Phaltan Serurities Pvt. Ltd., Satara V. Income-tax Officer,

ITA 1225/PUN/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1495 (ITAT-PUNE)
• Duration Of Justice: 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 07-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Section: 143(3); 201(1); 148

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO S . 1225 & 1226 /PN/201 6 / ASSESSMENT YEAR S : 20 0 6 - 0 7 & 2007 - 08 PHALTAN SECURITIES PVT. LTD., 4084, C, SHANKAR MARKET, PRASAD BUILDING, PHALTAN, SATARA 415523 . / APPELLANT PAN: A ADCP3631L VS. THE INCOME TAX OFFICER, WARD 2 , SATARA . / RES PONDENT / APPELLANT BY : SHRI M.K. KULKARNI / RESPONDENT BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 2 5 . 0 7 .201 6 / DATE OF PRONOUNCEMENT: 29 . 0 7 .201 6 / ORDER PER SUSHMA CHOWLA, J M : BOTH THE APPEAL S FILED BY ASSESSEE ARE AGAINST SEPARATE ORDER S OF CIT (A) - 2 , PUNE , BOTH DATED 29 . 0 3 .20 1 6 RELATING TO ASSESSMENT YEAR S 20 0 6 - 0 7 AND 2007 - 08 AGAINST ORDER S PASSED UNDER SECTION S 14 3(3) R.W.S. 147 AND 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) , RESPECTIVELY . ITA NO S . 1225 & 1226 /PN/20 1 6 PHALTAN SECURITIES PV T. LTD. 2 2 . BOTH THE APPEALS RELATING TO THE SAME ASSESSEE ON SIMILAR ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. HOWEVER, REFERENCE IS BEING MADE TO TH E FACTS IN ITA NO.1 225 /PN/201 6 TO ADJUDICATE THE ISSUE. 3. THE ASSESSEE IN ITA NO. 1225 /PN/201 6 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITIO N MADE BY THE A.O. OF RS. 4,48,873/ - INVOKING THE PROVISIONS OF S.40(A)(IA). THE LD. CIT(A) FAILED TO APPRECIATE THE RETROSPECTIVELY AMENDED PROVISIONS OF SECOND PROVISO TO S. 40(A)(IA) OF THE ACT. SINCE THE INCOME OF THE DEDUCTEE WAS ENTIRELY EXEMPT U/S 80P(2)(A)(I) OF THE ACT, THE ASSESSEE HAD NO OBLIGATION TO DEDUCT ANY TAX OF SOURCE. THE ADDITION CONFIRMED BY LD. CIT(A) BE DELETED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE LEGAL POSITION THAT THE ACTION U/S 147 WAS VITIATED IN LAW SINCE A.O. FAILED TO PASS ANY SPEAKING ORDER ON MERITS VITIATED IN LAW SINCE A.O. FAILED TO PASS ANY SPEAKING ORDER ON MERITS AS MANDATED BY HONBLE SUPREME COURT. THE ASSESSMENT BE QUASHED. 4. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE MADE BY INVOKING THE P ROVISIONS OF SECTION 40(A)(IA) OF THE ACT AT RS.4,48,873/ - . 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS A PRIVATE LIMITED COMPANY AND FOR THE YEAR UNDER CONSIDERATION , THE ASSESSING OFFICER HAD ISSUED NOTICE UNDER SECTION 148 OF THE ACT. IN RE SPONSE TO WHICH, THE ASSESSEE POINTED OUT THAT THE RETURN OF INCOME FILED ON 04.09.2006 MAY BE TREATED AS FILED IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT. THE REASONS FOR REOPENING THE ASSESSMENT IN THIS CASE WERE ON ACCOUNT OF VIOLATION OF PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT . THE ASSESSEE HAD PAID / DEBITED SUM OF RS.3,14,406/ - ON ACCOUNT OF INTEREST LOAN RAISED FROM PHALTAN TRADERS CO - OP. ITA NO S . 1225 & 1226 /PN/20 1 6 PHALTAN SECURITIES PV T. LTD. 3 CREDIT SOCIETY AND SIMILAR ISSUE ALSO AROSE IN ASSESSMENT YEAR 2007 - 08 . THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE OUT OF SU CH EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER THUS, WAS OF THE VIEW THAT THE SAID INCOME HAS ESCAPED ASSESSMENT AND REASONS WERE RECORDED UNDER SECTION 147 OF THE ACT AND THEREAFTER, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THE CO - OPERATIVE SOCIETIES FROM WHOM THE LOAN WAS TAKEN , WAS ENGAGED IN THE BANKING BUSINESS AND SINCE THE LOAN WAS TAKEN FOR CARRYING ON BUSINESS PURPOSE, THE PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT WERE NOT APPLICABLE. HOWEVER, THE ASSESSING OFFICER REJECTED THE CONTENTION OF ASSESSEE IN THIS REGARD AND ADDITION OF RS.4,48,873/ - WAS MADE IN ASSESSMENT YEAR 2006 - 07. 6. THE CIT(A) UPHELD THE ORDER OF ASSESSIN G OFFICER, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT WHERE THE PAYMENT WAS MADE TO A CREDIT CO - OPERATIVE SOCIETY, WHOSE INCOME WAS ENTIRELY EXEMPT UNDER SECTION 80P(2)(A)(I) OF THE ACT, THERE WAS NO OBLIGATION ON THE ASSESSEE TO DEDUCT TAX AT SOURCE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD, FURTHER POINTED OUT THAT IN VIEW OF SECOND PROVISO BEING INSERTED UNDER SECTION 40(A)(IA) OF T HE ACT BY THE FINANCE ACT, 2012, THERE WAS NO OBLIGATION UPON THE ASSESSEE IN SUCH CIRCUMSTANCES TO DEDUCT TAX AT SOURCE AND HENCE, NO MERIT IN ANY DISALLOWANCE. ITA NO S . 1225 & 1226 /PN/20 1 6 PHALTAN SECURITIES PV T. LTD. 4 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW AND POINTED OUT THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENCE THAT THE INCOME OF CREDIT CO - OPERATIVE SOCIETIES IS NOT TAXABLE. 9. ON PERUSAL OF RECORD AND PROVISIONS OF THE ACT, ADMITTEDLY, SECOND PROVISO HAS BEE N INSERTED UNDER SECTION 40(A)(IA) OF THE ACT BY THE FINANCE ACT, 2012. UNDER THE SAID SECOND PROVISO, IT IS PROVIDED THAT IN CASE THE PAYEE PAID THE TAXES ON AFORESAID RECEIPTS, THEN THE ASSESSEE IN SUCH CIRCUMSTANCES CANNOT BE HELD TO BE IN DEFAULT FOR NON - DEDUCTION OF TAX AT SOURCE OUT OF SUCH PAYMENTS. THE COURTS IN THIS REGARD HAVE HELD THAT THE AMENDMENT PROPOSED BY THE FINANCE ACT, 2012 BY WAY OF INSERTION OF SECOND PROVISO UNDER SECTION 40(A)(IA) OF THE ACT IS CLARIFICATORY AND HENCE, RETROSPECTIV E OPERATION WOULD APPLY TO ALL PENDING ASSESSMENTS ALSO. IT IS ALSO HELD BY SEVERAL COURTS THAT IN APPLY TO ALL PENDING ASSESSMENTS ALSO. IT IS ALSO HELD BY SEVERAL COURTS THAT IN CASE THE PAYEE HAS INCLUDED THE SAID RECEIPTS AS PART OF ITS INCOME, THEN NO DISALLOWANCE CAN BE MADE IN THE HANDS OF PAYER AS THIS WOULD AMOUNT TO DOUBLE T AXATION. IN THE FACTS OF THE PRESENT CASE BEFORE THE TRIBUNAL, THE PLEA OF THE ASSESSEE IS ONE STEP FURTHER THAT THE PAYEE WHICH IS A CREDIT CO - OPERATIVE SOCIETY, ENGAGED IN THE BANKING BUSINESS, HAD RECEIVED THE INTEREST PAID BY THE ASSESSEE ON THE LOANS ADVANCED BY IT TO THE ASSESSEE. THE ASSESSEE FURTHER CLAIMS THAT THE INCOME OF SAID CREDIT CO - OPERATIVE SOCIETY IS EXEMPT FROM TAX AND HENCE, THERE IS NO REQUIREMENT FOR DEDUCTION OF TAX OUT OF SUCH PAYMENTS BEING MADE TO THE CREDIT CO - OPERATIVE SOCIETIE S. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES OF THE CASE AND ISSUE RAISED, THERE IS MERIT IN THE CLAIM OF ASSESSEE IN THIS REGARD. IN CASE, THE AMOUNT IS PAYABLE TO A CREDIT CO - ITA NO S . 1225 & 1226 /PN/20 1 6 PHALTAN SECURITIES PV T. LTD. 5 OPERATIVE SOCIETY, WHO IN TURN, HAS INCLUDED THE SAME AS PART OF ITS RECEIPTS, THEN IRRESPECTIVE OF THE FACT WHETHER ANY TAX HAS BEEN PAID BY THE PAYEE AND APPLYING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN HINDUSTAN COC A COLA BEVERAGE PVT. LTD. VS. CIT (2007) 293 ITR 226 (SC), A S PER THE AMENDED PROVISION S OF THE ACT, NO TAX IS TO BE DEDUCTED OUT OF SUCH PAYMENTS, WHERE THE PAYEE HAS INCLUDED THE SAID RECEIPTS AS PART OF ITS INCOME. MERELY BECAUSE THE NET INCOME IN THE HANDS OF SUCH AN ENTITY IS EXEMPT FROM TAX DOES NOT MEAN THAT SINCE NO TAX HAS EVENTUAL LY BEEN PAID BY THE PAYEE, THE SAID SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT IS NOT ATTRACTED. THE HONBLE SUPREME COURT IN HINDUSTAN COCA COLA BEVERAGE PVT. LTD. VS. CIT (SUPRA) HAD HELD AS UNDER: - 10. BE THAT AS IT MAY, CIRCULAR NO. 275/201/95 - IT (B) DATED JANUARY 29, 1997, ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, IN OUR CONSIDERED OPINION, SHOULD PUT AN END TO THE CONTROVERSY. THE CIRCULAR DECLARES 'NO DEMAND VISUALIZED UNDER SECTION 201(1) OF THE INCOME - TAX ACT SHOULD BE ENFORCED AFTER THE T AX DEDUCTOR HAS SATISFIED THE OFFICER - IN - CHARGE OF TDS, THAT TAXES DUE HAVE BEEN DEDUCTOR HAS SATISFIED THE OFFICER - IN - CHARGE OF TDS, THAT TAXES DUE HAVE BEEN PAID BY THE DEDUCTEE - ASSESSEE. HOWEVER, THIS WILL NOT ALTER THE LIABILITY TO CHARGE INTEREST UNDER SECTION 201(1A) OF THE ACT TILL THE DATE OF PAYMENT OF TAXES BY THE DEDUCTEE - ASSESSEE OR THE LIABILITY FOR PENALTY UNDER SECTION 271C OF THE INCOME - TAX ACT'. 11. IN THE INSTANT CASE, THE APPELLANT HAD PAID THE INTEREST UNDER SECTION 201(1A) OF THE ACT AND THERE IS NO DISPUTE THAT THE TAX DUE HAD BEEN PAID BY THE DEDUCTEE - ASSESSEE (M/S. PRADEEP OIL CORPORATION). IT IS NOT DISPUTED BEFORE US THAT THE CIRCULAR IS APPLICABLE TO THE FACTS SITUATION ON HAND. 10. FOLLOWING THE SAME PARITY OF REASONING, THE MATTER IS TO BE DECIDED IN FAVOUR OF THE ASSESSEE AND THE CLAIM OF THE ASSESSEE I S TO BE ALLOWED IN ENTIRETY. HOWEVER, THE ASSESSEE IS DIRECTED TO FILE THE NECESSARY CONFIRMATION BEFORE THE ASSESSING OFFICER THAT THE INCOME ARISING IN THE HANDS OF CREDIT CO - OPERATIVE IS NOT TAXABLE AND / OR TAXES HAVE BEEN PAID THEREON. THE ASSESSING OFFICER SHALL AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND ITA NO S . 1225 & 1226 /PN/20 1 6 PHALTAN SECURITIES PV T. LTD. 6 DECIDE THE ISSUE IN ACCORDANCE WITH OUR DIRECTIONS. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED AS INDICATED ABOVE. 11 . THE FACTS AND ISSUE IN ITA NO.1 226 /PN/2 01 6 ARE IDENTICAL TO THE FACTS AND ISSUE IN ITA NO.1 225 /PN/201 6 AND THE DECISION IN ITA NO. 1225 /PN/201 6 SHALL APPLY MUTATIS AND MUTANDIS TO ITA NO.1 226 /PN/201 6 . 1 2 . IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE ALLOWED AS INDICATED ABOVE. ORDER PRONOUN CED ON THIS 29 TH DAY OF JU LY , 201 6 . SD/ - (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 29 TH JU LY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 2 , PUNE ; 4. / THE PR. CIT - 1 , PUNE ; 5. 6. , , , - / DR SMC , ITAT, PUNE; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE