Omkara Impex and Merchandise Pvt. Ltd., Ahmedabad V. The Income Tax Officer, Ward-5(2), Ahmedabad

ITA 984/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8112 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 20-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH MEENA
• Assessee Lawyers: T P HEMANI
• Keywords: Principle of natural justice; Retrospective amendment
• Section: 201(1)

Judgement Text

, ,L ,L,L ,L- -- -,E ,E,E ,E- -- -LH LHLH LH IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD LOZJH LOZJH LOZJH LOZJH OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN] YS[KK LNL; ,OA ] YS[KK LNL; ,OA ] YS[KK LNL; ,OA ] YS[KK LNL; ,OA EK/KQFERK JKW; EK/KQFERK JKW; EK/KQFERK JKW; EK/KQFERK JKW;] ] ] ] U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SMT MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO.984/AHD/2015 ( / ASSESSMENT YEAR : 2010-11) OMKARA IMPEX AND MERCHANDISE P. LTD., 323, PLATINUM PLAZA, JUDGES BUNGLOW ROAD, AHMEDABAD / VS. THE INCOME TAX OFFICER, WARD 5(2), AHMEDABAD. ./ ./ PAN/GIR NO. : AAACO 7308 J ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI T. P. HEMANI, A.R. / RESPONDENT BY : SHRI RAJESH MEENA, SR. D.R. / DATE OF HEARING 06/06/2018 !'# / DATE OF PRONOUNCEMENT 20/06/2018 $% / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-9 AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)- XI/412/WD-5(2)/13-14 DATED 02.01.2015 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961 ( HERE-IN-AFTER REFERRED TO AS 'THE ACT') DATED 28.02.2013 RELEVAN T TO ASSESSMENT YEAR (AY) 2010-11. ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER:- 1. THE LD.CIT(A) HAS ERRED BOTH IN LAW AND ON TH E FACTS OF THE CASE IN CONFIRMING THE ACTION OF LEARNED AO IN DISALLOWI NG AN AMOUNT OF RS.21,62,634/- U/S. 40(A)(IA) R.W.S 194A OF THE ACT. THE ID. CIT(A) OUGHT TO HAVE CONSIDERED THAT CLAIM OF DISCO UNTING CHARGES DOESN'T FALL UNDER THE PURVIEW OF THE PROVI SIONS OF SECTION 40(A)(IA) R.W.S 194A OF THE ACT. 2. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOV E, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INSERTED PROVISO TO S ECTION 40(A)(IA) OF THE ACT BY FINANCE ACT 2012 IS PROSPECTIVE AND N OT RETROSPECTIVE AND THEREBY ERRED IN NOT CONSIDERING THAT WHEN THE RECIPIENTS OF THE ALLEGED AMOUNT HAVE ALREADY PAID TAXES ON THE SAME THAN AS PER THE PROVISO TO 201(1) OF THE ACT T HE APPELLANT CANNOT BE TREATED AS ASSESSEE IN DEFAULT FOR NON DE DUCTION OF TDS U/S. 40(A)(IA) R.W.S 194A OF THE ACT. 3. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORD ERS WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHE R ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN C LEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 4. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND O N THE FACTS OF THE CASE IN CONFIRMING ACTION OF THE ID. AO IN LEVYING INTEREST U/S 234A, 234B, 234C AND 234D OF THE ACT. THE APPELLATE CRAVES LEAVE TO ADD, AMEND, ALTER, ED IT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE T IME OF OR BEFORE THE HEARING OF THE APPEAL. 