Thukral Regal Shoes, Chandigarh V. ACIT, Chandigarh

ITA 167/CHANDI/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95749 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained investment; Depreciation; Business expenditure; Proportionate interest; Commercial expediency
• Section: 194C; 69

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 92/CHD/2013 ASSESSMENT YEAR: 2009-10 THE ACIT, VS. M/S THUKRAL REGAL SHOES, CIRCLE 2(1), CHANDIGARH CHANDIGARH PAN NO. AAAFT5204F ITA NO. 167/CHD/2013 ASSESSMENT YEAR: 2009-10 M/S THUKRAL REGAL SHOES, VS. THE ACIT, CIRCLE 2(1) , CHANDIGARH CHANDIGARH PAN NO. AAAFT5204F (APPELLANT) (RESPONDENT) APPELLANT BY : MS. CHANDER KANTA RESPONDENT BY : SH. GURJEET SINGH DATE OF HEARING : 07.12.2015 DATE OF PRONOUNCEMENT : 08.12.2015 ORDER PER H.L.KARWA, VP THESE TWO APPEALS BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A), CHANDIGARH DATED 16.11.2012 RE LATING TO ASSESSMENT YEAR 2009-10. 2. FIRSTLY, WE WILL TAKE UP REVENUES APPEAL IN ITA NO. 92/CHD/2013. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) IN APPEAL NO. 683/11-12, HAS ERRED IN DELETI NG ON THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT(A) HAS ERRED IN FACTS AS WELL AS IN LAW IN DELETING THE DISALLOWANCE OF PROPORTIONATE INTEREST ON FUNDS ADVANCED / DIVERTED TO ITS PARTNERS FOR PURCH ASE OF PROPERTIES IN THEIR OWN NAMES U/S 36(1)(III) OF THE INCOME- TAX ACT, 1961. . 2. THE LD. CIT(A) HAS ERRED IN FACTS AS WELL AS IN LAW IN DELETING THE ADDITION OF RS. 1,96,78,555/- U/S 69 O F THE INCOME-TAX ACT, 1961 ON ACCOUNT OF UNEXPLAINED INVESTMENT. 3. GROUND NO.1 OF THE APPEAL RELATES TO DISALLOWANC E OF PROPORTIONATE INTEREST ON FUNDS ADVANCES / DIVERTED TO TWO PARTNE RS. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM WHICH DEALS IN PURC HASE AND SALE OF SHOES AND LEATHER PRODUCTS. THE ASSESSEE HAD GIVEN INTEREST F REE ADVANCE TO ITS PARTNERS NAMELY SHRI GURJIT SINGH (RS. 25,86,737/-), SHRI HA RINDER SINGH (RS. 2,55,000/-) AND M/S SKYNET BUILDERS (RS. 10,00,000/-) AGGREGATI NG TO RS. 38,41,737/-. THE ASSESSING OFFICER HAS WORKED OUT THE INTEREST TO BE DISALLOWED @ 12% WHICH COMES TO RS. 4,61,008/-. 4. ON APPEAL, THE CIT(A) ALLOWED THE GROUND OF APPE AL RAISED BY THE ASSESSEE STATING THAT ISSUE HAS BEEN ADJUDICATED IN FAVOUR O F THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES CASE IN ITA NO.. 650/CHD/2011 RELATIN G TO ASSESSMENT YEAR 2007- 08 VIDE ITS ORDER DATED 27.4.2012. 5. AFTER HEARING THE PARTIES, WE FIND THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECI SION OF THIS BENCH OF THE 3 TRIBUNAL DATED 27.4.2012 IN ITA NO. 650/CHD/2011 RE LATING TOM ASSESSMENT YEAR 2007-08. WHILE DECIDING A SIMILAR ISSUE, THE TRIBU NAL OBSERVED AS UNDER:- 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE FACTS OF THE PRESENT CASE BEFORE US , THE ASSESSEE FIRM IS CARRYING ON THE BUSINESS OF RUNNIN G SHOWROOMS OF FOOTWEAR. THE ASSESSEE FIRM IS CONSTI TUTED OF THREE PARTNERS S/SHRI GURJIT SINGH, HARINDER SINGH AND ANOOP SINGH. THE ASSESSEE WAS RUNNING THE SHOP UND ER THE NAME AND STYLE THUKRAL REGAL SHOES IN SCO 88, SECTO R 17-D, CHANDIGARH SINCE 1976. THE SAID PREMISES WERE IN POSSESSION OF THE ASSESSEE ON RENTAL BASIS. HOWEVE R, PURSUANT TO THE SUIT FILED FOR EVICTION, THE ASSESS EE WAS OUSTED FROM THE SAID PREMISES. THE ASSESSEE WAS AL SO RUNNING ANOTHER SHOWROOM FROM SCO 1122, SECTOR 22-D , CHANDIGARH ON RENT SINCE 1.9.2004. THE ASSESSEE TH EREAFTER ARRANGED FUNDS BY WAY OF LOANS AGAINST THE RESIDENT IAL PROPERTY OWNED BY THE PARTNERS AND OTHER FAMILY MEM BERS AND THE SAID LOANS WERE UTILIZED FOR GIVING ADVANCE S TO THE PARTNERS TO THE TUNE OF RS.1,18,16,126/- EACH. THE PARTNERS UTILIZED THE SAID FINANCES TO PURCHASE THE FOLLOWIN G PROPERTIES: - SCO 257, SECTOR 14, PANCHKULA. - SCO 258, SECTOR 14, PANCHKULA - SCO 259, SECTOR 14, PANCHKULA - 1/3 RD SHARE OF BAY SHOP NO.44-45, SECTOR 22-C, CHANDIGARH. - SCO 3, SECTOR 11, CHANDIGARH 8. HOWEVER, SCO 259, SECTOR 14 PANCHKULA IN THE NAM E OF S/SHRI GURJIT SINGH AND HARINDER SINGH WAS SOLD ON 27.11.2006 FOR TOTAL CONSIDERATION OF RS.1.22 CRORE S. THE PLEA OF THE ASSESSEE IS THAT THE SAID ASSETS HAD TO BE SOLD OF IN ORDER TO PAY OFF THE BURDEN OF LOAN AND INTEREST FROM BANKS AND INSTITUTIONS. ALL THE PROPERTIES PURCHAS ED BY THE ASSESSEE ARE COMMERCIAL PROPERTIES, AS PER THE CLAI M OF THE 4 ASSESSEE. THE ASSESSEE IS RUNNING ITS BUSINESS FRO M SCF 3, SECTOR 11, CHANDIGARH UNDER THE NAME AND STYLE OF S HE WALK AND ALSO FROM BAY NO.44-45, SECTOR 22-C, THE SISTER CONCERN OF THE ASSESSEE IS RUNNING THE BUSINESS OF FOOTWEAR . NO RENT IS BEING PAID TO THE PARTNERS OF THE ASSESSEE FIRM WHO ARE THE OWNERS OF THE RESPECTIVE PREMISES PURCHASED BY THE SAID PARTNERS. 9. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAIN ST THE DISALLOWANCE OF INTEREST ON INTEREST FREE ADVANCES MADE BY THE ASSESSEE TO ITS PARTNERS. THE ASSESSEE FIRM HAD ADVANCED LOANS TO THE PARTNERS, WHICH WAS INTEREST FREE, WHI CH IN TURN WAS UTILIZED FOR THE PURCHASE OF COMMERCIAL ASSETS, ADMITTEDLY FROM TWO OF WHICH THE ASSESSEE IS RUNNIN G ITS BUSINESS AND BALANCE TWO ARE COMMERCIAL ASSETS AVAI LABLE WITH THE ASSESSEE. THE ASSESSEE HAD BORROWED FUNDS FROM INSTITUTION AND BANKS IN ORDER TO ADVANCE THE AFORE SAID LOANS TO THE PARTNERS AND THE SAID INTEREST PAID BY THE ASSESSEE FIRM WAS CLAIMED AS AN EXPENDITURE IN ITS HANDS. THE CLAIM OF THE ASSESSEE IS THAT THE PRINCIPAL AND THE PART OF THE INTEREST EXPENDITURE WHICH IS BEING PAID BY THE ASSESSEE FIRM IS FUNDED OUT OF THE LOAN REPAID BY T HE PARTNERS OUT OF ONE OF THE ASSETS SOLD BY THE PARTN ERS OF THE ASSESSEE FIRM. THE CLAIM OF COMMERCIAL EXPEDIENCY IN THE ABOVE SAID CIRCUMSTANCES IS ESTABLISHED IN THE HAND S OF THE ASSESSEE FIRM WHERE IT HAD UTILIZED ITS INTEREST BE ARING FUNDS FOR MAKING ADVANCES TO THE PARTNERS WHO IN TURN HAV E INVESTED THE SAID ADVANCES FOR THE PURCHASE OF COMM ERCIAL ASSETS, FROM WHICH THE ASSESSEE FIRM AND ITS SISTER CONCERN WERE RUNNING THEIR BUSINESS. IN THE ENTIRETY OF TH E FACTS AND CIRCUMSTANCES OF THE CASE WE FIND NO MERIT IN THE O RDERS OF THE AUTHORITIES BELOW IN RELYING UPON THE RATIO LAI D DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ABHISHEK INDUSTRIES (SUPRA). 