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2023 (3) TMI 657 - AT - Income TaxTDS u/s 194A - Disallowance u/s 40(a)(ia) - expenditure was incurred by the assessee under the head “other borrowing cost and financial charges” - whether the payment made by the assessee to the secured creditors pro rata inter se, towards additional amount till the date of IPO, amounts to interest under section 2(28A) of the Act, or it is in the nature of compensation? - HELD THAT:- It is an admitted fact that the assessee entered into an SOA with its secured creditors and members proposing to restructure the debts as well as the capital and filed an application before the Hon’ble High Court of Andhra Pradesh. The liability to pay the additional amount has nothing to do with the debt or CCDs, inasmuch as the CCDs were extinguished by such date, but it gets triggered only till the assessee goes to the IPO. When the payment has nothing to do with the debt or CCDs, in our considered opinion such payment does not fall under section 2(28A) of the Act. Inasmuch as the liability is not depending upon the debt or CCDs, but contingent upon the happening of the IPO, such payment cannot be called as payment of interest. Consequently, the provisions under section 194A or 40(a)(ia) of the Act are not attracted. Such an amount partakes the character of compensation accrued to the secured creditors because of the default committed by the assessee in going to the IPO and the moment the assessee goes to the IPO such a liability comes to an end. With this view of the matter, we find it difficult to sustain the addition. We, therefore, direct the learned Assessing Officer to delete the addition made on this account and consequently allow the grounds of appeal relating to this aspect. In view of our finding on the issue relating to the application of section 40(a)(ia) of the Act, the other amounts relating to the alternative plea of the assessee become academic. Grounds in respect of the interest on refund received by the assessee and verification of claim of the assessee that there was no warrant for the addition of prior period expenses is not pressed and accordingly dismissed.
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