V.N.G.Mercantile Private Limited, Kolkata V. I.T.O Wd - 5(4),kolkata, Kolkata

ITA 2332/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1894 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 28-02-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 30-08-2013
• Court: TRIBUNAL
• Assessee Lawyers: RAJEEV KUMAR LD
• Keywords: Business income
• Section: 142(1); 6; 144; 11

Judgement Text

1 ITA NO. 2332/K/13 M/S. VNG MERCANTILE P.LTD IN THE INCOME TAX APPELLATE TRIBUNAL,CBENCH, KOLKATA BEFORE: SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 2332/KOL/2013 A.Y 2005-06 M/S. V.N.G MERCANTILE VS. INCOME TAX OFFICER PRIVATE LIMITED WA RD 5(4), KOLKATA/ PAN: AABCV 7629N CIT(A)- VI, KOLKATA (APPELLANT) (RESPONDENT) APPEARANCES BY : SHRI RAJEEV KUMAR, ADVOCATE, LD.AR FOR THE ASSESSEE SHRI P.K CHAKRABORTY, JCIT, LD.SR.DR F OR THE REVENUE DATE OF HEARING : 28-02-2017 DATE OF PRONOUNCEMENT : 26-04-2017 O R D E R SHRI S.S. VISWANETHRA RAVI, JM :- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DT : 26-10- 2012 PASSED BY THE COMMISSIONER OF INCOME TAX (APPE ALS), VI, KOLKATA FOR THE ASSESSMENT YEAR 2005-06. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL:- 1. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. AO HAS ERRED IN COMPLETING THE ASSESSMENT U/S. 144 OF THE INCOME TAX ACT. THE ACTION OF THE LD. A.O WAS WHOLLY UNJUSTIFIED, U NCALLED FOR AND BAD IN LAW. THE LD. CIT(A) WAS UNJUSTIFIED IN CONFIRMIN G THE ACTION OF THE LD. AO. 2. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. AO HAS ERRED IN DISALLOWING A SUM OF RS.3,59,785/- HOLDING THE SAME AS CAPITAL LOSS. THE LD. CIT(A) HAS ERRED IN CONFIRMIN G THE ACTION OF THE LD.AO. 3. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. AO HAS ERRED IN ADDING A SUM OF RS.8,29,538/- TO THE T OTAL INCOME OF THE ASSESSEE HOLDING THAT THE EVIDENCE OF THE TAX DEDUC TED AT SOURCE 2 ITA NO. 2332/K/13 M/S. VNG MERCANTILE P.LTD PAID TO THE GOVERNMENT WAS NOT FURNISHED BEFORE HIM . THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD.AO. 4. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. AO HAS ERRED IN DISALLOWING ENTIRE ADMINISTRATIVE EXPENSE AMOUNTING TO RS.2,99,255/- WHILE PASSING THE ASSESSMENT ORDER. T HE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD.AO. 5. FOR THAT THE APPELLANT CRAVES LEAVE TO ADD, ALT ER, DELETE ALL OR ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. 3. GROUND NO.1 RAISED BY THE ASSESSEE QUESTIONING THE IMPUGNED ASSESSMENT MADE U/S. 144 OF THE ACT AND CO NFIRMED BY THE CIT-A. 4. AT THE TIME OF HEARING BEFORE US THE LD.AR SUBMI TS THAT HE IS NOT PRESSING THIS GROUND FOR ANY ADJUDICATION. H ENCE, THE SAME IS DISMISSED AS NOT PRESSED. 