10. THE ISSUE IN THE PRESENT CASE IS COVERED BY THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN S.A. BUIL DERS 5 LTD. VS. CIT [288 ITR 1 (SC)], WHEREIN IT HAS BEEN HELD AS UNDER: 25. THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET I T IS ALLOWABLE AS A BUSINESS EXPENDITURE, IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. 11. IT HAS BEEN FURTHER HELD AS UNDER: 34. WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIG H COURT IN CIT V. DALMIA CEMENT (BHARAT) LTD. [2002] 254 ITR 377 2 THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF TH E BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINES S OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFI ABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT. THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FR OM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED ABOVE, WE HAVE TO SE E THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONC ERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. 35. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OP INION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER CONCERN UTILIZE THE AMO UNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONE Y WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAID TO BE ADVANCED TO A SISTER CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OTHER CIRCUMSTANCES (WHICH NEED 6 NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINESS PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. 12. FOLLOWING THE ABOVE SAID RATIO LAID DOWN BY THE APEX COURT AND IN VIEW OF THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE ASSESSING OFFICER TO ALLOW CLAIM OF INTEREST EXPENDITURE IN THE HANDS OF THE ASSESSEE FIRM TOTALING RS.43,33,793/-. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. THERE IS NO MATERIAL CHANGE IN THE FACTS OF THE PRE SENT YEAR AS COMPARED TO THE FACTS OF ASSESSMENT YEAR 2007-08. RESPECTFULLY FOL LOWING THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEES CASE REFERRED TO ABOV E, WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE REVENUE AND, HENCE, THE SA ME IS DISMISSED. 6. VIDE GROUND NO.2 OF THE APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF CIT(A) IN DELETING THE ADDITION OF RS. 1,96,78,555/ - MADE U/S 69 OF THE ACT. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN PARA 6 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER OBSERVED THAT IN THE SCHEDULE FOR FIXED ASSETS, THE ASSESSEE HAD SHOWN COST OF SHOWROOM AND PLOTS AT RS. 6,12,16,997 /-. THE ASSESSEE WAS REQUIRED TO FILE THE DETAILS OF VARIOUS PROPERTIES. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT T HE TOTAL AMOUNT OF THE PROPERTY WAS RS. 8,08,95,522/- AND AS PER THE SCHEDULE FOR F IXED ASSETS IT WAS AT RS. 6,12,16,997/- THE ASSESSING OFFICER ASKED THE ASSES SEE TO EXPLAIN THE DIFFERENCE OF RS. 1,96,78,555/- IN THE INVESTMENT IN PROPERTIE S. ACCORDING TO ASSESSING OFFICER, THE ASSESSEE HAD RECORDED INVESTMENTS OF R S. 6,12,16,997/- IN THE BOOKS 7 OF ACCOUNT WHEREAS THE ANNUAL INVESTMENT MADE BY TH E ASSESSEE WAS RS. 8,08,95,552/-. ACCORDINGLY, THE ASSESSING OFFICER A DDED A SUM OF RS. 1,96,78,555/- U/S 69 OF THE INCOME-TAX ACT, 1961 (I N SHORT 'THE ACT') AND ADDED THE SAME AS INCOME OF THE ASSESSEE. 7. ON APPEAL, THE CIT(A) DELETED THE ADDITION, OBSE RVING AS UNDER:- 7.3 I HAVE CONSIDERED THE FACTS OF THE CASE AN D HAVE GONE THROUGH THE DETAILED REPLY FILED BY THE APPELLANT. IT HAS BEEN EXPLAINED BY THE APPELLANT THAT THE AMOUNTS WERE AD VANCED BY THE APPELLANT FIRM AND ITS SISTER CONCERN M/S FENZER SH OES TO THE PARTNERS, WHO HAD PURCHASED PROPERTIES, WHICH HAVE BEEN TAKEN INTO THE BALANCE SHEET OF THE APPELLANT AND M/S FEN ZER SHOES. THE ADDITION OF RS. 1,96,78,555/- HAS BEEN MADE ON THE GROUND THAT THE APPELLANT HAD RECORDED INVESTMENT OF RS. 6,12,16,997/- ONLY IN ITS BOOKS OF ACCOUNTS, WHEREA S ACTUAL INVESTMENT IN THE PROPERTIES WAS RS. 8,08,95,552/-. THE ASSESSING OFFICER HAS NOT BROUGHT OUT AS TO HOW THE DIFFERENCE OF RS. 1,96,78,555/- IS UNEXPLAINED INVESTMENT OF THE APPELLANT FIRM U/S 69 OF THE ACT. SIMPLY BECAUSE IN THE SCHEDULE OF FIXED ASSETS, THE APPELLANT HAS SHOWN COST OF SHOWROOMS AND PLOTS AT RS. 6,12,16,997/- AS AGAINST TOTAL CONSIDERATION PAID O F RS. 8,08,95,552/-, DOES NOT MEAN THAT THE DIFFERENCE OF THESE TWO AMOUNTS BECOMES UNEXPLAINED INVESTMENT OF THE APPEL LANT FIRM. THE ADDITION U/S 69 CAN BE MADE ONLY IF THE ASSESSI NG OFFICER IS ABLE TO PROVE THAT THE ASSESSEE HAS MADE SOME UNEXP LAINED INVESTMENT. IN THE CASE OF THE APPELLANT FIRM, IT D OES NOT SO TRANSPIRE AND HENCE IT IS HELD THAT THE ASSESSING W AS NOT RIGHT IN MAKING THE IMPUGNED ADDITION, WHICH IS DELETED. GRO UND OF APPEAL NO. 5 IS ALLOWED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS TRUE THAT AN ADDITION U/S 69 OF THE ACT CAN BE MADE ONLY IF THE ASSESSING OFFICER I S ABLE TO PROVE THAT THE 8 ASSESSEE HAS MADE SOME UNEXPLAINED INVESTMENT. IN T HE INSTANT CASE, THERE IS NO EVIDENCE ON RECORD TO SHOW THAT ASSESSEE HAD MADE SOME UNEXPLAINED INVESTMENT IN THE PROPERTIES. THERE IS NO DISPUTE T HAT THE ASSESSEE HAD MENTIONED INVESTMENT OF RS. 6,12,16,997/- IN ITS BOOKS OF ACC OUNT. IT APPEARS THAT ON THE BASIS OF DETAILS FURNISHED BY THE ASSESSEE THE ASSE SSING OFFICER CAME TO THE CONCLUSION THAT THERE WAS A DIFFERENCE OF RS. 1,96, 78,555/- IN THE INVESTMENT IN THE PROPERTIES. HOWEVER, THERE IS NO EVIDENCE ON RE CORD THE PROVE THAT THE ASSESSEE HAS MADE ANY UNEXPLAINED INVESTMENT IN THE PROPERTIES TO JUSTIFY THE ADDITION U/S 69 OF THE ACT. IN THAT VIEW OF THE M ATTER, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL AND ACCORDINGLY THE SAME I S DISMISSED. ITA NO. 167/CHD/2013:- 9. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- I. ADDITION OF RS. 28,70,608/- U/S 40(A)(IA) ON ACCOUNT OF NON- DEDUCTION OF TAX AT SOURCE FROM THE EMIS WITHDRAWN BY THE NON BANKING FINANCIAL INSTITUTIONS FOR WHICH NBFC WERE AUTHORIZED BEFORE SANCTION / RELEASE OF THE LOAN TO THE APPELL ANT ASSESSEE. II. ADDITION OF RS. 23,89,776/- ON ACCOUNT OF DEP RECIATION FROM THE PLOT FRO SHOP-CUM-OFFICES. III. DENIAL OF INTEREST AMOUNTING TO RS. 56,51,34 6/- AS EXPENDITURE U/S 36(1) (III) OF THE INCOME-TAX ACT F OR NOT PUTTING TO USE SHOWROOM PLOTS SCO 257 & 258 IN SECTOR 14, PANC HKULA. 10. AS REGARDS, THE GROUND NO. I OF THE APPEAL, THE FACTS ARE THAT THE ASSESSEE HAD PAID INTEREST TO A NON BANKING FINANCIAL INSTIT UTION AND HAD NOT DEDUCTED THE TAX ON THE SAME. ACCORDINGLY, THE ASSESSING OFFICER MADE ADDITION OF RS. 28,70,608/- U/S 40(A)(IA) OF THE ACT. 9 11. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION F OR THE REASONS STATED IN PARA 3.2 TO 3.2.10 OF THE IMPUGNED ORDER. 12. WE HAVE HEARD THE PARTIES AND LENGTH AND HAVE A LSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS OBSERVED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY THE DECISIO N OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF P.M. DIESEL (2015) 374 I TR 502 (P&H). IN THE ABOVE CASE THE HON'BLE JURISDICTIONAL HIGH COURT HAS HE LD THAT THE REQUIREMENT TO DEDUCT TAX AT SOURCE IS MANDATORY AND THAT THE PROV ISIONS OF SECTION 40(A)(IA) OF THE ACT APPLY TO ASSESSEE WHO IS FOLLOWING THE CAS H SYSTEM AS WELL AS WHO IS FOLLOWING THE MERCANTILE SYSTEM. THE HON'BLE HIGH COURT FURTHER HELD THAT IF AN ASSESSEE IS LIABLE TO DEDUCT AND PAY TDS U/S 1 94C OF THE ACT AND IF ASSESSEE FAILS TO DO SO, THE PAYMENTS IN RESPECT OF WHICH TH E TDS WAS TO BE DEDUCTED AND PAID HOWEVER ARE TO BE DISALLOWED IN VIEW OF SECTIO N 40(A)(IA) OF THE ACT. THE HON'BLE HIGH COURT HAS CATEGORICALLY HELD THAT THE LIABILITY TO DEDUCT TAX AT SOURCE UNDER THE PROVISIONS OF CHAPTER XVII IS MAND ATORY. A PERSON RESPONSIBLE FOR PAYING ANY SUM IS ALSO BEEN LIABLE TO DEPOSIT T HE AMOUNT IN THE GOVERNMENT ACCOUNT. ALL THE SECTIONS IN CHAPTER XVII-B REQUIRE A PERSON TO DEDUCT TAX AT SOURCE AT THE RATES SPECIFIED THEREIN. THE REQUIREM ENT IN EACH OF THE SECTIONS IS PROCEED BY THE WORD SHALL. THE HON'BLE HIGH COURT OBSERVED THAT THE PROVISIONS ARE THEREFORE, MANDATORY. THE HON'BLE H IGH COURT HAS ALSO REFERRED TO THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE (2013) 216 TAXMAN 258 (CAL), WHERE IN IT HAS BEEN HELD THAT THE PROVISIONS OF SECTION UNDER 194C AND SECTION 40 (A)(IA) ARE MANDATORY PROVISIONS AND APPLICABLE TO THE ENTIRE SUM CONTEMP LATED UNDER THE RESPECTIVE SECTIONS. THE HON'BLE PUNJAB & HARYANA HIGH COURT HAS ALSO REFERRED TO THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V SIKANDAR KHAN N. TUNWAR AND OTHERS [2013] 357 ITR 312 (GUJ. ) WHEREIN THE HON'BLE 10 GUJARAT HIGH COURT HAS HELD THAT DECISION OF THE S PECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MEARILYN SHIPPING & TRANSPORT VS. A CIT (SUPRA) DOES NOT LAY DOWN CORRECT LAW. THE HON'BLE PUNJAB & HARYANA HIG H COURT AGREED WITH THE CONCLUSION AND REASONING OF THE DECISION RENDERED B Y HON'BLE GURJARAT HIGH COURT IN THE CASE OF CIT V SIKANDAR KHAN N. TUNWAR AND OTHERS (SUPRA). THE RATIO LAID DOWN BY THE HON'BLE GUJARAT HIGH COURT I S THAT SECTION 40(A)(IA) OF THE ACT WOULD COVER NOT ONLY THE AMOUNT WHICH ARE P AYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. IT IS ALSO RELEVANT TO OBSERVE HERE THAT HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF P.M.S. DIESELS & OTHERS V CIT (SUPRA) DID N OT AGREE WITH THE VIEW TAKEN BY THE DIVISION BENCH OF HON'BLE ALLAHABAD HIGH C OURT IN CASE OF CIT VS. M/S VECTOR SHIPPING SERVICES (P) LTD.,[2013] 262 CTR (A LL.) 545. RESPECTFULLY FOLLOWING THE ORDER OF THE HON'BLE JUR ISDICTIONAL HIGH COURT REFERRED TO ABOVE, WE DISMISS GROUND NO.1 OF THE AP PEAL. 13. GROUND NO. II OF THE APPEAL IS DIRECTED AGAINST THE ACTION OF CIT(A) IN CONFIRMING THE ADDITION OF RS. 23,89,776/- CLAIMED BY THE ASSESSEE AS DEPRECIATION ON TWO SHOW ROOMS PLOTS IN PANCHKULA. THE ASSESSING OFFICER DISALLOWED DEPRECIATION ON THESE PLOTS ON THE GROU ND THAT THESE WERE NOT PUT TO USE DURING THE YEAR. 14. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANC E STATING THAT DEPRECIATION ON SHOW ROOM PLOTS AND DEPRECIATION O F LAND IS NOT ALLOWABLE AS PER INCOME-TAX RULES, 1962. ACCORDING TO HIM, WHE THER THESE PLOTS WERE PUT TO USE OR NOT, THE DEPRECIATION, IN ANY CASE, IS NOT A LLOWABLE. 11 15. AFTER HEARING BOTH THE PARTIES, WE ARE IN AGREE MENT WITH THE FINDINGS OF THE CIT(A) THAT DEPRECIATION ON SHOW ROOM PLOTS AND DEPRECIATION ON LAND IS NOT ALLOWABLE AS PER INCOME TAX RULES, 1962. WE, THEREF ORE, UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUND NO.II OF THE APPEAL. 16. GROUND NO. III OF THE APPEAL IS DIRECTED AGAINS T THE ORDER OF CIT(A) IN CONFIRMING THE ADDITION OF RS. 56,51,346/- MADE U/S 36(1) (III) OF THE ACT. IN FACT, THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS. 27,80,738/- AND NOT RS. 56,51,346/- MENTIONED BY THE ASSESSEE IN THE GR OUND AS PER THE PROVISO TO SECTION 36(1)(III) OF THE ACT. THE RELEVANT OBSERVA TIONS MADE BY THE ASSESSING OFFICER ARE AS UNDER:- 4. THE ASSESSEE HAS RAISED BANS AND THE SAME HAS B EEN UTILIZED FOR PURCHASE OF PROPERTY IN THE HANDS OF THE PARTNERS. AS MENTIO NED IN THE PRECEDING PARA THE PROPERTIES SHOWROOM, PLOT, SCO-257, SEC-14, PAN CHKULA AND SHOWROOM, PLOT, SCO-258, SEC-14, PANCHKULA HAVE NOT BEEN PUT TO USE. THE PROVISO TO SECTION 36 (1)(III) OF THE INCOME TA X ACT, INSERTED W.E.F. 01- 04.2004 READS AS UNDER:- 'THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS & PROFESSION; PROVIDED THAT ANY AMOUNT OF INTEREST PAID, IN RESPE CT OF CAPITA! BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNTS OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAP ITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE. SHALL NOT BE ALLOWED AS DEDUCTION.' THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF C!T VS ABHISHEK INDUSTRIES VS. CIT HAS HELD AS UNDER - 'THE ENTIRE MONEY IN A BUSINESS ENTITY COMES IN A C OMMON KITTY. THE MONIES RECEIVED AS SHARE CAPITAL, AS TERM LOAN, AS WORKING CAPITA! LOAN, AS SALE PROCEEDS ETC, DO NOT HAVE ANY COLOUR. WHATEVER ARE THE 12 RECEIPTS IN BUSINESS, THEY HAVE THE COLOUR OF BUSIN ESS RECEIPTS AND HAVE NO SEPARATE IDENTIFICATION. SOURCES HAVE NO CONCERN WHATSOEVER. AN ASSESSEE WITH LIQUIDITY CANNOT CLAIM THAT IT CAN GIVE ADVANCES TO THE PARTNERS AND OTHERS AND THAN BORROW FUNDS FROM THE BANK ON INTEREST FOR BUSINESS PURPOSE. HAD THIS MONEY NOT BEEN ADVAN CED, IT WOULD HAVE BEEN AVAILABLE TO THE ASSESSEE FOR ITS BUSINESS PUR POSES AND TO THAT EXTENT IT MAY NO HAVE BEEN NECESSARY TO BORROW FROM THE BANKS.' IN VIEW OF THE ABOVE, PROPORTIONATE INTEREST ON THE AMOUNT OF INVESTMENT MADE IN THESE TWO PROPERTIES IS NOT TO BE ALLOWED. THE I NTEREST ON THE INVESTMENT IN THE ABOVE TWO PROPERTIES @ 12% PER ANNUM WORKS OUT TO RS. 57,35.4627-(12% OF RS.4,77,95,522/-). THE ASSESSEE HAS CLAIMED INTE REST EXPENSES OF RS. 56,51,346/-. ACCORDINGLY, THE DISALLOWANCE IS RESTR ICTED TO RS. 56.51,346/-. HOWEVER, IN PARA 2 ABOVE INTEREST FOR RS. 28,70,608 /- HAS ALREADY BEEN DISALLOWED BY APPLYING PROVISIONS OF SECTION 40A(IA ) OF THE INCOME TAX ACT. THEREFORE, THE BALANCE AMOUNT OF INTEREST I.E. RS. 56,51,346 - RS. 28,70,608/-= RS. 27,80,738/- IS FURTHER BEING DISALLOWED. PENALT Y PROCEEDINGS U7S 271(1)(C) OF THE INCOME TAX ACT ARE BEING INITIATED FOR FURNI SHING INACCURATE PARTICULARS OF INCOME ON THIS ISSUE. 17. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANC E FOR THE REASONS STATED IN PARAS 5.2 TO 5.2.2 OF THE ORDER. 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND FAC TS AVAILABLE ON RECORD, IT IS CLEAR THAT THE PROPERTIES, SHOWROOM PLOT SCO- 257, SECTOR 14 PANCHKULA AND SHOWROOM PLOT SCO - 258, SECTOR 14, PANCHKULA HAVE NOT BEEN PUT TO USE IN THE YEAR UNDER CONSIDERATION. THUS, IN VIEW OF THE PROV ISO TO SECTION 36(1)(III) OF THE ACT, INSERTED W.E.F. 1.4.2004 IN THE ACT, THE L OWER AUTHORITIES WERE JUSTIFIED IN DISALLOWING THE INTEREST OF RS. 27,80,738/- CLAI MED AS EXPENSES U/S 36(1)(III) OF THE ACT. ACCORDINGLY, GROUND NO. III OF THE APPE AL IS HEREBY DISMISSED. 13 19. IN THE RESULT, ITA NO. 92/CHD/2013 AND ITA NO. 167/|CHD/2013 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.12.2015 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 8 TH DECEMBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR