M/s. Jenious Clothing Pvt Ltd, Bengaluru V. Assistant Commissioner of Income Tax, (OSD) Range-4(1), Bengaluru

ITA 1114/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2331 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 24-11-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 05-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR BENGALURU
• Assessee Lawyers: ASHOK KULKARNI
• Keywords: Opportunity of being heard; TDS; Set aside
• Section: 43B; 143(3); 142(1); 13; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER ITA NO. 1114/BANG/2018 ASSESSMENT YEAR : 2014 - 15 M/S. JENIOUS CLOTHING PVT. LTD., NO.1-35/5/1, INDUSTRIAL SUBURB, NH-4, TUMKUR ROAD, YESHWANTHPUR, BENGALURU 560 022. PAN: AACCJ 5290N VS. THE ASSISTANT COMMISSIONER OF INCOME TAX (OSD), RANGE 4(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI ASHOK KULKARNI, ADVOCATE RESPONDENT BY : SHRI PRADEEP KUMAR, ADDL. CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 24 . 1 1 .2020 DATE OF PRONOUNCEMENT : 24 . 1 1 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 8.2.2018 OF THE PRINCIPAL COMMISSIONER OF INCOME -TAX, BENGALURU-4, BENGALURU [PR.CIT FOR SHORT] PASSED U/S. 263 OF THE INCOME -TAX ACT, 1961 [THE ACT] IN RELATION TO ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINE SS OF MANUFACTURE AND TRADING IN READY-MADE GARMENTS. FO R THE AY 2014-15 THE ASSESSEE FILED RETURN OF INCOME DECLARING A TOTAL L OSS OF RS.13,32,979. ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER ( AO) U/S.143(3) OF THE ACT, BY REDUCING FROM THE RETURNED LOSS THE INTERES T ON INCOME-TAX REFUND ITA NO.1114/BANG/2018 PAGE 2 OF 6 WHICH WAS NOT SHOWN AS INCOME BY THE ASSESSEE. THE ORDER OF ASSESSMENT U/S. 143(3) DATED 8.12.2016 WAS PASSED B Y THE AO. 3. THE PR. CIT IN EXERCISE OF HIS POWERS U/S. 263 O F THE ACT WAS OF THE VIEW THAT THE AFORESAID ORDER OF ASSESSMENT WAS ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE FOR THE FOLLOWING REASO NS:- 1. THE CIT NOTICED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.65,53,064/- IN THE PROFIT AND LOSS A/C, TOWAR DS FINANCIAL COST AND THE SAME WAS CLAIMED AS DEDUCTION WHILE CO MPUTING INCOME. OUT OF THIS EXPENDITURE OF RS.6.5,53,654/- A SUM OF RS.51,44,791/- WAS TOWARDS INTEREST IN DELAY REMITT ANCE OF OUTSTANDING LIABILITIES FOR THE FY 2011-12 TO 2012- 13 AND THE REMAINING AMOUNT OF RS 14,08,273/- WAS TOWARDS INTE REST PAYMENTS TO VARIOUS OTHERS. ACCORDING TO THE CIT, THE SUM OF RS 51,44,791/- W OULD PARTAKE THE NATURE OF PRIOR PERIOD EXPENSES AND WOU LD NOT BE ALLOWABLE. ACCORDING TO CIT, THE AO HAS NOT EXAMINE D AS TO WHETHER ON THE SUM OF RS.14,08,273/- BEING INTEREST PAID TO OTHERS THE ASSESSEE HAD COMPLIED WITH THE PROVISION S OF CHAPTER XVII-B OF THE ACT REGARDING DEDUCTION OF TAX AT SOU RCE. 2. ACCORDING TO THE CIT, THE AO HAS NOT CONDUCTED ADEQUATE ENQUIRIES REGARDING THE ABOVE ISSUES AND FAILED TO BRING TO TAX THE ABOVE SAID AMOUNTS WHILE COMPLETING THE ASSESSMENT U/S 143(3). AS SUCH, ACTION U/S. 263 IS WARRANTED AND THE ASSES SMENT FOR THE A.Y.2014-15. 