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The Income Tax Officer, Ward-2, Nagapattinam Versus Mr. T. Rajendran

2016 (1) TMI 635 - ITAT CHENNAI

TDS u/s 194A - Disallowance u/s 40(a)(ia) - non-deduction of tax on delayed payment of dues on purchase of tractors - CIT(A) deleted the addition - Held that:- Hyderabad Bench of the Tribunal in the case of Sri Venkatesh Paper Industries P.Ltd. (2012 (9) TMI 249 - ITAT HYDERABAD) considered a similar situation, wherein it was held that interest paid on delayed payment of purchases is not interest within the definition of section 2(28A) of the Act and therefore disallowance is not warranted. - De .....

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that Commissioner of Income Tax (Appeals) erred in deleting the addition of ₹ 72,54,609/- made under section 40(a)(ia) of the Act for nondeduction of tax on delayed payment of dues on purchase of tractors for assessee s business M/s. Raj Motors. 2. The assessee, an individual, is a dealer and distributor of Escort tractors filed return of income on 15.07.2011 admitting income of ₹ 7,24,940/-. Assessment was completed under section 143(3) on 29.03.2014 determining the income at ͅ .....

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visions of 2(28A) of the Act, thus no TDS is required to be made. However, rejecting the contentions of the assessee, the Assessing Officer disallowed the said interest invoking the provisions of section 40(a)(ia) read with section 194A of the Act. On appeal, Commissioner of Income Tax (Appeals) deleted the disallowance holding that interest made by the assessee is not interest on any loan taken and it is only the payment on account of delayed trading liability and hence no need to deduct tax un .....

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tons (282 ITR 632). 3. Departmental Representative vehemently supports the order of the Assessing Officer in invoking the provisions of section 40(a)(ia) for non-deduction of TDS on delayed payment of interest on purchases made by the assessee. 4. Heard both sides. Perused orders of lower authorities and the decisions relied on. The assessee paid interest to Escorts Ltd. for delay in making the outstanding dues in purchasing of tractors. The Assessing Officer disallowed such interest as the asse .....

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upra) considered a similar situation, wherein it was held that interest paid on delayed payment of purchases is not interest within the definition of section 2(28A) of the Act and therefore disallowance is not warranted. While holding so, the Tribunal observed as under:- 5. Briefly, the facts of the issue are that the assessee is engaged in the business of paper and boards. For the assessment year under dispute the assessee filed return of income on 1.11.2005. Subsequently, a revised return was .....

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yment of interest was not on a deposit or loan but on purchases. It is not required to deduct tax at source. The Assessing Officer, however, did not accept the explanation of the assessee and disallowed the sum of ₹ 3,12,600 u/s. 40(a)(ia) on the reasoning that whether the assessee paid the interest in respect of delayed payment of purchases or deposits or loans it has to deduct tax at source as per the provisions of the Act. The assessee being aggrieved of such addition, filed an appeal b .....

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tees on account of delay in construction of dwelling units held that it is not within the nature of interest as defined u/s. 2(28A) of the Act. The CIT(A), however, came to held that the definition of the term interest as given in section 2(28A) of the Act would mean interest payable in any manner in respect of any monies borrowed or debt incurred including a deposit, claim or other similar right or obligation and includes any service fee and other charges in respect of the monies borrowed or de .....

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payment to the sellers, the assessee has to pay interest on the overdue bills. Thus, it is a part of the trade payment constituting the sale price of the commodity purchased. In support of such contention , the learned AR relied upon the decision of ITAT Ahmedabad Bench in the case of ITO vs. Parag Mahasukhlal Shah reported in 46 SOT 302. In the aforesaid decision the ITAT Ahmedabad Bench on considering the definition of the term interest as envisaged in section 2(28A) has held in the following .....

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at source u/s. 194A of the Act. The Learned CIT(Appeals) has rightly reversed the findings of the Assessing Officer. Ground raised of the Revenue is,therefore, dismissed." 8. In the alternative, the learned AR contended that even if the amount paid is to be held as interest coming withinthe definition of section 2(28A), then also no disallowance could be made u/s. 40(a)(ia) in view of the ITAT Special Bench decision in the case of Merilyn Shipping & Transports vs. Addl. CIT reported in .....

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