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2016 (5) TMI 1260 - ITAT KOLKATA

2016 (5) TMI 1260 - ITAT KOLKATA - TMI - TDS u/s 194H - Held that:- AO found under examination of the details submitted by the under remand proceedings that all the payments were paid to various persons , particularly in cash between ₹ 1000/- to ₹ 2300/- and CIT-A having examined the paper book filed before him by the assessee observed that the assessee has paid commission of ₹ 4,60,152/- to a number of parties for securing orders from twelve companies located at various places .....

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available on record which are filed by the assessee without any supporting evidence both the authorities below arrived to a conclusion that the said payments made to various persons are self made and non-verifiable. Therefore, we hold that the assessee had clearly failed to prove genuineness of expenditure, consequently, the addition made on this issue stands confirmed - Decided against assessee

TDS u/s 194H - Non TDS on Disallowance made on account of bill discounting and Invoice ch .....

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e thereon by the AO is not maintainable. - Decided in favour of assessee

Non deducting TDS on account of payments made towards consulting charges - Held that:- It is observed from the remand report that the AO verified the paper book as produced by the assessee containing details of payments made to various parties, which are admittedly less than ₹ 20,000/- and the ld. CIT(A) also confirmed the same. The same has been noticed at page 34 of the paper book, wherein it shows that .....

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nt factors for determining as to whether the said consultancy charges were paid to the parties mentioned at page 34 of the paper book or not. In the present case, the AO totally failed to consider the same. The AO did not bring anything contrary to the claim of the assessee. Therefore, we hold that in view of the proviso (B) (i) to subsection (1) of Section 194J of the Act the addition does not stand, therefore, it is deleted - Decided in favour of assessee - I.T.A No. 413/Kol/2013 - Dated:- 27- .....

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1961 (hereinafter referred to as the Act ). 2. The assessee has raised the following grounds:- For that the Ld. Commissioner of Income Tax (Appeal)-VI/Kol was erred in law as well as on facts of the case in confirming the addition of ₹ 16,33,578.00 u/s. 40(a)(ia) of the I.T.Act 1961 being the amount of labour charges on which no TDS was deducted on the grounds which are not correct. 2. For that the Ld. Commissioner of Income Tax (Appeal)-VI/Kol has erred in law as well as on facts of the c .....

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ch no TDS was deducted on the grounds which are not correct. 4. For that the Ld. Commissioner of Income Tax (Appeal)-: VI/Kol has erred in law as well as on facts of the case in confirming the addition of ₹ 2,52,000.00 u/s. 40(a)(ia) of the I.T.Act 1961 being the amount of consultancy charges paid to different parties on which no TDS was deducted on the grounds which are not correct. 5. For that the Ld. Commissioner of Income Tax (Appeal)-VI/Kol is not correct in "directing the Ld. A. .....

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ompany and derives its income from business as a marketing consultant on commission basis. The assessee filed its return of income declaring its income at ₹ 12,50,350/- for assessment year 2005-06. Notices u/s. 143(2) and 142(1) of the Act were issued under scrutiny. 4. During the scrutiny proceedings, the AO found that an amount totaling to ₹ 25,31,857.89 were debited to the profit and loss account on different heads and for non production of books of account and details involving s .....

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amounting to Rs.I6,33,578/-. : The AO has made addition of ₹ 16,33,578.30 debited as labour charges under the major head manufacturing expenses on account of non deduction of TDS on the said payment u/s.40(a)(ia) of the Income Tax Act, 1961 read with section 194J, 194H and section 2000 of the IT Act, 1961. To examine this issue hearings on different dates were carried out and it has been found that the assessee has paid ₹ 16,33,5781- to the various parties as below:- 1. Paid to M/s. .....

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vanising Process Charges which comes under the head job charges. The Ld. Assessing Officer has not gone through the exact process of work. M/s. B.P.Projects Pvt. Ltd. has taken the work of Process of Galvanising on job basis and snot on labour basis. The particular job was galvanizing for which M/s. B.P.Projects Pvt. Ltd. charged ₹ 21- per K.G. of weight of Cable Tray. This is job charges paid by the appellant besides the Zinc M/s.B.P.Projects Pvt. Ltd. paid wages to their labourers for co .....

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hat the said company has charged cost of materials for galvanizing other the labour charges. This is also important that galvanizing process charges includes "mainly labour charges" which are substantial in this process. Hence the amount of ₹ 16, 03,206.00 paid to Service Provider is in the nature of labour charges. The observation made by the Assessing Officer is not on correct footing as the difference between Job Charges and Labour Charges are not properly dealt with. The appe .....

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such payment made by the person to his labours are labour charges and not job charges. c) Thus the question of applicability of Sec. 194C is not attracted in your appellant's case. d) Besides the above the observation taken up by the Assessing Officer that once the labour charges are paid and debited to the P&L A/c. It is automatically attract Sec. 194C of the I.T Act 1961. This observation of the Assessing Officer is not correct in as much as a mistake can be happened which is corrected .....

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ua Engineering by issuing notice u/s.133(6) of the 1. T Act 1961 on request being made and as such the question of submission of substantial evidence in respect of above two parties does not arise. The appellant in its submission has clearly submitted that payment to M/s.Hardyman Engg. Co. of ₹ 29, 196.30 is below ₹ 50,000.00 in aggregate and ₹ 1,176.00 to M/s. Barua Engineering below the limit. The Ld. Assessing Officer without going through the written submission suo unto sub .....

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dering the remand report and reply to such remand report filed by the assessee by way of written submissions dt:20-11-2012, CIT-A held as under: 14. I have carefully considered the observations of the Assessing Officer in the assessment order, remand report and submissions of the appellant. The appellant has submitted that the particular job was galvanizing for which M/s. B. P. Projects Pvt. Ltd. charged ₹ 2/- per K.G. of weight of Cable Tray. This is job charges paid by the appellant and .....

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it is held that the appellant has made the payment for carrying out the work of galvanising the material and is held to be a work contract, which attracts the provisions of Sec.194C and by non deduction of TDS the provisions of section 40(a)(ia) are applicable and the payment cannot be allowed. Therefore, the addition of ₹ 16,33,578/- is upheld. This ground of appeal is dismissed. 7. Having aggrieved by order of Ld. CIT(A), the assessee before us prayed to restore the issue on hand to the .....

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w of the Hon ble High Court of Delhi supra, while dealing with the case on hand, had an occasion to read down the decision of Agra Bench of Tribunal in ITA 337/Agra/2013 as it was relied on, and held and agreed with the reasoning and conclusion to the insertion of second proviso to section 40(a)(ia) of the Act by the legislature. The relevant portion from paras 11 to 14 are reproduced here in below: 11. The first proviso to Section 210 (1) of the Act has been inserted to benefit the Assessee. It .....

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on in default subject to the fulfillment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the proviso .....

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e decision of the Agra Bench of ITA T in Rajiv Kumar Agarwal v. A CIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: "On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of reven .....

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g for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fair, just and equitable" interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this .....

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e to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40 a)(ia1 as they' existed prior to insertion of second proviso thereto, went much beyond the obvious .....

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te so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought .....

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proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. 9. The Hon ble High Court supra found that there is a mandatory requirement u/s. 201 to deduct at source, but, however, opined, the assessee cannot be viewed as a person in default in view of the first proviso to section 201(1) of the Act and further that the insertion of second proviso to section 40(a)(ia) of the Act .....

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mount for completing the job. These facts are not disputed by the AO as it can be seen from the remand report and he found that the bills raised by M/s.B. P. Projects Pvt. Ltd is solely for the purpose of galvanizing process charges and the said company has charged cost of materials for galvanizing other than labour charges i.e galvanizing process charges includes mainly labour charges. Therefore, the question before us whether the assessee could be treated as defaulter in view of the principle .....

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issue on hand decided by the B Bench of Kolkata Tribunal (supra). The relevant portions from paras 7 to 10 of order are reproduced here in below:- 7. A plain reading of this Section makes it clear that "any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person" is required to .....

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o whom the assessee had made the payments in the nature of hiring charges for goods carried vehicles. In our opinion, a contract need not be in writing; even an oral contract is good enough to invoke the provisions of Section 194 C. As Hon'ble Karnataka High Court has observed in the case of Smt J Rama Vs CIT (236 CTR 105), "Law does not stipulate the existence of a written contract as a condition precedent for ( invoking the provisions of Section 194 C with respect to) payment of TDS&q .....

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he amount of a single contract exceeds ₹ 20,000j-. The contract has to be looked into party-wise not on the basis of the individual GR. In our opinion, all the payments made to a truck owner throughout the year are to be aggregated to ascertain the applicability of the TDS provision as all the payments pertain to a contract. Contract need not be in writing. It may infer from the conduct of the parties. It may be oral also. Our aforesaid view is duly supported by the decision of IT AT, ' .....

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to section 40(a)(ia) as inserted by Finance Act, 2012 would apply in the case of the assessee. According to him, 2nd proviso is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax, and, therefore, he took the plea that .....

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for the assessment year 2007-08, in which this Tribunal vide order dated 04.03.2015 has held as under:- "5. I have heard rival contentions and gone through the facts and circumstances of the case. I find from first argument made by Ld. counsel for the assessee that the second proviso to section 40( a)(ia) of the Act inserted by the Finance Act, 2012 would apply in the instant case. According to him, the second proviso is curative in nature intended to supply an obvious omission, take care .....

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Bank v CIT, (1992) 193 ITR 457 (Cal) decided on September 5, 1989, it was held by the Hon'ble Calcutta High Court as follows at pages 469-470 of the reports: "A point has been made by the assessee that as a result of this deduction the department is realizing the tax twice on the same income. It does not appear that this point was agitated before the Tribunal. We, however, make it clear that if the amount of tax has already been realised from the employees concerned directly, there cann .....

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dated January 29, 1997. Reference in this behalf may also be made to the judgment of the Hon'ble Supreme Court in Hindustan Coca Cola Beverage P. Ltd. v CIT, (2007) 293 ITR 226 (SC) where the same view was taken. I find that the aforesaid settled position in law has also been legislatively recognized by insertion of a proviso in sub-section (1) of section 201 of the Act by the Finance Act, 2012. Thus, the settled position in law is that if the deductee / payee has paid the tax, no recovery .....

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alcutta High Court in ITAT No. 302 of 2011, GA 3200/2011, CIT v Virgin Creations decided on November 23, 2011 provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. However, in a case where the deductee/payee has paid tax and as such the person .....

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he section workable. The insertion of second proviso was explained by Memorandum Explaining The provision in Finance Bill, 2012, reported in 342 ITR (Statutes)234 at 260 & 261, which reads as under:- "E.RATIONALIZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. Deemed date of payment of tax by the resident payee. Under the existing provisions of Chapter XVII -B of the Income-tax Act; a person is required to deduct tax on certain specified payments .....

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be treated as assessee in default in respect of non/short deduction of tax if the payee has discharged his tax liability. The payer is liable to pay interest under section 201 (1A) on the amount of non/short deduction of tax from the date on which such tax was deductible to the date on which the payee has discharged his tax liability directly. As there is no one-to-one correlation between the tax to be deducted by the payer and the tax paid by the payee, there is lack of clarity as to when it ca .....

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shall not be deemed to be an assessee in dealt in respect of such tax if such resident payee- (i) Has furnished his return of income under section 139 ; (ii) Has taken into account such sum for computing income in such return of income; and (iii) Has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may e prescribed. The date of payment of taxes by the resident payee shall be deemed to .....

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on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee. These amendments will take effect from 1st July, 2012. ll. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee. A related issue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, pr .....

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ithout deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, the, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee had deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. These beneficial provisions are proposed to be applicable only in the case of resident payee. These amendments will take effect from 1st April, 2013 and will, .....

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espect of the payments and taxes of such income and also filing the return by the recipient. In case, the Assessing Officer finds that the recipient has duly paid the taxes on the income, the addition made by the Assessing Officer shall stand deleted. 12. The facts in the aforementioned case are that the AO added ₹ 1,07,21,525/- for non deduction of TDS by the assessee on transport hire charges and CIT-A deleted the said amount in the absence of any written or oral agreement. The assessee .....

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Tribunal, we remand the case to AO for examination and for verification of the required details of the resident i.e M/s. B.P.Projects Pvt. Ltd and direct the assessee to cooperate in completing the assessment. Ground no-1 raised by the assessee is allowed for statistical purposes. 13. Ground no.2 involving ₹ 4,60,152/- paid towards commission charges/service charges. The AO disallowed the same for not deducting TDS. The ld. CIT(A) confirmed the addition made by the AO. Before us, the ld. .....

