2014 (1) TMI 1484 - AT - Income Tax

Disallowance at 1% of exempted income u/s 14A - Held that - Rule 8D is apllicable w.e.f. 24.03.2008 i.e. 2008-09 onwards whereas the A.Y. in appeal is 2007-08 - As laid down in other decisions of the Tribunal CIT(A) held that out of the administrative expenses, expenses to the tune of 1% of the exempt income can be disallowed u/s. 14A - Decided against Revenue. Whether factoring charges liable to TDS - Held that - Interest is a term relating to a pre-existing debt, which implies a debtor creditor relationship. According to us, unpaid consideration gives rise to a lien over goods sold and not for money lent - Decision in Bombay Steam Navigation Co. Pvt. Ltd. Vs. CIT 1964 (10) TMI 12 - SUPREME Court followed - Interest on unpaid purchase price was not treated as interest on loan - 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 - Discounting charges of Bill of Exchange or factoring charges of sale cannot be termed as interest. The assessee has assessed the income as Del Credere being trading in goods and merchandise and also dealing in securities and which is assessed as income from business and not income from other sources - The expenditure incurred is also on account of business expenditure and not interest expenditure in the nature of interest falling u/s 194A of the Act - These discount/factoring charges do not come within the purview of section 194A and assessee is not liable to TDS on these charges - Decided against Revenue.

Summary

Issues Involved:
1. Delay in filing the appeal by the revenue.
2. Disallowance under Section 14A of the Income-tax Act.
3. Disallowance of discounting/factoring charges under Section 40(a)(ia) for non-deduction of TDS under Section 194A.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal by the Revenue:
At the outset, the appeal by the revenue was delayed by 24 days. The revenue filed a condonation petition, and the Ld. AR conceded to admit the appeal. The Bench condoned the delay considering it minor and admitted the appeal.

2. Disallowance under Section 14A of the Income-tax Act:
The first issue was regarding the order of CIT(A) restricting the disallowance to 1% of exempted income under Section 14A. The revenue argued that CIT(A) erred in directing the AO to restrict the disallowance to 10% of the total exempted income, equating to Rs. 7,857/-. The relevant assessment year was 2007-08, and the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT held that Rule 8D of the Rules, effective from 24.3.2008, is prospective and not retrospective. CIT(A) followed recent ITAT Kolkata decisions, holding that 1% of the exempt income could be disallowed under Section 14A. The Tribunal found no infirmity in CIT(A)'s order and dismissed the revenue's appeal on this issue.

3. Disallowance of Discounting/Factoring Charges under Section 40(a)(ia):
The second issue was the deletion of disallowance made by AO on account of discounting/factoring charges treated as interest expenses for non-deduction of TDS under Section 194A, invoking Section 40(a)(ia). The assessee paid Rs. 56,33,112/- to M/s. Lalji Financial without deducting TDS. The AO considered these charges as interest under Section 2(28A) and disallowed them under Section 40(a)(ia). CIT(A) allowed the assessee's claim, observing that the transaction involved selling assets (debtors) to M/s. Lalji Financials, and no loan was advanced or debt incurred. The discounting/factoring charges were not in the nature of interest as defined in Section 2(28A). The Tribunal upheld CIT(A)'s decision, noting that the charges were not interest under Section 2(28A) and the assessee was not required to deduct TDS under Section 194A. The Tribunal confirmed the deletion of the disallowance and dismissed the revenue's appeal on this issue.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s orders on both issues of disallowance under Section 14A and discounting/factoring charges under Section 40(a)(ia). The order was pronounced in the open court on 27.01.2014.