5. GROUND NO.2 AS RAISED BY THE ASSESSEE WITH REGAR D TO CHALLENGING THE ORDER OF THE CIT-A IN DISALLOWING A SUM OF RS.3,59,785/- BY HOLDING THE SAME AS CAPITAL LOSS. 6. DURING THE SCRUTINY PROCEEDING THE AO ON PERUSAL OF PROFIT AND LOSS ACCOUNT AS FILED BEFORE HIM WITH THE RETUR N FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS.3,59,785/- UND ER THE HEAD LOSS ON SALE OF INVESTMENT. THE AO FOUND THA T THE INVESTMENTS OF ASSESSEE FOR THE YEAR UNDER CONSIDER ATION WAS AT RS.4,70,000/- AND IN THE EARLIER YEAR WAS AT RS.9,2 0,000/-. THEREFORE, THE AO WAS OF THE OPINION THAT THE LOSS ARISING OUT OF SALE OF INVESTMENT IS A CAPITAL LOSS. THE RELEVANT FINDING OF THE AO IS REPRODUCED HEREIN BELOW:- 1. FROM THE PROFIT AND LOSS ACCOUNT FILED BY THE A SSESSEE WITH THE RETURN, IT IS FOUND THAT THE ASSESSEE DEBITED THE S UM OF RS.359785.50 UNDER THE LOSS ON SALE OF INVESTMENT. THE ASSESSEES NA TURE OF BUSINESS IS INVESTMENT IN SHARE & FINANCE. IN THE YEAR UNDER SC RUTINY, THE ASSESSEES INVESTMENT STOOD AT RS.4,70,000/- IN SHARES WHEREAS THE EARLIER YEARS FIGURE WAS RS.9,20,000/- FOR 2003-04. HENCE, IT IS EVIDENT THAT ASSESSEE SOLD SOME OF ITS INVESTMENT AND THAT LOSS ON THAT INVESTMENT IS DEBITED TO THE P/L ACCOUNT. THE ASSESSEE WAS ASKED THROUGH NOTICES U/S . 142(1) AND 3 ITA NO. 2332/K/13 M/S. VNG MERCANTILE P.LTD SUBSEQUENT NOTICES TO FILE DETAILS OF THE LOSS ON S ALE OF INVESTMENT. FINALLY, THE ASSESSEE WAS SERVED WITH A SHOW CAUSE NOTICE AN D DIRECTED TO EXPLAIN WHY THE AMOUNT OF LOSS ON SALE OF INVESTMENT WILL N OT BE ADDED BACK TO ITS TOTAL INCOME. TILL DATE OF ORDER THE ASSESSEE COULD NOT FILE ANY EXPLANATION TO SHOW CAUSE, NOR DID HE COULD PROVIDE ANY SUPPORTING DOCUMENTS. THE LOSS ARISING OUT OF SALE OF INVESTMENT IS NOTH ING BUT CAPITAL LOSS. AS PER SECTION 74 OF THE I.T ACT, SUCH LOSS CAN ONLY BE SE T OFF WITH CAPITAL GAIN IN THE SAME YEAR. THUS, THE LOSS BEING A CAPITAL LOSS CANNOT BE ALLOWED TO BE DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSES SEE, AND, ACCORDINGLY, THE AMOUNT OF RS.359785.50 IS ADDED BACK TO THE TOTAL I NCOME OF THE ASSESSEE. 7. BEFORE THE CIT-A THE ASSESSEE CONTENDED THAT THE INVESTMENT AND SALE WAS DONE IN THE COURSE OF BUSI NESS. BUT, ACCORDING TO CIT-A THE ASSESSEE HAS NOT BEEN ABLE T O PRODUCE ANY EVIDENCE THAT THE SHARES WERE CONVERTED INTO ST OCK IN TRADE. IN ABSENCE OF ANY CONTRARY EVIDENCE, THE CIT -A CONFIRMED THE IMPUGNED ADDITION AS MADE BY THE AO B Y STATING AS UNDER:- 13. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, AND SUBMISSIONS OF THE APPELLANT. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PURCHASE AN D SALE OF SHARES AND FINANCING AS PER THE AUDITED ACCOUNTS FILED ALO NG WITH THE RETURN OF INCOME. THE APPELLANT HAS SUBMITTED THAT THE INVEST MENT WAS PART AND PARCEL OF THE ASSESSEE'S BUSINESS. IT IS THUS SUBMI TTED THAT THE SHARES HELD AS INVESTMENT HAD EVERY CONNECTION TO THAT OF THE ASSESSEE'S TRADING BUSINESS. I FURTHER STATED THAT THERE IS NO EXPRESS PROVISION IN LAW TO DETERMINE WHETHER SHARE TRANSACTIONS CONSTIT UTE BUSINESS OR INVESTMENT ACTIVITY. IN THIS INSTANT CASE THE ACTS OF THE ASSESSEE COMPANY IN QUESTION CLEARLY INDICATE THAT IT WAS KE EPING SHARES WITH THE VERY INTENTION OF TRADING ONLY. 14. THE APPELLANT HAS SUBMITTED THAT THE INVESTMENT AND SALE WAS DONE IN COURSE OF ASSESSEE'S BUSINESS OF INVESTMENT/DEAL ING IN SHARES AND IT SHOULD BE TREATED AS BUSINESS INCOME. THE ASSESSING OFFICER HAS CLEARLY FOUND THAT THE INVESTMENTS WERE SHOWN AT AN AMOUNT OF RS.9,20,OOOI- IN FINANCIAL YEAR 2003-04 I.E. ASSESSMENT YEAR 04-0 5. THE APPELLANT HAS NOT BEEN ABLE TO PRODUCE ANY DOCUMENT OR EVIDEN CE SHOWING THAT IT HAS CONVERTED THE SHARES INTO STOCK IN TRADE. THE V ALUATION IN THE COURSE OF STOCK IN TRADE AND INVESTMENT IS ENTIRELY DIFFERENCE IN THE BOOKS OF ACCOUNTS. THE STOCK IN TRADE IS VALUED AS MARKET RATE OR COST PRICE WHICHEVER IS LOWER, WHILE THE INVESTMENTS ARE VALUED AT COST PRICE ONLY. THE APPELLANT IS A WELL ADVISED PERSON WITH F ULL LEGAL ASSISTANCE AND DULY AUDITED ACCOUNT. THERE IS ABSOLUTE DISTINC TION BETWEEN INVESTMENTS AND STOCK IN TRADE. THE APPELLANT HAS B EEN GIVEN LARGE NUMBER OF OPPORTUNITIES DURING THE APPELLATE PROCEE DINGS IN WHICH AS MENTIONED ABOVE, NOBODY HAS ATTENDED MOST OF THE TI ME. SHRI P. KAPOOR, CHARTERED ACCOUNTANT, PARTNER OF M/S. KAPOO R MEHROTRA & ASSOCIATES HAS ATTENDED ON 25.08.2011 & 22.11.2011. THE NOTICE U/S 250 ISSUED VIDE LETTER NO. CIT(A)-VI/KOL/NOTICE/12- 13/597 DATED 18.09.2011 WAS DULY SENT AND SERVED ON 24TH SEPTEMB ER 2012 ON M/S. KAPOOR MEHROTRA & ASSOCIATES BEING THE AUTHORISED R EPRESENTATIVE HOLDING POWER OF ATTORNEY DULY SIGNED AND AUTHORISE D TO RECEIVE SERVICE OF NOTICES. THE NOTICES HAVE BEEN DULY SERVED AND D ULY RECEIVED BY THE AUTHORISED PERSON ON BEHALF OF THE APPELLANT DURING ASSESSMENT STAGE AND APPELLATE PROCEEDINGS. THE APPELLANT HAS BEEN G IVEN ENOUGH 4 ITA NO. 2332/K/13 M/S. VNG MERCANTILE P.LTD OPPORTUNITIES DURING THE ASSESSMENT PROCEEDINGS AS WELL AS APPELLATE PROCEEDINGS; THE APPELLANT HAS NOT PRODUCED ANY EVI DENCE, BOOKS OF ACCOUNTS, BILLS AND VOUCHERS SHOWING THE GENUINENES S OF ITS BUSINESS AND ITS ACCOUNTS MAINTAINED BY IT ON THIS ISSUE. TH EREFORE, IN THE ABSENCE OF ANY CONTRADICTORY EVIDENCE TO THE FINDIN GS OF THE ASSESSING OFFICER, IT IS HELD THAT THE LOSS OF RS.3,59,785/- IS A CAPITAL LOSS. THE ADDITION OF RS.3,59,785.50 IS UPHELD. THIS GROUND O F APPEAL IS DISMISSED. 8. HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT THE INVESTMENTS OF AS SESSEE FOR THE FINANCIAL YEAR 2004-05 WAS AT RS.9,20,000/- WHEREAS THE AO FOUND THE INVESTMENT OF ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS AT RS.4,70,000/-. THE CIT-A HAS RIGHTLY POINTED OUT THAT THE ASSESSEE DID NOT PRODUCE ANY DOCUMENT/EVIDENCE TO SHOW THAT THE SHARES BEING INV ESTMENTS WERE CONVERTED INTO STOCK IN TRADE. AS SUCH, HE CON FIRMED THE IMPUGNED ADDITION OF RS.3,59,785.50 AS MADE BY THE AO. THUS, WE FIND THAT THE AO AND CIT-A BOTH WERE JUSTIFIED I N DISALLOWING AND CONFIRMING THE SAME RESPECTIVELY. THEREFORE, TH IS GROUND OF ASSESSEE IS DISMISSED. 9. GROUND NO.3 AS RAISED BY THE ASSESSEE WITH REGAR D TO CHALLENGING THE ORDER OF THE CIT-A IN CONFIRMING T HE ADDITION OF RS.8,25,938/- ON ACCOUNT OF NON PRODUCTION OF TDS. 10. THE AO FOUND THAT THE ASSESSEE PAID INTEREST ON LOAN OF RS.8,25,938/- BY DEBITING THE SAME TO ITS P & L ACC OUNT. NON PRODUCTION OF ANY TDS CERTIFICATE ON INTEREST PAID, THE AO DISALLOWED THE SAID AMOUNT OF RS.8,25,938/- BY INVO KING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 11. THE CIT-A CONFIRMED THE SAID ADDITION AS MADE B Y THE AO FOR NON PRODUCTION OF ANY EVIDENCE REGARDING THE TD S 5 ITA NO. 2332/K/13 M/S. VNG MERCANTILE P.LTD CERTIFICATE. RELEVANT FINDINGS OF THE CIT-A ON THIS ISSUE ARE REPRODUCED HEREIN BELOW:- 17. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS O F THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, AND SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER HAS FOUND DURING THE ASSESSMENT P ROCEEDINGS THAT THE APPELLANT HAS NOT DEPOSITED THE TAXES AMOUNTING TO RS.1,15,422/- ON THE BASIS OF INFORMATION UNDER SCHEDULE J OF CURR ENT LIABILITIES AND PROVISIONS. THE APPELLANT HAS BEEN GIVEN ENOUGH OPP ORTUNITIES DURING THE ASSESSMENT PROCEEDINGS AS WELL AS APPELLATE PRO CEEDINGS; THE APPELLANT HAS NOT PRODUCED ANY EVIDENCE, BOOKS OF A CCOUNTS, BILLS AND VOUCHERS SHOWING THE GENUINENESS OF ITS BUSINESS AN D ITS ACCOUNTS MAINTAINED BY IT ON THIS ISSUE. IN THE ABSENCE OF A NY DOCUMENTS REGARDING THE DEPOSIT OF TDS, THE ADDITION OF RS.8, 25,938/- IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED. 12. BEFORE US THE LD.AR SUBMITS THAT CLAUSE (IA) WA S INSERTED TO SECTION 40(A)(IA) OF THE ACT BY THE FINANCE ACT 2004, WHICH GOT ASCENT BY PRESIDENT ON 10-04-2009 AND CAME INTO EFFECT FROM 1-4-2005. HE ARGUED THAT THE AMENDMENT CAME IN TO FORCE W.E.F 1-4-05, WHICH WILL BE MADE APPLICABLE FROM TH E AY 2006- 07. THEREFORE, THE ADDITION MADE U/S. 40(A)(IA) OF THE ACT FOR THE AY 2005-06 I.E UNDER CONSIDERATION IS NOT APPLI CABLE. IN SUPPORT OF HIS CONTENTION THE LD.AR OF THE ASSESSEE HAS RELIED ON THE ORDER OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF PIU GHOSH VS. DCIT REPORTED IN (2016) 386 ITR 0322( CAL) AND ARGUED THE FACTS OF THE CASE THEREIN ARE SIMILAR T O THAT OF THE PRESENT CASE IN HAND AND THE ORDER OF HONBLE HIGH COURT IS APPLICABLE. 