TMI Blog2018 (1) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon’ble Delhi High Court in the case of Gee Vee Enterprises (1974 (10) TMI 29 - DELHI High Court). In the light of the law on the issue and in the light of the admitted fact that the AO did not make any enquiries which were required to be made on the issue in question, the order of the AO became both erroneous and prejudicial to the interest of the revenue calling for exercise of revisional jurisdiction u/s.263 of the Act. We therefore uphold the exercise of jurisdiction u/s.263 of the Act by the CIT by the impugned order. the observations of the Pr. CIT with regard to the retrospective operation of second proviso to section 40(a)(ia) of the Act should not influence the AO or the appellate authorities in the proceedings pursuant to the impugned order. This is because the Pr. CIT in the impugned order has not considered the question as to whether in the absence of the decision of jurisdictional High Court, whether the view favourable to the assessee rendered by the non-jurisdictional High Court or the view against the assessee by the non-jurisdictional High Court should be taken into consideration. In any event, we are of the view that when the assessment is set aside on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct tax at source, the factoring charges which were claimed as deduction while computing income from business, the AO ought to have disallowed the claim for deduction of factoring charges by invoking the provisions of section 40(a)(ia) of the Act. 5. In response to the show cause notice issued by the Pr. CIT u/s. 263 of the Act dated 28.07.2015, the assessee sent replies dated 21.08.2015, 05.11.15 and 04.12.2015 in which the assessee took a stand that factoring charges were not in the nature of interest within the meaning of section 2(28A) of the Act and in this regard had relied on the decision of the Hon ble ITAT Kolkata Bench in the case of ITO v. MKJ Enterprises Ltd. in ITA No.729/Kol/2011 for AY 2007- 08, order dated 27.01.2014 , wherein it was held that discounting/factoring charges were not in the nature of interest within the meaning of section 2(28A) of the Act and therefore there was no obligation to deduct tax at source u/s. 194A of the Act. 6. Without prejudice to the aforesaid contention, the assessee submitted that the AO was apprised of this legal position in a letter dated 16.07.2014. This letter, though it was filed after the conclusion of the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be transferred to the Factor. In factoring arrangements, the client may transfer its invoices to a Factor with an understanding that the client may buy back any uncollected invoices. Alternatively, the Factor assumes responsibility for all bad debts. The fees paid by the client to the Factor may bear different names such as factoring charges, discounting charges, commercial finance etc. By whatever name called, the character of interest payment to the Factor will not change. The Assessing Officer has not examined the arrangement between the assessee company, the client, and the Factor, namely, M/s. Easy Access Financial Services. The terms of the Agreement/Arrangement needed to be called for and examined by the Assessing Officer to arrive at a finding whether or not the financing provided by the Factor was in the nature of loan on which it charged interest under the head factoring charges as envisaged under Section 2(28A) of the Income Tax Act. 4.1.2. It is clear from a plain reading of Section 2(28A) that money pa i d in respect of amount borrowed or debt incurred , is interest payable in any manner. It includes in the terms, the money borrowed or incurred, depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the other of the Hon ble Punjab Haryana High Court taking a view that second proviso to section 40(a)(ia) of the Act was only prospective; held that the argument of the assessee in this regard cannot be accepted. The relevant observations of the Pr. CIT are contained in para 4.2.2 of his order which reads as follows:- 4.2.2 The Delhi High Court decision relied upon by the assessee in Ansal Landmark Township Pvt. Ltd. case is in favour of the assessee. However, the Kerala High Court in the case of Thomas George Muthoot vs. ClT in ITA No. 278 of 2014 has taken a contradictory view wherein it has been held that unless it is expressly stated that a provision is retrospective, it is always prospective in operation. Reading of the second proviso to Section 40(a) (ia) does not show that it is meant or intended to be curative or remedial in nature. It further held that by this proviso, instead, an additional benefit is given to the assessee. The Hon ble High Court of Punjab and Haryana in the case of Ind Swift Laboratories Ltd in ITA No. 188 of 2014 also decided this issue in favour of Revenue. Respectfully following the judgments of the Kerala High Court and Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re assumed to be correct. We derive support for the proposition as stated above from the decision of the Hon ble Delhi High Court in the case of Gee Vee Enterprises 99 ITR 375 (Del) . In the light of the law on the issue and in the light of the admitted fact that the AO did not make any enquiries which were required to be made on the issue in question, the order of the AO became both erroneous and prejudicial to the interest of the revenue calling for exercise of revisional jurisdiction u/s.263 of the Act. We therefore uphold the exercise of jurisdiction u/s.263 of the Act by the CIT by the impugned order. 12. However, we make it clear that the question whether factoring charges with the meaning of section 2(28A) will be in the nature of interest or not should be left open and the observations of the Pr. CIT in the impugned order in para 4.1.1 and para 4.1.3 should not have any bearing or consideration in the assessment proceedings or the appellate proceedings, pursuant to the impugned order. This is because the Pr. CIT has not considered the decision of the ITAT Kolkata Bench directly on the issue in the case of MKJ Enterprises Ltd. (supra) . We also make it clear that the ob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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