2016 (1) TMI 635 - AT - Income Tax

TDS u/s 194A - Disallowance u/s 40(a)(ia) - non-deduction of tax on delayed payment of dues on purchase of tractors - CIT(A) deleted the addition - Held that - Hyderabad Bench of the Tribunal in the case of Sri Venkatesh Paper Industries P.Ltd. (2012 (9) TMI 249 - ITAT HYDERABAD) 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. - Decided in favour of assessee.

Summary

Issues:
Disallowance of interest payment under section 40(a)(ia) for non-deduction of tax on delayed payment of dues on purchase of tractors.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2011-12, challenging the deletion of the addition of &8377; 72,54,609 made under section 40(a)(ia) of the Act for non-deduction of tax on delayed payment of dues on purchase of tractors for the assessee's business. The Assessing Officer disallowed the interest payments made to Escorts Ltd. for non-deduction of tax, while the assessee contended that the interest paid was for delayed payment of dues on account of purchase of tractors and not subject to TDS. The Commissioner of Income Tax (Appeals) held that the interest paid was a trading liability and not subject to TDS under section 194A of the Act, thus deleting the disallowance under section 40(a)(ia). The Commissioner relied on precedents from the Hyderabad Bench of the Tribunal, the Ahmedabad Bench of the Tribunal, and the Madras High Court to support the decision.

The Departmental Representative supported the Assessing Officer's decision, arguing for invoking section 40(a)(ia) for non-deduction of TDS on delayed interest payments. However, after hearing both sides and examining the orders of lower authorities, the Tribunal upheld the Commissioner's decision. The Tribunal referred to a similar case from the Hyderabad Bench where it was held that interest paid on delayed payment of purchases did not fall under the definition of interest under the Act, thus disallowance was not warranted. The Tribunal emphasized that the payment made by the assessee was in the nature of a trade payment and not subject to TDS. Additionally, the Tribunal noted that even if the payment could be considered as interest under section 2(28A) of the Act, no disallowance could be made under section 40(a)(ia) as the entire amount was paid within the relevant previous year, citing a Special Bench decision.

In conclusion, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance, rejecting the grounds raised by the Revenue. The appeal of the Revenue was dismissed, and the disallowance under section 40(a)(ia) was directed to be deleted.