ACIT, CHENNAI V. Y.V.Subramaniam, CHENNAI

ITA 1460/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8817 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 23-05-2016
• Court: TRIBUNAL
• Department Lawyers: J SANTHANA GOPALAN
• Assessee Lawyers: SHIVA SRINIVAS
• Keywords: Non-deduction of tax

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1460/MDS/2016 / ASSESSMENT YEAR : 2011-12 THE ASSTT. COMMISSIONER OF INCOME-TAX NON CORPORATE CIRCLE 20(1) CHENNAI VS. SHRI Y.V.SUBRAMANIAM NO.25, SIVAJI STREET, T. NAGAR CHENNAI - 17 [PAN AASPS 4780 P ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI J. SANTHANAGOPALAN, FCA /RESPONDENT BY : SHRI SHIVA SRINIVAS, JCIT / DATE OF HEARING : 01 - 0 8 - 2016 ! / DATE OF PRONOUNCEMENT : 10 - 0 8 - 2016 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)- 18, CHENNAI, DATED 5.2.2016 FOR ASSESSMENT YEAR 2011-12. 2. THE REVENUE HAS TAKEN ALTOGETHER SEVEN GROUNDS, OF WHICH GROUND NOS. 1 AND 7 ARE GENERAL IN NATURE REQUIRING NO SPECIFIC ADJUDICATION. ITA NO. 1460/16 :- 2 -: 3. IN GROUND NO.2, THE GRIEVANCE OF THE REVENUE IS THA T THE CIT(A) DELETED THE DISALLOWANCE OF ` 10,56,660/- MADE BY THE ASSESSING OFFICER U/S 40(B) OF THE INCOME-TAX ACT, 1961 [THE ACT IN SHORT]. IT IS STATED THAT THE CIT(A) OUGHT TO HAVE SUSTAINED ATLEAST ` 6,61,057/- OUT OF THE TOTAL DISALLOWANCE OF ` 10,56,660/-. 4. FACTS APROPOS ARE THAT THE ASSESSEE, A MUSIC DIRECTOR AND ALSO A PARTNER IN THE FIRM MAHATHI RECOR DING STUDIO, HAD FILED HIS RETURN DECLARING AN INCOME OF `97,09,960/-. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE IN HIS PROFIT & LOSS ACCOUNT HAD SHOWN A SUM OF `10,5 6,660/- AS INTEREST PAID TO A PARTNERSHIP FIRM WHEREIN THE ASSESSEE WAS A PARTNER. DETAILS WERE CALLED FOR BY THE ASSES SING OFFICER WHICH WERE DULY FURNISHED BY THE ASSESSEE. AFTER P ERUSING THE PARTNERSHIP DEED, THE ASSESSING OFFICER CAME TO T HE CONCLUSION THAT THERE WAS NO CLAUSE STIPULATING ANY PAYMENT OF INTEREST BY THE PARTNER TO THE FIRM. WHEN QUESTIO NED IN THIS REGARD, THE REPLY OF THE ASSESSEE WAS THAT INTEREST WAS CHARGED BY THE FIRM @ 12% WHEN THERE WAS CREDIT BALA NCE IN THE PARTNERS ACCOUNT AND THEREFORE, ON DEBIT BALANC E, THE PARTNER HAD TO PAY SIMILAR INTEREST. ASSESSEE ALS O ADMITTED BEFORE THE ASSESSING OFFICER THAT THE INTEREST IF WORKE D OUT @ 12% WOULD COME ONLY TO ` 6,61,057/- AND NOT `10,56, 660/-. ITA NO. 1460/16 :- 3 -: THE ASSESSING OFFICER WAS OF THE OPINION THAT WHEN TH E PARTNERSHIP DEED DID NOT PROVIDE ANY PAYMENT OF INTE REST BY A PARTNER TO THE FIRM, THE ASSESSEE BEING AN INDIVIDU AL PARTNER COULD NOT UNILATERALLY DECIDE TO CHARGE INTEREST. ACCORDINGLY, HE MADE DISALLOWANCE OF `10,56,660/-. 5. IN ITS APPEAL BEFORE THE CIT(A), ARGUMENT OF THE ASSESSEE WAS THAT SEC. 40(B) APPLIED ONLY FOR PAYMEN T OF INTEREST BY FIRM TO ITS PARTNER AND NOT VICE VERSA. THE CIT(A) WAS APPRECIATIVE OF THIS CONTENTION. ACCORDING TO HIM, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING THE PR OVISIONS OF SEC. 40(B) OF THE ACT FOR MAKING THE DISALLOWANCE O F INTEREST PAID BY THE ASSESSEE TO THE FIRM. HE, THEREFORE, DE LETED THE DISALLOWANCE. 