2017 (3) TMI 1838 - AT - Income Tax

TDS u/s 194A - interest paid to non banking financial company - non deduction of TDS - Revenue has claimed that as per the definition of interest provided under the act u/s 2 (28A), the amount qualifies as interest and was thus liable for deduction of tax at source, which having not been deducted - HELD THAT - Counsel himself has stated that for the intervening period, when the amount was advanced by MMFSL to Mahindra and Mahindra Ltd. on behalf of the assessee and the amount was actually paid by the assessee to MM FSL on sale of the vehicles, the said charges were recovered by MMFSL from the assessee. Clearly these charges were recovered for the credit facility which was given by MMFSL to the assessee by way of making payment on account of the vehicles billed to the assessee by Mahindra and Mahindra Ltd on behalf of the assessee till the assessee sold the vehicles ,collected the amounts due on them and paid them to MMFSL. Assessee has not been able to demonstrate before us to how the same was not a fee or charge in respect of credit facility availed by it from MMFSL. In view of the same the amount paid to MMFSL, we hold, was in nature of interest as defined under section 2 (28A) of the Act, which clearly states that interest includes any service, fee or other charge in respect of monies borrowed or debt incurred or in respect of any credit facility which has not been utilised. The assessee having not deducted tax at source on the same has contravened the provisions of section 194A of the Act and therefore the expenditure did not qualify for deduction as per the provisions of section 40(a)(ia) of the Act. We have therefore no hesitation in upholding the order of the Ld. CIT(Appeals) and confirming the disallowance made of interest expenditure on which no tax was deducted at source under section 194A . Disallowance of advertisement and publicity expenses under section 40(a)(ia) on account of non-deduction of tax at source on the same - HELD THAT - The fact that the payment was made on account of purchase of XYLO kits is not disputed. Merely because the bill date and date of making payment is different or for the reason that the figure mentioned in the bill and the amount of actual payment made do not tally the contention of the assessee cannot be rejected. Nor can it be said that the assessee has failed to substantiate its claim. There is nothing untoward or unusual in making payments after the bills are raised or for that matter payments made not tallying actually with the amount raised in the bills. The fact remains that the assessee had make payments on account of purchase of XYLO kits, which has remained unrebutted before us. On account of this fact are we find merit in the contention of assessee that the payment made did not qualify as advertisement and publicity expenses and therefore there was no need to deduct tax at source on the same . In view of the same the disallowance made under section 40 (a) (ia) on account of payment made. As for the payments made to M/s Sample enterprises and M/s Ad Vintage Communication it is not disputed that the payment credited at one time into the account of the above parties exceeded ₹ 20,000/-. The assessee was therefore clearly liable for deduction of tax at source under section 194C - Expenses incurred on account of the same are liable to be disallowed under section 40(a)(ia) - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition on account of interest to Mahindra and Mahindra Financial Services Ltd under Section 40(a)(ia).
2. Addition on account of advertisement and publicity expenses under Section 40(a)(ia).
3. Addition on account of renovation expenses.

Issue-wise Detailed Analysis:

1. Addition on Account of Interest to Mahindra and Mahindra Financial Services Ltd under Section 40(a)(ia):

The primary issue was the disallowance of ?13,17,961/- due to non-deduction of tax under Section 194A of the Income Tax Act on interest paid to Mahindra and Mahindra Financial Services Ltd (MMFSL). The assessee argued that these payments were "holding costs" for vehicles billed by Mahindra and Mahindra Ltd and not interest. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that these payments were in the nature of interest as defined under Section 2(28A) and thus required tax deduction at source. The Tribunal upheld the CIT(A)'s decision, agreeing that the payments were indeed interest and the assessee had failed to deduct tax, thereby justifying the disallowance under Section 40(a)(ia).

2. Addition on Account of Advertisement and Publicity Expenses under Section 40(a)(ia):

The second issue pertained to the disallowance of ?1,14,958/- for advertisement and publicity expenses due to non-deduction of tax at source. The AO disallowed the expenses as the payments to three parties exceeded ?20,000/- each, thus requiring tax deduction under Section 194C. The CIT(A) upheld this disallowance. The Tribunal found merit in the assessee's claim regarding the payment to M/s Almats Branding Solutions Pvt. Ltd. for XYLO kits, which was not in the nature of advertisement expenses and thus did not require tax deduction. However, for the payments to M/s Sample Enterprises and M/s Ad Vintage Communication, the Tribunal agreed with the CIT(A) that these payments exceeded ?20,000/- at one time, making them liable for tax deduction. Therefore, the Tribunal partly allowed the assessee's ground, deleting the disallowance for M/s Almats Branding Solutions Pvt. Ltd. but upholding it for the other two parties.

3. Addition on Account of Renovation Expenses:

The assessee did not press this ground during the hearing, and it was treated as dismissed by the Tribunal.

Conclusion:

The appeal of the assessee was partly allowed. The Tribunal upheld the disallowance of interest payments to MMFSL and the disallowance of advertisement expenses for M/s Sample Enterprises and M/s Ad Vintage Communication. However, it deleted the disallowance for the payment to M/s Almats Branding Solutions Pvt. Ltd. The ground regarding renovation expenses was dismissed as it was not pressed by the assessee. The order was pronounced in the open court.