13. THE LD.DR RELIED ON THE ORDERS OF THE AUTHORITI ES BELOW. 14. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. WE FIND THAT THE QUESTION WAS FRAMED BY THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF SUPRA THAT WHETHER THE TRIBUNAL HAS ERRED IN LAW IN APPLYING THE PROVISION OF SECTION 6 ITA NO. 2332/K/13 M/S. VNG MERCANTILE P.LTD 40(A)(IA) OF THE ACT TO THE AY 2005-06, WHEN THE P ROVISIONS WERE SUBSTITUTED BY THE FINANCE ACT, 2004 W.E.F AP RIL 1, 2005 ? RELEVANT PORTION OF WHICH IS REPRODUCED HEREIN BELO W:- THE QUESTION FOR CONSIDERATION IS WHETHER, A SUM OF RS. 4,30,386/- PAID BY THE ASSESSEE TO A CONTRACTOR, DURING THE PR EVIOUS YEAR ENDED ON 31ST MARCH, 2005 IS DEDUCTIBLE? THE LEARNED TRIBUNAL HAS ANSWERED THE QUESTION IN THE NEGATIVE. IT IS AGAINST THIS ORDER OF THE LE ARNED TRIBUNAL, THE ASSESSEE HAS COME UP IN APPEAL. MR.BHARADWAJ, LEARNED ADVOCATE APPEARING FOR THE AS SESSEE/APPELLANT SUBMITTED THAT SUB- SECTION 2 OF SECTION 1 OF THE A MENDMENT ACT PROVIDES THAT THE LAW SHALL BE DEEMED TO HAVE COME INTO FORC E ON 1ST APRIL, 2004 EXCEPT AS OTHERWISE PROVIDED. CLAUSE (IA) WAS ADDED TO SECTION 40 BY SECTION 11 OF THE AFORESAID FINANCE ACT OF 2004. SE CTION 11 PROVIDES THAT THE LAW SHALL BE DEEMED TO COME INTO EFFECT ON 1ST APRI L, 2005. HE CONTENDED THAT THE AUTHORITIES BELOW WERE WRONG IN NOT ALLOWI NG DEDUCTION FOR THE SUM OF RS. 4,30,386/-, PAID BY THE ASSESSEE TO A CONTRA CTOR, DUE TO OMISSION ON THE PART OF THE ASSESSEE TO DEDUCT TAX. THE OMISSIO N TO DEDUCT TAX BECAME SUBJECT TO THE PENAL CONSEQUENCE UNDER SECTION 40 O NLY WITH EFFECT FROM 1ST APRIL, 2005. THEREFORE, ANY OMISSION PRIOR TO 1ST A PRIL, 2005 COULD NOT HAVE VISITED THE ASSESSEE WITH ANY PENAL CONSEQUENCES. H E RELIED ON A JUDGEMENT IN THE CASE OF CIT V. HINDUSTAN ELECTRO GRAPHITES L TD , REPORTED IN (2000) 243 ITR 48 (SC). WHAT HAD HAPPENED IN THAT CASE WAS THAT THE RETURN FOR THE ASSESSMENT YEAR 1989-90 WAS FILED BY THE ASSESSEE I N DECEMBER, 1989. THE FINANCE BILL, 1990 GOT PRESIDENTIAL ASSENT ON 31ST MAY, 1990 AND WAS MADE APPLICABLE RETROSPECTIVELY WITH EFFECT FROM 1ST APR IL, 1967. BY THE AMENDMENT CASH ASSISTANCE WAS MADE TAXABLE. SINCE T HE ASSESSEE WHO HAD RECEIVED CASH ASSISTANCE FROM THE GOVERNMENT AND HA D NOT OFFERED THE AMOUNT FOR TAXATION, THE ASSESSING OFFICER TREATED THE AMOUNT OF CASH ASSISTANCE AS AN ADDITIONAL INCOME UNDER SECTION 14 3(1)(A) AND LEVIED THE AMOUNT OF TAX AT A HIGHER RATE AND ALSO CHARGED CON SEQUENTIAL INTEREST. THE TRIBUNAL REVERSED THAT ORDER. THE HIGH COURT UPHELD THAT ORDER. IN AN APPEAL, THE SUPREME COURT HELD AS FOLLOWS: 'IF ADDITIONAL TAX COULD BE LEVIED IN SUCH CIRCUMST ANCES, IT WILL BE PUNISHING THE ASSESSEE FOR NO FAULT OF HIS. THAT CA NNOT EVER BE THE LEGISLATIVE INTENT. IT SHOCKS THE VERY CONSCIENCE