2018 (11) TMI 950 - AT - Income Tax

TDS u/s 194A - disallowance u/s 40(a)(ia) - loans were sanctioned under tie up arrangement of both the farmer and the assessee - interest payment made to the bank - Held that - Since, the loans were sanctioned under tie up arrangement of both the farmer and the assessee and the entire agricultural loans were disbursed directly to the assessee, it has shown as loan funds in the assessee s balance sheet. It is also not disputed that the assessee has made the direct payment to the bank and there was no payment made to the individual farmers. Farmers also did not dispute the payment made to the banks and thus there was an implied agreement of the farmers for payment of interest and loan directly to the bank. It is a fact that the loan was not utilized by the farmer and the entire loan was utilized by the assessee for cold storage plant and given securities to the bank. Therefore, there is an obligation on the part of the assessee to repay the loan to the bank. Accordingly the assessee made the payment to the bank and has discharged its liability / obligation. Since the payment was directly made to the bank on behalf of the farmers it should be construed as the payment made to the bank, but not to the individual farmers., the interest payment made to the bank does not attract the TDS as per section 194A. Accordingly, we uphold the order of the CIT(A) and hold that no disallowance is called for u/s 40(a)(ia) and dismiss the appeal of the revenue. Addition made towards sundry creditors - Held that - The advance money, in the present case before us, is adjusted the sale price of the motor cycle and sale is disclosed in the return of income i.e. the trading account of the assessee. Accordingly, we find no ambiguity in the system followed by the assessee. From the details filed before us, DR could not point out the discrepancy in the same because these advances were adjusted against sales. When this was pointed out to Ld. Sr. DR, he stated that the assessee is unable to produce the PANs, names and addresses of the parties. He was specifically shown a tax/retail invoice wherein complete details were given except thePAN/Voter I. Card. In our view, PAN/Voter Identity Card is a KYC norm, which does not apply to the sale of goods under the Sale of Goods Act. We are of the view that the AO and CIT(A) both have erred in making and confirming this addition and accordingly, we delete the same - decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Addition towards sundry creditors.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia):

During the assessment proceedings, the Assessing Officer (AO) disallowed ?2,74,49,637/- paid as interest to Kotak Mahindra Bank, treating it as payment to individual farmers rather than the bank, thereby requiring tax deduction at source under Section 194A. The AO argued that the loans were sanctioned to individual farmers and disbursed to the assessee company under a tie-up arrangement, but the assessee failed to substantiate this with an agreement.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, relying on the Special Bench of ITAT Vizag in the case of Merilyn Shipping & Transports Vs. Addl.CIT.

The revenue appealed, arguing that the assessee should have deducted tax at source since the loans were sanctioned to individuals. The assessee countered that the loans were agricultural loans and overdraft limits sanctioned directly to the company, with the company mortgaging its assets for securing the loans.

The Tribunal upheld the CIT(A)'s order, noting that the loans were disbursed directly to the assessee company, and the repayment was made by the company. Since the interest was paid directly to the bank, it did not attract TDS under Section 194A. Thus, the appeal of the revenue was dismissed.

2. Addition towards Sundry Creditors:

The AO added ?38,50,000/- shown as liability to sundry creditors, as the assessee failed to prove the creditworthiness and genuineness of the transaction. The assessee claimed this amount as an advance received from a trade creditor, which was subsequently adjusted with sales in the year 2012-13. However, the AO made the addition due to the lack of confirmation letters and supporting evidence.

The CIT(A) confirmed the addition, citing the absence of evidence and the improbability of a trade creditor waiting for over a year for the supply of goods. The CIT(A) found the claim of the trade creditor not credible and considered it a ruse to explain credits in the assessee's bank account.

The assessee appealed, arguing that the advances were received through cheques and adjusted with sales in the subsequent year. The Tribunal noted that the advances were received through cheques and adjusted against sales, which were accepted by the AO in the subsequent year. The Tribunal found no reason to suspect the transaction, as the sales were duly accounted for and accepted by the AO. Therefore, the addition was deleted, and the appeal of the assessee was allowed.

Conclusion:

In conclusion, the Tribunal dismissed the revenue's appeal regarding the disallowance under Section 40(a)(ia) and allowed the assessee's appeal regarding the addition towards sundry creditors. The Tribunal upheld the CIT(A)'s order on the interest payment issue, confirming that no TDS was required, and deleted the addition of ?38,50,000/- towards sundry creditors, finding the transaction genuine and properly accounted for.