The Chennai Bench of the Income Tax Appellate Tribunal (ITAT), ruled that the payments made in compensatory nature are not interest under Section 194A of Income Tax Act, 1961 for purpose of deduction of tax deducted at source (TDS).
The AO on perusal of tax audit report noted that the assessee, Trimex Industries Pvt. Ltd has paid a sum of Rs.24,44,193/- to Empire Mineral and Transport on account of plot rent. According to AO, the assessee has not deducted TDS on the above amount. Hence, invoking the provisions of section 40(a)(ia) of the Income Tax Act, made disallowance of Rs.26,44,193/- and added to the total income of the assessee. Aggrieved, assessee came in appeal before the CIT(A).
The CIT(A) has gone into the submissions of the assessee and noted that the facts recorded by AO are not correct as the assessee procures barite lumps from Andhra Pradesh Mineral Development Corporation (APMDC) for the purpose of its trading. The supplier initially agreed for interest free credit for a period of 90 days. Thereafter it has renegotiated the supplies for either cash or payment of interest for the credit period enjoyed by the assessee.
The assessee has paid a sum of Rs.26,44,193/- as compensation charges for the credit period obtained by it. This amount was debited by the assessee under the interest. The assessee further stated that the payment made to APMDC is compensatory in nature but not interest as contemplated under Section 194A of the Income Tax Act for the purpose of deduction of tax at source as held by AO.
A Two-Member Bench comprising Mahavir Singh, Vice President and Manoj Kumar Aggrwal, Accountant Member observed that “We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the payments made to APMDC is clearly in the nature of compensatory and these cannot be called as interest which are contemplated in the provisions of section 194A of the Income Tax Act, for the purpose of deduction of TDS. Hence, we find no infirmity in the order of CIT(A), who has rightly deleted the disallowance and we confirm the same. Accordingly, this appeal of the Revenue is dismissed.”
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