M/s. G.G. Associates, Pune V. Income-tax Officer,

ITA 1963/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1624 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 05-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Assessee Lawyers: KRISHNA V GUJRATHI
• Keywords: Non-deduction of tax; Notional interest
• Section: 143(3)

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE , BEFORE MS. SUSHMA CHOWLA, JM / ITA NO.1963/PN/2014 ! ' ' / ASSESSMENT YEAR : 2010-11 M/S. G. G. ASSOCIATES, SAN MAHU COMPLEX, 5, BUND GARDEN ROAD, OPP. POONA CLUB, PUNE 411 001 . / APPELLANT PAN: AAFFG5243G VS. THE INCOME TAX OFFICER, WARD-2(2), PUNE . RESPONDENT / APPELLANT BY : SHRI KRISHNA V. GUJRATHI / RESPONDENT BY : SHRI HITENDRA NINAWE DATE OF HEARING : 28.06.2016 / DATE OF PRONOUNCEMENT: 30.06.2016 # / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-II, PUNE, DATED 24.06.2014 RELATING TO ASSESSMENT YEAR 2010-1 1 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (I N SHORT THE ACT). ITA NO.1963/PN/2014 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONOURABLE CIT (APPEAL) - II, PUNE ERRED IN CONFIRM ING THE ADDITION MADE BY THE LEARNED AO ON ACCOUNT OF INTEREST RECEIVED RS. 2,69 ,167/- UNDER THE HEAD 'INCOME FROM OTHER SOURCES' WITHOUT ALLOWING THE DE DUCTION OF INTEREST PAID ON BORROWED FUNDS UTILIZED FOR ADVANCING SUCH LOANS. T HE APPELLANT HEREBY PRAYS THAT THE INTEREST PAID SHOULD BE ALLOWED AS E XPENSE AGAINST INTEREST RECEIVED AND THE ADDITION MAY PLEASE BE DELETED. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONOURABLE CIT (APPEAL) - II, PUNE ERRED IN CONFIRM ING THE DISALLOWANCE OF INTEREST OF RS. 24,20,199/- U/S 40(A)(IA) OF THE IN COME TAX ACT, 1961 ON ACCOUNT OF NON DEDUCTION OF TDS ON PAYMENT OF INTEREST UNDE R SECTION 194A OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACTS OF THE CASE IN PROPER PERSPECTIVE. THE APPELLANT HEREBY PRAYS THAT THE IN TEREST PAID SHOULD BE ALLOWED AS EXPENSE AND THE ADDITION MAY PLEASE BE D ELETED. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONOURABLE CIT (APPEAL) - II, PUNE ERRED IN CONFIRM ING THE DISALLOWANCE OF INTEREST OF RS. 24,20,199/- U/S 40(A)(IA) OF THE IN COME TAX ACT, 1961 ON ACCOUNT OF NON DEDUCTION OF TDS ON PAYMENT OF INTEREST UNDE R SECTION 194A OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACTS THAT AMENDMENT BROUGHT IN BY THE FINANCE ACT 2012 BY WAY OF SECOND PROVISO TO SECTION 40(A)(IA) IS CURATIVE AND IS APPLICABLE RETROSPECTIVELY AS HELD BY VARIOUS JUDGMENTS. THE APPELLANT HEREBY PRAYS THAT THE INTEREST PAID SHOUL D BE ALLOWED AS EXPENSE AND THE ADDITION MAY PLEASE BE DELETED. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONOURABLE CIT (APPEAL) -II, PUNE ERRED IN CONFIRMI NG DISALLOWANCE OF INTEREST OF RS. 4,00,000/- U/S 36 (I) (III) OF THE INCOME TA X ACT 1961 BEING PROPORTIONATE NOTIONAL INTEREST ON ACCOUNT OF CURRENT ACCOUNT BAL ANCE OF PARTNERS UNDER THE HEAD LOANS AND ADVANCES WITHOUT APPRECIATING THE FA CTS THAT SUFFICIENT INTEREST FREE FUNDS WERE AVAILABLE WITH THE APPELLA NT ADEQUATE ENOUGH TO COVER THE ADVANCES TO PARTNERS. THE APPELLANT HEREB Y PRAYS THAT THE INTEREST PAID SHOULD BE ALLOWED AS EXPENSE AND THE ADDITION MAY PLEASE BE DELETED. 5) THE APPELLANT HEREBY RESERVES THE RIGHT TO ADD; AMEND, ALTER OR RAISE ANY ADDITIONAL GROUND OR GROUNDS OF APPEAL OR DELET E OR WITHDRAW ANY OF THE GROUND OF APPEAL/S. 3. THE GROUNDS OF APPEAL NO.1 AND 4 RAISED BY THE A SSESSEE ARE NOT PRESSED AND HENCE THE SAME ARE DISMISSED AS NOT PRE SSED. 4. THE ISSUE IN GROUNDS OF APPEAL NO.2 AND 3 IS AGA INST THE DISALLOWANCE OF RS.24,20,199/- MADE BY INVOKING THE PROVISIONS OF S ECTION 40(A)(IA) OF THE ACT ON ACCOUNT OF NON-DEDUCTION OF TDS ON PAYMENT OF IN TEREST UNDER SECTION 194A OF THE ACT. ITA NO.1963/PN/2014 3 5. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE, AT THE OUTSET, POINTED OUT THAT THE SAID INTEREST WAS PAID TO AN N BFC I.E. NON BANKING FINANCIAL CORPORATION. HOWEVER, IN VIEW OF THE AME NDMENT BROUGHT IN BY WAY OF INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT BY THE FINANCE ACT, 2012 W.E.F. 01.04.2013, WHICH IS HELD TO BE CLARIFI CATORY IN NATURE NO DISALLOWANCE IS TO BE MADE IN THE HANDS OF THE ASSE SSEE AS THE PAYEE HAS INCLUDED THE SAID AMOUNT AS ITS INCOME. IN THIS RE GARD, RELIANCE WAS PLACED ON THE CERTIFICATE ISSUED BY THE SAID CONCERN WHICH IS PLACED AT PAGE NO.67 OF THE PAPER BOOK. 6. THE ISSUE ARISING IN THE PRESENT APPEAL BY WAY O F GROUNDS OF APPEAL NO.2 AND 3 IS AGAINST THE INVOKING OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WHICH PROVIDES THAT CERTAIN EXPENDITURE IS NOT TO B E ALLOWED AS DEDUCTION WHERE THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE OUT OF SUCH PAYMENTS OR AFTER DEDUCTING HAS FAILED TO DEPOSIT THE SAME BEFORE DUE DATE OF FILING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. THE ISSUE RAISED IN THE PRESENT APPEAL IS IN RELATION TO THE INTEREST PAYMENT OF RS.24,20, 199/- TO AN NBFC. THE ASSESSEE WAS TO DEDUCT TAX AT SOURCE OUT OF SUCH PA YMENTS. HOWEVER, HE FAILED TO DO SO AND CONSEQUENTLY THE AUTHORITIES BE LOW HAD DISALLOWED THE SAID CLAIM OF THE ASSESSEE. THE FINANCE ACT, 2012 HAS I NSERTED A SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT WHEREIN IT IS PROVIDED THAT IN CASE THE PAYEE, WHO IS RECIPIENT OF THE SAID AMOUNT HAS INCLUDED THE SAME AS A PART OF ITS INCOME AND PAID TAXES, THEN, THERE IS NO REQUIREMENT TO DISALL OW THE EXPENDITURE IN THE HANDS OF THE PAYER FOR NON-DEDUCTION OF TAX AT SOUR CE. IN VIEW OF THE AFORESAID AMENDMENT WHICH IS HELD TO BE CLARIFICATORY IN NATU RE, THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE AND IN CASE THE PAYEE I.E. NBFC HAS INCLUDED THE SAME AS A PART OF ITS INCOME AND P AID TAXES THEREON, THEN NO ITA NO.1963/PN/2014 4 DISALLOWANCE IS TO BE MADE IN THE HANDS OF THE ASSE SSEE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. REASON ABLE OPPORTUNITY OF HEARING SHALL BE ALLOWED TO THE ASSESSEE IN THIS REGARD. T HUS, THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JUNE, 2016. SD/- (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 30 TH JUNE, 2016 . ! #$%&'()(& / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; ' ' # () THE CIT(A)-II, PUNE; ' ' # THE CIT-II, PUNE &'( ))*+, ' *+ , , - . // / DR SMC, ITAT, PUNE; (01 2 / GUARD FILE. #! / BY ORDER & ) // TRUE COPY // 345 )! *6 / SR. PRIVATE SECRETARY ' *+ , ITAT, PUNE