2019 (2) TMI 1357 - AT - Income Tax

TDS u/s 194A - nature of a cash discount extended by the assessee being short realisation of the sale price or bill discounting - HELD THAT - As far as receiving of the finance amount from financial institution prior then the normal period of release of amount, the relationship of debtor and creditor or lender/borrower has come into existence. On perusal of the detail of party-wise charges paid, which is available on page 128 of the paper book, we find that out of the sum of ₹ 9,02,309/-, an aggregate amount of ₹ 1,19,806/- has been paid in relation to HDFC bank, which is not covered under section 194A because of the exclusion given to banking company under section 194A(3)(iii)(a) of the Act. Thus, assessee can be held liable for non-deduction of tax for the remaining charges of ₹ 7,82,503/- (9,02,309 -1,19,806). We, accordingly, uphold the liability of non-deduction of tax at source to this extent and direct the Assessing Officer to restrict the disallowance under section 40(a)(ia) to this extent only. Addition on account of the machine supplied to M/s. Kazstray service infrastructure Private Limited is a free of cost - when the sale receipt should accrue to the assessee - HELD THAT - Respectfully following the finding of the Hon ble Supreme Court in the case of Excel Industries Ltd 2013 (10) TMI 324 - SUPREME COURT we set aside the order of the lower authorities on the issue in dispute and direct the Assessing Officer to delete the addition made in the year under consideration of the amount of ₹ 19.50 lakhs, which the assessee has already offered in the subsequent assessment year under the head miscellaneous income.

Issues Involved:

1. Disallowance of ?9,02,309/- under section 40(a)(ia) of the Income-tax Act for non-deduction of tax at source.
2. Addition of ?19,50,000/- on account of machine supplied free of cost and its tax treatment.
3. Refund of tax paid twice in respect of the addition of ?19,50,000/-.
4. Adequate opportunity of being heard before passing the impugned order.
5. General challenge to the addition/disallowance being bad in law and against facts and circumstances.

Issue-wise Analysis:

1. Disallowance of ?9,02,309/- under section 40(a)(ia) of the Act:

The assessee claimed expenses of ?9,02,309/- under the head "subvention charges". The Assessing Officer (AO) considered these charges as interest expenses, liable for tax deduction at source, and disallowed the amount under section 40(a)(ia) for non-deduction of tax. The CIT(A) upheld this view, rejecting the assessee's argument that the charges were "bill discounting charges" and not interest. The Tribunal found that the assessee did not produce any agreement to support the claim of bill discounting charges and upheld the AO's characterization of the payment as interest. However, it noted that ?1,19,806/- paid to HDFC Bank was not covered under section 194A due to the exclusion for banking companies. Therefore, the Tribunal directed the AO to restrict the disallowance to ?7,82,503/-.

2. Addition of ?19,50,000/- on account of machine supplied free of cost:

The assessee supplied a machine valued at ?16,59,464/- free of cost on the instruction of Tata Hitachi, with the cost and profit to be compensated by Tata Hitachi. The assessee claimed the compensation as income in the subsequent year due to uncertainty in realization. The AO added ?19,50,000/- to the income for the year under consideration, which was upheld by the CIT(A). The Tribunal rejected the assessee's claim of uncertainty in realization, noting the clear instruction from Tata Hitachi. However, following the Supreme Court's decision in CIT vs. Excel Industries Ltd., the Tribunal acknowledged that there was no substantial loss to the Revenue due to the same tax rate in both years. Consequently, the Tribunal directed the AO to delete the addition for the year under consideration since the income was already offered in the subsequent year.

3. Refund of tax paid twice in respect of the addition of ?19,50,000/-:

Since the Tribunal allowed the grounds related to the addition of ?19,50,000/- and directed its deletion, the ground seeking refund of tax paid twice became infructuous.

4. Adequate opportunity of being heard:

The assessee claimed that the CIT(A) erred in confirming the AO's action without giving adequate opportunity of being heard. The Tribunal's decision did not specifically address this issue, implying that the main focus was on the substantive grounds of appeal.

5. General challenge to the addition/disallowance being bad in law and against facts and circumstances:

This ground was a general challenge to the additions/disallowances. The Tribunal's detailed analysis and decisions on the specific grounds effectively addressed this general challenge.

Conclusion:

The appeal was partly allowed. The Tribunal upheld the disallowance under section 40(a)(ia) to the extent of ?7,82,503/- and directed the deletion of the addition of ?19,50,000/- for the year under consideration, recognizing the income in the subsequent year. The issue of refund became infructuous due to the deletion of the addition.

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