2016 (11) TMI 1512

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....ut appreciating the judgment of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) which is deemed to be available to A. O. and the Ld. CIT(A) when the respective order were authored. The addition made by the A.O. and confirmed by Ld. CIT(A) is without jurisdiction. The addition be deleted. 3. Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of stockist/distributor of Nirma Products. It filed its return of income on 10-08-2009 declaring total income of Rs. 3,85,770/-. The original assessment order was passed u/s.143(3) on 16-08-2011 assessing the total income at Rs. 4,25,770/-. Subsequently, the Ld.CIT passed order u/s.263 on 20-03-2014 setting aside the order originally passed u/s.143(3) for the following reasons which has been reproduced by the CIT(A) at Page 2 of his order and which reads as under : "1. It was noticed that the assessee had paid/credited interest of Rs. 6,66,189/- to Nirma Private Limited, Ahmadabad without deduction of tax at source. Since, in terms of section 194A tax is required to be deducted at source on interest payable at the time of credit of ....

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.... year under consideration the said company had given credit notes amounting to Rs. 12,27,402/- for different reasons like in 71 schemes, rate difference and different schemes introduced which were duly recorded in the books of accounts by the assessee in Interest account. Similarly, the said company had also issued debit notes amounting to Rs. 6,66,190/- for non-fulfillment of their target and for late payment of purchase/sale consideration which has also been recorded in the books of accounts in the Interest account. It was accordingly stated that the impugned payments had a direct link and immediate nexus with the trading liability and hence it does not fall within the category of "Interest" as defined in section 2(28A) of the Act for the purpose of deduction of tax at source as prescribed u/s.194A of the Act. Hence it was stated that the assessee cannot be held to be in default for the non-deduction of tax at source u/s.194A of the Act. As the provisions of section 40(a)(ia) of the Act is not applicable on the facts of the case. It was accordingly argued that the addition is unjustified since the assessee had not made any payment to the said company and the said debits were made....

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.... service fees or other charges in respect of such loans, debts, deposits, etc., as also fees in the nature of commitment charges on unutilised portion of credit facilities. This definition will be applicable for all purposes of the Income-tax Act." 11. It is clear from the above that before any amount paid is construed as interest, it has to be established that the same is payable in respect of arty money borrowed or debt incurred. The scheme of the Act and the express provisions thereof establish that the interest payable is for the deprivation of the use of the money representing the compensation for the debt owed to a person. Interest constitutes that part of the compensation which is attributable to the fact that the claimant has been kept out of his due for a long period of time. The liability to pay interest arises because the claimant is kept out of his money. A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation. In the expression "debt owed", the verb "owe" means "to be under an obligation to pay". Interest is a payment which becomes due because the creditor has not had his money at the due date. This statutory de....

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....he disallowance of the impugned amount is sustained. However, the assessing officer is directed to reduce the amount by Rs. 3,500/-, which is not in the nature of interest as mentioned supra." 7. Aggrieved with such order of the CIT(A) the assessee is in appeal before the Tribunal. 8. The Ld. Counsel for the assessee submitted that the assessee has not paid any interest and it is on account of certain debit notes issued by Nirma Private Limited. Referring to the decision of the Pune Bench of the Tribunal in the case of Shri Radhesham Bherulal Bhandari Vs. Addl.CIT and vice versa vide ITA No.954/PN/2011 and batch of other appeals order dated 29-02-2016 for A.Yrs. 2007-08 & 2008-09 he submitted that the Tribunal in the said decision has held that as per the amendment made by the Finance Act, 2012 w.e.f. 01-04-2013 the assessee should not be treated as assessee in default when the payee has otherwise discharged its obligation towards tax liability on the corresponding income as per the provision of the Act. Referring to the decision of the Pune SMC Bench of the Tribunal in the case of Phaltan Securities Pvt. Ltd. Vs. ITO vide ITA Nos. 1225 and 1226/PN/2016 for A.Yrs 2006-07 & 2007-0....