4. IN REPLY TO THE AFORESAID SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE AO MADE ENQUIRIES WITH REGARD TO THE INTER EST PAYMENT OF RS.54,44,791 BEFORE COMPLETING THE ASSESSMENT. ON THE INTEREST AMOUNT OF RS.51,44,79I/- THE AUDITORS NOTICED THAT THERE W ERE DELAYS IN THE PAYMENTS OF VAT BY THE ASSESSEE WITH RESPECT TO THE TRANSACTIONS RELATING TO THE FINANCIAL YEARS 2011-12, 2012-13, 2013-14 AN D IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36 ETC., OF KVAT ACT, 200 3, INTEREST LIABILITY UP TO 31.03.2014 AT THE ABOVE FIGURE OF RS.51.44 LAKHS WO ULD ACCRUE. THEREFORE ITA NO.1114/BANG/2018 PAGE 3 OF 6 PROVISION WAS MADE IN THE BOOKS OF ACCOUNTS FOR THE ASSESSMENT YEAR 2014-15 ACCORDINGLY. THUS CLAIM WAS MADE BASED ON T HE ACCRUAL OF LIABILITY. THIS SURFACED AT THE TIME OF THE FINAL A UDIT OF THE ACCOUNTS AND WAS NOTICED AND QUANTIFIED BY AUDITORS ONLY AT THAT TIM E AND THEREFORE AS THIS WAS IDENTIFIED IN RELATION TO THE ACCOUNTING YEAR 3 1.03.2014, IMMEDIATELY ON COMING TO KNOW OF THE LIABILITY, QUANTIFICATION OF THE SAME ENTRY WAS MADE IN THE BOOKS OF ACCOUNT AND THE CLAIM FOR DEDUCTION WA S IN ACCORDANCE WITH LAW. AND THEREFORE IT WAS AN ADMISSIBLE CLAIM. IT WAS POINTED OUT THAT STATEMENT OF P&L ACCOUNT FOR THE YEAR ENDING 31.3.2 014 CERTIFIED BY AUDITORS IN THEIR REPORT INCLUDING THE DETAILS OF I NTEREST PAYMENTS AND INTEREST RECEIVABLES, AMONGST OTHER THINGS, WAS AVA ILABLE ON RECORD. SUCH DETAILS FILED ALSO INCLUDED LEDGER OF INTEREST PAID TO OTHERS WHICH IS CLASSIFIED AS INDIRECT EXPENSES IN THE P&L ACCOUNT. 5. THE PR. CIT, HOWEVER, DID NOT ACCEPT THE SUBMISS IONS MADE ON BEHALF OF THE ASSESSEE. FIRSTLY, HE HELD THAT THE AO DID NOT MAKE PROPER AND ADEQUATE ENQUIRIES IN RESPECT OF PROVISION MADE FOR INTEREST ON DELAYED VAT PAYMENTS AND INTEREST PAYMENTS TO OTHERS WITHOU T DEDUCTING TAX AT SOURCE. THE PR. CIT ALSO HELD THAT AS PER THE PROV ISIONS OF SECTION 43B OF THE ACT, ANY PAYMENT BY WAY OF TAX IS ALLOWABLE AS A DEDUCTION ONLY ON ACTUAL PAYMENT BASIS AND SINCE VAT IS A STATUTORY P AYMENT, THAT CAN BE ALLOWED ONLY ON ACTUAL PAYMENT BASIS. HE HELD THAT THE PROVISION FOR INTEREST ON DELAYED PAYMENT OF VAT ALLOWED BY THE A O WITHOUT VERIFICATION OF ACTUAL PAYMENT WAS CONTRARY TO THE PROVISIONS OF SECTION 43B OF THE ACT. REGARDING INTEREST PAID TO OTHERS, HE HELD THAT THE AO FAILED TO VERIFY AND MAKE ENQUIRIES WHETHER THESE INTEREST PAYMENTS WOUL D ATTRACT TDS PROVISIONS. THE PR. CIT THEREFORE CONCLUDED THAT T HE AO FAILED TO MAKE ENQUIRIES WHICH HE OUGHT TO HAVE MADE AND THEREFORE THE ORDER OF ASSESSMENT WAS ERRONEOUS AND PREJUDICIAL TO THE INT ERESTS OF REVENUE. HE SET ASIDE THE ASSESSMENT WITH A DIRECTION TO THE AO TO EXAMINE THE ISSUES ITA NO.1114/BANG/2018 PAGE 4 OF 6 AND REDO THE ASSESSMENT AFRESH AS PER LAW, AFTER AF FORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. AGGRIEVED BY THE ORDER OF PR.CIT, THE ASSESSEE I S IN APPEAL BEFORE THE TRIBUNAL. 7. THE FIRST SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT THE AO MADE PROPER ENQUIRIES WITH REGARD TO THE INTERES T EXPENSES DEBITED TO THE P&L ACCOUNT. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO THE SHOW CAUSE NOTICE U/S. 142(1) OF THE ACT BY THE AO DATED 29.6.2016 WHEREIN SPECIFIC QUERY WAS RAISED REGARDING DETAILS OF INTE REST PAID ON BILL DISCOUNTING, DETAILS OF INTEREST PAID TO OTHERS AND TDS PROOF. HE ALSO POINTED OUT THAT IN REPLY TO THE AFORESAID NOTICE, THE ASSESSEE HAD REPLIED ON 8.7.2017 AND GAVE DETAILS OF THE INDIRECT EXPENS ES WHICH INCLUDES INTEREST EXPENSES. OUR ATTENTION WAS DRAWN TO THE FOLLOWING DESCRIPTION AS CONTAINED IN THE LEDGER OF INDIRECT EXPENSES AND TH E INTEREST EXPENSES:- 31 MAR RECTIFICATION 31 MAR OUTSTANDING BEING INTERST IN DELAY REMITTANCE 5,144,,791.00 2014 ENTRY 2014 LIABILITIES ACCOU NTED FOR THE YEAR 13-14 AS PER AUDIT (INTEREST AMOUNT FOR THE YE AR YEAR 2011-12 1274601, 2012-13 1938689 AND 2013-14 19315011 8. THE NEXT SUBMISSION OF THE LD. COUNSEL WAS THAT IN THE SHOW CAUSE NOTICE, THE PR.CIT NEVER SOUGHT TO INVOKE PROVISION S OF SECTION 43B OF THE ACT, BUT JUSTIFIED HIS CONCLUSION THAT THE ORDER OF THE AO WAS ERRONEOUS BY INVOKING THOSE PROVISIONS IN THE IMPUGNED ORDER. I T WAS AVERRED BY THE LD. COUNSEL FOR THE ASSESSEE THAT ASSESSEE WAS NEVER PU T ON NOTICE REGARDING INVOKING THE PROVISIONS OF SECTION 43B. HIS SUBMIS SION WAS THAT THE IMPUGNED ORDER HAS TO BE HELD AS BAD IN LAW AS IT H AS BEEN PASSED WITHOUT AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E ON THE ISSUE OF APPLICABILITY OF SECTION 43B. 9. THE LD. DR RELIED ON THE ORDER OF PR.CIT. ITA NO.1114/BANG/2018 PAGE 5 OF 6 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE ORDER PASSED U/S. 143(3) DATED 8.12.2016 SHOWS THAT THE A O HAS NOT DISCUSSED ANYTHING ABOUT THE PRIOR PERIOD EXPENSES OF RS.51,4 4,791 OR AS TO WHETHER THE TDS OBLIGATIONS WOULD ARISE ON PAYMENT OF INTER EST TO THE EXTENT OF RS. 14,08,273/- AND IF SO WHETHER THE SUMS CLAIMED AS D EDUCTION SHOULD BE DISALLOWED U/S.40(A)(IA) OF THE ACT. IT IS NO DOUB T TRUE THAT IN THE SHOW CAUSE NOTICE U/S. 142(1) DATED 29.6.2016, THE AO HA S CALLED FOR DETAILS OF INTEREST PAID TO OTHERS AND TDS PROOF. IT IS ALSO TRUE THAT THE ASSESSEE IN REPLY TO SHOW CAUSE NOTICE HAS GIVEN THE DETAILS OF INTEREST LIABILITY ON DELAYED REMITTANCES WHICH WERE IN RELATION TO EARLI ER ASSESSMENT YEAR. THE FACT THAT THESE DOCUMENTS WERE FILED BY ITSELF WILL NOT BE SUFFICIENT TO HOLD THAT THE AO APPLIED HIS MIND WITH REGARD TO PRIOR P ERIOD EXPENSES ON ACCOUNT OF INTEREST. THEREFORE, WE ARE OF THE VI EW THAT THE PR. CIT WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263 AS THERE WAS A FAILURE ON THE PART OF AO TO MAKE PROPER AND ADEQUATE ENQUIRIE S. SUCH FAILURE IS SUFFICIENT TO INVOKE THE PROVISIONS OF SECTION 263 OF THE ACT. FOR THIS CONCLUSION, WE DERIVE SUPPORT FROM THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISE VS ADDL. CIT (1975) 99 ITR 375 (DELHI) . TO THIS EXTENT, THE ORDER OF PR. CIT U/S. 263 IS SUSTAINED. 11. HOWEVER, WE ARE OF THE VIEW THAT THE OBSERVATIO NS OF THE PR. CIT WITH REGARD TO THE APPLICABILITY OF SECTION 43B ARE UNCA LLED FOR SINCE NO SUCH STAND WAS TAKEN BY THE PR.CIT IN THE SHOW CAUSE NOT ICE U/S. 263 OF THE ACT AND THE ASSESSEE WAS NOT PUT TO NOTICE ON THE APPLI CABILITY OF THIS PROVISION EITHER IN THE SHOW CAUSE NOTICE U/S.263 OF THE ACT OR DURING THE PROCEEDINGS U/S.263 OF THE ACT. THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF AMITABH BACHCHAN, 384 ITR 200 (SC) WILL NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE FOR THE REASON THAT IN THAT CAS E IN THE COURSE OF 263 PROCEEDINGS, THE ASSESSEE WAS PUT ON NOTICE ON THE ISSUE WHICH WAS PART OF THE SHOW CAUSE NOTICE ISSUED U/S. 263 OF THE ACT . AS WE HAVE ALREADY ITA NO.1114/BANG/2018 PAGE 6 OF 6 DISCUSSED, IN THE PRESENT CASE, NO SUCH NOTICE WAS GIVEN BY THE PR.CIT. ACCORDINGLY, WE MODIFY THE ORDER OF PR. CIT U/S. 26 3 OF THE ACT WITH REGARD TO APPLICABILITY OF SECTION 43B AND THESE OBSERVATI ONS ARE QUASHED. WE, HOWEVER, UPHOLD THE ORDER OF PR. CIT ON THIS ISSUE OF FAILURE TO MAKE PROPER, NECESSARY AND REQUIRED ENQUIRES WHILE COMPLETING AS SESSMENT U/S.143(3) OF THE ACT, WITH REGARD TO THE ISSUES SET OUT IN TH E SHOW CAUSE NOTICE ISSUED U/S.263 OF THE ACT. 12. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF NOVEMBER, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 24 TH NOVEMBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.