I F IN THE CIRCUMSTANCES SECTION 143(1A) COULD BE INVOKED TO LEVY THE ADDITI ONAL TAX. THE FOLLOWING OBSERVATIONS BY THE CONSTITUTION BENCH OF THIS COUR T IN PANNALAL BINJRAJ V. UNION OF INDIA [1957] 31 ITR 565 ARE APT. (PAGE 597 ): 'A HUMANE AND CONSIDERATE ADMINISTRATION OF THE REL EVANT PROVISIONS OF THE INCOME- TAX ACT WOULD GO A LONG WAY IN ALLAY ING THE APPREHENSIONS OF THE ASSESSEES AND IF THAT IS DONE IN THE TRUE SPIRI T, NO ASSESSEE WILL BE IN A POSITION TO CHARGE THE REVENUE WITH ADMINISTERING T HE PROVISIONS OF THE ACT WITH AN EVIL EYE AND UNEQUAL HAND'.' MR.AGARWAL, LEARNED ADVOCATE APPEARING FOR THE REVE NUE SUBMITTED THAT THE JUDGEMENT CITED BY MR.BHARADWAJ HAS NO MAN NER OF APPLICATION, NOR DOES THE JUDGEMENT, HE CONTENDED, HELP THE ASSESSEE . IT HAS BEEN LAID DOWN IN THE AFORESAID JUDGEMENT THAT THE LAW APPLICABLE IS THE LAW ON THE DATE OF FILING OF THE RETURN. HE SUBMITTED THAT ON THE DATE OF FILING OF THE RETURN, THE LAW HAD ALREADY COME INTO FORCE. THEREF ORE, AS REGARDS APPLICABILITY OF THE LAW THERE CAN BE NO DOUBT. HE ALSO DREW OUR ATTENTION TO SECTION 4 OF THE INCOME TAX ACT WHICH PROVIDES AS F OLLOWS: 4. (1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME-TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATES, INCOM E-TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN ACCOR DANCE WITH, AND [SUBJECT TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEV Y OF ADDITIONAL INCOME-TAX) 7 ITA NO. 2332/K/13 M/S. VNG MERCANTILE P.LTD OF, THIS ACT ] IN RESPECT OF THE TOTAL INCOME OF TH E PREVIOUS YEAR [ *** ] OF EVERY PERSON: PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF THIS ACT INCOME-TAX IS TO BE CHARGED IN RESPECT OF THE INCOM E OF A PERIOD OTHER THAN THE PREVIOUS YEAR, INCOME-TAX SHALL BE CHARGED ACCO RDINGLY. (2) IN RESPECT OF INCOME CHARGEABLE UNDER SUB-SECTI ON (1), INCOME- TAX SHALL BE DEDUCTED AT THE SOURCE OR PAID IN ADVA NCE, WHERE IT IS SO DEDUCTIBLE OR PAYABLE UNDER ANY PROVISION OF THIS A CT.' MR.AGARWAL'S CRITICISM IS NOT WITHOUT FORCE BUT HE HAS NOT BEEN ABLE TO POINT OUT AS TO HOW COULD THE ASSESSEE HAVE COME TO KNOW THAT THE OMISSION TO DEDUCT TAX FROM ANY PAYMENT MADE TO A C ONTRACTOR SHALL BECOME NOT DEDUCTIBLE UNDER SECTION 40 BEFORE THE FINANCE ACT 2004 GOT PRESIDENTIAL ASSENT ON 10TH SEPTEMBER, 2004. THIS QUESTION HE HA S NOT ANSWERED BECAUSE HE HAS NO ANSWER TO OFFER. ADMITTEDLY, THE FINANCE ACT, 2004 GOT PRESIDENTIAL ASSENT ON 10TH SEPTEMBER, 2004. THE ASSESSEE COULD NOT HAVE FORESEEN PRIOR TO 10TH SEPTEMBER, 2004 THAT ANY AMOUNT PAID TO A CONTRACTOR WITHOUT DEDUCT ING TAX AT SOURCE WAS LIKELY TO BECOME NOT DEDUCTIBLE UNDER SECTION 40. I T IS DIFFICULT TO ASSUME THAT THE LEGISLATURE WAS NOT AWARE OR DID NOT FORES EE THE AFORESAID PREDICAMENT. THE LEGISLATURE