2018 (10) TMI 180 - AT - Income Tax

Addition being interest paid u/s 201(1A) on late deposit of TDS - allowable busniss expenses - Held that - The interest paid for the period of delay takes colour from the nature of the principal amount required to be paid but not paid within time. The principal amount here would be the income-tax and the interest payable for delayed payment is the consequence of failure to pay the tax and in the circumstances, is in the nature of a penalty though not described as such in section 201(1A). The fact that the income-tax required to be remitted is not income-tax payable by the assessee but is ultimately for the benefit of and to the credit of the recipient of the income on which that tax is payable, does not in any manner alter the character of the payment, namely, its character as income-tax. The interest paid under section 201(1A), therefore, would not assume the character of business expenditure and could not be regarded as a compensatory payment. The disallowance of interest paid on late deposit of TDS is hereby confirmed. In the result, the ground of the assessee is dismissed. Disallowance of loading charges on account of non-deduction of TDS - Held that - The decision rendered by the Delhi High Court in CIT vs. Ansal Land Mark Township Pvt. Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT) which has been discussed by the tribunal in detailed, we are of the opinion that tribunal has not committed any error in allowing the appeal only for statistical purposes. Addition on account of commission paid to Arpit Khandelwal - Held that - Given that Arpit Khandelwal also happens to be an employee of the assessee, the latter has to demonstrate that the former s involvement in the purchase activity is in addition to his regular activity for which he has been compensated by way of regular salary. We are not suggesting that an employee cannot be paid compensation by way of commission in addition to his regular salary but the said arrangement has to be mutually agreed and reflected clearly and brought on record which has apparently not happened in the instant case. Further, merely the fact that the basis of payment has been specified in the payment voucher and the payment has been effected during the year or the fact that the latter has offered the same in his return of income doesn t by itself is sufficient to hold that the services have been rendered and the expenditure is allowable. What is of relevance is the actual rendering of services and facilitation of purchase through the efforts of Arpit Khandelwal and the evidence so produced doesn t inspire any confidence in us in accepting the same in support of assessee s contention.

Issues Involved:
1. Interest on late deposit of TDS.
2. Disallowance of loading charges due to non-deduction of TDS.
3. Disallowance of commission paid to Arpit Khandelwal.
4. Addition on account of bad debts.

Detailed Analysis:

1. Interest on Late Deposit of TDS:
The assessee challenged the addition of ?62,069 being interest paid under Section 201(1A) for the late deposit of TDS. The assessee argued that since the TDS was collected on behalf of the government and utilized for business purposes, the interest paid should be considered a business expense. The assessee further contended that this interest is not on tax levied on profits or gains of any business or profession and thus should be allowable as a business expenditure. However, the tribunal referred to the decisions of the Hon'ble Bombay High Court in Ferro Alloys Corporation Ltd vs. CIT and the Madras High Court in CIT vs. Chennai Properties & Investment Ltd., which held that interest on late payment of TDS is not deductible as it is in the nature of a penalty. The tribunal concluded that the interest on late deposit of TDS under Section 201(1A) cannot be allowed as a business expense and upheld the disallowance.

2. Disallowance of Loading Charges Due to Non-Deduction of TDS:
The assessee contested the disallowance of ?38,33,88/- on account of non-deduction of TDS on loading charges. The assessee argued that the amendment in Section 40(a) for disallowance of 30% of the expenditure should be applied retrospectively, as it was curative in nature and intended to remove undue hardship to taxpayers. The tribunal referred to its previous decision in Shri Bhanwar Lal Choudhary vs. ACIT, which was confirmed by the Hon'ble Rajasthan High Court, holding that the amendment to Section 40(a)(ia) by FA, 2014 w.e.f. 01.04.2015 should not be read retrospectively. The tribunal thus upheld the disallowance made by the AO.

3. Disallowance of Commission Paid to Arpit Khandelwal:
The assessee challenged the addition of ?744,070/- on account of commission paid to Arpit Khandelwal. The tribunal referred to its earlier decision in the assessee's own case for AY 2009-10, where it was held that the assessee failed to demonstrate that the commission payment was made for availing services of Arpit Khandelwal in effecting purchases and that such services were actually rendered. The tribunal noted that merely showing payment vouchers and tax returns of Arpit Khandelwal was not sufficient to prove the genuineness of the commission payment. Therefore, the tribunal upheld the disallowance of the commission expenditure.

4. Addition on Account of Bad Debts:
For AY 2011-12, the assessee challenged the addition of ?56,59,50/- on account of bad debts. The assessee argued that the debts were written off as they were disputed and not recoverable, and that mere writing off the debts should be sufficient to claim them as bad debts. The tribunal referred to its previous decision in the assessee's own case for AY 2008-09, where it was held that the assessee must demonstrate through verifiable material that the debts have actually become bad and irrecoverable. The tribunal set aside the matter to the AO to examine the genuineness of the bad debts claimed by the assessee.

Conclusion:
The tribunal dismissed the appeals related to the interest on late deposit of TDS, disallowance of loading charges, and commission paid to Arpit Khandelwal. However, it allowed the appeal related to the addition on account of bad debts for statistical purposes, directing the AO to re-examine the matter.

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