2014 (6) TMI 671 - AT - Income Tax

TDS u/s 194H on payment of commission - disallowance of Rs.2.46 crores made u/s.40(a)(ia) - treatment of sales incentives/cash discount as commission - Held that - similar payment of sales incentive given to the dealers in the immediately preceding assessment years were not treated as commission - AO was not justified in treating the payment of incentives to the dealers as well as to another distributor, as payment of commission liable to TDS under section 194H of the Act - Decided in favor of assessee. TDS on cash discount - Held that - the provisions of Section 194H are not attracted towards the cash discount given by the appellant. - Decided against the revenue. Disallowance of interest - grant of interest free fund to three parties - Held that - issue restored back to the file of ld.CIT(A) to decide it afresh after verifying the claim of the assessee whether the assessee was having the sufficient interest-free funds or not and also verify whether the loan was given in the current year or in the earlier years. - matter remanded back - Decided in favor of assessee.

Summary

Issues:
1. Disallowance of Rs.2.46 crores made u/s.40(a)(ia) for non-deduction of TDS on commission payments.
2. Disallowance of interest u/s.36(1)(iii) amounting to Rs.1,04,948.

Issue 1: Disallowance of Rs.2.46 crores u/s.40(a)(ia):
The Revenue appealed against the CIT(A)'s deletion of the disallowance under section 40(a)(ia) for non-deduction of TDS on commission payments. The Revenue contended that the sales incentives should be treated as commission under section 194H. However, the ITAT upheld the CIT(A)'s decision based on precedent and facts. The ITAT noted that the payments were incentives for achieving sales targets, not commissions, and were not subject to TDS under section 194H. The ITAT referred to previous judgments and confirmed the deletion of the disallowance.

Issue 2: Disallowance of interest u/s.36(1)(iii):
The Assessee appealed against the disallowance of interest expenses amounting to Rs.1,04,948. The Assessee argued that there were sufficient interest-free funds available and that the disallowance was unjustified. The ITAT observed that the Assessee failed to prove that the interest-free advances were not from interest-bearing funds and did not demonstrate a business purpose for the advances. The ITAT directed the issue back to the CIT(A) for reevaluation, instructing to verify the availability of interest-free funds and the timing of the loans. The Assessee's appeal was allowed for statistical purposes.

In conclusion, the ITAT dismissed the Revenue's appeal regarding the disallowance of Rs.2.46 crores under section 40(a)(ia) and allowed the Assessee's appeal for statistical purposes regarding the disallowance of interest expenses amounting to Rs.1,04,948. The judgments were based on detailed analysis of the legal provisions, precedents, and factual circumstances presented by the parties involved.