3. THE SOLITARY ISSUE RAISED BY THE ASSESSEE IN GRO UND NO.1, 2 AND 3 IS THAT LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER O F THE AO BY SUSTAINING THE DISALLOWANCE OF RS. 21,62,634/- ON A CCOUNT OF NON DEDUCTION OF TDS U/S 194A R.W.S. 40(A)(IA) OF THE A CT. ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 3 - 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF TRADING OF CONSTRUCTION MATERIALS. THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT HAS CLAIMED AN EXPEN SE UNDER THE HEAD INTEREST ON FINANCE FOR RS. 21,62,634/- ONLY. THE A SSESSEE DURING THE ASSESSMENT PROCEEDINGS ADMITTED THE FACT THAT SUCH EXPENSE WAS INCURRED WITHOUT DEDUCTING THE TDS U/S 194A R.W.S. 40(A)(IA) OF THE ACT. ACCORDINGLY, THE AO DISALLOWED THE SAME AND ADDED T O THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL TO L EARNED CIT(A). THE ASSESSEE BEFORE THE LEARNED CIT(A) SUBMITTED TH AT THE EXPENSES BOOKED UNDER THE HEAD INTEREST ON FINANCE WERE LIKE DISCOUNTING CHARGES PAID TO L&T FINANCE CO. THE EXPENSES BEING LIKE DIS COUNTING CHARGES ARE NOT COVERED UNDER THE PROVISIONS OF SECTION 194 A OF THE ACT AND CONSEQUENTLY NO DISALLOWANCE ON ACCOUNT OF NON-DEDU CTION OF TDS U/S 194A R.W.S. 40(A)(IA) OF THE ACT IS WARRANTED. IN FACT, THE ASSESSEE USED TO SUPPLY BUILDING MATER IALS TO LAREN & TOUBRO LTD. AND LAFARGE AGGREGATES & CONCRETE INDIA PVT. LTD. ON CREDIT RANGING FROM 45 TO 75 DAYS. THE ASSE SSEE USED TO GET THE BILLS RAISED TO THE ABOVE COMPANIES DISCOUNTED FROM L&T FINANCE LTD. THE ASSESSEE IN SUPPORT OF HIS CLAIM ALSO SUPPLIED THE COPY OF CERTIFICATE OBTAINED FROM L&T FINANCE LTD. ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 4 - ASSESSEE ALTERNATIVELY ALSO SUBMITTED THAT THE DISC OUNTING CHARGES PAID TO L&T FINANCE LTD. HAVE SUFFERED THE TAX IN THE HANDS OF L&T FINANCE LTD. THEREFORE, NO DISALLOWANCE CAN BE MADE REGARDI NG THE PROVISO ATTACHED TO SECTION 40(A)(IA) OF THE ACT. HOWEVER, LEARNED CIT(A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER : 3.2 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS. AFTER GIVING CAREFUL THOUGHT TO DETAILED SUBMISSION GIVEN BY APP ELLANT I AM OF THE OPINION THAT THE AMENDMENT IN SEC 40(A)(IA) BY FINA NCE ACT 2012 DOES NOT CHANGE BASICS OF PROVISION U/S 40 (A)(IA). THE AMENDMENT IS ONLY PROSPECTIVE AND EFFECTIVE W.E.F 01.04.2013 WHICH IS DISCUSSED AS UNDER: WITH A VIEW TO LIBERALIZE PROVISIONS OF SECTION 40( A)(IA) OF THE ACT FINANCE ACT 2012 BROUGHT AMENDMENT W.E.F 01.04.2013 AS UNDER: THE FOLLOWING SECOND PROVISO SHALL BE INSERTED IN SUB-CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 BY THE FINANCE ACT, 201 2, W.E.F. 1-4-2013; PROVIDED FURTHER THAT WHERE AN ASSESSES FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSES IN DEFAULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVI SO; SINCE PROVISIONS OF SECTION 40(A)(IA) AS AMENDED BY FINANCE ACT 2012 IS LINKED TO