THEREFORE PROVIDED THA T THE ACT SHALL BECOME OPERATIVE ON 1ST APRIL, 2005. ANY OTHER INTERPRETAT ION SHALL AMOUNT TO 'PUNISHING THE ASSESSEE FOR NO FAULT OF HIS' FOLLOW ING THE JUDGMENT IN THE CASE OF HINDUSTHAN ELECTOR GRAPHITES LTD. [SUPRA]. ON THE TOP OF THAT, SECTION 4 RELIED UPON BY MR.AGA RWAL MERELY PROVIDES FOR AN ENACTMENT AS REGARDS RATE OF TAX TO BE CHARGED IN ANY PARTICULAR ASSESSMENT YEAR WHICH HAS NO APPLICATION TO THE CASE BEFORE US. SECTION 11 OF THE FINANCE ACT BY WHICH CLAUSE (IA) WAS ADDED TO SECTION 40 OF THE INCOME TAX AC DOES NOT PROVIDE THAT THE SAME WAS TO BECOME EFFECTIVE FROM THE ASSESSMENT YEAR 2005-06. IT MERE LY SAYS IT SHALL BECOME EFFECTIVE ON 1ST APRIL, 2005 WHICH FOR REASONS ALRE ADY DISCUSSED SHOULD MEAN TO REFER TO THE FINANCIAL YEAR. THERE IS, AS SUCH, NO SCOPE FOR ANY AMBIGUITY NOR IS THERE ANY SCOPE FOR CONFUSION. EVEN IN A CAS E WHERE THERE IS ANY AMBIGUITY, LAW IN THAT REGARD WAS NOTICED BY THE SU PREME COURT IN THE CASE OF CIT (CENTRAL)-I VS. VATIKA TOWNSHIP PVT.LTD., RE PORTED IN (2014) 367 ITR 466 (SC), AS FOLLOWS: 'TAX LAWS ARE CLEARLY IN DEROGATION OF PERSONAL RIG HTS AND PROPERTY INTERESTS AND ARE, THEREFORE, SUBJECT TO STRICT CON STRUCTION, AND ANY AMBIGUITY MUST BE RESOLVED AGAINST IMPOSITION OF TH E TAX. IN BILLINGS V. U.S. (232 U.S. 261, S.CT. 421 (1914), THE SUPREME COURT CLEARLY ACKNOWLEDGED THIS BASIC AND LONGSTANDING RULE OF STATUTORY CONST RUCTION: 'TAX STATUTES ... SHOULD BE STRICTLY CONSTRUED, AND , IF ANY AMBIGUITY BE FOUND TO EXIST, IT MUST BE RESOLVED IN FAVOR OF THE CITIZEN. EIDMAN V. MARTINEZ, 184 U.S. 578, 583; UNITED STATES V. WIGGLESWORTH, 2 STORY, 369, 374; MUTUAL B ENEFIT LIFE INS. CO. V. HEROD, 198 F. 199, 201, AFF'D 201 F. 918; PARKVIEW BLDG. ASSN. V. HEROD, 203 F. 876, 880; MUTUAL TRUST CO. V. MILLER, 177 N.Y. 5 1, 57.' AGAIN, IN UNITED STATES V. MERRIAM (263 U.S. 179, 4 4 S. CT.69 (1923), THE SUPREME COURT CLEARLY STATED AT PP. 187-88: 'ON BEHALF OF THE GOVERNMENT IT IS URGED THAT TAXAT ION IS A PRACTICAL MATTER AND CONCERNS ITSELF WITH THE SUBSTANCE OF TH E THING UPON WHICH THE TAX IS IMPOSED RATHER THAN WITH LEGAL FORMS OR EXPR ESSIONS. BUT IN STATUTES LEVYING TAXES THE LITERAL MEANING OF THE WORDS EMPL OYED IS MOST IMPORTANT, FOR SUCH STATUTES ARE NOT TO BE EXTENDED BY IMPLICA TION BEYOND THE CLEAR IMPORT OF THE LANGUAGE USED. IF THE WORDS ARE DOUBT FUL, THE DOUBT MUST BE RESOLVED AGAINST THE GOVERNMENT AND IN FAVOR OF THE TAXPAYER. GOULD V. GOULD, 245 U.S. 151, 153.' 8 ITA NO. 2332/K/13 M/S. VNG MERCANTILE P.LTD WE ARE OF THE OPINION THAT THE LEARNED TRIBUNAL ERR ED IN APPLYING PROVISION OF SECTION 40(A)(IA) IN DISALLOWING PAYME NT OF A SUM OF RS.4,30,386/- TO A CONTRACTOR WITHOUT DEDUCTING TDS DURING THE FINANCIAL YEAR 2004-05, CORRESPONDING TO ASSESSMENT YEAR 2005 -06. IN THAT VIEW OF THE MATTER, THE QUESTION FORMULATED IS ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. THE APPEAL IS, THUS, ALLOWED. 