Factoring charges cannot be termed as interest u/s 2(28A) of Income Tax Act

Siva Industries and Holdings Ltd. Vs DCIT (ITAT Chennai)

ITAT Chennai held that factoring charges could not be termed as Interest under section 2(28A) of Income Tax Act, 1961. Accordingly, disallowance of the same u/s 40(a)(ia) unsustainable.

Facts-

The assessee claimed factoring charges of Rs.782.68 Lacs in the Profit & Loss Account. It transpired that the assessee took unsecured loan from its holding company M/s Siva Ventures Ltd. (SVL) and advanced the same to its subsidiary company M/s Vantage Reality Pvt. Ltd. (VRPL). The assessee also obtained loan of Rs.100 Crores from M/s Easy Access financial Services Ltd. (EAFSL) and paid factoring charges of Rs.782.68 Lacs by pledging receivables from M/s VRPL. The Ld. AO held that factoring charges was nothing but interest and therefore, the deduction of which would not be allowed to the assessee in terms of Sec.40(a)(ia), inter-alia, for want of deduction of tax at source. The Ld. CIT(A) confirmed the stand of Ld. AO against which the assessee is in further appeal before us.

Conclusion-

Please become a Premium member. If you are already a Premium member, login here to access the full content.