Payment in the nature interest under sec 2(28A) liable to deduct TDS under sec 40(a)(i)

Last updated: 16 April 2012

Court :
Income Tax Appeallate Tribunal

Brief :
Briefly stated facts of the case are that the assessee paid a sum of Rs.9,54,684/- to a foreign bank without deduction of tax at source. In the audit report, it was mentioned that it was a usance interest paid under the letter of credit and hence not liable for any deduction of tax at source. In support of its case, the assessee relied on the order passed by the Tribunal in the case of Vijay Ship Breaking Corporation vs. DCIT (2002) 76 TTJ 169 (Rajkot) by contending that the interest paid to bank related to the purchases and hence should be considered as part of purchase price. Not convinced with the assessee’s submission, the AO came to hold that the assessee was required to deduct tax at source on such interest and having not done so, the amount was disallowable u/s.40(a)(i). The ld. CIT(A) upheld the action of the AO on this point.

Citation :
M/s. Sunoco Industries Pvt. Ltd.,[Presently M/s. Gandhar Oil Refinery (India) Ltd.], 29/3, Sewree Premises Co- Op.Soc.Ltd., Sewree Bunder Road,Sewree (E), Mumbai-400 015.PAN: AAACG3996J Appellant Vs. Dy.Commr. of Income-tax,Central Circle 34,Mumbai. Respondent

IN THE INCOME TAX APPELLATE TRIBUNAL,

MUMBAI BENCH “L”, MUMBAI

BEFORE SHRI R.S. SYAL (AM) & SHRI AMIT SHUKLA (JM)

I.T.A. No.7434/Mum/2007

(A.Y. 2005-06)

M/s. Sunoco Industries Pvt. Ltd.,

[Presently M/s. Gandhar Oil

Refinery (India) Ltd.],

29/3, Sewree Premises Co-

Op.Soc.Ltd., Sewree Bunder Road,

Sewree (E), Mumbai-400 015.

PAN: AAACG3996J

Appellant

Vs.

Dy.Commr. of Income-tax,

Central Circle 34,

Mumbai.

Respondent

Appellant by: Shi Sanjiv M. Shah.

Respondent by: Shri Narender Kumar.

Date of hearing: 29-03-2012

Date of pronouncement: 02-04-2012

O R D E R

PER R.S. SYAL, AM:

This appeal by the assessee arises out of the order passed by the CIT(A) on 22-11-2006 in relation to assessment year 2005-06.

2. The first ground is against confirmation of addition on account of contribution to provident fund made beyond 20th of the respective months.

3. Having heard the rival submissions and perused the relevant material on record, it is observed that the ld. CIT(A) sustained the addition in respect of payments on account of employer’s contributions which were made after the grace period but before the due date for filing of the return. This issue is no more res integra in view of the judgment of the Hon’ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC) read with the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Aimil Ltd. (2010) 321 ITR 508 (Del) deciding the issue in assessee’s favour by holding that no disallowance can be made if the employer deposits the amount to the respective fund on or before the due date u/s.139(1) of the Act. In the light of the above discussion, we overturn the impugned order and order for the deletion of this addition.

4. Ground no. 2 is against confirmation of disallowance of Rs.9,54,684/- u/s.40(a)(i) of the Act.

5. Briefly stated facts of the case are that the assessee paid a sum of Rs.9,54,684/- to a foreign bank without deduction of tax at source. In the audit report, it was mentioned that it was a usance interest paid under the letter of credit and hence not liable for any deduction of tax at source. In support of its case, the assessee relied on the order passed by the Tribunal in the case of Vijay Ship Breaking Corporation vs. DCIT (2002) 76 TTJ 169 (Rajkot) by contending that the interest paid to bank related to the purchases and hence should be considered as part of purchase price. Not convinced with the assessee’s submission, the AO came to hold that the assessee was required to deduct tax at source on such interest and having not done so, the amount was disallowable u/s.40(a)(i). The ld. CIT(A) upheld the action of the AO on this point.

6. After considering the rival submissions and perusing the relevant material on record, it is observed that the Mumbai Bench of the Tribunal in Uniflex Cables Ltd. vs. DCIT has decided identical issue in ITA No.7019/Mum/2006. Vide order dated 28-03-2012, the Tribunal has held that such amount is in the nature of interest u/s.2(28A) and thus under the provisions of the Act there is a requirement to deduct tax at source. Having not deducted tax at source, the provisions of section 40(a)(i) have been held to be rightly invoked. However, the matter has been restored to the file of AO for considering the position under the respective DTAAs. One of us, namely, the AM, is party to this order in which all the relevant judgments and decisions have been thoroughly considered before reaching this conclusion. The ld. AR failed to convince us for observing departure from the view taken in the said case of Uniflex Cables Ltd. (supra). As such, we uphold the impugned order to this extent but remit the matter to the file of AO for considering the position under the respective DTAA(s).

7. In the result, the appeal is partly allowed for statistical purposes.

Order pronounced on the 02nd day of April, 2012.

Sd/- Sd/-

(AMIT SHUKLA) (R.S. SYAL)

JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai: 02nd April, 2012.

NG:

Copy to:

1. Assessee.

2. Department.

3. CIT(A), Central-VI,Mumbai.

4. CIT, Central-III, Mumbai.

5. DR,”L” Bench,Mumbai.

6. Master file.

(TRUE COPY)

BY ORDER,

Asst. Registrar, ITAT, Mumbai.

	Details	Date	Initials	Designation
1	Draft dictated on	29-03-12		Sr.PS/
2	Draft Placed before author	29-03-12		Sr.PS/
3	Draft proposed & placed before the Second Member			JM/A M
4	Draft discussed/approved by Second Member			JM/A M
5	Approved Draft comes to the Sr.PS/PS			Sr.PS/
6	Kept for pronouncement on			Sr.PS/
7	File sent to the Bench Clerk			Sr.PS/
8	Date on which the file goes to the Head clerk
9	Date on which file goes to the AR
10	Date of dispatch of order