SECTION 201 OF THE ACT, SO IT IS ESSENTIAL TO KNOW AND UNDERSTAND THE PROVISIONS OF SECTION 201 OF THE ACT . RELEVANT PROVISIONS OF SECTION 201. (1) WHERE ANY PERSON, INCLUDING THE PRINCIPAL OFFIC ER OF A COMPANY - (A) WHO IS REQUIRED TO DEDUCT ANY SUM IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT; OR ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 5 - (B) REFERRED TO IN SUB-SECTION (1A) OF SECTION 192, BEING AN EMPLOYER, DOES NOT DEDUCT, OR DOES RIOT PAY, OR AFTER SO DEDU CTING FAILS TO PAY, THE WHOLE OF ANY PART OF THE TAX, AS REQUIRED BY OR UNDER THIS ACT, THEN, SUCH PERSON, SHALL, WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE MAY INCUR, BE DEEMED TO BE AN ASSESSEE IN DEFAUL T IN RESPECT OF SUCH TAX: [PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTI ON 139; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND ( M ) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME, AND THE PERSON FURNISHES A CERTIFICATE TO T HIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED:] THE AMENDMENT, IN RESPECT OF POINT OF TDS DEDUCTED AND REMITTANCE THEREOF IN GOVT. ACCOUNT, BROUGHT THROUGH FINANCE A CT 2010 HAS BEEN MADE APPLICABLE PROSPECTIVELY FROM 01.04.2010. IN T HE CASE OF BHARATI SHIPYARD LTD. VS. DCIT REPORTED IN 13 TAXMANN.COM 1 01, THE HON'BLE MUMBAI SPECIAL BENCH DECIDED THE MATTER IN FAVOUR O F REVENUE AND HELD THAT AMENDMENT BROUGHT OUT BY FINANCE ACT, 2010 TO SECTION 40(A)(IA) WITH EFFECT FROM 1-4-2010 BEING NOT REMEDIAL AND CURATIVE IN NATURE CANNOT BE DECLARED AS HAVING RETROSPECTIVE E FFECT FROM DATE OF INSERTION OF PROVISION, I.E., 1-4-2005. IN THE CASE OF INCOME TAX APPELLATE TRIBUNAL - CHAN DIGARH SH. UMESH TREHAN, CHANDIGARH VS ASSESSEE ON 27 JUNE, 2013 IN THE.INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH 'A', CHANDIGARH ITA NO.1022/CHD/2012 (ASSESSM ENT YEAR:2009-10) THE ISSUE HAS BEEN DEALT IN DETAIL WH EREIN IT HAS BEEN DISCUSSED AS UNDER;- 'THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, L D.CIT (A) HAS GROSSLY ERRED IN CONFIRMING ADDITION OF RS.12,84,325/- U/S 40(A)(IA) OF THE INCOME TAX ACT,.1961 ON ACCOUNT OF ALLEGED NON.DEDU CTION OF TDS ON ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 6 - INTEREST PAID TO NBFC'S. ADDITION CONFIRMED U/S 4O( A)(IA)OF THE ACT IS ILLEGAL AND BAD IN LAW. B) THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING LD.A.O'S ACTION OF INVO KING PROVISIONS OF SEC. 40(A)(IA) OF THE ACT ON INTEREST ON LOANS FROM NBFC'S WHICH STOOD PAID ON 31-03-2009 TO FOLLOWINGS: I) RELIANCE CAPITAL LTD.- RS.4,42,793/- II) RELIGFIRE FINVEST LTD. RS. 79,321/- III) INDIA BULL LTD. RS. 5,50,491/- IV) G.E. MONEY RS. 2,11,720/- TOTAL: RS. 12,84,325/- THE ISSUE IN GROUND NOS. 3 & 4 RAISED BY THE ASSESS EE IS AGAINST THE DISALLOWANCE OF INTEREST BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ADMITTEDLY, THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE AND DEPOSIT THE SAME WITHIN THE STIPULATED PERIOD A ND IN VIEW THEREOF, THE INTEREST PAID TO NBFCS TOTALING TO RS.12,84,325 /- AND RS. 150,671/- ON UNSECURED LOANS WAS DISALLOWED BY THE ASSESSING OFFICER, IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE SAID DISALLOWANCE WAS CONFIRMED BY THE CIT (APPEALS). WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED IN THE PRESENT CASE IS AGAINST THE DISALLOWA NCE OF INTEREST FOR NON DEDUCTION OF TAX AT SOURCE AND CONSEQUENT APPLICATI ON OF THE PROVISIONS OF SECTION 4O(A)(IA) OF THE ACT. THE HON'BLE GUJARA T HIGH COURT IN CIT VS. SIKANDER KHAN N. TUNVAR & OTHERS, ITA NO-905 OF 2012 - JUDGMENT DATED 2.5.2013 AND THE HON'BLE CALCUTTA HIGH COURT IN CIT VS. CRESENT EXPORT SYNDICATE - ITA NO.20 OF 2013, G.A.NO.190 OF 2013 HAVE LAID DOWN PROPOSITION THAT WHERE THE ASSESSEE HAS FAILED TO DEDUCT THE TAX AT SOURCE AND DEPOSIT THE SAME WITHIN THE SPECIFIED PE RIOD, THE EXPENDITURE RELATABLE TO SUCH DEDUCTION OF TAX AT SOURCE WOULD NOT BE ALLOWED AS DEDUCTION, WHILE COMPUTING THE INCOME OF THE ASSESS EE. ADMITTEDLY IN THE FACTS OF THE PRESENT CASE THE ASSESSEE WAS LIAB LE TO DEDUCT TAX AT SOURCE IN RESPECT OF THE INTEREST PAID TO NBFCS TOT ALING RS.12,84,325/- AND ALSO INTEREST 1 PAID ON UNSECURED LOANS TOTALING RS.1,50,671/-. WE UPHOLD THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD DISALLOWANCE ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 7 - HAS BEEN MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, WHICH WAS WARRANTED IN FACTS AND CIRCUMSTANCES OF T HE CASE. IN VIEW OF DISCUSSION AND RELYING UPON THE CASE LAW S AS RELIED UPON IN ABOVE JUDGMENTS IT IS HELD THAT THE APPELLANT WAS L IABLE TO DEDUCT TDS ON PAYMENTS OF INTEREST TO NBFCS. IT CANNOT BE ALLO WED TO TAKE SHELTER IN AMENDMENT MADE BY FINANCE ACT, 2012 AS THE SAME IS PROSPECTIVE NOT RETROSPECTIVE. HENCE I AM IN AGREEMENT WITH THE VIEW TAKEN BY A.O AND ADDITION ON THIS ISSUE STANDS CONFIRMED. BEING AGGRIEVED BY ORDER OF LEARNED CIT(A) ASSESSEE IS IN THE SECOND APPEAL BEFORE US. ASSESSEE BEFORE US FILED A PAPER BOOK WHICH IS RUNNING FROM PAGES 1 TO 58 AND SUBMITTED THAT: ASSESSEE HAS ENTERED INTO AN ARRANGEMENT WITH 'L&T FOR SHORT) AS PER WHICH, L&T DISCOUNTS THE INVOICES AND MAKES PAY MENT TO THE ASSESSEE. IN LIEU OF SUCH SERVICES, L&T CHARGES CER TAIN SUM FROM THE ASSESSEE AND SUCH CHARGES ARE CALLED 'DISCOUNTING C HARGES. THUS, ASSESSEE BASICALLY GETS ITS SALE CONSIDERATIO N DISCOUNTED FROM L&T SO AS TO GET THE UNDERLYING SUM EARLY AND FOR T HAT. L&T CHARGES 'DISCOUNTING CHARGES'. THEREAFTER, IT IS TH E RESPONSIBILITY OF L&T TO RECOVER SUCH SUM FROM THE CONCERNED CUSTOMER S. SUCH DISCOUNTING CHARGES FOR THE YEAR UNDER CONSID ERATION AGGREGATE TO RS.21,62,669/- AS IS EVIDENT FROM CERT IFICATE ISSUED BY L&T (PG-31 OF P/B). S. 194A PROVIDES FOR DEDUCTING LAX AT SOURCE ON 'IN TEREST' (OTHER THAN INTEREST ON SECURITIES'. AS PER S.2(28A). 'INTEREST' MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (IN CLUDING A DEPOSIT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATIO N) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE M ONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILI TY WHICH HAS NOT BEEN UTILIZED. IN THE PRESENT CASE, ASSESSEE HAS NOT PAID ANY 'INT EREST' WITHIN THE MEANING DEFINED U/S 2(28A). INSTEAD, ASSESSEE HAS P AID 'DISCOUNTING CHARGES' WHICH, BY NO STRETCH OF IMAGINATION, FALL WITHIN THE AMBIT OF 'INTEREST'. WHEN NOINTEREST' HAS BEEN PAID, QUESTI ON OF INVOKING ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 8 - PROVISIONS OF SECTION 194A DO NOT ARISE AND HENCE, DISALLOWANCE U/S.40(A)(IA) IS UNWARRANTED, RELIANCE IS PLACED ON FOLLOWINGS: CIT VS CARGILL GLOBAL TRADING (P.) LTD. 335 TTR 94 (DEL) PCIT VS. M SONS GEMS N JEWELLERY P. LTD. -(2016) 69 TAXMANN.COM 373) (DELHI HIGH COURT); (ANNEXURE ' A') CIT VS. MKJ ENTERPRISES LTD. - (2014) 50 TAXMANN. COM 441 (CALCUTTA HIGH COURT). ON THIS SHORT COUNT, IMPUGNED DISALLOWANCE DESERVES TO BE DELETED. ALTERNATIVELY, INSERTION OF SECOND PROVISO LO S.40( A)(IA) IS DECLARATIVE AND CURATIVE IN NATURE AND HAS RETROSPECTIVE EFFECT FROM 01.04.05 AND HENCE, IF RECIPIENTS OF CONCERNED AMOUNTS HAVE ALRE ADY PAID TAX ON SUCH SUM. NO DISALLOWANCE U/S 40(A)(IA) IS CALLED FOR IN PAYER'S HANDS. RELIANCE IS PLACED ON 'JANAK BHUPATRAI PAREKH HUF V S. ITO - 1TA NO.2891/AHD/2011' (ANNEXURE 'B') WHEREIN HON'BLE TH E ITAT HAS FOLLOWED 'CIT VS. ANSAL LAND MARK TOWNSHIP PVT. LTD -377 1TR 635 (DEL)' WHEREIN HON'BLE THE DELHI HIGH COURT HAS AFF IRMED THE VIEW TAKEN IN 'RAJIV KUMAR AGANVAL VS. ACIT - 45 TAXINAN N.COM 555 (AGRA TRIB). ON THE OTHER HAND, LEARNED DR SUBMITTED THAT THE DI SCOUNTING CHARGES ARE NOTHING BUT LIKE INTEREST ONLY, THEREFORE, DISALLOW ANCES NEEDS TO BE MADE AS PER THE PROVISION OF SECTION 194A R.W.S. 40(A)(I A) OF THE ACT. LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW . 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IN THE CASE ON HA ND HAS CLAIMED AN EXPENSE OF RS.21,62,634/- UNDER THE HEAD INTEREST O N FINANCE. THE ASSESSEE INCURRED SUCH EXPENSE WITHOUT DEDUCTING TD S U/S 194A R.W.S. 40(A)(IA) OF THE ACT. THEREFORE, THE DISALLOWANCE W AS MADE BY THE AO ON ACCOUNT OF NON-DEDUCTION OF TDS. HOWEVER, THE ASSES SEE BEFORE THE ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 9 - LEARNED CIT(A) AMONG OTHER THINGS CLAIMED THAT L&T FINANCE LTD. HAD INCLUDED THE BILL DISCOUNTING CHARGES IN ITS INCOME TAX RETURN. THEREFORE, NO DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TDS CAN BE MADE. HOWEVER, THE LEARNED CIT(A) DISREGARDED THE CONTENT ION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE WAS LIABLE TO DEDUC T THE TDS U/S 194A R.W.S. 40(A)(IA) OF THE ACT. SIMILARLY, THE LEARNED CIT(A) ALSO OBSERVED THAT TH E AMENDMENT BROUGHT U/S 40(A)(IA) OF THE ACT IS PROSPECTIVE AND NOT APP LICABLE FOR THE YEAR UNDER CONSIDERATION. THUS, THE VIEW TAKEN BY THE AO WAS CONFIRMED BY THE LEARNED CIT(A). AT THIS JUNCTURE WE FIND IMPORTANT AND RELEVANT TO REPRODUCE THE PROVISION OF SECTION 2(28A) OF THE ACT, WHICH READS AS UNDER: (28A) 82 'INTEREST' 83 MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A D EPOSIT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT IN CURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILISED ;] FROM THE ABOVE PROVISIONS, IT IS REVEALED THAT DISC OUNTING CHARGES ARE OUTSIDE THE PURVIEW OF INTEREST EXPENSES, THEREFORE , IN OUR CONSIDERED VIEW, THE QUESTION OF MAKING ANY DISALLOWANCE ON AC COUNT OF NON- DEDUCTION OF TDS ON SUCH DISCOUNTING CHARGES DOES N OT ARISE. IN HOLDING SO, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS. M. SONS GEMS N. JEWELLERY PVT. LTD. ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 10 - REPORTED IN 69 TAXMANN.COM 373 (DELHI). THE RELEVAN T EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 7. THE COURT FIRST NOTES THAT UNDER SECTION 194A OF T HE ACT, THE OBLIGATION TO DEDUCT TAX AT SOURCE IS ON THE 'PAYER' OF INTERE ST. IN THE INSTANT CASE, THE ASSESSEE HAS PERMITTED FACTORING AND DISCOUNTING CH ARGES TO BE DEDUCTED UPFRONT BY GTFL. IN RESPONSE TO A QUERY RAISED BY T HE AO DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE BY ITS LETTER DATED 12TH SEPTEMBER 2011 CLARIFIED AS UNDER: 'THE ASSESSEE COMPANY HAD PAID DISCOUNT TO M/S. GLO BAL TRADE FINANCE LTD. (GTF) FOR AVAILMENT OF FACTORING FACILITY AND NOT INTEREST. THIS FACT IS VERY CLEAR AS PER THE SANCTION LETTER GIVEN BY THE GTF WHICH WAS FILED BEFORE YOUR GOODSELF VIDE OUR LETTER DATED 02.09.20 11. THE ASSESSEE COMPANY HAD DISCOUNTED ITS SALES INVOICES FROM GTF ON A DISCOUNT AND IT HAD NOT TAKEN ANY AMOUNT IN THE NATURE OF LOAN OR D EBT. THE FACTORING FACILITY IS KNOWN AS SYNONYMOUS FOR BILL DISCOUNTIN G FACILITY. AS PER SECTION 2(28A) OF THE INCOME TAX ACT, 1961, DISCOUNTING CHA RGES ARE NOT COVERED UNDER THE DEFINITION OF INTEREST.' 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 FACTORIN G 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/DISCOUNT ING CHARGES'. IN LIGHT OF THE ABOVE FACTORS, THERE WAS NO FACTUAL BASIS FO R THE AO TO HAVE DISBELIEVED THE ASSESSEE'S EXPLANATION AND SIMPLY T REAT 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 DEDUCT ED IN TERMS OF SECTION 194A OF THE ACT DID NOT ARISE. FROM THE ABOVE, THERE REMAINS NO DOUBT THAT THE DIS COUNTING CHARGES PAID BY THE ASSESSEE ARE NOT AKIN TO INTEREST ON FINANCE EXPENSES. THEREFORE, NO DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TDS U/S . 194A R.W.S. 40(A)(IA) OF THE ACT CAN BE MADE. ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 11 - WE ALSO FIND FORCE IN THE ALTERNATE ARGUMENT RAISED BY THE LEARNED AR THAT L&T FINANCE LTD. HAS PAID THE TAXES ON THE DIS COUNTING CHARGES RECEIVED FROM THE ASSESSEE. INDEED THE SAID PROVISO THOUGH INSERTED BY THE FINANCE ACT 2012 W.E.F. 1-4-2013 HAS BEEN HELD TO BE RETROSPECTIVE IN OPERATION BY RECENT DECISION OF THE HON'BLE DELHI H IGH COURT IN THE CASE OF CIT V. ANSAL LAND MARK TOWNSHIP (P) LTD. (2015) 61 TAXMANN.COM 45 (DEL) WHEREIN THE QUESTION RAISED BEFORE THE COURT AND THE DECISION RENDERED THEREON IS REPRODUCED HEREIN BELOW FOR THE SAKE OF CLARITY:- QUESTION : WHETHER THE SECOND PROVISO TO SECTION 40(A)(IA) ( INSERTED BY THE FINANCE ACT, 2012), WHICH STATES THAT TDS SH ALL BE DEEMED TO BE DEDUCTED AND PAID BY A DEDUCTOR IF RESIDENT RECIPIE NT HAS DISCLOSED THE AMOUNT IN HIS RETURN OF INCOME AND PAID TAX THEREON , IS RETROSPECTIVE IN NATURE OR NOT? HELD : SECTION 40(A)(IA) WAS INTRODUCED BY THE FINANCE ( NO.2) ACT, 2004 TO ENSURE THAT AN EXPENDITURE SHOULD NOT BE AL LOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATION WHERE IN COME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WI THHOLDING LAPSES BY THE ASSESSEE. HENCE , SECTION 40(A)(IA) IS NOT A PENALTY PROVISION FOR TAX WITHHOLDING LAPSE BUT IT IS A PROVISION INTRODUCED TO COMPENSAT E ANY LOSS TO THE REVENUE IN CASES WHERE DEDUCTOR HASNT DEDUCTED TDS AN AMOUNT PAID TO DEDUCTEE AND, IN TURN, DEDUCTEE ALSO HASNT OFFE RED TO TAX INCOME EMBEDDED IN SUCH AMOUNT THE PENALTY FOR TAX WITHHOLDING LAPSE PER SE IS SEP ARATELY PROVIDED UNDER SECTION 271C AND, THEREFORE, SECTION 40(A)(I) ISNT ATTRACTED TO THE SAME. HENCE, AN ASSESSEE COULD NOT BE PENALIZED UND ER SECTION 40(A)(IA) WHEN THERE WAS NO LOSS TO REVENUE. ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 12 - THE AGRA TRIBUNAL IN THE CASE OF RAJIV KUMAR AGARWAL-VS-ACIT [2014] 45 TAXMANN.COM 555 (AGRA TRIB) HAD HELD TH AT THE SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CUR ATIVE IN NATURE AND HAS RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2005, BEING THE DATE FROM WHICH SUB-CLAUSE (IA) OF SECTION 40(8) WAS INSERTED BY TH E FINANCE NO.(2) ACT, 2004, EVEN THOUGH THE FINANCE ACT, 2012 HAD NOT SPE CIFICALLY STATED THAT PROVISO IS RETROSPECTIVE IN NATURE. THE HIGH COURT AFFIRMED THE RATIO LAID DOWN BY THE AGRA TRIBUNAL AND HELD THAT SAID PROVISOS IS DECLARATORY AND CURATIVE IN NATURE AND HA RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2005. IN VIEW OF ABOVE, WE ARE INCLINED TO REVERSE THE OR DER OF AUTHORITIES BELOW. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. NEXT ISSUE IS CONSEQUENTIAL AND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. 8. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 20/06/2018 SD/- SD/- E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LN L; L; L; L; (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 20/06/2018 PRITI YADAV, SR.PS ITA NO.984/AHD/2015 OMKARA IMPEX AND MER CHANDISE PVT. LTD. VS. ITO ASST.YEAR 2010-11 - 13 - !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & '( ) / CONCERNED CIT 4. ) () / THE CIT(A)-9, AHMEDABAD. 5. ,-. //'( , '(# , 12$&$ / DR, ITAT, AHMEDABAD 6. .34 5 / GUARD FILE. % & / BY ORDER, , / //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 08/06/2018. (DICTATION-PAD 4 P AGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13/06/2018. 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 19/06/2018 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER