Emmadi Umarani, Nalgonda, Hyderabad V. ITO, Ward-1, Suryapet, Hyderabad

ITA 102/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2460 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 01-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Keywords: Retrospective amendment
• Section: 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B BENCH: HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA. NO.102/HYD/2016 ASSESSMENT YEAR:2012 - 2013 SMT. EMMADI UMARANI, H.NO.8 - 45/1, MARKET ROAD, TONDA, THIRUMALAGIRI, NALGONDA DISTRICT. PAN: AAHPE 0089 Q VS. INCOME TAX OFFICER, WARD - 1, SURYAPET. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI RAMA RAO FOR REVENUE : SMT. N. SWAPNA, DR DATE OF HEARING : 24.01.2018 DATE OF PRONOUNCEMENT : 28 .0 2 .2018 ORDER PER D. MANMOHAN , VP. THIS APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A) - 3, HYDERABAD AND IT PERTAINS TO THE ASSESSMENT YEAR 2012 - 2013. FOLLOWING GROUNDS WERE URGED BEFORE US: 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. 2. THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE PROVISIONS OF SECTION 40(A)(IA ) HAVE NO APPLICATION AS THE RECIPIENT OF THE INTEREST I.E., SANTOSHI RICE INDUSTRIES ADMITTED THE SAID INCOME IN ITS RETURN OF INCOME. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE APPELLANT BEING A PARTNER OF SANTOSHI RICE INDUSTRIES PAID AN INTEREST OF RS. 33,76,282/ - AND RECEIVED AN INTEREST OF RS. 17,72,196/ - . THE NET PAYMENT OF INTEREST WAS ONLY RS. 16,04,086/ - . IN THE ALTERNATE IF IT IS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLA NT, THE LD. CIT(A) OUGHT NOT TO HAVE CONFIRMED THE ADDITION OF RS. 33,76,282/ - . 3. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 2,88,248/ - BEING THE INTEREST PAID TO NINE DIFFERENT PERSONS ON THE LOANS BORROWED FROM THEM. THE LD. CIT(A) OUGHT TO HAVE SEEN THAT THE APPELLANT WAS SERVED WITH FORM NO. 15G BY THE SAID PERSONS AND THE LOANS RECEIVED FROM THEM WERE TREATED AS GENUINE AND, THEREFORE, DIRECTED TO ALLOW SUCH INTEREST AS DEDUCTION. 2 2. THE ASSESSEE IS A PROPRIETRIX OF M/S. SANTHOSHIMATHA FOOD PRODUCTS AND SHE WAS ALSO A PARTNER IN A FIRM RUN IN THE NAME AND STYLE OF M/S. SANTHOSHI RICE INDUSTRIES. THE PROPRIETARY CONCERN SOLD PADDY AND RICE BRAN TO THE FIRM. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE DECLARED NET INCOME OF RS. 9,22, 609/ - . THE CASE HAVING BEEN SELECTED FOR SCRUTINY, THE A.O. CALLED FOR THE RECORD AND VERIFIED THE BOOKS OF ACCOUNT ETC., WHEREIN IT WAS NOTICED THAT AN AMOUNT OF RS. 33,76,282/ - WAS PAID BY THE ASSESSEE TOWARDS INTEREST TO M/S. SANTOSHI RICE INDUSTRIES, A PARTNERSHIP FIRM IN WHICH THE ASSESSEE IS A PARTNER; IN FACT AS PER SCHEDULE - III TO BALANCE SHEET, THE INTEREST AMOUNT IS SHOWN AS PAYABLE AS ON 31.03.2012 WHICH ATTRACTS THE PROVISIONS OF SECTION 194A OF THE ACT BUT THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE THEREBY ATTRACTING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ACCORDING TO THE ASSESSING OFFICER FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 194A RENDERS THE EXPENDITURE OF INTEREST DIS ALLOWABLE. 3. THE CASE OF THE ASSESSEE WAS THAT ANY PAYMENT MADE BY A PARTNER TO THE PARTNERSHIP FIRM WOULD FALL OUTSIDE THE AMBIT OF SECTION 194A BUT THE ASSESSING OFFICER OBSERVED THAT THE EXEMPTION ALLOWABLE U/S 194 A (3)(III)(IV) IS NOT APPLICABLE SINCE THE PAYMENT IS NOT MADE IN THE CAPACITY OF PARTNER BUT AS A PROPRIETOR OF A BUSINESS CONCERN I.E., M/S. SANTOSHI MATHA FOOD PRODUCTS AND EVEN OTHERWISE, EXEMPTION IS AVAILABLE WHEN THE FIRM PAYS INTEREST TO THE PARTNER BUT NOT VICE VERSA . 4. A.O. ALSO NOTICED THAT THE ASSESSEE CLAIMED TO HAVE PAID INTER EST TO 9 DIFFERENT PARTIES , ON THE LOANS BORROWED FROM THEM. THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE , AS REQUIRED U/S 194A, ON THE GROUND THAT THE LOAN CREDITORS HAVE SUBMITTED FORM NO.15G REQUESTING NOT TO DEDUCT TAX AT SOURCE. HOWEVER, THE A.O. WAS O F THE OPINION THAT THE LOANS ARE NOT GENUINE. HE OBSERVED THAT THE AMOUNTS INVOLVED AND THE SIMILARITIES IN THE NAMES OF THE CREDITORS CREATES A DOUBT WITH REGARD TO THE GENUINENESS AND THEREFORE, LETTERS WERE ISSUED TO THE LOAN CREDITORS CALLING UPON THE M TO CONFIRM TRANSACTIONS. FOLLOWING WERE THE CREDITORS TO WHOM INTEREST WAS ALLEGED TO HAVE BEEN PAID. 1. ARAKALA RAMULU RS. 12,011.88 2. BHANOTHU BHOJYA RS. 36,035.52 3. BANOTHU RAMU RS. 30,029.64 4. BHANOTHU RAVI RS. 30,029.64 3 5. BHANOTHU SREENU RS. 36,035.52 6. BANOTHU NARASIMHA RS. 36,035.52 7. GUGULOTHU SRINU RS. 36,035.52 8. MD. BHASHUMIYA RS. 36,035.52 9. NAKIRE VENKANNA RS. 36,035.52 4.1. ALL THESE LOAN CREDITORS FILED STEREOTYPED CONFIRMATION LETTERS STATING THAT THEY ARE ALL AGRICULTURISTS AND THEY HAVE ADVANCED MONEY TO THE ASSESSEE ON 29.03.2010 THROUGH BANK CHEQUES AND DEMAND DRAFTS. WHEN THESE LOAN CREDITORS WERE ASKED TO FURNISH THE DETAILS OF THEIR BANK ACCOUNT STATEMENTS TO CONFIRM WHETHER THEY HAVE ISSUED CHEQUES / DE MAND DRAFTS, THEY DID NOT RESPOND TO THE LETTERS ISSUED. IT DESERVES TO BE NOTICED THAT THE ASSESSMENT ORDER WAS PASSED ON 16.02.2015 WHEREIN THE A.O. OBSERVED THAT INTERESTINGLY, THESE MONEYS WERE STILL NOT PAID TO THE LOAN CREDITORS. HE WENT ON TO OBSE RVE THAT ALL THESE PERSONS WERE MARGINAL FARMERS HAVING SMALL AGRICULTURAL LAND HOLDINGS AND IT IS UNLIKELY THAT A MARGINAL FARMER WOULD NOT TAKE BACK HIS PRINCIPLE AMOUNT AND INTEREST TILL TODAY. IN THIS BACKDROP, THE ASSESSEE WAS DIRECTED TO FURNISH THE DAY BOOK AND BANK ACCOUNT STATEMENT OF THE RELEVANT PERIOD TO SHOW THAT THE AMOUNTS RECEIVED FROM THE ABOVE PERSONS WERE UTILISED FOR BUSINESS PURPOSE BUT, THE ASSESSEE DID NOT COME FORWARD WITH THE INFORMATION CALLED FOR. THUS THE A.O. DOUBTED THE GENUIN ENESS OF THE CREDITS AS WELL AS THE UTILISATION OF THE SO CALLED CREDIT FOR BUSINESS PURPOSE AND ACCORDINGLY THE CLAIM OF DEDUCTION TOWARDS PAYMENT OF INTEREST WAS REJECTED. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHEREIN IT WAS CONTENDED THAT THE FIRM MAINTAINED SEPARATE ACCOUNTS FOR (A) TRADING OF GOODS / CURRENT ACCOUNT (B) CAPITAL ACCOUNT AND (C) HIRE CHARGES ACCOUNT. THE APPELLANT RECEIVED THE AMOUNTS INITIALLY TOWARDS ADVANCE AND THE PADDY SALES WERE RECORDED ON 30.03.2012 BY WAY OF JV. THEREFORE, INTEREST ON THE ADVANCES WAS PAID BY THE ASSESSEE. UNDER THESE CIRCUMSTANCES, ASSESSEE WAS UNDER THE BONAFIDE IMPRESSION THAT NO TDS NEED TO BE PAID AS IT REPRESENTS INTEREST PAID TO THE PARTNERSHIP FIRM IN WHICH THE APPELLANT IS ONE OF THE PARTNERS. IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAS A CURRENT ACCOUNT AND CAPITAL ACCOUNTS WITH SANTHOSHI RICE INDUSTRIES AND THE FIRM WAS LIABLE TO PAY INTEREST OF RS. 17,72,196/ - . IF THE INTEREST PAYABLE BY THE ASSESSEE STILL DESERVES TO BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE THEN ONLY NET INTEREST SHOULD BE TAKEN 4 INTO CONSIDERATION I.E., INTEREST PAYABLE BY THE ASSESSEE SHOULD HAVE BEEN REDUCED BY THE INTEREST RECEIVABLE (RS. 17,72,186/ - ). 6. IT WAS ALSO SUBMITTED THAT THE DISALLOWANCE OF RS. 2,88,248/ - WAS MADE BY THE AO ON THE GROUND THAT THE LOANS WERE NOT UTILISED FOR THE PURPOSE OF BUSINESS OVERLOOKING THE FACT THAT IN THE BALANCE SHEET TH IS AMOUNT FORMS PART OF THE TOTAL BUSINESS ASSET AN D IT CANNOT BE SAID THAT THE LOANS TAKEN ARE NOT FOR THE PURPOSE OF BUSINESS. 7. LD CIT (A) OBSERVED THAT AS PER THE INFORMATION SUBMITTED BY THE ASSESSEE, THE INTEREST PAYABLE IS SIMPLY CREDITED TO THE ACCOUNT OF SANTOSHI RICE INDUSTRIES AS ON 31.03.20 12 AND IT WAS NOT ACTUALLY PAID IN WHICH EVENT PROVISIONS OF SECTION 40(A)(IA) GET ATTRACTED. THEREFORE, THE DISALLOWANCE MADE BY THE AO WAS CONFIRMED. 8. EVEN OTHERWISE, WHEREVER A PARTY IS MAKING INTEREST PAYMENTS , EITHER BY WAY OF ACTUAL PAYMENTS OR B Y WAY OF CREDIT, TAX HAS TO BE DEDUCTED ON THE ACTUAL SUM PAID / CREDITED AND THE SET - OFF OF INTEREST RECEIVABLE AGAINST INTEREST PAYABLE IS NOT PERMITTED UNDER TDS PROVISIONS. THUS THE DISALLOWANCE OF RS. 33,76,282/ - WAS CONFIRMED BY THE LD CIT (A). 9. SIMILARLY, WITH REGARD TO THE SUBMISSION OF FORM NO.15G , LD CIT(A) OBSERVED THAT MERE FILING OF CONFIRMATIONS FROM LOAN CREDITORS WOULD NOT BE SUFFICIENT . M ERELY BECAUSE LOAN WAS CLAIMED TO HAVE BEEN TAKEN IN THE EARLIER YEAR AND NO DISALLOWANCE IS MADE, IT CANNOT BE CONCLUDED THAT THE LOANS WERE GENUINE SINCE, IN THE YEAR UNDER CONSIDERATION THE ISSUE DEPENDS ON THE FACT AS TO WHETHER THE LOANS ARE GENUINE AND THEY WERE TAKEN FOR THE PURPOSE OF BUSINESS. SINCE THE ASSESSEE FAILED TO PROVE THE FACT THAT T HE LOANS WERE ACTUALLY TAKEN AND IT WAS UTILISED FOR THE PURPOSE OF BUSINESS, DISALLOWANCE MADE BY THE AO WAS CONFIRMED BY THE LD CIT (A). 10. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 11. LD COUNSEL FOR THE ASSESSEE FILED A PAPER BOO K CONSISTING OF 47 PAGES A N D ALSO CASE LAW PAPER BOOK TO SUBMIT THAT THE DISALLOWANCE MADE BY THE A.O IS NOT IN ACCORDANCE WITH LAW. WITH REGARD TO THE APPLICATION OF SECTION 40(A)(IA) OF THE ACT, 5 LEARNED COUNSEL FOR THE ASSESSEE ADVERTED OUR ATTENTION TO SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT, WHICH WAS INSERTED IN THE STATUTE BY THE FINANCE ACT 2012 W.E.F. 01.04.2013, WHICH READS AS UNDER: - PROVIDED THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE P ROVISIONS OF CHAPTER XVII - B ON ANY SUCH SUM BUT IS N OT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB - SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB - CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AN D PAID THE T AX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. 12. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE SAID PROVISO BEING BENEFICIAL IN NATURE, IT IS RETROSPECTIVE IN OPERATION. IN T HE INSTANT CASE, THE FIRM HAVING FILED ITS RETURN OF INCOME, THE ASSESSEE CANNOT BE DEEMED TO BE IN DEFAULT AND SECONDLY , THE PROVISIONS OF SECTION 40(A) CANNOT BE APPLIED. LEARNED COUNSEL FOR THE ASSESSEE ALSO REFERRED TO THE WRITTEN SUBMISSIONS FILED BE FORE THE LD. CIT(A) TO SUBMIT THAT THE ASSESSEE WAS UNDER THE BONAFIDE IMPRESSION THAT NO TDS NEED TO BE MADE AS IT PERTAINS TO INTEREST PAID TO THE FIRM , IN WHICH SHE IS ALSO A PARTNER. IN THE ALTERNATIVE IT WAS SUBMITTED THAT ONLY NET INTEREST I.E., INT EREST PAYABLE AS REDUCED BY INTEREST RECEIVABLE , OUGHT TO HAVE BEEN TAKEN INTO CONSIDERATION. THE MAIN PLEA OF THE ASSESSEE IS THAT THE AMOUNT WAS INITIALLY RECEIVED TOWARDS ADVANCE ON PADDY SALES AND IT WAS RECORDED BY WAY OF JV AND THEREFORE, THE INTERE ST CAME TO BE PAYABLE ON ADVANCES BY THE ASSESSEE. IT WAS A BUSINESS TRANSACTION . PAGE 25 OF THE PAPER BOOK REFERS TO THE INCOME TAX RETURN FILED BY SANTOSHI RICE INDUSTRIES (FIRM) TO INDICATE THAT THE FIRM HAS TAKEN INTO CONSIDERATION INTEREST INCOME IN WHICH EVENT THERE CANNOT BE SEPARATE DISALLOWANCE IN THE HANDS OF THE INDIVIDUAL. IN OTHER WORDS, THE ASSESSEE CANNOT BE TREATED AS A PERSON IN DEFAULT AND AS PER THE RECENTLY INTRODUCED PROVISO, THE A.O. WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF S ECTION 40(A)(IA) OF THE ACT. LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS OF ITAT BANGALORE BENCH: - (A) SHRI G. SHANKAR VS. ACIT (ITA NO.1832/BANG/2013) DATED 10.10.2014 AND (B) SHRI S.M. ANAND VS. ACIT (ITA NO.1831/BANG/2013) DATED 21.02.2014 1 3 . IN THE AFOREMENTIONED DECISIONS, THE TRIBUNAL OBSERVED THAT THE NEWLY INSERTED SECOND PROVISO TO SECTION 40(A)(IA), INSERTED BY THE FINANCE ACT 2013, IS APPLICABLE W.E.F. 01.04.2005. 6 1 4 . ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT HONBLE HIGH COURT OF KERALA , IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPORTS VS. ITO (364 ITR 689) (KERALA) , CATEGORICALLY STATED THAT THE SECOND PROVISO TO SECTION 40(A)(IA), GIVING CONCESSION TO ASSESSEE IN CASE RECIPIEN T HAS ALREADY PAID TAXES, IS APPLICABLE ONLY W.E.F 01.04.2013 AND IT IS NOT RETROSPECTIVE IN OPERATION. THE SAME VIEW WAS REITERATED BY THE HONBLE KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT VS. CIT (235 TAXMAN PAGE 246) WHEREIN THE COURT OBSE RVED THAT THE SECOND PROVISO TO SECTION 40(A)(IA) IS APPLICABLE PROSPECTIVELY. LEARNED DEPARTMENTAL REPRESENTATIVE ALSO REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GEM GRANITES VS. CIT (271 ITR 322) (SC) WHEREIN THE COURT OBSERVED THAT UNLESS RETROSPECTIVE OPERATION IS EXPRESSLY STATED, A SUBSTANTIVE PROVISION CANNOT BE HELD TO BE RETROSPECTIVE IN OPERATION. 