6. NOW BEFORE US, THE LD. DR STRONGLY ASSAILING THE ORDE R OF THE CIT(A) SUBMITTED THAT BEFORE THE ASSESSING OFF ICER THE ASSESSEE HIMSELF WORKED OUT THE INTEREST @ 12% AND ARRIVED AT AN AMOUNT OF `6,61,057/-. AS PER THE LD. DR, TH E CIT(A) ERRED IN DELETING THE DISALLOWANCE IN TOTO. FURTHE R, ACCORDING TO HIM, THE BUSINESS PURPOSE FOR TAKING LOAN FROM TH E PARTNERSHIP FIRM AND THE PAYMENT OF INTEREST WAS NOT DEMONSTRATED BY THE ASSESSEE. ITA NO. 1460/16 :- 4 -: 7. PER CONTRA, THE LD. AR SUPPORTED THE ORDER OF THE CIT(A). 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE RE ASON WHY THE ASSESSING OFFICER MADE DISALLOWANCE IS THAT PARTN ERSHIP DEED DID NOT HAVE A PROVISION FOR PAYMENT OF INTEREST BY THE PARTNER TO THE FIRM. FROM THE CLARIFICATION SUBMITTE D BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, IT SEEMS THAT T HE FIRM WAS CHARGING INTEREST @ 12% ON CREDIT BALANCES IN T HE NAME OF THE PARTNERS. THE ASSESSEE HAD GIVEN A WORK OU T APPLYING THE RATE OF 12% INTEREST ON THE DEBIT BALANCE VIZ. THE AMOUNT DUE FROM HIM TO THE FIRM AND ARRIVED AT A SUM OF ` 6,6 1,057/-. CIT(A) TOOK A VIEW THAT THE INTEREST PAYMENT TO THE PARTNERSHIP FIRM FELL OUTSIDE THE PURVIEW OF SEC. 40( B) OF THE ACT. WHAT WE FIND FROM THE ASSESSMENT ORDER IS THAT THE ASSESSING OFFICER HAD NOT APPLIED THE SAID SECTION AT ALL. WHAT IS STATED BY THE ASSESSING OFFICER IS THAT IF THE P ARTNERSHIP FIRM INTENDED TO CHARGE INTEREST ON DEBIT BALANCE IN THE ACCOUNT OF THE PARTNERS, IT WOULD HAVE PROVIDED SO I N THE PARTNERSHIP DEED. THE QUESTION THAT SHOULD HAVE BE EN ADDRESSED TO THE ASSESSING OFFICER IS WHETHER THE LOA N TAKEN BY THE ASSESSEE FROM THE PARTNERSHIP FIRM ON WHICH INTEREST ITA NO. 1460/16 :- 5 -: OF `10,56,660/- WAS PAID WAS FOR ANY BUSINESS PURPOS E OF THE ASSESSEE. IT IS ADMITTED POSITION THAT THE AMOUNT WAS CHARGED BY THE ASSESSEE TO HIS PROFIT & LOSS ACCOUN T. CONSIDERING THESE ASPECTS, WE ARE OF THE OPINION THA T THE ISSUE REQUIRES FRESH LOOK BY THE ASSESSING OFFICER. T HEREFORE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECI DING AFRESH IN ACCORDANCE WITH LAW. GROUND NO.2 RAISED B Y THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN GROUND NOS. 3 & 4, THE GRIEVANCE OF THE REVENUE I S DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 40(A) (IA) OF THE ACT WAS DELETED BY THE CIT(A). THE DISALLOWANC E WAS TOWARDS INTEREST AND PRE-CLOSURE CHARGES PAID TO M/ S RELIANCE CAPITAL LTD. 10. FACTS APROPOS ARE THAT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE PAID INTEREST OF `22,02,976/- TO M/S RELIANCE CAPITAL LTD. A SUM OF ` 7,90,223/- WAS ALSO PAID AS PRE-CLOSURE CHARGES TO THE SAME COMPANY. THE ASSE SSEE WAS REQUIRED TO EXPLAIN WHY TAX WAS NOT DEDUCTED AT SOU RCE WHILE MAKING THESE PAYMENTS. CLAIM OF THE ASSESSEE WAS T HAT INTEREST PAYMENT TO M/S RELIANCE CAPITAL LTD. FELL U/S 194A(3)(III)(B) OF THE ACT. HOWEVER, THE ASSESSING O FFICER WAS ITA NO. 1460/16 :- 6 -: OF THE OPINION THAT EXEMPTION GIVEN IN THE ABOVE MEN TIONED CLAUSE APPLIED ONLY TO A FINANCIAL CORPORATION ESTAB LISHED UNDER CENTRAL, STATE OR PROVINCIAL ACTS AND NOT TO A PRIVATE CONCERN LIKE M/S RELIANCE CAPITAL LTD. INSOFAR AS PR E-CLOSURE CHARGES WAS CONCERNED, THE OPINION OF THE ASSESSING OFFICER WAS THAT SUCH PRE-CLOSURE CHARGES CAME WITHIN THE D EFINITION OF INTEREST U/S 2(28A) OF THE ACT. HE WAS OF THE OP INION THAT BOTH THESE PAYMENTS ATTRACTED TDS U/S 194A OF THE ACT. THE ASSESSEE HAVING NOT DEDUCTED TAX AT SOURCE ON BOTH THESE PAYMENTS, THE ASSESSING OFFICER APPLIED SEC. 40(A)(IA ) OF THE ACT AND MADE DISALLOWANCE OF THESE AMOUNTS. 11. THE ASSESSEE MOVED IN APPEAL BEFORE THE CIT(A). ARGUMENT OF THE ASSESSEE BEFORE THE CIT(A) WAS THA T M/S RELIANCE CAPITAL LTD. HAD DULY DECLARED THE AMOUNT R ECEIVED FROM THE ASSESSEE IN ITS RETURN OF INCOME AND PAID TAXES. AS PER THE ASSESSEE, THE ASSESSING OFFICER DID NOT MAKE ANY ATTEMPT TO VERIFY THIS SUBMISSION. CASE OF THE ASSE SSEE WAS THAT ONCE THE PAYEE HAD DECLARED THE RECEIPTS IN IT S RETURN AND PAID THE TAXES, ASSESSEE COULD NOT BE CONSIDER ED AS THE ONE IN DEFAULT. THE CIT(A) WAS APPRECIATIVE OF THIS CONTENTION. ACCORDING TO HIM, M/S RELIANCE CAPITAL LTD. HAD SHO WN THE INTEREST AMOUNT AND THE PRE-CLOSURE CHARGES IN ITS RETURN AS ITA NO. 1460/16 :- 7 -: PART OF ITS INCOME AND THEREFORE, ASSESSEE COULD NOT BE FASTENED WITH THE RIGOURS OF SECTION 40(A)(IA) OF THE ACT. THE CIT(A) ALSO FOUND THAT THE AMOUNTS STOOD PAID AND SEC. 40(A)(IA) OF THE ACT DID NOT APPLY TO PAID AMOUNTS . HE, THEREFORE, DELETED THE DISALLOWANCE. 12. NOW BEFORE US, THE LD. DR STRONGLY ASSAILING THE ORDE R OF THE CIT(A), SUBMITTED THAT THE CONTENTION OF THE ASSESSEE BEFORE THE CIT(A) WAS ACCEPTED BY HIM WITHOUT ANY VERIFICATION. AS PER THE LD. DR, THERE WAS NOTHING O N RECORD TO SHOW WHETHER THE PAYEE HAD PROPERLY SHOWN THE RECEI PTS FROM THE ASSESSEE AS PART OF ITS INCOME AND FILED ITS RETURN. WITHOUT VERIFYING THESE ASPECTS, AS PER THE LD. DR, T HE CIT(A) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESS EE. 13. PER CONTRA, THE LD. AR SUPPORTED THE ORDER OF THE CIT(A). 14. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. NO DOUBT, IF THE RECIPIENT OF THE AMOUNTS HAS DULY DECLARED THE RECEIPTS AS PART OF I TS INCOME, ONLY THEN ASSESSEE COULD NOT BE FASTENED WITH THE RIGOURS THA T WOULD FALL ON IT U/S 40(A)(IA) OF THE ACT BY VIRTUE OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE P. LTD. VS CIT, 293 ITR 226, ITA NO. 1460/16 :- 8 -: IF THE RECEIVER OF A SUM HAS SHOWN IT AS PART OF IT S INCOME IN THE RETURN FILED BY IT THEN THE LIABILITY FOR NON-DEDUCTION OF TAX AT SOURCE WAS LIMITED TO THE INTEREST PAYABLE TO THE REVENUE FOR THE INTERREGNUM. THIS FACTUM HAS BEEN ACCEPTED BY THE LEGISLATURE BY ADDITION OF SECOND PROVISO TO SEC. 40(A)(IA) THROUGH ACT 23 OF 2012 WI TH EFFECT FROM 1.4.2013. HOWEVER, WHETHER THE PAYEE HAS DECLARED IN ITS RETURN OF INCOME THE RECEIPT OF INTEREST AND THE PRE-CLOSURE CHARGES REQUIRES VERIFICATION. THOUGH THE ASSESSEE STATES THAT SUB MISSIONS IN THIS REGARD WERE MADE BEFORE THE ASSESSING OFFICER, WE D O NOT FIND ANY VERIFICATION TO HAVE BEEN DONE BY THE ASSESSING OFF ICER. WE ARE, THEREFORE, OF THE OPINION THAT THE QUESTION WHETHER SEC. 40(A)(IA) DISALLOWANCE WAS CALLED FOR ON THE INTEREST PAYMENT AND PRE-CLOSURE CHARGES PAID TO M/S RELIANCE CAPITAL LTD REQUIRES F RESH LOOK BY THE ASSESSING OFFICER. WE, THEREFORE, SET ASIDE THE OR DERS OF THE LOWER AUTHORITIES AND REMIT THE MATTER BACK TO THE FILE O F THE ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. GROUND NOS. 3 AND 4 STAND ALLOWED FOR STATISTICAL PURPOSES. 15. IN GROUND NOS.5 & 6, GRIEVANCE RAISED BY THE REVENU E IS THAT THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ` 6,72,200/- MADE BY THE ASSESSING OFFICER TOWARDS PROFESSIONAL CH ARGES PAID BY THE ASSESSEE, FOR WANT OF DEDUCTION OF TAX A T SOURCE. ITA NO. 1460/16 :- 9 -: 16. FACTS APROPOS ARE THAT THE ASSESSEE HAD CHARGED A SUM OF ` 11,48,400/- UNDER THE HEAD ORCHESTRA PAYME NT. DETAILS OF SUCH PAYMENTS WERE CALLED FOR BY THE ASSE SSING OFFICER. SUCH DETAILS WERE FILED BY THE ASSESSEE. T HE ASSESSING OFFICER FOUND FROM THE LIST SHOWING 14 PERSO NS THAT AGGREGATE PAYMENT IN EACH CASE EXCEEDED ` 30,000/-. AS PER THE ASSESSING OFFICER, BY VIRTUE OF SEC. 194J OF THE A CT, ONCE THE AGGREGATE AMOUNT PAID EXCEEDED ` 30,000/-, IT WAS REQUIRED FOR THE PAYER TO DEDUCT TAX AT SOURCE. THE ASSESSEE HAVING NOT DONE SO, THE ASSESSING OFFICER INVOKED SE C. 40(A)(IA) OF THE ACT AND MADE A DISALLOWANCE OF ` 6, 72,200/-. 17. IN ITS APPEAL BEFORE THE CIT(A), ARGUMENT OF THE ASSESSEE WAS THAT SINCE THE AMOUNTS STOOD PAID, BY VIRTUE OF SPECIAL BENCH DECISION IN THE CASE OF MERILYN SHIPP ING TRANSPORTS VS ADDL. CIT, 16 ITR (TRIB)1, DISALLOWANC E COULD BE MADE ONLY OF PAYABLE AMOUNTS AND NOT PAID AMOUNT S. THE CIT(A) WAS APPRECIATIVE OF THIS CONTENTION AND HE DELETED THE DISALLOWANCE. 18. NOW, BEFORE US, THE LD. DR STRONGLY ASSAILING THE ORDER OF THE CIT(A), SUBMITTED THAT SEC. 40(A)(IA) OF THE ACT APPLIED ALSO TO PAID AMOUNTS. AS PER THE LD. DR, THE PAYMENTS IN THE CASE OF 14 PERSONS CLEARLY EXCEEDED ` ITA NO. 1460/16 :- 10 -: 30,000/- WHICH WAS OUTER LIMIT THAT COULD BE PAID W ITHOUT DEDUCTION OF TAX U/S 194J OF THE ACT. THUS, ACCORDI NG TO HIM, THE CIT(A) IS NOT JUSTIFIED IN DELETING THE DISALLOW ANCE. 19. PER CONTRA, THE LD. AR SUPPORTED THE ORDER OF THE CIT(A). 20. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. BY VIR TUE OF JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF C IT VS CRESCENT EXPORT SYNDICATES DATED 3.4.2013 IN I.T.A. NO.20 OF 2013 AND GUJARAT HIGH COURT IN THE CASE OF CIT VS SK IANDARKHA N. TUNVAR, 33 TAXMAN.COM 133, IN OUR OPINION, THE D ECISION OF SPECIAL BENCH IN MERILYN SHIPPING & TRANSPORTS(SUPR A) IS NO MORE A GOOD LAW. ASSESSEE HAS NOT DISPUTED THE FAC T THAT THE PAYMENTS MADE TO THE 14 PERSONS EXCEED `30,000/- IN EACH CASE DURING THE PREVIOUS YEAR. AS SUCH SEC. 194J S QUARELY APPLIED. SINCE THE ASSESSEE FAILED TO DEDUCT TAX AS STIPULATED U/S 194J, RIGOURS OF SEC. 40(A)(IA) OF THE ACT STOOD ATTRACTED. WE ARE OF THE OPINION THAT THE CIT(A) WAS NOT JUSTIFI ED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND REI NSTATE THE ADDITION MADE BY ASSESSING OFFICER. GROUND NOS. 5 AN D 6 STAND ALLOWED. ITA NO. 1460/16 :- 11 -: 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 10 TH AUGUST, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF