The ACIT,Patan Circle, Patan V. M/s. Gayatri Construction Co., Mehsana

ITA 1741/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1642 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-04-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 06-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS SOMUGYAN PAL
• Assessee Lawyers: M K PATEL
• Keywords: Notional interest

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ I.T.A. NO.1741/AHD/2012 ( / ASSESSMENT YEAR : 2005-06) THE ACIT PATAN CIRCLE PATAN / VS. M/S.GAYATRI CONSTRUCTION CO. 5/A/SARDARGUJ MARKEWT AT+PO- VISANAGAR ./ ./ PAN/GIR NO. : AABFG 5422 D ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : MRS. SOMUGYAN PAL, SR.DR / RESPONDENT BY : SHRI M.K. PATEL / DATE OF HEARING 22/4/2016 !'# / DATE OF PRONOUNCEMENT 11/05/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTNAT MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-GANDHINAGAR DAT ED 16/05/2012 FOR THE ASSESSMENT YEAR 2005-06. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- 2.1. THE ASSESSEE FILED ITS RETURN OF INCOME FOR A Y 2005-06 ON 22/3/2006 DECLARING TOTAL INCOME OF RS.2,66,060/-. ASSESSMEN T WAS FRAMED U/S.143(3) ITA NO. 1741/AH D/2012 ACIT VS. M/S. GAYATRI CONSTRUCTION CO. ASST.YEAR 2005-06 - 2 - DATED 28/12/2007 ON TOTAL INCOME OF RS.2,58,62,993 /-. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER (AO), THE ASSESSEE C ARRIED THE MATTER BEFORE THE LD.CIT(A) WHO DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE MATTER WAS CARRIED BEFORE THE HONBLE TRIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 15/05/2009 IN ITA NO.3667 /AHD/2008 RESTORED THE MATTER TO CIT(A) FOR DISPOSING THE APPEAL AFRESH I N ACCORDANCE WITH LAW. PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL, THE LD. CIT(A) VIDE ORDER DATED 16/05/2012 (BEARING NO.CIT(A)-GNR/SET ASIDE/ITO-TDS PTN/55 2009- 10) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIE VED BY THE ORDER OF THE LD.CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS: 1. THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE AO OF RS.2,49,4,106/- U/S .40(A)(IA) OF THE ACT FOR PAYMENT TOWARDS LABOUR CHARGES AND OF RS.5, 08,688/- FOR CARTING CHARGES,AS NO TDS WAS DEDUCTED AS PER SECTI ON 194C. 2. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE ADDITION MADE BY THE AO OF RS.70,830/- MADE AS NOTIONAL INTEREST INCOME. 3. GROUND NO.1 IS WITH REFERENCE TO DISALLOWANCE U/ S.40(A)(IA) OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD MADE PAYMENT OF RS.23,49,74,106 TO WARDS LABOUR CHARGES WHICH ALSO INCLUDED PAYMENT OF LABOUR CHARG ES WHICH EXCEEDED RS.50,000/- AND ON WHICH THE ASSESSEE DID NOT DEDUC T TDS U/S.194C OF ITA NO. 1741/AH D/2012 ACIT VS. M/S. GAYATRI CONSTRUCTION CO. ASST.YEAR 2005-06 - 3 - THE ACT. (THE DETAILS OF PAYMENT ARE LISTED AT PAG E -2, PARA-4 OF THE ORDER). THE AO WAS OF THE VIEW THAT THE PAYMENT W ITHOUT DEDUCTION OF TDS WOULD RESULT IN ATTRACTION OF PROVISIONS OF SEC TION 40(A)(IA) OF THE ACT. HE ACCORDINGLY, DISALLOWED THE PAYMENT OF RS. 2,49,74,106/-. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARR IED THE MATTER BEFORE THE BEFORE THE LD.CIT(A), WHO DECIDED THE MATTER BY HOLDING AS UNDER:- 5.2. I HAVE GONE THROUGH THE FACTS OF THE CASE R ELEVANT TO THE TWO GROUNDS. THE BASIS CONTENTIONS OF THE APPELLANT ARE TWO FOLD : I) ONCE THE AMOUNT IN QUESTION RELEVANT TO THE EXPENDI TURE CLAIMED ARE PAID DURING THE YEAR, NO DISALLOWANCE U/S.40(A)(IA) CAN BE MADE. II) NO TDS WAS DEDUCTIBLE ON THE FACTS OF THE CASE . I HAVE GONE THROUGH THE FACTUAL ASPECTS OF THE FIRS T CONTENTION. IT IS SEEN THAT THE DISALLOWANCES OF EXPENSES HAD BEEN MADE BASED O N THE VOUCHERS WHERE PAYMENT WAS ALREADY MADE. I HAVE VERIFIED THIS AFTE R CALLING THE BOOKS OF ACCOUNT, WHICH- WERE DULY PRODUCED BEFORE ME (WERE PRODUCED BEFORE AO ALSO, WHO HAD EXAMINED AND COMMENTED ON THE VOUCHER S ALSO). NONE OF THE PAYEE'S CONCERNED EXISTS IN THE LIST OF CREDITORS A S ON 31/03/2005 AS PER THE AUDITED ACCOUNTS. THEREFORE THE FACT IS THAT THE AM OUNT IN QUESTION RELEVANT TO THE EXPENDITURE CLAIMED ARE PAID DURING THE YEAR, A ND NO AMOUNT REMAINED PAYABLE AT THE END OF THE YEAR. FOLLOWING THE JUDIC IAL DISCIPLINE, AS THE SPECIAL BENCH DECISION OF THE HON'BLE ITAT IN THE C ASE OF MERILYN SHIPPING & TRANSPORTS -20 TAXMAN.COM 244 IS IN FAVOUR OF THE APPELLANT AND THERE IS NO DECISION OF ANY HIGH COURT ON THE ISSUE IN MY KN OWLEDGE; I HOLD THAT ONCE THE PAYMENTS ARE MADE AND NO AMOUNT IS PAYABLE AS O N 31/3 OF THE RELEVANT PREVIOUS YEAR, NO DISALLOWANCE U/S 40(A)(IA) CAN BE MADE. I HAVE ALSO NOTED THAT THE HONORABLE JURISDICTIONAL ITAT, I.E., AHMED ABAD D BENCH IN THE CASE OF N K JEWELLERS, IN ITS RECENT ORDER DATED 27-04-2 012 IN ITA NO 638/AHD/2005-06 HAS FOLLOWED THE SPECIAL BENCH ORDE R CITED ABOVE. IN THE LIGHT OF THIS, AS THESE EXPENDITURE IS ALREADY PAID BEFORE THE END OF THE YEAR, NO DISALLOWANCE IS CALLED FOR; AND THE GROUNDS OF A PPEAL NO.L AND 2 AS ABOVE ARE ALLOWED. NO DECISION IS REQUIRED TO BE TAKEN ON THE ISSUE OF WHETHER TDS WAS REQUIRED TO BE DEDUCTED UNDER THE PROVISIONS OF THE ACT AS T HIS HAS BECOME ACADEMIC. THIS ISSUE OTHERWISE REQUIRES DEEP EXAMINATION OF V ARIOUS FACTS INCLUDING AS ITA NO. 1741/AH D/2012 ACIT VS. M/S. GAYATRI CONSTRUCTION CO. ASST.YEAR 2005-06 - 4 - TO WHETHER THE LABOR PAYMENTS ARE IN FACT TO PERSON S ON BEHALF OF THE LABOR EMPLOYED OR TO THE SUB-CONTRACTORS AND WHETHER ON T HE FACTS OF THE CASE THERE CAN BE SAID TO BE ORAL CONTRACT OR OTHERWISE WITH T HE PERSONS TO WHOM CARTING EXPENSES HAD BEEN PAID . NEITHER THE FACTS HAVE BEE N EXAMINED IT IS NECESSARY AT THE ISSUE HAS BECOME ONLY ACADEMIC. THEREFORE TH E SUB WHICH BECOMES AN ALTERNATE CONTENTION IS NOT ADJUDICATED. 5. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE RE VENUE IS NOW IN APPEAL BEFORE US. 5.1. BEFORE US, THE LD.SR.DR SUBMITTED THAT THE LD .CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAD RE LIED ON THE DECISION OF HONBLE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ME RILYN SHIPPING & TRANSPORTS 20 TAXMAN.COM 244 AND HELD THAT ONCE T HE PAYMENTS ARE MADE AND NO AMOUNT IS PAYABLE AS ON 31 ST MARCH OF THE RELEVANT PREVIOUS YEAR, NO DISALLOWANCE U/S.40(A)(IA) CAN BE MADE. S HE SUBMITTED THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF SIKANDER KHAN TUNVAR REPORTED IN (2013) 357 ITR 312 (GUJ.) HAS HELD THAT THE DECISION OF MERILYN SHIPPING & TRANSPORTS (SUPRA) DOES NOT LAY DOWN CORRECT LAW. APART FROM THE AFORESAID SUBMISSIONS, SHE FURTHER S UBMITTED THAT THE LD.CIT(A) HAS NOT DECIDED THE ISSUE ON MERITS. SHE THEREFORE SUBMITTED THAT THE MATTER MAY BE REMITTED TO THE FILE OF LD.C IT(A) TO DECIDE THE ISSUE AFRESH. 6. THE LD.COUNSEL FOR THE ASSESSEE DID NOT OBJECT T O THE REQUEST OF THE LD.SR.DR FOR RESTORING THE ISSUE BACK TO THE FILE OF LD.CIT(A). ITA NO. 1741/AH D/2012 ACIT VS. M/S. GAYATRI CONSTRUCTION CO. ASST.YEAR 2005-06 - 5 - 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DI SALLOWANCE MADE U/S.40(A)(IA) OF THE ACT. WE FIND THAT THE LD.CIT( A) WHILE DECIDING THE ISSUE IN FAVOUR OF ASSESSEE HAD RELIED ON THE DECIS ION OF SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS(SUPRA) A ND HELD THAT IF ANY AMOUNT IS PAYABLE AS ON END OF THE RELEVANT PREVIO US YEAR, NO DEDUCTION U/S.40(A)(IA) CAN BE MADE. WE FURTHER FIND THAT TH E LD.CIT(A) HAS NOT DECIDE THE ISSUE ON MERITS. IT IS ALSO A FACT THAT THE DECISION OF THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS( SUPRA) THAT WAS RELIED UPON BY THE LD.CIT(A) HAS BEEN OVERRULED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS SI KHANDARKHAN N. TUNVAR & BROS. REPORTED AT (2013) 357 ITR 312 (GUJ. ), WHEREIN THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILY N SHIPPING & TRANSPORTS DOES NOT LAID DOWN CORRECT LAW. IT HAS FURTHER HELD THAT SECTION 40(A)(IA) OF THE ACT WOULD COVER NOT ONLY A MOUNTS WHICH ARE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR, BUT ALSO WHICH ARE PAY ABLE AT ANY TIME DURING THE YEAR. BEFORE US, THE LD. AR HAS NOT POINTED OUT ANY CONTRARY BINDING DECISION IN HIS SUPPORT. WE F URTHER FIND THAT CIT(A) HAS NOT DECIDED THE ISSUE ON MERITS. IN VI EW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT THE ISSUE NEEDS TO B E RE-EXAMINED AT THE ITA NO. 1741/AH D/2012 ACIT VS. M/S. GAYATRI CONSTRUCTION CO. ASST.YEAR 2005-06 - 6 - END OF THE LD.CIT(A) IN THE LIGHT OF THE JUDGMENT O F THE HONBLE JURISDICTIONAL HIGH COURT AND IN ACCORDANCE WITH LA W AND, ACCORDINGLY, REMIT THE ISSUE BACK TO THE FILE OF LD.CIT(A) TO DE CIDE IT AFRESH. NEEDLESS TO STATE THAT THE LD.CIT(A) SHALL GRANT REASONABLE OPPORTUNITIES OF HEARING TO BOTH THE SIDES. THE ASSESSEE IS ALSO DIRECTED T O PROMPTLY FURNISH ALL THE DETAILS CALLED FOR BY THE AUTHORITIES. THUS, THIS G ROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 8. SO FAR AS THE SECOND GROUND WITH RESPECT TO DELE TION OF ADDITION AN AMOUNT OF NOTIONAL INTEREST INCOME IS CONCERNED, DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE AS SESSEE HAD ADVANCED INTEREST-FREE ADVANCES TO THREE PARTIES LISTED AT P ARA-8 OF THE ORDER (AMOUNT AGGREGATING TO RS.10,62,000/-) AND HAD ALSO DEBITED INTEREST TO THE PROFIT & LOSS ACCOUNT. AO WAS OF THE VIEW THA T ASSESSEE HAS UTILIZED INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSE. H E ACCORDINGLY WORKED OUT THE INTEREST (CALCULATED AT 9%), TO BE FOR NON- BUSINESS PURPOSE AND DISALLOWED RS.70,830/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO DECIDED THE APPEAL BY HOLDING AS UNDER:- 6.2. I HAVE GONE THROUGH THE ACCOUNTS OF THE APPEL LANT, THE ASSESSMENT ORDER AND THE SUBMISSIONS. THE APPELLAN T HAS NOT DISPUTED THE ALLEGATION THAT RS.10,62,000/- AS DISCUSSED IN THE ASSESSMENT ORDER IN PARA.5 HAVE BEEN ADVANCE D INTEREST-FREE WITHOUT ANY BUSINESS PURPOSE. ITA NO. 1741/AH D/2012 ACIT VS. M/S. GAYATRI CONSTRUCTION CO. ASST.YEAR 2005-06 - 7 - IT IS TRUE THAT THE APPELLANT HAS CERTAIN NON-INTER EST BEARING FUNDS. HOWEVER, THERE IS NO DIRECT NEXUS OF EITHER THE INTEREST BEARING FUNDS OR THE NON-INTEREST BEARING FUNDS WITH THE ABOVE ADVANCES. AS THE FUNDS ARE MIXED, AND TH E ASSESSEE IS PAYMENT INTEREST; THE DISALLOWANCE OF I NTEREST IS REQUIRED ON PRO-RATA BASIS. THE TOTAL INTEREST PAI D BY THE APPELLANT IS RS.9,76,015/-. THE TOTAL ASSETS ARE 8 .39 CRORE. THE DISALLOWANCE OF INTEREST IS CONFIRMED TO THE EX TENT OF RS12,354/- (RS.9,76,015 X 10.62/839). THE BALANCE ADDITION IS DIRECTED TO BE DELETED. 8.1. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, LD.AR REITERATED THE SUBMISS IONS MADE BEFORE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT ASSESS EE HAD NOT DIVERTED INTEREST BEARING FUNDS TOWARDS ADVANCING OF INTERES T-FREE DEPOSITS AND, THEREFORE, NOTIONAL DISALLOWANCE OF INTEREST IS NO T CALLED FOR. LD. DR ON THE OTHER HAND, SUPPORTED THE ORDER OF AO. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH REFE RENCE TO DISALLOWANCE OF INTEREST. WE FIND THAT CIT(A) AFTER CONSIDERING TH E SUBMISSIONS OF ASSESSEE HAS GRANTED SUBSTANTIAL RELIEF TO THE ASSE SSEE AND HAS CONFIRMED THE DISALLOWANCE OF INTEREST ONLY TO THE EXTENT OF RS.12,354/- AS AGAINST THE DISALLOWANCE OF RS.70,830/- MADE BY AO. BEFORE US, ASSESSEE HAS NOT BROUGHT ANY MATERIAL TO CONTROVERT THE FINDINGS OF CIT(A) AND, THEREFORE, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A). THUS, THIS GROUND OF REVENUE IS DISMISSED. ITA NO. 1741/AH D/2012 ACIT VS. M/S. GAYATRI CONSTRUCTION CO. ASST.YEAR 2005-06 - 8 - 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER PRONOUNCED IN OPEN COURT ON 11/5/2016 SD/- SD/- ( S.S. GODARA ) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 11/ 05 /2016 &.., .(../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-GANDHINAGAAR 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 22.4.16 (DICTATION-PAD 16 +PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 5.5.16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.11.5.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 11.5.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER