Giraben Atulbhai Shah, Ahmedabad vs. DCIT - (Income Tax Appellate Tribunal) (27 Sep 2023)

Delay payment charge and interest expenses incurred by the assessee on payment to broker should be treated as a part and parcel of purchases of shares

MANU/IB/0461/2023

Direct Taxation

The only issue raised by the assessee is that the Learned CIT(A), erred in confirming the disallowance made by the AO for Rs. 22,95,051 on account of non- deduction of TDS under Section 194A read with Section 40(a)(ia) of the Income Tax Act, 1961 (IT Act). The controversy in the present case arises whether the delayed payment charges and interest expenses incurred by the assessee are part of purchases or it is an interest subject to the provision of TDS under Section 194A of the Act.

The provisions of Section 2(28A) of the Act defines the term 'interest' to mean interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Admittedly, there is no money borrowed on which the assessee has incurred the interest expenses and this fact has not been disputed by the authorities below. In the present case, the delay payment charge and interest expense have been paid in relation to the purchases from the broker, namely JM Financial Services Limited. Undeniably, the assessee has purchased shares from the platform of the stock exchange where the buyers and sellers are not known to each other and the transactions between them are settled through the broker.

The broker is acting as a middleman authorized by the stock exchange in settling the transaction of purchase and sales between the respective parties and out of such transaction, the broker earns commission. It is also undisputed that the assessee cannot carry out transactions on the platform of the stock exchange without the involvement of the broker. Thus, the delay payment charge and interest expenses incurred by the assessee on the payment to the broker should be treated as a part and parcel of purchases of shares. It is because the broker is one of the integral parties in executing the transaction between buyer and the seller at the platform of stock exchange.

The assessee has not borrowed any money from any party where the interest cost has been incurred. Therefore, the interest and delay payment charges in dispute cannot be made subject to the provision of TDS under the provision of Section 194A of the Act. Accordingly, the question of making disallowance of the expenses on account of non-deduction of TDS under the provision of section 40(a)(ia) of the Act does not arise.

It is also important to note that the assessee before the AO has contended that, he has already made disallowance of the expenses incurred without deducting the TDS in the computation of income. There is no dispute to the fact that the contention of the assessee was not correct. However, it does not mean that the assessee on submitting wrong details should be made to suffer on account of the disallowance which are not warranted under the provision of law. Accordingly, the findings of the Learned CIT(A) is set aside and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

Tags : ASSESSMENT   ADDITION   LEGALITY  

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