15. RESPECTFULLY FOLLOWING THE ABOVE, WE HOLD THAT CLAUSE (IA), WHICH WAS INSERTED TO SECTION 40(A)(IA) OF THE FINA NCE ACT 2004 IS NOT APPLICABLE TO ISSUE IN HAND. ACCORDINGLY, TH E ADDITION MADE BY AO AND CONFIRMED BY CIT-A IS DELETED AND GR OUND NO.3 RAISED BY THE ASSESSEE IS ALLOWED. 16. GROUND NO.4 IS CHALLENGING THE ORDER OF CIT-A C ONFIRMING THE DISALLOWANCE OF RS.2,99,255/- MADE ON ACCOUNT O F ADMINISTRATIVE EXPENSES. 17. DURING SCRUTINY PROCEEDINGS THE AO FOUND THAT F OR NON PRODUCTION OF BOOKS OF ACCOUNT AND ANY EVIDENCE SH OWING THE GENUINENESS OF CLAIM FOR ADMINISTRATIVE EXPENSES OF RS.2,99,255/- ADDED THE AMOUNT OF RS.2,99,255/- TO THE TOTAL INCOME OF THE ASSESSEE. 18. BEFORE THE CIT-A THE ASSESSEE CONTENDED THAT AL L THE EXPENSES WERE INCURRED FOR CONDUCTING THE BUSINESS AND SUBMITTED THAT THE AO COULD NOT PROVE CONTRARY TO T HE MATERIAL THAT THE SAID EXPENSES CLAIMED BY THE ASSESSEE ARE BOGUS. THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS. HOWEVER, THE CIT-A CONFIRMED THE IMPUGNED ADDITION AS MADE B Y THE AO. 9 ITA NO. 2332/K/13 M/S. VNG MERCANTILE P.LTD 19. THE LD.AR SUBMITS THAT ANY REASONABLE ALLOWANCE MAY BE GRANTED AND ARGUED THAT ALL SUCH EXPENDITURE WAS I NCURRED FOR THE PURPOSE OF CONDUCTING THE BUSINESS OF ASSESSEE. 20. ON THE OTHER HAND, THE LD. DR RELIED ON THE OR DERS OF THE AUTHORITIES BELOW. 21. HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT THE ASSESSEE CLAIMED SAID EXPENDITURE TOWARDS ADMINISTRATIVE EXPENSES, DEPREC IATION AND PRELIMINARY EXPENSES. IT IS NOTICED THAT THE ASSESS EE IS A COMPANY AND ENGAGED IN BUSINESS OF SHARES AND FINAN CE AND IT DERIVES ITS INCOME FROM BUSINESS AND OTHER SOURCES. IT IS ALSO NOTICED THAT THE FOR NON PRODUCTION OF THE BOOKS OF ACCOUNT THE AO DISALLOWED THE SAID AMOUNT. WE FIND THAT THE ASS ESSEE DEBITED THE SAME TO ITS PROFIT & LOSS ACCOUNT. TAKI NG INTO CONSIDERATION THE NATURE OF BUSINESS OF ASSESSEE, W E ARE OF THE VIEW THAT THE DISALLOWANCE SHOULD BE AT RS.1,00,00/ -. THUS, THE ASSESSEE GETS RELIEF OF RS.1,99,255/-. THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 26 /04/2017 J.SUDHAKAR REDDY S. S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 26 - 04-2017 SD/- SD/- *PP/SPS: COPY OF THE ORDER FORWARDED TO: 10 ITA NO. 2332/K/13 M/S. VNG MERCANTILE P.LTD 1 . THE APPELLANT/ASSESSEE:M/S. V.N.G MERCANTILE PRIVA TE LIMITED 35, C.R AVENUE, 4 TH FLOOR, KOLKATA-700 013. 2 THE RESPONDENT/DEPARTMENT: THE ITO W 5(4)/CIT(A)-V I, KOLKATA P-7 CHOWRINGHEE SQUARE, AAYKAR BHAWAN, KOLKATA-7000 69. 3 4. THE CIT(A) THE CIT 5 . DR, KOLKATA BENCH 6 . GUARD FILE . BY ORDER, ASSTT. REGISTRAR