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ssessee that the commission of ₹ 1000/- to ₹ 2300/- has been shown as payable to hundreds of people which is the after-thought of the assessee. It cannot be that (he commission expenses of Rs. l000/- to ₹ 2300/- had been incurred to hundreds of the 'people and not a single person was paid during the relevant financial year. Hence, it is clear' that the commission expenses claimed is a bogus claim of the assessee and it is requested from the Ld. CIT(A) that this amount o .....

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has been observed that the assessee has observed that the assessee has paid commission of ₹ 4, 60, 152/- to a number of parties for securing orders for twelve companies located at various places. During the course of proceedings explanation was sought in respect of appointment of commission agents. The assessee has submitted that they have appointed persons for each company to follow-up the matter but no substantial evidence in this regard was submitted. All the payments have been made in .....

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ssing Officer in the assessment order, and submissions 'of the appellant. The appellant has paid the commission expenses of ₹ 1000/- to ₹ 2300/- to hundreds of the people and not to a single person during the relevant financial year. During the course of proceedings explanation 'was sought in respect of appointment of commission agents. The assessee has submitted during the remand proceedings that they have appointed persons for each company to follow-up the matter but no sub .....

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the said report was sent to the appellant. The appellant failed to establish the genuineness of payment even during appellate proceedings even in the subsequent written submissions nothing more was brought on record, The appellant has deliberately structured its transactions in a way so as to avoid the provisions of section 194H r.w.s 40(a)(ia). The arrangement about real transactions takes place in secret and direct evidence about such dlscreet transaction/agreement would be not available to th .....

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;ble Delhi High Court in the case of CIT Vs. Modi Industries Ltd reported in (1992)(200 IT 341) has held as follows:- 'the expenditure was not incurred holly and exclusively for the purpose of assessee's business. Commission paid was not deductible. " 21. The Hon'ble Apex Court in the case of Lachminarayan Mondal (86 ITR 439 (SC) has also held as follows:- "it is still open to the Department/Assessing Officer to consider the relevant facts and, determine for himself whether .....

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ders Co. v. Tax Recovery Officer, Kolkata-36 in IT Appeal No. 1233 (KOL.) of 2010 dated 12th October 2012 for Assessment year 2006-07 reported in (2012) 139 ITD 475(kol); [2012] 27 taxmnann.corn 293 (Kol.) held that one of the fundamental requirements for allowing deduction in respect of commission payment is that there should be evidence for some services having been rendered and the services having been rendered cannot be simply assumed or inferred in the absence of such evidence. 24. Therefor .....

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than the threshold limit of ₹ 2,500/- each and the amounts payable to the persons do not attract-the provisions of sec.40(a)(ia) of the I.T.Act 1961. This ground of appeal is dismissed since the entire amount has been disallowed. 14. Heard rival submissions and perused the relevant material on record. The contention of the Revenue was that the assessee not deducted TDS for the amounts liable to be deducted U/sec 194H of the Act, but, however, the AO found under examination of the details s .....

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ission agents either before AO or CIT-A. Mere stating that the assessee has appointed persons as commission agents for each company to follow-up its affairs in support of which no sufficient evidence, whatsoever, filed in this regard. In our opinion, as per the procedure established the assessee shall produce all the details before the authorities, after due verification of the material available on record which are filed by the assessee without any supporting evidence both the authorities below .....

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pointed out to remand report that the financial institutions charged discounts on the direction of the assessee and as the amount was above ₹ 2,500/- and it is the responsibility of the assessee to deduct the TDS and confirmed the addition made by the AO and the observation of which is reproduced herein below:- 26. The Assessing Officer in the, Remand report vide letter No. DCIT/CIR- 5/Ko1/Remand/2012-13/1022 dated 08:-;10.2012 submitted as follows:- "Bill discounting and service cha .....

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ties to prove the genuineness of the transactions before the Assessing Officer. The bill discounting 'and service charges have been paid on the direction of the appellant and it was the responsibility of the appellant to default the TDS u/s.194H as soon as the amount exceeded ₹ 2,5001-. The appellant has failed in its duty to deduct TDS and also has failed to produce the persons to whom these payments were made, therefore the expenses on account of bill discounting and serves charges a .....

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e sides and perused the record. It is noticed that the assessee has got guarantee on some terms from banks and other financial institutions for financial assistance against their bills. The said banks used to credit balance amount under bills after deducting their discount charges. Therefore, as such, the assessee has no role to deduct the tax as such the assessee has not made any payment to the bank. To support of this view, page no- 22 of paper book is a statement of account issued by the Bank .....

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their charges appears to be true. 18. In this regard we may refer to the case law relied on by the assessee in the case of CIT vs Cargill Global Trading (P) Ltd reported in 355 ITR 94. The facts are that the AO noticed that the assessee had paid a sum of ₹ 3.97 crores to its associate concern, M/s Kargil Financial Services Asia (P) Ltd. (CFSA), Singapore on account of discounted charges for getting the export sale bills discounted. In appeal the CIT(A) deleted the addition holding that th .....

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ion rendered by the Tribunal portion of which is reproduced as under: "9. The word interest is differently defined under Interest-tax Act. As per s. 2(7) of Interest-tax Act, interest means interest on loans and advances made in India and includes-(a) commitment charges on unutilized portion of any credit sanctioned for being availed of in India and (b) discount on promissory notes and bill of exchange drawn or made in India. Thus where the legislature was conscious of the fact that even th .....

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ated as interest or not. The CBDT has opined that where the supplier of goods makes over the usance bill/hundi to his bank which discounts the same and credits the net amount to the supplier s account straightaway without waiting for realization of the bill on due date, the property in the usance bill/Hundi passes on to the bank and the eventual collection on due date is a receipt by the bank on its own behalf and not on behalf of the supplier. For such cases of immediate discounting the net pay .....

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Court held that usance interest payable outside India by an undertaking engaged in the business of ship breaking is exempt from payment of income-tax by virtue of Expln. 2 added to s. 10(15)(iv)(c) with retrospective effect from 1st April, 1962 and hence the assessee was not liable to deduct tax at source under s. 195 of the Act. The discounting charges are not in the nature of interest paid by the assessee. Rather after deducting discount the assessee received net amount of the bill of exchange .....

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ition in respect of income by way of interest under s. 194 r/w s. 197(1) and (2) of the Act as under : "1....Where the supplier of goods makes over the usance bill/hundi to his bank which discounts the same and credits the net amount to the supplier s account straightaway without waiting for realization of the bill on due date, the property in the usance bill/hundi passes on to the bank and the eventual collection on due date is a receipt by the bank on its own behalf and not on behalf of t .....

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, conforming to the exemption granted by s. 194A(3)(iii)(a) of the IT Act, 1961. 2. On the other hand where there is no immediate discounting and the bank merely acting as agent receives on the expiry of the period the payment for the bill from the buyer on behalf of the supplier and credits it to him accordingly, the bank receives interest on behalf of the supplier and the instructions contained in Board s abovementioned circular dt. 7th Nov., 1970, would apply and the buyer will have to deduct .....

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can be charged on any such payments. It is pertinent to note as discussed above the assessee did not pay any amounts to bank so as to deduct the tax at source. Thus, the section 194H is not applicable to the case on hand and addition made thereon by the AO is not maintainable. Ground no-3 raised by the assessee is allowed. 20. Ground no. 4 is a disallowance regarding the amount of ₹ 2,52,000/- made for not deducting TDS on account of payments made towards consulting charges. The assessee c .....

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paper book made by the assessee, it has been observed that assessee has made payment to a no, of parties 10wards consultancy charges which is less than ₹ 20,000/- in each case. In view of the above payment details section 194J of the IT Act 1961 is not attracted. During the remand proceedings the it was told to the A/R of assessee that the said payments do not appear to be genuine and he was directed to produce the parties and make comments but assessee has neither made any comment in res .....

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kind of professional services were taken by it from so many different persons. It ·is held that since the disallowance was made u/s. 40(a)(ia),' ,the appellant has shown the payments to different persons in cash for less than ₹ 20,000/- each through the self made vouchers. 21. Before us, the ld.AR contended that the assessee has produced all the details of bills etc… before the AO. Inspite of which the AO added on the ground that genuineness of the payments made to fiftee .....

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