ITO, Gulbarga V. M/s Basaveshwara Drug and Surgicals, Gulbarga

ITA 1023/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7488 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 25-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 18-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHANDRASHEKAR
• Keywords: Unexplained cash credit; Additional evidence; Notional interest
• Section: 201(1); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORESHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 1023/BANG/2016 ASSESSMENT YEAR : 2012 - 13 THE INCOME TAX OFFICER, WARD 1, GULBARGA. VS. M/S. BASAVESHWAR DRUGS & SURGICALS, B.T.G.H., SEDAM RAOD, GULBARGA 585 104. PAN: AAKFB 3886D APPELLANT RESPONDENT C.O. NO. 27/BANG/2017 (IN ITA NO. 1023/BANG/2016) ASSESSMENT YEAR : 2012 - 13 M/S. BASAVESHWAR DRUGS & SURGICALS, B.T.G.H., SEDAM RAOD, GULBARGA 585 104. PAN: AAKFB 3886D VS. THE INCOME TAX OFFICER, WARD 1, GULBARGA. APPELLANT RESPONDENT ASSESSEE BY : SHRI G. VENKATESH, ADVOCATE REVENUE BY : SHRI CHANDRASHEKAR, ADDL. CIT (DR) DATE OF HEARING : 03 . 10 .201 7 DATE OF PRONOUNCEMENT : 13 .10 .2017 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE AND CO IS FILED BY THE ASSESSEE AND THESE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-GULBARGA D ATED 08.03.2016 FOR ASSESSMENT YEAR 2012-13. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER. 1. WHETHER ON FACT AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) IS OPPOSED TO LAW ANDFACT OF THE CASE? 2. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A), HAS ERRED IN DELETING THE ADDITION OF RS.L, 20,00,000/- IN RESPECT OF NON DEDUCTION OF TDS EVEN THOUGH THE EXE CUTIVE ENGINEER, ITA NO. 1023/BANG/2016 & C.O. NO. 27/BANG/2017 PAGE 2 OF 7 PWD & IWT DEPARTMENT, SUB-DIVISION, GULBARGA GOVERN MENT OF KARNATAKA HAS GIVEN A FAIR RENT CERTIFICATE FOR THE SAID RENTED PREMISES AT THE RATE OF RS.4,500/- PER MONTH AS AGA INST RENT PAID BY THE ASSESSEE AT RS. 10,00,000/- PER MONTH. 3. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A), HAS ERRED IN DELETING THE ADDITION OF RS.1, 20,00,000/-' IN RESPECT OF NON DEDUCTION OF TDS AS THE LEARNED CIT( A) HAS NOT CONSIDERED THE BOARD CIRCULAR NO. 10/DV/2013 DATED 16.12.2013 WHEREIN THE BOARD HAS CLARIFIED THAT IN CONTEXT OF SECTION 40(A)(IA) OF THE ACT THE STATUTORY PROVISIONS ARE AMPLY CLEAR AN D THE TERM 'PAYABLE' WOULD INCLUDE 'AMOUNTS WHICH ARE PAID DURING THE YE AR'. 4. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A), HAS ERRED IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER OF RS.1,20,00,000/- EVEN THOUGH THE ASSESSE E HAS FAILED TO DEDUCT TDS ON RENT PAID BY THE ASSESSEE OF RS.1,20, 00,000/- TO ITS SISTER CONCERN M/S HKE SOCIETY AND EVEN THOUGH TH E ASSESSEE FIRM DID NOT RECEIVE ANY TAX EXEMPT CERTIFICATE FROM ITS SISTER CONCERN AND DID NOT GIVE ANY REASONS FOR PAYING SUCH HUGE RENT AS AGAINST FAIR RENT. 5. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A), HAS ERRED IN DELETING THE ADDITION OF RS.1, 20,00,000/- IN RESPECT OF NON DEDUCTION OF TDS AND HAS NOT CONSIDE RED THE DECISION OF HON'BLE APEX COURT IN CASE OF MCDOWELL REPORTED IN (1985) 3 SCC230, 1986 AIR 649, 1985 SCR (3) 791 WHEREIN IT I S CONCLUDED THAT WHERE THE TRANSACTION IS NOT GENUINE BUT A COL ORABLE DEVICE THERE COULD BE NO QUESTION OF TAX PLANNING, AS IN THE PRE SENT CASE ALSO THE RENT PAID IS MUCH HIGHER THAN THE RENT AS PER THE F AIR RENT CERTIFICATE AND ALSO THE ASSESSEE HAS FAILED TO DEDUCT TDS WITH OUT RECEIVING ANY TAX EXEMPT CERTIFICATE FROM ITS SISTER CONCERN. 6. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A), HAS ERRED IN DELETING THE ADDITIONS MADE BY THE AO OF RS. 10,00,000/- ON ACCOUNT OF UNEXPLAINED CASH CREDIT U /S 68 OF THE IT ACT EVEN THOUGH THE ASSESSEE WAS UNABLE TO EXPLAIN THE DIFFERENCE OF RS. 10,00,000/- BETWEEN THE OPENING BALANCE OF BANK ACCOUNT AS ON 01.04.2011 OF RS.14,42,407/- AND CLOSING BALANCE OF SAME BANK ACCOUNT AS PER BOOKS OF RS. 4,42,407/-, DURING ASSE SSMENT PROCEEDINGS. 7. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A), HAS ERRED IN DELETING THE ADDITIONS MADE OF RS. 10,00,000/- TOWARDS UNEXPLAINED CASH CREDIT U/S 68 AND ERRED IN ADMITTING THE ADDITIONAL EVIDENCES DURING THE APPELLATE PROCEEDIN GS ON 23.02.2016 & 26.02.2016 WITHOUT GIVING AN OPPORTUNITY TO THE A SSESSING OFFICER TO EXAMINE THE CONTENTION OF THE ASSESSEE AS PER RU LE 46A(3) OF THE INCOME TAX RULES,1962, SINCE THE ASSESSEE DID NOT F ILE ANY EXPLANATION DURING THE ASSESSMENT PROCEEDINGS FOR THE DIFFERENC E IN CASH BALANCE. ITA NO. 1023/BANG/2016 & C.O. NO. 27/BANG/2017 PAGE 3 OF 7 8. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A), HAS ERRED IN DELETING THE ADDITIONS MADE O F RS. 10,00,000/- TOWARDS UNEXPLAINED CASH CREDIT U/S 68 AND ERRED IN ADMITTING THE ADDITIONAL EVIDENCES DURING THE APPELLATE PROCEEDIN GS ON 23.02.2016 & 26.02.2016 EVEN THOUGH THE CASE DOES NOT FALL UND ER ANY OF THE EXCEPTIONAL CIRCUMSTANCES LAID DOWN IN RULE 46A(1) OF THE INCOME TAX RULE' 1962. 9. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A), HAS ERRED IN DELETING THE ADDITIONS MADE BY THE AO OF RS. 10,00,000/- ON ACCOUNT OF UNEXPLAINED CASH CREDIT U /S 68 OF THE IT ACT WRONGLY RELYING UPON SUBMISSION MADE DURING APPELLA TE PROCEEDINGS ON 23.02.2016 & 26.02.2016 THAT CHEQUES WERE DULY A CCOUNTED IN BOOKS HOWEVER, THE CREDITOR HAS DEPOSITED THE SAID CHEQUES IN SUCCEEDING MONTH I.E. IN APRIL 2011 HOWEVER THE ISS UE UNDER DISPUTE WAS RELATED TO F.Y. 2010-11 AND AUDIT REPORT U/S 44 AB OF THE IT ACT WAS SUBMITTED ON 30.09.2011 AFTER VERIFYING EACH & EVERY ISSUE AND EVEN AFTER VERIFYING BANK RECONCILIATION STATEMENT AND THE ASSESSEE HAS FAILED TO OFFER ANY EXPLANATION EVEN DURING THE ASSESSMENT PROCEEDINGS WHICH WAS CONCLUDED ON 27.02.2015. 10 WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A), HAS ERRED IN ACCEPTING THE CONTENTION OF TH E ASSESSEE THAT THE CREDITORS HAS DEPOSITED CHEQUES IN SUCCEEDING MONTH I.E. IN APRIL 2011 WHICH COULD NOT BE SUBMITTED DURING THE ASSESSMENT PROCEEDINGS WHICH IS NOTHING BUT AN AFTERTHOUGHT. 11. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALT ER ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF H EARING? 3. THE GROUNDS RAISED BY THE ASSESSEE IN ITS CO ARE AS UNDER. 1. THE ORDERS OF THE LOWER AUTHORITIES IN SO FAR AS THEY ARE AGAINST THE RESPONDENT / CROSS-OBJECTOR IS OPPOSED TO LAW, EQUI TY AND WEIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCE OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS. 1,61,875/- BEING THE NOTIONAL INTEREST ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN BRING ING TO TAX THE ABOVE NOTIONAL INTEREST AMOUNTS WHICH DO NOT CONSTITUTE T HE REAL INCOME OF THE ASSESSEE MORE SO WHEN THERE IS NO SPECIFIC PROV ISION TO TREAT THE SAME AS INCOME ON THE FACTS AND CIRCUMSTANCES OF TH E CASE. 4. WITHOUT PREJUDICE, THE COMPUTATION OF THE INTERE ST IS ERRONEOUS IN AS MUCH AS THE ADVANCES WERE MADE DURING THE YEAR AND HENCE WERE NOT OUTSTANDING FOR THE WHOLE YEAR AND THEREFORE THE NO TIONAL INTEREST COULD NOT HAVE BEEN COMPUTED FOR THE WHOLE YEAR ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO. 1023/BANG/2016 & C.O. NO. 27/BANG/2017 PAGE 4 OF 7 5. THE RESPONDENT/ CROSS OBJECTOR CRAVES TO LEAVE T O ADD, ALTER OR DELETE OR SUBSTITUTE ANY OF THE GROUNDS OF CROSS OB JECTION URGED ABOVE. 6. IN VIEW OF THE ABOVE AND THE OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL, THE RESPONDENT/ CROS S OBJECTOR PRAYS THAT THE CROSS OBJECTION MAY BE ALLOWED AND THE APP EAL FILED BY THE APPELLANT/ REVENUE MAY BE DISMISSED FOR THE ADVANCE MENT JUSTICE AND EQUITY. 4. IT WAS SUBMITTED BY LD. DR OF REVENUE THAT GROUN D NO. 1 IS GENERAL AND AS PER GROUND NOS. 2 TO 5, ONLY ONE ISSUE IS INVOLVED REGA RDING DELETION OF THE ADDITION OF RS. 120 LAKHS MADE BY THE AO IN RESPECT OF PAYME NT OF RENT WITHOUT TDS. HE SUPPORTED THE ASSESSMENT ORDER. AS AGAINST THIS , THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF CIT(A). HE FURTHER SUBMITTE D THAT CIT(A) HAS DECIDED THE ISSUE ON THE BASIS OF SECOND PROVISO TO SECTION 40(A)(IA) AND ALTHOUGH THIS SECOND PROVISO HAS BEEN INSERTED W.E.F. 01.04.2013 BUT IT WAS HELD IN SEVERAL JUDICIAL PRONOUNCEMENTS THAT THIS PROVISO IS RETROS PECTIVE AND IN SUPPORT OF HIS CONTENTION, RELIANCE HAS BEEN PLACED BY HIM ON JUDG EMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P.) LTD. AS REPORTED IN 377 ITR 635 (DELHI). AT THIS JUNCTU RE, A QUERY WAS RAISED BY THE BENCH THAT WHAT IS THE EVIDENCE THAT THE PAYEE HAS PAID TAX ON THE INCOME DECLARED BY HIM IN THE RETURN OF INCOME FILED BY HI M INCLUDING THE AMOUNT OF RENT PAID BY THE ASSESSEE AS REQUIRED UNDER THE FIRST PR OVISO TO SECTION 201(1) OF THE I.T. ACT, 1961. IN REPLY, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT FOR THIS FACTUAL VERIFICATION, THE MATTER MAY BE RESTORED BA CK TO THE FILE OF AO BECAUSE SUCH EVIDENCE IS NOT READILY AVAILABLE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE ARE OF THE CONSIDERED OPINION THAT IF THE ASSESSEE CAN ESTABLISH THAT THE PAYEE HAS FILED RETURN OF INCOME AND INCLUDED THIS AMOUNT OF RS. 120 LAKHS PA ID BY THE ASSESSEE IN ITS INCOME AND PAID TAX ON THAT INCOME THEN NO DISALLOW ANCE CAN BE MADE U/S. 40(A)(IA) OF THE ACT EVEN IF NO TDS HAS BEEN DEDUCT ED BY THE ASSESSEE AS PER SECOND PROVISO TO SECTION 201 WHICH HAS BEEN HELD T O BE RETROSPECTIVE. BUT FOR THE PURPOSE OF FACTUAL VERIFICATION AS TO WHETHER T HE DEDUCTEE HAS PAID TAX AS PER LAW OR NOT, WE RESTORE THE MATTER BACK TO THE F ILE OF AO FOR FRESH DECISION WITH THE DIRECTION THAT HE SHOULD EXAMINE THIS FACT UAL ASPECT AS TO WHETHER THE TAX HAS BEEN PAID BY THE DEDUCTEE OR NOT ON THIS AM OUNT OF RS. 120 LAKHS PAID ITA NO. 1023/BANG/2016 & C.O. NO. 27/BANG/2017 PAGE 5 OF 7 BY THE ASSESSEE TO THAT PERSON AND IF THE ASSESSEE IS ABLE TO ESTABLISH THAT THE PAYEE HAS MADE TAX PAYABLE ON ITS INCOME INCLUDING THE AMOUNT OF RENT PAID BY THE ASSESSEE OF RS. 120 LAKHS THEN NO DISALLOWANCE SHOULD BE MADE U/S. 40(A)(IA) OF THE I.T. ACT, 1961. THESE GROUNDS OF THE REVENUES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDIC ATED ABOVE. 6. REGARDING GROUND NOS. 6 TO 10 OF REVENUES APPEA L, THE LD. DR OF REVENUE SUPPORTED THE ASSESSMENT ORDER AND HE ALSO SUBMITTE D THAT THE CIT(A) HAS ADMITTED ADDITIONAL EVIDENCE IN VIOLATION OF RULE 4 6A OF I T RULES, 1962. THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF CIT(A) AND HE ALSO SUBMITTED THAT NO NEW RECORDS HAS BEEN BROUGHT ON RECORD BEFORE THE C IT(A). HE DRAWN OUR ATTENTION TO PAGE NO. 35 OF THE PAPER BOOK AND POIN TED OUT THAT THERE IS A BANK STATEMENT AND IT HAS BEEN MADE AVAILABLE BEFORE THE AO AND CIT(A) BOTH AND AS PER THE SAME, THE CHEQUE OF RS. 10 LAKHS WAS ISS UED BY THE ASSESSEE TO HKES SOCIETY ON 31.03.2011 BUT THE SAME WAS CLEARED ON 18.04.2011 AND FOR THIS REASON, THERE WAS DIFFERENCE IN THE BANK BALAN CE AS PER THE BOOKS OF THE ASSESSEE AND AS PER THE BANK STATEMENT. THEREAFTER HE DRAWN OUR ATTENTION TO COPY OF BANK STATEMENT AVAILABLE ON PAGE 27 OF PAPE R BOOK AND POINTED OUT THAT CHEQUE NO. 717943 HAS BEEN CLEARED ON 18.04.20 11. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN VI EW OF THE FACTUAL POSITION AS DISCUSSED ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE AND THEREFORE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. REGARDING THIS CONTENTION OF THE LD. DR OF REVENUE IN RESPECT OF RULE 46A, WE FIND NO MERIT IN THIS CONTENTION ALSO BECAUSE AS PE R THE PAPER BOOK, THE BANK RECONCILIATION STATEMENT HAS BEEN MADE AVAILABLE BE FORE THE AO AND CIT(A) BOTH AND NO DEFECT HAS BEEN POINTED OUT BY LD. DR O F REVENUE IN THE CERTIFICATE APPEARING IN THE PAPER BOOK. HENCE THESE GROUNDS O F REVENUES APPEAL ARE REJECTED. 8. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. REGARDING THE CROSS OBJECTION OF THE ASSESSEE, I T WAS SUBMITTED BY LD. AR OF ASSESSEE THAT ONLY ONE ISSUE IS INVOLVED AND THIS I SSUE IS REGARDING ADDITION OF ITA NO. 1023/BANG/2016 & C.O. NO. 27/BANG/2017 PAGE 6 OF 7 NOTIONAL INTEREST ON INTEREST FREE ADVANCES GIVEN B Y THE ASSESSEE TO THE RELATED PERSONS. AT THIS JUNCTURE, A QUERY WAS RAISED BY T HE BENCH REGARDING THE POSITION OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. IN REPLY, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THE BALANCE SH EET IS AVAILABLE ON PAGE NO. 3 OF THE PAPER BOOK AND AS PER THE SAME, THERE IS B ALANCE IN CAPITAL ACCOUNT OF PARTNERS OF RS. 6,54,494/- AND RS. 11,89,560/-. TH E BENCH POINTED OUT THAT AS PER THE COPY OF PARTNERS CAPITAL ACCOUNT AVAILABLE ON SAME PAGE OF PAPER BOOK, INTEREST OF RS. 66,372/- AND RS. 2,69,316/- WAS PAI D TO BOTH THE PARTNERS ON THEIR CAPITAL AND THEREFORE, THE PARTNERS CAPITAL IS ALSO NOT AN INTEREST FREE FUND AND THEREFORE, EITHER THE NOTIONAL INTEREST HAS TO BE ADDED OR INTEREST PAYMENT HAS TO BE DISALLOWED PROPORTIONATELY. IN REPLY, TH E LD. AR OF ASSESSEE HAD NOTHING TO SAY. THE LD. DR OF REVENUE SUPPORTED TH E ORDER OF CIT(A). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN V IEW OF THE FACTUAL POSITION AS DISCUSSED ABOVE, IN ABSENCE OF ANY INTEREST FREE FU ND AVAILABLE WITH THE ASSESSEE, ADDITION ON ACCOUNT OF NOTIONAL INTEREST ON INTEREST FREE ADVANCES GIVEN TO HUSBAND OF PARTNER OF ASSESSEE FIRM AND TH EIR RELATIVES IS PROPER BECAUSE NO BUSINESS EXIGENCY HAS BEEN SHOWN REGARDI NG SUCH INTEREST FREE ADVANCES. IN VIEW OF THESE FACTS, WE FIND NO REASO N TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. ACCORDINGLY THE GROUNDS RAIS ED BY THE ASSESSEE IN CO ARE REJECTED. 11. IN THE RESULT, C. O. FILED BY THE ASSESSEE IS D ISMISSED. 12. IN THE COMBINED RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 13 TH OCTOBER, 2017. /MS/ ITA NO. 1023/BANG/2016 & C.O. NO. 27/BANG/2017 PAGE 7 OF 7 COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.