C.M. GARG, JUDICIAL MEMBER 
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER

Tej Mohan Singh for the Appellant. 
S.K. Mittal, DR for the Respondent.

ORDER

Ms. Annapurna Gupta, Accountant Member - This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-I, Chandigarh, dated 14.12.2015 relating to assessment year 2009-10.

2. Ground No. 1 raised by the assessee read as under:

The above additions have been made just for addition sake without appreciating the legal position and facts of the case.

3. At the outset it may be stated that ground raised with respect to the addition made on account of renovation expenses amounting to Rs.4,50,000/- in ground No.1(c) was not pressed before us and the same is therefore treated as dismissed.

4. As for the rest of the additions made, taken up in ground No. 1(a) and 1(b), the facts relating to the same are as follows:

5. On the issue of disallowance made on account of non-deduction of tax u/s section 194A of the Act on interest paid to Mahindra and Mahindra Financial Services Ltd, the facts are that the assessee had shown expenses on account of interest and bank charges amounting to Rs.62,09,286/- in its Profit and Loss Account. Out of this an amount of Rs.13,17,961/- was credited to Mahindra and Mahindra Financial Services Ltd (hereinafter referred to as MMFSL). On being asked to explain why tax had not been deducted on the payments made to MMFSL the assessee made the following submissions during assessment proceedings:

"At the month-end to meet the sales target since 1997, the vehicles are billed by the Mahindra and Mahindra Ltd. While exceeding our credits with Mahindra and Mahindra Ltd. Excessive billing is on account of Mahindra and Mahindra Financial Services which is the group company and we pay them the holding cost of vehicles till they are sold to the customer and payment is made to Mahindra and Mahindra Financial Services Ltd. No TDS is deducted and the same has been assessed by authorities during assessment years 2004-05 and 2006-07".

6. The AO rejected the submissions of the assessee and held that the provisions of section 194A of the Act were applicable to the payments which was nothing but interest paid to non-banking financial company on which the assessee was required to deduct tax at the time of crediting such payments. Accordingly the expenditure of Rs.13,17,961/-was disallowed u/s 40 (a) (ia) of the Act and added back the income of the assessee.

7. During appellate proceedings, the CIT (Appeals) after considering the assessee submissions held that the so-called "holding charges" were nothing but in the nature of interest, as defined under section 2(28A) of the Income tax Act, 1961, since they were paid as financial charges to M/S MMFSL, a group company of M/s Mahindra and Mahindra Ltd and these payments had been shown in the profit and loss account under the head financial charges and subhead Interest and Bank charges. The ld. CIT (appeal) held that as per the provisions of section 2(28A) the payment towards any services or other charges in respect of the monies borrowed or debt incurred or in respect of any credit facility, is clearly defined as interest payable and since the payments have been made to MMFSL, a non-banking financial company, tax was required to be deducted u/s 194A of the Act. The ld. CIT (Appeals) therefore upheld the disallowance made by the AO u/s 40(a)(ia) on account of the interest expenditure amounting to Rs.13,17,961/- on which the assessee had failed to deduct tax at source.

8. During the course of hearing before us ld. Counsel for the assessee relied upon the submissions made before the ld. CIT (Appeals) and the AO as reproduced above, and stated that the payment made was only on account of the holding cost of vehicles till they were sold to the customers and payment was made to Mahindra and Mahindra Financial Services Ltd. Ld. Counsel argued that the same was not in the nature of interest and therefore no TDS was deductible on the same as per the provisions of section 194A of the Act.

9. Ld. DR on the other hand relied on the order of the CIT (Appeals) and stated that that the payment made clearly qualified as interest as per the definition of the same provided in section 2 (28A) of the Act and was liable to tax deduction at source under section 194A of the Act. Ld. DR therefore stated that the Ld. CIT(Appeals) had correctly upheld the disallowance made by the AO on account of non-deduction of tax at source on the same.

10. We have heard the contentions of both the parties. The facts which emerge in the present case are that the assessee is a dealer of Mahindra vehicles and as per the mode of its operations which was explained to the authorities below and even before us and which has remained uncontroverted and unrebutted is that M/s Mahindra and Mahindra Ltd billed vehicles to the assessee at the month-end to meet their sales target. The payment on account of the vehicles billed was made by Mahindra and Mahindra Financial Services, which is the group company of Mahindra and Mahindra Ltd. and till the vehicles were actually sold by the assessee and money collected from the buyers of the vehicles and repaid to Mahindra and Mahindra Financial Services Ltd, the servicing charges were collected by Mahindra and Mahindra Financial Services Ltd from the assessee. During impugned year these charges amounted to Rs.13,17,961/-. While the claim of the assessee is that they are not in the nature of interest so as to qualify for deduction of tax at source under section 194A, the Revenue has claimed that as per the definition of interest provided under the Act u/s 2 (28A), the amount qualifies as interest and was thus liable for deduction of tax at source, which having not been deducted, the entire expense was disallowable u/s 40(a)(ia) of the Act.

11. We are in agreement with the ld. DR that the amount paid was in the nature of a service fee or other charge in respect of the monies borrowed or debt incurred in respect of any credit facility, as per the ld. Counsel of the assessees own submission. The ld. Counsel himself has stated that for the intervening period, when the amount was advanced by MMFSL to Mahindra and Mahindra Ltd. on behalf of the assessee and the amount was actually paid by the assessee to MMFSL on sale of the vehicles, the said charges were recovered by MMFSL from the assessee. Clearly these charges were recovered for the credit facility which was given by MMFSL to the assessee by way of making payment on account of the vehicles billed to the assessee by Mahindra and Mahindra Ltd on behalf of the assessee till the assessee sold the vehicles, collected the amounts due on them and paid them to MMFSL. The ld. Counsel for the assessee has not been able to demonstrate before us to how the same was not a fee or charge in respect of credit facility availed by it from MMFSL. In view of the same the amount paid to MMFSL, we hold, was in nature of interest as defined under section 2 (28A) of the Act, which clearly states that interest includes any service, fee or other charge in respect of monies borrowed or debt incurred or in respect of any credit facility which has not been utilised. The assessee having not deducted tax at source on the same has contravened the provisions of section 194A of the Act and therefore the expenditure did not qualify for deduction as per the provisions of section 40(a)(ia) of the Act. We have therefore no hesitation in upholding the order of the ld. CIT (Appeals) and confirming the disallowance made of interest expenditure amounting to Rs.13,17,961/- on which no tax was deducted at source under section 194A of the Act.

12. Ground No. 1(a) raised by the assessee is therefore dismissed.

13. In ground No.1(b) the assessee has contested the disallowance of advertisement and publicity expenses under section 40(a)(ia) on account of non-deduction of tax at source on the same .

14. Brief facts relating to the same are that it was found during assessment proceedings that the assessee had made payments to three parties amounting to Rs.1,14,958/- under the head advertisement and publicity expenses. The assessee submitted that the work executed by the parties at one time was less than Rs.20,000/- and the payments also made to them at one time were less than Rs. 20,000/-. The AO held that the payment credited at one time into the account of the above parties exceeded Rs. 20,000/- therefore the assessee was liable to deduct tax at source at the time of payment of these amounts. Accordingly the entire expenditure of Rs. 1,14,958/- was disallowed under section 40(a)(ia) of the Act.

15. During appellate proceedings the assessee submitted that it had made payment to M/s Almats Branding Solutions Pvt. Ltd. for purchase of XYLO kits which was wrongly booked under the head advertisement and publicity expenses. ld. CIT (Appeals), on examination of the said invoice found that the bill was dated 08/01/2009, while the payment was made to M/s Almats Branding Solutions Pvt. Ltd on 18.02.2009. He also found that the amount of the XYLO kits was different, i.e Rs.54,808/-. He therefore held that the assessee had failed to substantiate its new claim without proper evidence and therefore confirmed the addition of Rs.47,808/-. For the balance disallowance made the assessee submitted that the payment made to one M/s Sample Enterprise of Rs.44,270/- and to M/s Ad Vintage Communication of Rs.22,880/- ,was below Rs.50,000/- during the year and was not hit by the provisions of section 194C of the Act. ld. CIT (Appeals) held that the payment credited at one time in the account of the above parties exceeded Rs. 20,000 and therefore the aggregate amount of Rs. 50,000/- during the year had not to be considered. He therefore upheld the disallowance made on account of both the payments of Rs.44,270/- and Rs.22,880/-. Thus in effect the entire disallowance made by the AO was upheld by the ld. CIT (Appeals).

16. Before us ld. Counsel for the assessee reiterated the submissions made before the CIT(Appeals), while the ld. DR relied upon the order of the CIT (Appeals).

17. We have heard the contentions of both the parties. The facts emerging in the present case are that expenses on account of advertisement and publicity, incurred during by the incurred by the assessee during the year amounted to Rs.14,958/- for which payments were made to the following parties:

18. As for the payment made to M/s Almats Branding Solutions Pvt. Ltd., the ld. Counsel for the assessee has stated that it was not in the nature of advertisement and publicity expenses but was towards purchase of XYLO kits for the vehicles being sold by it. The Revenue we find has not controverted this fact. The case of the Revenue is that the amount of XYLO kits, as mentioned in the bill at Rs.54,808/-, does not tally with the actual payment made by the assessee of Rs.47,808/- and also that the bill is dated 08/01/2009 while the payment has been made on 18-02-09. Thus the assessee has failed to substantiate its claim.

19. We find no merit in the above contention of the Revenue. The fact that the payment was made on account of purchase of XYLO kits is not disputed. Merely because the bill date and date of making payment is different or for the reason that the figure mentioned in the bill and the amount of actual payment made do not tally the contention of the assessee cannot be rejected. Nor can it be said that the assessee has failed to substantiate its claim. There is nothing untoward or unusual in making payments after the bills are raised or for that matter payments made not tallying actually with the amount raised in the bills. The fact remains that the assessee had made payments on account of purchase of XYLO kits, which has remained unrebutted before us. On account of this fact we find merit in the contention of the ld. Counsel for the assessee that the payment made did not qualify as advertisement and publicity expenses and therefore there was no need to deduct tax at source on the same .In view of the same the disallowance made under section 40 (a) (ia) on account of payment made to M/s Almats Branding Solutions Pvt. Ltd. amounting to Rs. 47,808/- is therefore deleted.

20. As for the payments made to M/s Sample enterprises is of Rs.44,270 and M/s Ad Vintage Communication of Rs.22,880/-, it is not disputed that the payment credited at one time into the account of the above parties exceeded Rs.20,000/-. The assessee was therefore clearly liable for deduction of tax at source under section 194C of the Act. The claim of the ld. Counsel for the assessee that in the aggregate, the payment did not exceed Rs.50,000/-and thus it was not liable to deduct tax at source on the payments made, we find is of no assistance to the assessee, since the same applies only when the individual payments made do not exceed Rs.20,000/- at a time but exceed Rs.50,000/- in aggregate during the year. In the present case since there is a finding of fact by the AO that single payments exceeded Rs. 20,000/- which has not been controverted by the ld. Counsel for the assessee, the assessee is clearly hit by the provisions of section 194C of the Act and was therefore required to deduct tax at source on the impugned payments which having failed to do so, the expenses incurred on account of the same are liable to be disallowed under section 40(a)(ia) of the Act. In view of the same we uphold the order of the ld.CIT(Appeals) confirming the disallowance made.

21. In view of the above, ground No. 1 (b) raised by the assessee is partly allowed

21.1 In effect the appeal of the assessee stands partly allowed.