2017 (1) TMI 1089 - AT - Income Tax

Tribunal reverses additions on unsecured loan & interest disallowance due to TDS non-deduction.

The Tribunal allowed the assessee's appeal on both grounds, reversing the additions made by the lower authorities regarding the unsecured loan and the ... Addition of unsecured loan as income of assessee - Held that:- The amount of loan is reflecting in the bank statement of the assessee which is placed on page 10 of the paper book. On perusal of the records we find that the lower authorities have taken only into consideration the opening and closing balance of the assessee ignoring the transactions took place in the banks of both the parties in intervening period. We find that the loan transactions were through banking Channel. The ld AR in support of his claim has submitted the identity proof, confirmation, bank details, cash flow statements of both the parties. The lower authorities have not brought any defect in the submission made by the assessee. - Decided in favour of assessee Non-deduction of TDS u/s. 40(a)(ia) - disallowance of interest paid - Held that:- In the present case, the interest was paid for the delayed payment of the bills which in our considered view is outside the purview of the provisions of section 194A of the Act. Accordingly, the provisions of TDS will not be attracted to the payment of interest in the aforesaid cases. In view of above, we are inclined to reverse the order of authorities below. Hence the ground of appeal of the assessee is allowed. Issues Involved:1. Addition of Rs. 10,50,000 as unsecured loan to the income of the assessee.2. Disallowance of interest paid amounting to Rs. 2,10,184 due to non-deduction of TDS under section 40(a)(ia) of the Income Tax Act.Detailed Analysis:1. Addition of Rs. 10,50,000 as Unsecured Loan:The first issue raised by the assessee is the addition of Rs. 10,50,000 as unsecured loan to the income. The assessee, an individual and proprietor of M/s Saluja Motors, had shown loans from Cyrillic Consultancy Pvt. Ltd. (Rs. 4 lakhs), Smt. Manmit Kaur (Rs. 2.50 lakhs), and Simran Prit Singh (Rs. 4 lakhs) in his balance sheet as on 31.03.2008. The Assessing Officer (AO) observed that the bank balances of these parties were insufficient to grant such loans and noted that the loan from Cyrillic Consultancy Pvt. Ltd. was allegedly taken in cash, thus violating section 269SS of the Income Tax Act.Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s addition. However, the assessee contended that the loans were taken through banking channels and provided supporting documents such as bank statements, loan confirmations, and identity proofs.The Tribunal found that the loan from Cyrillic Consultancy Pvt. Ltd. was indeed obtained through a cheque and reflected in the bank statement. Similarly, the loans from Smt. Manmit Kaur and Simran Prit Singh were also through banking channels. The lower authorities had only considered the opening and closing balances, ignoring the intervening transactions. The Tribunal concluded that the loans were legitimate and reversed the lower authorities' orders, allowing the assessee's appeal on this ground.2. Disallowance of Interest Paid (Rs. 2,10,184) Due to Non-Deduction of TDS:The second issue involved the disallowance of interest paid amounting to Rs. 2,10,184 due to non-deduction of TDS under section 40(a)(ia) of the Act. The assessee had paid interest to Harpreet Kaur (Rs. 47,370), Cyrillic Consultancy Service (Rs. 1,20,764), Bansal Motor Corporation (Rs. 12,473), and Rudra Motor (Rs. 29,577). The AO disallowed these expenses as TDS was not deducted.The CIT(A) partially upheld the AO’s order, confirming the disallowance for Rudra Motors due to insufficient details but directed the AO to verify the TDS payment for the other parties and provide relief if found correct.The Tribunal noted that TDS was duly deducted and paid for the interest to Harpreet Kaur and Cyrillic Consultancy Service, as evidenced by the challans. For Bansal Motor Corporation and Rudra Motor, the interest was paid as part of business transactions for delayed payments, which does not fall under the purview of section 194A. The Tribunal referenced judicial precedents, including the ITAT Ahmedabad Bench and ITAT Hyderabad Bench, which held that such payments are compensatory and not in the nature of interest requiring TDS deduction.The Tribunal concluded that the interest payments for delayed payments do not attract TDS under section 194A and reversed the lower authorities' orders, allowing the assessee's appeal on this ground.Conclusion:The Tribunal allowed the assessee’s appeal on both grounds, reversing the additions made by the lower authorities regarding the unsecured loan and the disallowance of interest paid due to non-deduction of TDS. The order was pronounced in the open court on 18/01/2017.