TMI Blog2016 (11) TMI 1512X X X X Extracts X X X X X X X X Extracts X X X X ..... he order dated 05-07-2016 of the CIT(A)-2, Aurangabad relating to Assessment Year 2009-10. 2. Grounds of appeal No.1 and 2 by the assessee read as under: 1. On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the addition made by the A.O. of ₹ 6,66,189/- invoking the provisions of S. 40(a)(ia) of the Act and the insertion of 2nd proviso interpreted with retrospective effect from 01-4-2005. Since the deductee has already included this transaction in their return and paid the taxes thereon the disallowance is not called for. The disallowance be deleted. 2. On the facts and circumstances of the case and in law the Ld. CIT(A) also was not justified in confirming the addition of ₹ 6,66,189/- made by the A. O. invoking the provisions of S. 40(a)(ia) of the Act without appreciating the judgment of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) which is deemed to be available to A. O. and the Ld. CIT(A) when the respective order were authored. The addition made by the A.O. and confirmed by Ld. CIT(A) is without jurisdiction. The addition be deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO observed that assessee had paid/credited interest of ₹ 6,66,189/- Nirma Private Limited which has been debited to the profit and loss account. However, he noted that assessee has not deducted any tax at source from such interest payment. Rejecting the various explanations given by the assessee the Assessing Officer invoking the provisions of section 40(a)(ia) r.w.s.194A disallowed the interest of ₹ 6,69,189/- which was debited to the profit and loss account on account of interest. 5. Before CIT(A) it was submitted that the assessee firm has closed its business on 31-03-2011 due to disputes with Nirma Ltd. It was stated that the assessee had not made any interest payment to this entity which attracts the provisions of section 194A of the Act and hence the provisions of section 40(a)(ia) are not applicable to the facts of the case. It was stated that during the year under consideration the said company had given credit notes amounting to ₹ 12,27,402/- for different reasons like in 71 schemes, rate difference and different schemes introduced which were duly recorded in the books of accounts by the assessee in Interest account. Similarly, the said company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised; 10. In the circular issued by the Board of Direct Taxes, the concept ... of interest defined u/s. 2(28A) has been explained with the added explanation under: The term 'interest' has been defined in new clause (28A) inserted in section 2 of the Income-tax Act with a view to removing doubts about the true character of fees or other charges paid in respect of moneys borrowed or in respect of the credit facilities which have not been utilised. The definition is very wide and covers interest payable in any manner in respect of loans, debts, deposits, claims and other similar rights or obligations. It also includes any service fees or other charges in respect of such loans, debts, deposits, etc., as also fees in the nature of commitment charges on unutilised portion of credit facilities. This definition will be applicable for all purposes of the Income-tax Act. 11. It is clear from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or forbearance from demanding it after it has fallen due. The Court approvingly cited the observations of Lord Wright in Westminster Bank Ltd.'s case which indicate that interest, whether it is statutory or contractual, represents the profit the creditor might have made if he had the use of the money or the loss is suffered because he had not used that. The Hon'ble Supreme Court held that it is something in addition to the capital amount, though it arises out of it. In the instant case the amounts were paid, by way of credit in Interest account, in respect of an obligation in respect of monies payable to Nirma Ltd. This is a fact which is not disputed by the assessee. In view of the above discussion, I do not find any merit in the argument of the assessee and hold that the amount credited/payment should be treated as interest u/s.2(28A) of the Act and it is liable for deduction at source u/s.194A of the Act. Hence the disallowance of the impugned amount is sustained. However, the assessing officer is directed to reduce the amount by ₹ 3,500/-, which is not in the nature of interest as mentioned supra. 7. Aggrieved with such order of the CIT(A) the assessee is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the second proviso to provisions of section 40(a)(ia) of the Act by the Finance Act, 2012 w.e.f. 01-04-2013, disallowance u/s.40(a)(ia) of the Act would not be made if the assessee is not deemed to be an assessee in default under the first proviso to section 201(1) of the I.T. Act. It is also his submission that given an opportunity the assessee is in a position to prove that the payee had already declared such income in its hands and paid taxes thereon and therefore no disallowance u/s.40(a)(ia) can be made in the hands of the assessee. It is also his submitted that such amendment to provisions of section 40(a)(ia) is retrospective in nature. 11. I find merit in the above arguments of the Ld. Counsel for the assessee. I find the Pune Bench of the Tribunal in the case of Radhesham Bherulal Bhandari (Supra) while deciding an identical issue has held that the second proviso to provisions of section 40(a)(ia) is clarificatory and therefore retrospective in operation and as a consequence once the payee has discharged its tax obligation in accordance with law, operation of section 40(a)(ia) stands dispensed with. The various other decisions relied on by the Ld. Counsel for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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