600 TO M/S. SINERMAS PULP & PAPERS LTD. WITHOUT DEDUCTING TAX AT SOURCE. WHEN ASKED TO EXPL AIN, THE ASSESSEE CONTENDED THAT THE AMOUNT OF RS. 3,12, 600 WAS PAID AS INTEREST ON THE OVERDUE BILLS, THEREFOR E, NO TDS WAS REQUIRED TO BE DEDUCTED. THE ASSESSEE CONTENDED THAT THE PAYMENT OF INTEREST WAS NOT ON A DEPOSIT OR LOAN BUT ON PURCHASES. IT IS NOT REQUIRE D TO DEDUCT TAX AT SOURCE. THE ASSESSING OFFICER, HOWEVE R, DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND DISALLOWED THE SUM OF RS.3,12,600 U/S. 40(A)(IA) ON THE REASONING THAT WHETHER THE ASSESSEE PAID THE INTERE ST IN RESPECT OF DELAYED PAYMENT OF PURCHASES OR DEPOSITS OR 5 ITA NO.744/MDS/2015 LOANS IT HAS TO DEDUCT TAX AT SOURCE AS PER THE PRO VISIONS OF THE ACT. THE ASSESSEE BEING AGGRIEVED OF SUCH ADDITION, FILED AN APPEAL BEFORE THE CIT(A). 6. BEFORE THE CIT(A) IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE AMOUNT OF RS. 3,12,600 PERTAINS T O THE PAYMENT MADE ON ACCOUNT OF OVERDUE BILLS AND, THEREFORE, WAS NOT IN THE NATURE OF INTEREST ENVISA GED UNDER THE TDS PROVISIONS OF THE ACT. IN THIS CONTEX T, THE ASSESSEE RELIED UPON A DECISION OF THE ITAT DELHI B ENCH IN THE CASE OF DELHI DEVELOPMENT AUTHORITY VS. ITO REPORTED IN 62 TTJ 107 WHEREIN THE ITAT WHILE CONSIDERING THE CASE OF COMPENSATION PAID TO THE ALLOTTEES ON ACCOUNT OF DELAY IN CONSTRUCTION OF DW ELLING UNITS HELD THAT IT IS NOT WITHIN THE NATURE OF INTE REST AS DEFINED U/S. 2(28A) OF THE ACT. THE CIT(A), HOWEVER , CAME TO HELD THAT THE DEFINITION OF THE TERM INTERE ST AS GIVEN IN SECTION 2(28A) OF THE ACT WOULD MEAN INTER EST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONIES BORROWED OR DEBT INCURRED INCLUDING A DEPOSIT, CLAI M OR OTHER SIMILAR RIGHT OR OBLIGATION AND INCLUDES ANY SERVICE FEE AND OTHER CHARGES IN RESPECT OF THE MONIES BORR OWED OR DEBT INCURRED IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILISED. THE CIT(A) HELD THAT THE DEFINIT ION OF INTEREST IS WIDE ENOUGH TO TAKE WITHIN ITS AMBIT TH E DEBT OWED BY THE ASSESSEE ON ACCOUNT OF OVERDUE BILLS. O N THE AFORESAID FINDING, THE CIT(A) SUSTAINED THE ADD ITION AND DISMISSED THE GROUND RAISED BY THE ASSESSEE. 7. THE LEARNED AR CONTENDED BEFORE US THAT THE INTEREST PAID BY THE ASSESSEE IS NOTHING BUT IN THE NATURE OF A TRADE PAYMENT. HE ALSO CONTENDED THAT FOR DELA Y IN MAKING PAYMENT TO THE SELLERS, THE ASSESSEE HAS TO PAY INTEREST ON THE OVERDUE BILLS. THUS, IT IS A PART O F THE TRADE PAYMENT CONSTITUTING THE SALE PRICE OF THE COMMODIT Y PURCHASED. IN SUPPORT OF SUCH CONTENTION , THE LEAR NED AR RELIED UPON THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF ITO VS. PARAG MAHASUKHLAL SHAH REPOR TED IN 46 SOT 302. IN THE AFORESAID DECISION THE ITAT AHMEDABAD BENCH ON CONSIDERING THE DEFINITION OF TH E TERM INTEREST AS ENVISAGED IN SECTION 2(28A) HAS HE LD IN THE FOLLOWING MANNER: 6 ITA NO.744/MDS/2015 '12. IN THE LIGHT OF THE OVERALL DISCUSSION MADE HEREINABOVE, WE ARE OF THE VIEW THAT 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 SEC. 2(28A) OF THE I.T. ACT FOR THE PURPOSE OF DEDUCTION OF TAX AT SOURCE AS PRESCRIBED U/S. 194A OF THE ACT. RESULTANTLY, THIS ASSESSEE CANNOT BE HELD A DEFAULTER OF NON-DEDUCTION OF TAX AT SOURCE U/S. 194A OF THE ACT. THE LEARNED CIT(APPEALS) HAS RIGHTLY REVERSED THE FINDINGS OF THE ASSESSING OFFICER. GROUND RAISED OF THE REVENUE IS,THEREFORE, DISMISSED.' 8. IN THE ALTERNATIVE, THE LEARNED AR CONTENDED THA T EVEN IF THE AMOUNT PAID IS TO BE HELD AS INTEREST COMING WI THINTHE DEFINITION OF SECTION 2(28A), THEN ALSO NO DISALLOW ANCE COULD BE MADE U/S. 40(A)(IA) IN VIEW OF THE ITAT SPECIAL BEN CH DECISION IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ADDL. CIT REPORTED IN (2012) 16 ITR (TRIB) 1 (VISAKHAPATNAM) (SB) SINC E THE ENTIRE AMOUNT WAS PAID BY THE ASSESSEE WITHIN THE RELEVANT PREVIOUS YEAR. 9. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. IT IS NOT DISPUTED THAT THE INTEREST PAI D OF RS. 3,12,600 IS NOT FOR ANY LOAN OR DEBT INCURRED BY THE ASSESSE E BUT FOR THE DELAY IN PAYMENT OF BILLS FOR PURCHASES EFFECTED FR OM M/S. SINERMAS PULP & PAPERS LTD. THEREFORE, IT HAS TO BE SEEN AS TO WHETHER SUCH PAYMENT IS IN THE NATURE OF INTEREST A S ENVISAGED U/S. 2(28A) OF THE ACT. AS SEEN FROM THE ORDER OF T HE ITAT AHMEDABAD BENCH IN THE CASE OF ITO VS. PARAG MAHASU KHLAL SHAH (SUPRA) THE TRIBUNAL HAS HELD THAT A PAYMENT W HICH HAS DIRECT LINK AND IMMEDIATE NEXUS WITH THE TRADING LI ABILITY BEING CONNECTED WITH THE DELAYED PURCHASE PAYMENTS WILL N OT FALL WITHIN THE CATEGORY OF INTEREST AS DEFINED IN SECTI ON 2(28A) OF THE ACT. THE PAYMENT MADE BY THE ASSESSEE IN THE PRESEN T APPEAL BEING OF SIMILAR NATURE ALSO CANNOT BE TERMED AS IN TEREST AS DEFINED U/S. 2(28A) OF THE ACT. EVEN WITHOUT ENTERI NG INTO THE CONTROVERSY AS TO WHETHER THE PAYMENT MADE ON OVERD UE BILLS WILL COME WITHIN THE AMBIT OF INTEREST AS DEFINED I N SECTION 2(28A), THE ASSESSEE IS ALSO BOUND TO SUCCEED ON I TS ALTERNATIVE ARGUMENT THAT THE ENTIRE PAYMENT HAVIN G BEEN MADE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR UNDER DISPUTE NO DISALLOWANCE COULD BE MADE U/S. 40(A)(I A) IN VIEW OF 7 ITA NO.744/MDS/2015 THE ITAT SPECIAL BENCH DECISION IN THE CASE OF MERI LYN SHIPPING & TRANSPORTS (SUPRA). IN THE AFORESAID VIEW 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 ASSE SSING OFFICER TO DELETE THE SAME. THE GROUND RAISED BY THE ASSESS EE IS ALLOWED. 5. RESPECTFULLY FOLLOWING THE SAID DECISION, WE UPH OLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) I N DELETING THE DISALLOWANCE AND REJECT THE GROUNDS RA ISED BY THE REVENUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAG ENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 28 TH OCTOBER, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .