Court : IN THE ITAT DELHI BENCH ‘F’
Brief : : Section 194A of the Income-tax Act, 1961 - Deduction of tax at source - Interest other than interest on securities - Assessment years 2000-01 and 2001-02 - Whether where assessee had borrowed money from financiers for making payment to its suppliers and had paid ‘financial charges’ to financiers and debited same under head ‘Discounting charges’, said discounting charges were in nature of interest which were liable for tax deduction at source under section 194A - Held, yes
The assessee-company had borrowed money from financiers for making payment to its suppliers. He had paid financial charges to the financiers and debited same under the head ‘Discounting charges’. The Assessing Officer held that said payments were in nature of interest, which attracted the provisions of section 194A and, accordingly, levied interest under section 201(1)/201(1A) and also imposed penalty under section 271C.
On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On second appeal, the assessee contended, that it bona fide believed that it was paying discounting charges for discounting of the bills of suppliers and since section 194A requires deduction of tax at source only on the payment of interest, it did not deduct tax at source on payment of discounting charges.
Citation : Kanha Vanaspati Ltd.
Additional Commissioner of Income-tax, Range-50, New Delhi
In the case of finance charges, a person simply pays the interest for the period on agreed rate on the amount borrowed by him but in the case of bill discounting, the procedure is different. In the instant case, the lower authorities had given a categorical finding that the assessee had raised funds from financiers as and when required for making payments to suppliers and paid interest on such short-term loans. The assessee would have paid bill discounting charges, if the purchasers of goods had issued post dated cheques (bills of exchange) to the assessee and the same were exchanged for cash on discount by the assessee from financiers. But this was not the case here. Therefore, the story of bill discounting charges had been advocated to confuse the whole issue. A simple short-term loan arrangement with financiers had been presented as bill discounting arrangement. Even the bill discounting charges are also in nature of interest falling in the definition of interest under section 2(28A). Therefore, the transactions with the financiers were of simple loan arrangement and remained uncontroverted by the assessee. The director of the assessee-company during the course of survey, had also admitted that so called bill discounting charges were in nature of interest. Under section 58 of the Indian Evidence Act, 1872, admitted facts need not be proved. [Para 15]
The assessee had not brought on record any material to prove that it was under a bona fide belief that on payment of interest, tax at source was not deductible. The assessee was assisted by professionals on tax matters. The assessee had been deducting tax at source in respect of other payments. The contention of the assessee that it relied upon opinion of statutory auditors was devoid of any merits. Moreover, the ignorance of the law is of no excuse. Also the words ‘reasonable cause’ would not take in its sweep an error or misconception of law. Therefore, the contention of the assessee, that there was a confusion about the nature of so-called bill discounting charges, could not be treated as reasonable cause that the assessee was under a bona fide belief that tax at source was not deductible. This could not be a reasonable cause also for non-deduction of tax at source. [Para 17]
The provisions of section 271C do not have any requirement of mens rea to be proved before levy of penalty under this section. [Para 20]
Thus, the only requirement before levy of penalty under section 271C is to see whether there exists a reasonable cause as required under section 273B. In the instant case, the assessee had not shown that non-deduction of tax was due to a reasonable cause. It was a case of deliberately camouflaging of interest by discounting charges. In view of the above discussion, it was to be held that the financial charges paid to the financier and debited under head ‘Discounting charges’ were in nature of interest which were liable for tax deduction at source under section 194A and since the assessee failed in doing so, the lower authorities were justified in confirming penalties under section 271C. [Para 21]