1 5 . WITH REGARD TO THE ALTERNATIVE CONTENTION OF SET - OFF OF INTEREST RECEIVABLE, LEARNED DEPARTMENTAL REPRESENTATIVE REFER RED TO PARA 3.3 OF THE CIT (A)S ORDER TO SUBMIT THAT SET - OFF IS NOT PERMITTED UNDER TDS PROVISIONS SINCE TAX HAS TO BE DEDUCTED ON THE ACTUAL SUM PAID / CREDITED. 1 6 . AS REGARDS THE ADDITION OF RS . 2,88,248/ - LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A.O AS WELL AS THE LD. CIT(A) OBSERVED THAT THE LOAN WAS NOT GENUINE IN WHICH EVENT THERE CANNOT BE ANY CLAIM OF DEDUCTION OF INTEREST PAYMENT. IT WAS SUBMITTED THAT THE LOANS WERE TAKEN IN THE EARLIER YEAR AND SINCE THERE IS NO DISALLOWANCE OF LOAN COMPONENT IN THE EARLIER YEAR, THE GENUINENESS OF THE LOAN CANNOT BE DOUBTED IN THIS YEAR. 1 7 . LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT MERELY BECAUSE THE LOAN WAS TAKEN IN TH E EARLIER YEAR, THE ASSESSEE CANNOT TAKE BENEFIT TO CLAIM THAT THE INTEREST PAYMENT IS GENUINE. THE ISSUE AS TO WHETHER THE AMOUNT RECEIVED AS LOAN IS GENUINE OR NOT CAN BE SUBJECT MATTER OF DISALLOWANCE U/S 68 / 69 OF THE ACT AND THE SAME CAN BE CONSIDERED IN THE YEAR OF TAKING LOAN; B UT WHEN THE INTEREST IS CLAIMED TO HAVE BEEN PAID IN THIS YEAR, ONUS IS ON THE ASSESSEE TO PROVE THE SAME AND IN THAT CONTEXT THE A.O. CATEGORICALLY OBSERVED THAT THE CREDIT O R S ARE NON - EXISTENT AND NO EVIDENCE WHATSOEVER WAS FILED TO CONTRADICT THE FINDINGS OF THE TAX AUTHORITIES EVEN AT THIS 7 STAGE . JOINING THE ISSUE, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT APART FROM THE BANGAL ORE BENCH DECISIONS, THERE ARE SOME MORE DECISIONS OF THE TRIBUNAL RENDERED FROM ITAT HYDERABAD AND RAIPUR. IT WAS FURTHER SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P.) LTD OBSERVED THAT SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE AND IT HAS RETROSPECTIVE EFFECT FROM 01.04.2005 (377 ITR 635) (DEL.). ON THE SAME LINE OF REASONING, THE ITAT HYDERABAD BENCH IN THE CASE OF ACIT VS. V. DWARAKANATH REDDY ( I TA NOS. 703 & 704/HYD/2015) DATED 11.09.2015 OBSERVED THAT SECTION 40(A)(IA) IS AIMED AT ENSURING THAT EXPENDITURE SHOULD NOT BE ALLOWE D AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH THE INCOME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. SINCE THE PROVISO IS INCLUDED ONLY TO AVOID UNDUE HARDSHIP TO THE ASSESSEES, THE SAME WAS HELD TO BE RETROSPECTIVE IN OPERATION. LEARNED COUNSEL FOR THE ASSESSEE STRONGLY RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT. 18. AS REGARDS THE SECOND ISSUE, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CASH CREDITS HAVING BEEN ACCEPTED IN THE EARLIER YEARS, THERE CANNOT BE ANY DISALLOWANCE IN THE YEAR UNDER CONSIDERATION , EVEN WITH REGARD TO PAYMENT OF INTEREST. 1 9 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON THE AMOUNT PAYABLE TO THE PARTNERSHIP FIRM AND IN THE EVENT OF NON - DEDUCTION, PROVISO TO SECTION 40(A)(IA) OF THE ACT COMES INTO PLAY. FOR THE FIRST TIME BEFORE US, LEARNED COUNSEL FOR TH E ASSESSEE SUBMITS THAT THE RECIPIENT HAS FILED ITS RETURN OF INCOME WHEREIN THE AMOUNT WAS SHOWN AS RECEIVABLE AND FURTHER SUBMITTED THAT THE SECOND PROVISO TO SECTION 40(A)(IA) IS APPLICABLE RETROSPECTIVELY. THIS ASPECT WAS NOT CONSIDERED BY THE A.O OR BY THE LD. CIT(A) SINCE NO SUCH CLAIM WAS MADE BEFORE THE TAX AUTHORITIES. NO DOUBT THE HONBLE KERALA HIGH COURT HAS TAKEN A STAND THAT THE SECOND PROVISO IS NOT RETROSPECTIVE BUT THE FACT REMAINS THAT THE HONBEL DELHI HIGH COURT HAS ALSO CONSIDERED THE SAME ISSUE ELABORATELY WHILE UPHOLDING THE DECISION OF THE AGRA BENCH OF ITAT. THE HONBLE COURT OBSERVED THAT THE PROVISO IS INTENDED TO BENEFIT THE ASSESSEES AND A LEGAL FICTION IS CREATED TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT OF DEDUCTING TAX A T SOURCE UNDER CERTAIN CONTINGENCIES. SINCE THERE ARE TWO 8 VIEWS ON THIS ISSUE, THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE REQUIRES TO BE TAKEN INTO CONSIDERATION. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE, WE DEEM IT FAIR AND REASONABLE TO SET ASID E THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE RECIPIENT FIRM HAD DECLARED INCOME AND PAID TAXES , AND IF SO , THE A.O IS DIRECTED TO RECONSIDER THE MATTER BY APPLYING THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT RETROSPE CTIVELY . THOUGH IT IS NOT REQUIRED TO GO INTO THE ALTERNATIVE GROUND BUT THE FACT REMAINS THAT AS PER THE PROVISIONS OF SECTION 194A OF THE ACT, TAX HAS TO BE DEDUCTED ON THE ACTUAL SUM PAID AND THERE IS NO ROOM FOR SET - OFF OF INTEREST RECEIVABLE AGAINST THE INTEREST PAYABLE. HOWEVER, IF THE ASSESSEE PROVES THAT SHE IS NOT DEEMED TO BE IN DEFAULT, AS PER THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT, THE DECISION ON THE ALTERNATIVE GROUND WOULD BE OF ACADEMIC IMPORTANCE. 20 . GROUND NO.3 IS WITH REGA RD TO ADDITION OF RS. 2,88,248/ - . THE CASE OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS THAT THERE IS NO PROOF OF HAVING PAID INTEREST TO THE PARTIES AND THERE IS ALSO NO PROOF TO SHOW THAT LOAN, IF ANY, WAS UTILISED FOR THE PURPOSE OF BUSINESS. EVEN AT THIS STAGE, NO MATERIAL WHATSOEVER WAS FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE TO COUNTER THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE. UNDER THESE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND REJECT THE GROUND NO.3 OF THE ASSESSEE. 21 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2018. SD/ - SD/ - (S. RIFAUR RAHMAN) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED: 28 TH FEBRUARY , 2018. OKK, SR.PS COPY TO 9 1. SRI S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, 3 - 6 - 643, STREET NO.9, HIMAYATNAGAR, HYDERABAD - 500029. 2. INCOME TAX OFFICER, WARD - 1, SURYAPET. 3. CIT (A) - 3, HYDERABAD. 4. PR. COMMISSIONER OF INCOME TAX - 3, HYDERABAD. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE