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Issues: Disallowance of payment of financial charges due to non-deduction of TDS u/s 194A.
The Appellate Tribunal ITAT Visakhapatnam heard appeals by the assessee against the CIT(A)'s order regarding the disallowance of financial charges payment for not deducting TDS u/s 194A. The AO disallowed the financial charges claimed by the assessee on loans for acquiring buses, amounting to Rs. 35,69,482, as TDS was not deducted. The assessee cited the Charanjit Singh Chadha case and CBDT instruction no.1425 to argue that financial charges in hire purchase contracts are not interest but a privilege payment. The CIT(A) upheld the disallowance, leading the assessee to appeal to the Tribunal, challenging the lower authorities' failure to consider legal propositions. The DR supported the CIT(A)'s order. After reviewing the facts and legal precedents, the Tribunal found that the assessee had not deducted TDS on financial charges paid for buses acquired through hire purchase agreements. Citing the Charanjit Singh Chadha case, the Tribunal noted that financial charges in hire purchase agreements are not interest but represent a payment for the privilege of paying the purchase price in instalments. The CBDT instruction no.1425 clarified that such charges do not constitute interest under the IT Act. Consequently, the Tribunal held that the revenue erred in treating financial charges as interest and disallowing the payment. The Tribunal set aside the CIT(A)'s order, ruling that TDS deduction was not required for financial charges, and directed the AO to allow the deduction of the entire payment. In conclusion, the Tribunal allowed the assessee's appeals, emphasizing that financial charges in hire purchase agreements do not fall under the purview of section 194A for TDS deduction. The judgement clarified the nature of financial charges and instructed the AO to permit the deduction of financial charges paid by the assessee.
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