The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has made a ruling stating that payments made in a compensatory nature should not be considered as interest for the purpose of tax deduction at source (TDS) under Section 194A of the Income Tax Act, 1961.
The Assessing Officer (AO) had noticed in the tax audit report that Trimex Industries Pvt. Ltd (the Assessee) had made a payment of Rs. 24,44,193/- to Empire Mineral and Transport as plot rent, without deducting TDS on the amount. As a result, the AO invoked section 40(a)(ia) of the Income Tax Act and disallowed Rs. 26,44,193/-, adding it to the assessee’s total income. In response, the assessee filed an appeal with the Commissioner of Income Tax (Appeals) [CIT(A)].
Upon reviewing the submissions made by the assessee, the CIT(A) found that the facts recorded by the AO were incorrect. The assessee procured barite lumps from Andhra Pradesh Mineral Development Corporation (APMDC) for trading purposes.
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Initially, the supplier agreed to grant a 90-day interest-free credit period. However, it has been renegotiated to allow the supplier to choose between receiving cash or receiving payment with interest for the credit period provided to the assessee.
A compensation charge amounting to Rs. 26,44,193/- has been paid by the assessee for the credit period it obtained. This payment was considered under interest by the assessee. Additionally, the assessee argued that the payment made to APMDC is compensatory in nature and should not be considered as interest as defined under Section 194A of the Income Tax Act. Hence this payment does not qualify for tax deduction at source, as determined by the Assessing Officer (AO).
The contentions presented and the circumstances of the case were thoroughly examined by a Two-Member Bench consisting of Mahavir Singh, Vice President, and Manoj Kumar Aggrwal, Accountant Member. They concluded that as per the provisions of Section 194A of the Income Tax Act, the payments made to APMDC were clearly compensatory in nature and should not be classified as interest for the purpose of TDS deduction.
Therefore, the ITAT upheld the decision of the CIT(A) to delete the disallowance, finding no errors in the order. As a result, the Revenue’s appeal was dismissed.
Case Title | Trimex Industries Pvt. Ltd Vs. The ACIT |
Citation | IT(TP)A Nos.: 77 & 78/CHNY/2022 & ITA No.993/CHNY/2022 ITA Nos.: 1035 & 1120/CHNY/2022 |
Date | 11.10.2023 |
Assessee by | Shri D. Anand, Advocate |
Revenue by | Shri Suresh Guduri, JCIT |
Chennai ITAT | Read Order |