Factoring charges not interest under section 2(28A), no TDS under 194A or 194H required

ITAT Delhi ruled in favor of the assessee regarding TDS disputes. The tribunal held that factoring/bill discounting charges do not constitute interest under section 2(28A) and are not subject to TDS under section 194A. Additionally, these charges cannot be treated as commission liable for TDS under section 194H. Regarding freight charges, the tribunal found that when transporters submit declarations confirming they own fewer than 10 goods carriages along with PAN details, TDS under section 194C is not applicable. The additions made by AO and confirmed by CIT(A) were deleted, and the assessee's appeal was allowed.

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Issues Involved:
1. Treatment of the assessee as 'assessee in default' under section 201(1)/201(1A) of the Income Tax Act for non-deduction of TDS on bill discounting charges under section 194H.
2. Non-deduction of TDS on freight charges under section 194C.
3. Levying of interest and initiation of penalties under sections 201(1A), 271C, and 272A(2)(j) of the Income Tax Act.

Summary:

1. Treatment of the Assessee as 'Assessee in Default' under Section 201(1)/201(1A) for Non-Deduction of TDS on Bill Discounting Charges under Section 194H:

The assessee was engaged in the business of manufacturing machined engine parts and incurred bill discounting charges without deducting TDS, leading to an inspection under section 133A. The AO treated the bill discounting charges as commission under section 194H and made an addition of Rs. 6,78,993/- along with interest of Rs. 2,44,404/-. The CIT(A) upheld this decision, but the Tribunal noted that no principal-agent relationship existed between the assessee and the NBFC, and the charges were not in the nature of commission. The Tribunal relied on judicial precedents, including the case of AHMEDABAD STAMP VENDORS ASSOCIATION VERSUS UNION OF INDIA, to conclude that bill discounting charges do not fall under section 194H. Consequently, the addition made by the AO and confirmed by the CIT(A) was deemed bad and was deleted.

2. Non-Deduction of TDS on Freight Charges under Section 194C:

The assessee paid freight charges and did not deduct TDS, claiming that declarations were obtained from transporters as required under section 194C(6). The AO rejected this claim and made an addition of Rs. 42,190/- along with interest of Rs. 15,158/-. The CIT(A) upheld the AO's decision. However, the Tribunal found that the assessee had duly submitted the required declarations and PAN details of the transporters, who owned not more than 10 goods carriages. As such, the Tribunal held that the addition made by the AO and confirmed by the CIT(A) was bad and liable to be deleted.

3. Levying of Interest and Initiation of Penalties under Sections 201(1A), 271C, and 272A(2)(j):

The AO levied interest under section 201(1A) and initiated penalties under sections 271C and 272A(2)(j) for non-deduction of TDS on bill discounting charges and freight charges. The Tribunal's findings that no TDS was required under sections 194H and 194C respectively, rendered the basis for these penalties invalid. Therefore, the actions of the AO in levying interest and initiating penalties were also deemed bad and liable to be deleted.

Conclusion:

The Tribunal allowed the appeals of the assessee, deleting the additions and interest levied by the AO and confirmed by the CIT(A) on account of non-deduction of TDS under sections 194H and 194C, and quashed the initiation of penalties under sections 271C and 272A(2)(j). The order was pronounced in the open court on 17/11/2023.

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