V.M.Natesa Chetty & Co., CHENNAI V. ITO, CHENNAI

ITA 1032/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7384 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 23-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2016
• Court: TRIBUNAL
• Department Lawyers: N GOPI KRISHNA JT
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Non-deduction of tax
• Section: 143(3); 201(1)

Judgement Text

, / , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B/SMC, CHENNAI , ! ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER ./ITA NO.1032/MDS/2016 # $ %&$ / ASSESSMENT YEAR : 2007-08 V.M.NATESA CHETTY & CO., OLD NO.50, NEW NO.22, ARUNACHALA ACHARI STREET, CHEPAUK, CHENNAI 600 005. [PAN: AADFV 0499D] ( '( /APPELLANT) VS. INCOME TAX OFFICER, BUSINESS WARD-XII(4), PRESENTLY ITO, NON-CORPORATE WARD-6(4), CHENNAI. ( )*'( /RESPONDENT) '( + , /APPELLANT BY : SHRI A.S.SRIRAMAN, ADVOCATE )*'( + , /RESPONDENT BY : SHRI N.GOPIKRISHNA, JT. CI T - % + . /DATE OF HEARING : 23.02.2017 /& + . /DATE OF PRONOUNCEMENT : 29.03.2017 /O R D E R PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-5, CHENNAI (C IT(A) FOR SHORT) DATED 10.02.2016, DISMISSING THE ASSESSEES APPEAL CONTES TING ITS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREI NAFTER) DATED 24.12.2009 FOR ASSESSMENT YEAR (AY) 2007-08. 2 ITA NO.1032/MDS/2016 (AY 2007-08) V.M.NATESA CHETTY & CO. V. ITO 2. THE ONLY ISSUE ARISING IN THIS APPEAL IS THE DI SALLOWANCE OF . 8,88,000/-, EFFECTED U/S. 40(A)(IA) OF THE ACT IN ASSESSMENT, S INCE CONFIRMED. THE ASSESSING OFFICER (AO) FOUND THAT THE ASSESSEE HAD NOT DEDUCT ED TAX AT SOURCE U/S. 194A ON THE INTEREST ALLOWED AND CLAIMED IN THE IMPUGNED SUM WITHOUT DEDUCTING TAX AT SOURCE. THE ASSESSEE, IN EXPLANATION, CLARIFIED THAT ALL THE CREDITS (LOANS) UNDER REFERENCE STAND TRANSFERRED TO THE PARTNER, SHRI N. KESAVANARAYANAN, ON 01.4.2003. IT IS HE WHO FURTHER MAKES THE INTEREST PAYMENT, WHICH IS FOR THE LIKE AMOUNT, TO THE INDIVIDUAL LOAN CREDITORS. THERE WAS , FIRSTLY, NO DOCUMENT TO SUPPORT THE CLAIM OF TRANSFER OF THE UNSECURED LOAN S (LOAN LIABILITY) TO A PARTNER. THEN, AGAIN, THE INTEREST AMOUNT STANDS ENTERED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE THROUGH A BOOK ENTRY IN THE NAME OF THE IN DIVIDUAL CREDITORS. THE SAME WAS ACCORDINGLY INFERRED AS ONLY A PLOY ADOPTED BY THE ASSESSEE WITH A VIEW TO AVOID DEDUCTION OF TAX AT SOURCE, SO THAT THE AO, I NVOKING S. 40(A)(IA), DISALLOWED CLAIM OF INTEREST. THE SAME STANDS CONFI RMED IN APPEAL FOR THE SAME REASONS; THE LD. CIT(A) FINDING THAT THE INTEREST HAS BEEN PAID BY THE FIRM WITHOUT DEDUCTION TAX AT SOURCE. 3. THE PARTIES WERE HEARD, AND THE MATERIAL ON RECO RD PERUSED. WE FIND THE ASSESSEES CLAIM AS UNTENABLE. FIRSTLY , THE FIRM AND ITS PARTNER/S ARE DIFFERENT PERSONS UNDER THE ACT. THE CREDITORS HAD GIVEN LOAN TO THE FIRM, AND NOT THE PARTNER. THERE IS NO MATERIAL TO SUPPORT THE TRANSFER OF THE LIABILITY TO THE PARTNER, AND THE ENTRIES IN THE BO OKS OF ACCOUNTS, WITHOUT CORRESPONDING CONFIRMATIONS BY THE CREDITORS, WOULD BE OF NO MOMENT, AND THE LOAN LIABILITY AS WELL AS INTEREST OBLIGATION WOULD CONTINUE TO BE OF THE ASSESSEE- FIRM. TWO, THE PAYMENT OF INTEREST TO THE INDIVIDUA L CREDITORS, AS STATED BY THE LD. AR BEFORE THE LD. CIT(A), IS BY CHEQUES. HOW COULD THEN IT BE SAID THAT THE INTEREST OBLIGATION STANDS TRANSFERRED TO A PARTNER , A SEPARATE PERSON ? RATHER, IT DISPROVES THE ASSESSEES CLAIM. ON THIS BEING OBSER VED BY THE BENCH DURING HEARING, THE LD. AR WOULD SUBMIT THAT THE ENTIRE IN TEREST IS CREDITED TO THE 3 ITA NO.1032/MDS/2016 (AY 2007-08) V.M.NATESA CHETTY & CO. V. ITO PARTNERS ACCOUNT, WHO THEN DISBURSES THE INTEREST TO THE INDIVIDUAL CREDITORS. WE AGAIN FIND NO MATERIAL TO SUBSTANTIATE THE EXPLANAT ION. AGAIN, EVEN WHERE SO, HOW COULD CHEQUE PAYMENTS (FOR INTEREST) FIND REFLE CTION IN THE ASSESSEES BOOKS? THIS IS AS THE INTEREST TO THE INDIVIDUAL CR EDITORS WOULD EITHER BE CREDITED BY THE PARTNER TO THEIR RESPECTIVE ACCOUNTS IN HIS BOOKS OF ACCOUNT OR PAID TO THEM. IN EITHER CASE, IT IS A MATTER BETWEEN HIM AN D THE LOAN CREDITORS, TO WHICH THE ASSESSEE IS NEITHER PRIVY NOR CONCERNED WITH; T HE CAPITAL IN ITS BOOKS BEING THAT OF THE PARTNER TAKING OVER THE LOANS. WHY, IT MAY WELL BE THAT HE HAS REPAID SOME CREDITORS, OR ASSUMED FURTHER LOANS FROM THEM, OR CONTRACTED A LOWER INTEREST RATE, ET. AL. THAT IS, THERE MAY BE NO COR RESPONDENCE BETWEEN THE TWO, AND PAYMENT OF INTEREST TO THE PARTNER GETS DELINKE D FROM THAT PAYABLE BY HIM TO THE INDIVIDUAL CREDITORS. FURTHER, EVEN GRANTING TH AT THE INTEREST IN THE SAME AMOUNT/S HAS BEEN PAID TO THE CREDITOR/S BY THE PAR TNER, IN THE SAME YEAR, HOW COULD IT APPEAR IN THE BOOKS OF THE FIRM IN THE IND IVIDUAL ACCOUNTS OF THE CREDITORS BY WAY OF BOOK ENTRY? PAYMENT BY CHEQUE I MPLIES THAT MONEY HAS TO FLOW TO THE INDIVIDUAL CREDITORS IN THEIR RESPECTIV E BANK ACCOUNTS. AS IT APPEARS, THEREFORE, BY SEPARATE BOOK ENTRIES INTEREST HAS BE EN CREDITED TO THE ACCOUNT OF THE PARTNER, AND THEN, AGAIN, BY A SEPARATE BOOK EN TRY/S CREDITED TO THE ACCOUNTS OF THE INDIVIDUAL CREDITORS BY DEBITING THE PARTNER S ACCOUNT. NOTABLY, THE CAPITAL ACCOUNT OF THE PARTNER HAS NOT BEEN FURNISHED, AND WHICH WOULD EXPLAIN AND EXHIBIT THE ASSESSEES CASE. AT THE SAME TIME, HOWEVER, THE ASSESSEE HAS BEFOR E THE LD. CIT(A) CLAIMED THAT THE CREDITORS HAVE FILED THEIR RETURNS OF INCO ME FOR THE RELEVANT YEAR INCLUDING THE IMPUGNED INTEREST, FURNISHING THEIR P AN AS WELL AS DATE OF FILING THE RETURN ALONG WITH THE ACKNOWLEDGMENT FOR FILING THE SAME. THE ASSESSEES CASE IN THE ALTERNATIVE, RELYING ON THE DECISION IN CIT V. ANSAL LAND MARK TOWNSHIP (P.) LTD. [2015] 377 ITR 635 (DEL), IS THAT THE INDIVIDUAL C REDITORS 4 ITA NO.1032/MDS/2016 (AY 2007-08) V.M.NATESA CHETTY & CO. V. ITO HAVE PAID TAX ON THE IMPUGNED INTEREST FOR THE CURR ENT YEAR, SO THAT THERE IS NO LIABILITY ON THE ASSESSEE TO DEDUCT TAX AT SOURCE, PRECLUDING S. 40(A)(IA). THE HON'BLE COURTS, AS IN THE CASE OF ANSAL LAND MARK TOWNSHIP (P.) LTD . (SUPRA), HAVE HELD THE AMENDMENTS TO S. 40(A)(IA) A S RETROSPECTIVE, SO THAT WHERE IT IS SHOWN THAT THE PAYEE HAS PAID THE TAX ON THE IMPUGNED INCOME, THE ASSESSEE-PAYER IS NOT TO BE REGARDED AS AN ASSESSEE -IN-DEFAULT EVEN IN CASE OF NON-DEDUCTION OF TAX AT SOURCE, SAVING S. 40 (A)(IA ). AS SUCH, WHERE THE ASSESSEE SATISFIES THE INGREDIENTS OF S. 201(1), SO THAT IT CANNOT BE TREATED AS IN DEFAULT, S. 40(A)(IA) WOULD HAVE NO APPLICATION IN VIEW OF SECO ND PROVISO THERETO. THE MATTER ACCORDINGLY IS RESTORED BACK TO THE FILE OF THE AO TO ALLOW THE ASSESSEE AN OPPORTUNITY TO EXHIBIT OF IT BEING NOT IN DEFAULT U /S. 201(1) AND OF SATISFYING THE CONDITION OF THE SECOND PROVISO TO S. 40(A)(IA). THE AO SHALL DECIDE ISSUING DEFINITE FINDINGS OF FACT, ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY TO PRESENT ITS CASE BEFORE HIM. I DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON MARCH 29, 2017 AT CHENNAI . SD/- ( ) (SANJAY ARORA) ! /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED, MARCH 29, 2017. EDN 1 + )#.23 43&. /COPY TO: 1. '( /APPELLANT 2. )*'( /RESPONDENT 3. - 5. ( )/CIT(A) 4. - 5. /CIT 5. 3%67 )#.# /DR 6. 78$ 9 /GF