ACIT, CHANDIGARH V. SH. RAKESH KUMAR, CHANDIGARH

ITA 627/CHANDI/2015

AI Insights

The case involves an appeal by the revenue against the decision of the CIT(A) which had deleted certain disallowances made by the Assessing Officer (AO) under sections 40(a)(ia) and 36(1)(iii) of the Income Tax Act. The AO had disallowed interest expenditures and certain payments made by the assessee, Sh. Rakesh Kumar, on grounds of non-deduction of tax at source. The CIT(A) reversed these disallowances, leading to the revenue's appeal. The Tribunal examined whether the assessee was required to deduct tax at source on payments and whether the loans taken were for business purposes, ultimately siding with the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 295045 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Other Referred Cases: Abhishek Industries Ltd. vs. Hero Cycles Pvt. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANJIT KAUR LD.
• Assessee Lawyers: AJAY JAIN LD
• Keywords: Business income; TDS; FORM 26AS
• Section: 194A; 194C

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHANDIGARH BEFORE HON’BLE SHRI RAJPAL YADAV, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./ ITA No.627/CHANDI/2015 (िनधाŊरणवषŊ / Assessment Year: 2009-10) ACIT-Range 5 Chandigarh. बनाम/ Vs. Sh. Rakesh Kumar # 38, Sector 27-A, Chandigarh. ̾थायीलेखासं./जीआइआरसं./PAN/GIR No. AGOPK-7454-J (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) & CO. No. 19/CHANDI/2015 (In ITA No.627/Chandi/2015) (िनधाŊरणवषŊ / Assessment Year: 2009-10) Sh. Rakesh Kumar # 38, Sector 27-A, Chandigarh. बनाम/ Vs. ACIT-Range 5 Chandigarh. ̾थायीलेखासं./जीआइआरसं./PAN/GIR No. AGOPK-7454-J (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) Assessee By : Sh. Ajay Jain (CA) – Ld. AR Revenue By : Dr. Ranjit Kaur (Addl. CIT) – Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 03-04-2025 घोषणाकीतारीख /Date of Pronouncement : 21-04-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year (AY) 2009-10 arises out of an order of learned Commissioner of Income Tax (Appeals)-2, Chandigarh [CIT(A)] dated 26-03-2015 in the matter of an 2 assessment framed by Ld. Assessing Officer [AO] u/s.143(3)of the Act on 23-12-2011. The assessee has filed cross-objection challenging the disallowances as sustained in the impugned order. Having heard rival submissions and upon perusal of case records, the appeal as well as cross-objection is disposed-off as under. The assessee is stated to have carried out earth work during the year. The issues that form part of subject matter of dispute before us are adjudicated as under. 2. Assessment Proceedings 2.1 The assessee paid interest on loan for Rs.41.28 Lacs without deducting tax at source and accordingly, Ld. AO disallowed the interest expenditure u/s 40(a)(ia). 2.2 The assessee obtained housing loans and claimed interest expenditure. The Ld. AO noted that the loan was granted not only to the assessee but to other family members also. Therefore, interest of Rs.16.87 Lacs was disallowed u/s 36(1)(iii). 2.3 It was also observed that the assessee made advances for non- business purposes. Since the assessee was unable to establish nexus of advances / investments with business activity, Ld. AO estimated interest disallowance of 10% against the same which worked out to be Rs.44.82 Lacs. 2.4 The above three items aggregated to Rs.103.88 Lacs. Since the assessee claimed interest expenditure only for Rs.54.12 Lacs, the aggregate disallowance was restricted to that extent only. 3 2.5 The Ld. Assessee incurred earth work expenses and transport charges without deduction of tax at source. The Ld. AO accordingly disallowed amount of Rs.165.89 Lacs u/s 40(a)(ia). 2.6 In form 26AS, the assessee had receipts Rs.13.14 Lacs. Since the same was not shown by the assessee, Ld. AO added the same to the income of the assessee but allowed TDS credit against the same. Appellate Proceedings 3.1 The Ld. CIT(A) noted that the assessee was owner of 8 trucks in financial year 2007-08 and it declared income u/s 44AE. Therefore, it was not liable for Tax Audit in immediately preceding AY 2008-09. This being the case, the provisions of Sec.194A(1) and 194C(2) would apply which provide that the assessee was not mandated to deducted TDS on interest payments (194A) and contractual payments (194C) in this year. Accordingly, the disallowance as made by Ld. AO was deleted. 3.2 On interest disallowance of Rs.16.87 Lacs, it was observed that the loan was taken by pledging two properties as belonging to the assessee. The name of wife and sons was included as co-applicant for the sake of eligibility of loans. The loans were utilized for business purposes. However, Ld. CIT(A) rejected the same and confirmed this interest disallowance. 3.3 On interest disallowance of Rs.44.82 Lacs, Ld. AO was directed to disallow interest on pro-rata basis. It was observed that while computing disallowance, Ld.AO should have reduced the interest disallowance of Rs.16.87 Lacs. 4 3.4 On the issue of receipts in Form 26AS, Ld. AO was directed to re- verify the claim of the assessee since it was contended that the same were refunded / reflected twice. 3.5 Aggrieved, the revenue is in further appeal before us whereas the assessee has preferred cross-objections against the same. Our findings and Adjudication 4. From assessee’s computation of income for AY 2008-09 as placed on record, it could be seen that the assessee has declared income from trucks u/s 44AE of the Act. If transportation charges are reduced from business receipts, the other turnover would be Nil and there would no liability on the assessee to carry out tax audit u/s 44AB. This being the case, the assessee is not liable to deduct tax at source u/s 194C or u/s 194A in this year as correctly held by Ld. CIT(A) considering the provisions of Sec.194A(1) and 194C(2). Therefore, no fault could be found in the impugned order to that extent. The corresponding grounds as raised by the revenue stand dismissed. 5. Proceeding further, the statement of M/s Reliance Capital Limited has been placed on record. Upon perusal of the same, it could be seen that the assessee has taken loan against property situated at SCO 351, Sector-9, Panchkula which is reflected in financial statements of the assessee. The loan has bene utilized for earning income from business. The Ld. AO has not rendered any concrete finding to establish that loan was diverted for non-business purpose. It is also seen that the assessee has sufficient own capital of Rs.170.73 Lacs to fund the loans and advances of Rs.161.49 Lacs. Therefore, 5 presumption would arise in assessee’s favor that the loans were advanced out of own funds only. In the light of these facts, in our opinion, no interest disallowance is warranted in the case of the assessee. Therefore, we direct Ld. AO not to make any interest disallowance. The case law of Abhishek Industries Ltd. (286 ITR 1) as quoted be revenue in its grounds of appeal has been considered by Hon’ble Apex Court in the case of Hero Cycles Pvt. Ltd. (379 ITR 347). This decision has taken a view favoring the assessee. Accordingly, the corresponding grounds of revenue’s appeal stand dismissed. The grounds raised in the assessee’s cross-objections stand allowed. 6. ITA No.627/Chandi/2015 stand dismissed. CO No.19/Chandi/2015 stand allowed. Order pronounced on 21-04-2025. Sd/- Sd/- (RAJPAL YADAV) (MANOJ KUMAR AGGARWAL) VICE PRESIDENT लेखासद˟ /ACCOUNTANT MEMBER Dated: 21-04-2025. आदेश की Ůितिलिप अŤेिषत /Copy of the Order forwarded to : 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकरआयुƅ/CIT 4. िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF ASSISTANT REGISTRAR ITAT CHANDIGARH "