THE ITO, WARD - 2(1), Vijayawada V. M/s The Mithra Agencies, (Automobile Division), Vijayawada

ITA 28/VIZ/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9531 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SARISH KUMAR
• Assessee Lawyers: C P RAMASWAMI
• Keywords: Business expenditure; Commercial expediency; Onus to prove
• Section: 40A(3); 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH : VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.28/VIZAG/2013 ASSESSMENT YEAR 2009-2010 THE INCOME TAX OFFICER, WARD 2 (1) VIJAYAWADA. VS. M/S. THE MITHRA AGENCIES, VIJAYAWADA PAN AABFT6695B (APPELLANT) (RESPONDENT) FOR REVENUE : MR. SARISH KUMAR, SR. D.R. FOR ASSESSEE : MR. C.P. RAMASWAMI DATE OF HEARING : 25.02.2015 DATE OF PRONOUNCEMENT : 03.03.2015 ORDER PER J. SUDHAKAR REDDY, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A), VIJAYAWADA DATED 21.11.2012 FO R THE ASSESSMENT YEAR 2009-2010 2. BRIEFLY STATED, THE ASSESSEE IS A DEALER IN MAR UTI CARS AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT Y EAR 2009-2010 ON 30.01.2012 ADMITTING TOTAL INCOME OF RS.8,92,926 . THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT UNDER SECT ION 143(3) OF THE ACT WAS COMPLETED ON 28.12.2011 DETERMINING THE TOTAL INCOME AT RS.41,28,625. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY GRANTED PA RT RELIEF. AGGRIEVED, REVENUE HAS FILED THIS APPEAL RAISING 14 GROUNDS. 3. WE HAVE HEARD MR. P. SARISH KUMAR, LEARNED SENI OR DEPARTMENTAL REPRESENTATIVE ON BEHALF OF THE REVENU E AND MR. 2 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA C.P. RAMASWAMI, LEARNED COUNSEL FOR THE ASSESSEE. O N CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF T HE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, WE HOLD AS FO LLOWS. 4. GROUND NOS. 1 AND 14 ARE GENERAL IN NATURE AND THEREFORE, THEY NEED NOT BE ADJUDICATED. GROUND NO. 2 IS ON THE ISSUE OF DELETION OF DISALLOWANCE OF INTEREST PAYME NTS CLAIMED BY THE ASSESSEE TO THE TUNE OF RS.5,24,311. 5. LEARNED D.R. SUBMITTED THAT THE ASSESSEE FIRM W AS PAYING HOUSING LOAN INSTALLMENTS OF ONE MR. M. VENU GOPAL AND MR. M.V. SRINIVAS IN RESPECT OF KHAMMAM BRANCH AND POINTED OUT THAT THE ASSESSEE FIRM HAS NOT CHARGED ANY INTE REST FROM THESE TWO PERSONS TO THE AMOUNTS PAID BY THE FIRM O N THEIR BEHALF TOWARDS THE HOUSING LOAN. HE SUBMITTED THAT THE ASS ESSEE HAD TAKEN HUGE LOANS AND WAS PAYING CONSIDERABLE INTERE ST ON THESE LOANS AND THE PARTNERS CAPITAL IS NOMINAL. HE ARGUE D THAT ASSESSEE DOES NOT HAVE OWN FUNDS AND THAT THIS IS A CASE OF DIVERSION OF INTEREST BEARING FUNDS FOR GIVING INTE REST FREE ADVANCES. IN THE LIGHT OF THE ORDER OF THE ASSESSIN G OFFICER HE SUBMITTED THAT EVEN IF THERE IS NO DIRECT NEXUS BET WEEN THE BORROWED FUNDS AND THE INTEREST FREE ADVANCES, STIL L A DISALLOWANCE IS JUSTIFIED AND FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. AVERY CYCLE INDUSTRIES LTD., (2008) 296 ITR 393 (P & H). HE VEHEMENTLY CONTENDED THAT THE ASSESSEE WOULD HAV E SAVED A LOT OF EXPENDITURE HAD THIS DIVERSION NOT TAKEN PLA CE. HE ALSO RELIED ON THE FOLLOWING CASE LAWS (I) ACIT, CIRCLE 9(1), VS. PUNJAB STAINLESS STEEL INDUSTRIES, (2011) 128 ITD 12 3 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA (II) CIT VS. VARNDER AGRO CHEMICALS LTD., (2007) 290 ITR 147 (P & H) 5.1. ON THE ISSUE OF BURDEN OF PROOF, HE RELIED ON THE THIRD MEMBER DECISION IN THE CASE OF KUMARAGIRI TEX TILES LTD., VS. DCIT, SPL. RANGE-IV (2006) 100 ITD 57 (CHENNAI) (T .M.) AND ARGUED THAT THE BURDEN OF PROOF IS ON THE ASSESSEE TO PROVE THAT THE DISALLOWANCE IS NOT WARRANTED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. GROUND NOS. 3 TO 10, LEARNED D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER. WITH RESPECT TO GROUND NO S.11 AND 12, HE SUBMITTED THAT THE LD. CIT(A) WITHOUT VERIFICATI ON OF THE TDS CERTIFICATES OR CONFRONTING THE ASSESSING OFFICER W ITH THE MATERIAL PRODUCED BEFORE HIM BY THE ASSESSEE, THAT THESE PAY MENTS ARE MERE REIMBURSEMENTS, HAD ALLOWED THE APPEAL OF THE ASSESSEE. WITH RESPECT TO GROUND NO.13, HE RELIED ON THE ORDE R OF THE ASSESSING OFFICER 7. MR. C.P. RAMASWAMY, LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND RELIED ON THE ORDER OF T HE FIRST APPELLATE AUTHORITY FOR ALL THE GROUNDS. ON GROUND NO.2 I.E., DISALLOWANCE OF INTEREST EXPENDITURE MR. C.P. RAMAS WAMY FILED A COPY OF BUILT OWN TRANSFER AGREEMENT DATED 1 ST APRIL, 2007 AND SUBMITTED THAT MR. M. VENUGOPAL AND MR. M.V. SRINIV AS HAVE GIVEN THEIR PREMISES FOR THE USE OF THE ASSESSEE FO R THE BRANCH OFFICE SUPPORTED BY WORK SHOP AND SERVICE STATION A T KHAMMAM. HE POINTED OUT THAT THE PREMISES WAS GIVEN FOR THE PERIOD OF 10 YEARS AND NO RENT WAS TO BE PAID BY THE ASSESSEE TO THESE LAND LORDS FOR ONE OF THIS PREMISES. BY ADVANCING MONEY TO THE LAND LORDS BY WAY OF PAYMENT OF INSTALLMENTS OF FINANCE OBTAINED BY THE LAND LORDS, THE ASSESSEE, AS PER THE LEARNED CO UNSEL, HAS 4 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA GAINED ON COMMERCIAL ADVANTAGE. HE SUBMITTED THAT T HE ADVANCE WAS FOR COMMERCIAL PURPOSES. HE RELIED ON THE JUDGM ENT OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS 288 ITR 1 AND SUBMITTED THAT, THE TEST TO BE APPLIED IN SUCH CASES IS WHETHER THERE WAS COMMERCIAL EXPEDIENCY OR NOT. 8. ON GROUND NO.11, ON QUERY FROM THE BENCH, HE SUBMITTED THAT THE ISSUE MAY BE SET ASIDE TO THE FI LE OF THE ASSESSING OFFICER FOR VERIFYING THE TDS CERTIFICATE S. 9. AFTER HEARING THE RIVAL CONTENTIONS, WE HOLD AS FOLLOWS; 9.1. GROUND NO. 2 DEALS WITH DETAILS OF INTEREST. THE TEST TO BE APPLIED IN SUCH CASE HAS BEEN LAID DOWN BY TH E HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA). IF THERE IS COMMERCIAL EXPEDIENCY, THEN, THE QUESTION OF DISALL OWANCE DOES NOT ARISE, EVEN THOUGH, THERE IS A NEXUS BETWEEN TH E BORROWED INTEREST BEARING FUNDS AND THE INTEREST FREE ADVANC ES MADE BY THE ASSESSEE. THE ONLY REQUIREMENT IS THAT THE ADVANCES GIVEN SHOULD BE FOR BUSINESS PURPOSES. IN THE CASE ON HAND, THE ASSESSEE HAS TAKEN A BUILDING FOR USE OF ITS BRANCH OFFICE, SUPP ORTED BY WORK SHOP AND SERVICE STATION AT KHAMMAM FROM MR. M. VEN UGOPAL AND MR. M.V. SRINIVAS FOR A PERIOD OF 10 YEARS. THE ASSESSEE IS NOT REQUIRED TO PAY ANY RENT FOR THESE PREMISES. TH E OBLIGATION THAT THE ASSESSEE HAS, IS TO PAY THE MONTHLY INSTAL LMENTS OF THE LOAN TAKEN BY THESE TWO OWNERS FROM M/S. SUNDARAM F INANCE. ON THIS FACTUAL MATRIX, WE ARE OF THE CONSIDERED OP INION THAT THE ORDER OF THE FIRST APPELLATE AUTHORITY HAS TO BE UP HELD AND THIS GROUND NO.2 OF THE REVENUE IS TO BE DISMISSED IN VI EW OF THE PROPOSITION OF LAW, LAID DOWN BY THE HONBLE SUPREM E COURT IN THE CASE OF S.A. BUILDERS (SUPRA). 5 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA 9.2. COMING TO THE NUMBER OF JUDGMENTS RELIED UPON BY THE LEARNED D.R. IT IS SUFFICE TO SAY, THAT THESE A RE OLD DECISIONS, RENDERED PRIOR TO THE JUDGMENT OF THE HONBLE SUPRE ME COURT IN THE CASE OF S.A. BUILDERS. IN ANY EVENT, THE JUDGME NT OF THE HONBLE SUPREME COURT IS THE LAW OF THE LAND. 10. GROUND NO.3 & 4 ARE AS UNDER : 3. THE LD. CIT(A) OUGHT HAVE CONFIRMED THE ADDITI ON OF RS.1,78,491 SINCE THE PAYMENT MADE TO M/S. GLOBAL S IGN INDIA TOWARDS MARUTHI NAME BOARD ERECTION CHARGES W AS FOR COMPOSITE WORK OF PURCHASE AND ERECTION CHARGES. 4. THE LD. CIT(A) FAILED TO CONSIDER THE CIRCULAR N O.715 DATED 08.08.1995 OF CBDT AS PER WHICH PUTTING UP OF HOARDING IS IN THE NATURE OF ADVERTISEMENT AND ATTR ACTS PROVISIONS OF SECTION 194C OF THE I.T. ACT. 10.1. DURING THE ASSESSMENT PROCEEDINGS, IT WAS OB SERVED BY THE ASSESSING OFFICER THAT ASSESSEE FIRM HAS PAI D AN AMOUNT OF RS.1,78,491 WITHOUT DEDUCTING TDS TO M/S. GLOBAL SIGN INDIA TOWARDS MARUTHI NAME BOARD ERECTION CHARGES. A SHOW CAUSE LETTER DATED 12.12.2011 WAS ISSUED TO THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED U/S.40(A)(IA) OF THE I.T. ACT. IN RESPONSE THERETO, ASSESSEE FILED A REPLY DATED 22.1 2.2011 STATING THAT THERE WAS NO CONTRACT BETWEEN THE FIRM AND M/S . GLOBAL SINGH INDIA FOR ERECTION OF NAME BOARD AND PROVISIO N OF SECTION 194C DOES NOT APPLY AS THERE WAS NO CONTRACT. HOWEV ER, ASSESSING OFFICER RELYING ON CBDTS CIRCULAR NO.715 DATED 08.08.1995, PUTTING UP OF HOARDING IS IN THE NATURE OF ADVERTISEMENT AND ATTRACTS PROVISIONS OF SEC.194C O F I.T. ACT, ADDED THE AMOUNT OF RS.1,78,491 TO THE INCOME OF TH E ASSESSEE. AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE LD. CIT (A) AND THE LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING O FFICER IN 6 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA TERMS OF PROVISIONS OF SECTION 40(A)(IA) AGAINST WH ICH THE REVENUE IS IN APPEAL BEFORE US. THE OBSERVATIONS OF THE LD. CIT(A) ON THE ISSUE ARE AS UNDER : 5C. THE THIRD GRIEVANCE IS ON ADDITION OF RS.1,7 8,491 FOR THE AMOUNTS PAID TO M/S. GLOBAL SIGN INDIA TOWARDS COST OF THE MARUTHI NAME BOARD AND ERECTION CHARGES. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE APPEL LANT HAS ENTERED INTO AN AGREEMENT WITH M/S. GLOBAL SIGN IND IA FOR ERECTION OF HOARDING AND SUCH WORK FALLS UNDER CONT RACT EVEN IF THERE WAS NO WRITTEN AGREEMENT. THUS, THERE WAS A MISUNDERSTANDING ON THE PART OF THE ASSESSING OFFIC ER BUT WHEREAS THE APPELLANT HAS PAID FOR PURCHASE AND ERE CTION OF NAME BOARD. FOR TDS TO BE APPLIED THERE MUST BE SOM E ELEMENT OF INCOME IN THE TRANSACTIONS MADE, WHEREAS THE TRANSACTIONS FOR PURCHASE AND ERECTION OF NAME BOAR D WAS PURE PURCHASE AND NO ELEMENT OF INCOME COULD BE ATT RIBUTED. THUS, SINCE THE ASSESSING OFFICER WAS IN MISTAKE, H E IS DIRECTED NOT TO APPLY THE PROVISIONS OF TDS FOR PUR CHASE AND ERECTION OF NAME BOARD; IN THE PROCESS HE IS FURTHE R DIRECTED TO DELETE THE ADDITION MADE IN TERMS OF THE PROVISI ONS OF SEC.40(A)(IA). 10.2. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES A ND PERUSED THE RELEVANT MATERIAL ON RECORD. ON CAREFUL PERUSAL OF THE ORDER OF THE LD. CIT(A) ON THE ISSUE, WE FIND NO IN FIRMITY IN HIS ORDER AND ACCORDINGLY, WE CONFIRM THE SAME. GROUND NOS.3 AND 4 OF THE REVENUE ARE DISMISSED. 10.3. GROUND NO.5 IS AS UNDER : THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF R S.41,292 STATING THAT THE PAYMENTS ARE NOT BOGUS AND COULD N OT BE DISALLOWED IN THE ABSENCE OF ANY COGENT MATERIAL BR OUGHT ON RECORD, SINCE THE PAYMENTS MADE BY THE ASSESSEE WER E CONTRAVENING THE PROVISIONS OF SECTION 40A(3) OF TH E ACT AND RULE 6DD OF I.T. RULES. 10.4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER MADE THE ADDITION OF RS.41,292 TO THE INCOME OF THE ASSESSEE AS TDS WAS NOT DEDUCTED ON CASH PAYMEN TS MADE 7 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA TO M/S. VANI KRISHNA ADVERTISERS OF RS.20,800 ON 01 .07.2008 AND RS.20,492 ON 26.11.2008. ON APPEAL BY ASSESSEE, THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 5D. THE FIFTH GRIEVANCE IS CONNECTED WITH CASH PAYMENTS TO M/S. VANI KRISHNA ADVERTISERS OF RS.20, 800 ON 1.7.2008 AND RS.20,492 ON 26.11.2008. IT TRANSPIRES THAT FIRST THE ASSESSING OFFICER PROPOSED TO DISALLOW TH E PAYMENTS UNDER SECTION 40(A)(IA) ON THE GROUND THAT NO TDS WAS MADE. WHEN EVIDENCE OF TDS WAS SHOWN, THE ASSESSING OFFICER DISALLOWED THE PAYMENTS AS THOSE ARE CASH PAYMENTS, APPLYING THE PROVISIONS OF SECTION 4 0A(3). OBVIOUSLY, THE ACTION OF THE ASSESSING OFFICER IS N OT APPROVED BECAUSE THE FACT THAT PAYMENTS HAVE BEEN M ADE WAS NOT DISPROVED OR ANY COGENT REASONS WERE GIVEN TO SAY THAT THE PAYMENTS WERE BOGUS. THUS, THOUGH THERE WA S A TECHNICAL DEFAULT, THE PAYMENTS COULD NOT BE DISALL OWED IN THE ABSENCE OF ANY COGENT MATERIAL BROUGHT ON RECOR D. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER IS DIRECTED NO T ADD BACK THE SAME. 10.5. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES A ND PERUSED THE RELEVANT MATERIAL ON RECORD. ON CAREFUL PERUSAL OF THE ORDER OF THE LD. CIT(A) ON THE ISSUE, WE FIND NO IN FIRMITY IN HIS ORDER AND ACCORDINGLY, WE CONFIRM THE SAME. GROUND NO.5 OF THE REVENUE IS DISMISSED. 11. GROUND NO.6 IS AS UNDER : 6. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT TH AT AN AMOUNT OF RS.30,000 WAS PAID TO M/S. ANNADEVARA ASSOCIATES THROUGH THE STAFF AND IF THE EXPENDITURE IS FOR FOOD AND BEVERAGES IT NEED NOT PAY TO M/S. ANNADEVA RA ASSOCIATES AND IT SHOULD HAVE BEEN REFLECTED UNDER STAFF WELFARE. 11.1. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT TDS WAS NOT DE DUCTED ON PAYMENTS OF RS.16,000, RS.14,000 MADE ON 2.9.2008 A ND 8 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA 31.3.2009 RESPECTIVELY TO M/S. ANNADEVARA ASSOCIATE S. HENCE, ADDED A SUM OF RS.30,000 TO THE INCOME OF THE ASSES SEE. ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) DELETED THE SAID ADDITION. AGGRIEVED, THE REVENUE I S IN APPEAL BEFORE US. THE RELEVANT OBSERVATIONS OF THE LD. CIT (A) ON THE ISSUE ARE AS UNDER : 5E. THE FIFTH GRIEVANCE IS ON ADDITION OF RS.30,00 0 ON AUDIT STAFF EXPENSES. IT TRANSPIRES THAT THE APPELL ANT HAS SPENT RS.16,000 AND RS.14,000 TO MEET THE FOOD AND BEVERAGE EXPENSES OF THE AUDIT STAFF, WHEN THEY HAV E VISITED THE APPELLANT. THIS EXPENDITURE WAS MISTAKENLY CONS TRUED BY THE ASSESSING OFFICER AS AUDIT CHARGES ATTRACTIN G THE PROVISIONS OF TDS AND ADDED THE SAME IN TERMS OF TH E PROVISIONS OF SECTION 40(A)(IA). IT IS NORMAL EXPEN DITURE INCURRED FOR PROVIDING FOOD AND BEVERAGES TO AUDIT STAFF, WHICH ARE RECKONED AS NORMAL BUSINESS EXPENSES AND AS SUCH NO TDS PROVISIONS ARE ATTRACTED. IN THE CIRCUM STANCES, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE SAM E. 11.2. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES. ON CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES, W E FIND NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A). WE, TH EREFORE, CONFIRM THE SAME. GROUND NO.6 OF THE REVENUE IS DISMISSED. 12. GROUND NO.7 IS AS UNDER : THE LD. CIT(A) OUGHT NOT TO HAVE DELETED THE ADDIT ION OF RS.51,714 CONSIDERING THE FACT THAT THE HONBLE HIG H COURT HAS STAYED THE ORDER OF THE ITAT IN THE CASE OF M/S . MERILYN SHIPPING AND TRANSPORT. 12.1. DURING THE ASSESSMENT PROCEEDINGS, IT WAS OB SERVED BY THE ASSESSING OFFICER THAT INTEREST WAS PAID OF RS.7,18,921 TO MS. RELIANCE CAPITAL LTD., BUT TDS WAS MADE AT RS.6 ,67,207 ONLY. A SHOW CAUSE NOTICE DT.12.12.2011 WAS ISSUED TO THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE DISALLOWE D. ASSESSEE FILED A REPLY DT.19.12.2011 STATING THAT TDS WAS DE DUCTED DURING 9 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA THE YEAR 2009-2010 RELATING TO THE ASSESSMENT YEAR 2010-2011 BUT COULD NOT PRODUCE ANY EVIDENCE TO THIS EFFECT. HENCE, THE DIFFERENCE AMOUNT OF RS.51,714 IS DISALLOWED AND AD DED TO THE INCOME OF THE ASSESSEE. ASSESSEE FILED APPEAL BEFOR E THE LD. CIT(A) AND THE LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. THE OBSERVATIONS OF THE LD. CIT(A) ON THE ISSUE ARE AS UNDER : 5F. THE SIXTH GRIEVANCE PERTAINS INTEREST PAID TO M/S. RELIANCE CAPITAL LTD., RS.51,714. IT IS SEEN THAT D URING THE ACCOUNTING YEAR, INTEREST WAS PAID TO M/S. RELIANCE CAPITAL LTD., TO THE EXTENT OF RS.7,18,921. TDS WAS MADE ON LY ON RS.6,67,207. THUS ON INTEREST OF RS.51,714 TDS WAS NOT MADE. HENCE, THIS AMOUNT WAS DISALLOWED BY THE ASSE SSING OFFICER APPLYING SEC. 40(A)(IA). THE APPELLANT REQU ESTS THAT SINCE THE ENTIRE INTEREST WAS PAID DURING THE ACCOU NTING YEAR, NO DISALLOWANCE SHOULD BE MADE BASING ON THE DECISION OF THE ITAT, VIZAG BENCH IN THE CASE OF ME RILYN SHIPPING AND TRANSPORT IN ITA.NO.477/VIZ/2008 DATED 29.03.2012. FOLLOWING THE RATIO OF THIS DECISION, T HE ENTIRE EXPENDITURE IS ADMISSIBLE. HENCE, THE ASSESSING OFF ICER IS DIRECTED TO DELETE THE ADDITION MADE IN THIS REGARD . 12.2. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES. ON CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES, W E FIND NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A). WE, TH EREFORE, CONFIRM THE SAME. GROUND NO.7 OF THE REVENUE IS DISMISSED. 13. GROUND NOS.8 AND 9 ARE AS UNDER : 8. THE LD. CIT(A) ERRED IN DELETING THE ADDITION O F RS.2,74,700 ACCEPTING THE CONTENTION OF THE ASSESSE E THAT THE PAYMENTS WERE ONLY REIMBURSEMENT WITHOUT VERIFY ING THE PAYMENTS RECEIVED AND MADE IN RESPECT OF THAT WORK. 9. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THA T EVEN THOUGH THERE IS NO WRITTEN AGREEMENT BETWEEN THE AS SESSEE AND M/S. HIGH GLOW, THE WORK DONE BY M/S. HIGH GLOW FALLS UNDER CONTRACT SINCE THE ASSESSEE HAS GIVEN THE WOR K TO 10 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA M/S. HIGH GLOW AS THEY ARE SPECIALISTS IN THAT SPEC IFIC WORK. 13.1. DURING THE ASSESSMENT PROCEEDINGS, IT WAS OB SERVED THAT PAYMENTS TO M/S. HI-GLOW TOWARDS UNDERBODY PAINTING/COATING CHARGES WERE PAID TO THE TUNE OF RS.2,74,700 AND TDS WAS NOT DEDUCTED ON THESE PAYMENTS UNDER SE CTION 194C OF THE I.T. ACT, THE ASSESSING OFFICER DISALLO WED THE SAME U/S.40(A)(IA) OF THE I.T. ACT AND ADDED TO THE INCO ME OF THE ASSESSEE. AGGRIEVED, ASSESSEE FILED APPEAL BEFORE T HE LD. CIT(A) AND THE LD. CIT(A) DELETED THE SAID ADDITION. AGGRI EVED, REVENUE IS IN APPEAL BEFORE US. THE RELEVANT OBSERVATIONS O F LD. CIT(A) ON THE ISSUE ARE AS UNDER : 5G. THE SEVENTH GRIEVANCE IS ON NOT APPLYING THE T DS PROVISIONS ON PAYMENTS MADE TO M/S. HIGH GLOW, AN E NTITY KNOWN TO SUPPLY UNDERBODY COATING MATERIAL AND PAIN TING CHARGES. THE FACTS ARE THAT THE APPELLANT RENDERS A FTER SALE SERVICES, INCLUDING UNDERBODY COATING MATERIAL AND PAINTING DONE. FOR SUCH WORKS, THE APPELLANT PURCHASES MATER IAL FROM M/S. HIGH GLOW, WHICH EXPENDITURE IS BASICALLY A REIMBURSEMENT. ON REIMBURSEMENTS THERE IS NO ELEMEN T OF INCOME, FOR WHICH PURPOSE THE APPELLANT RELIED ON T HE DECISION OF THE MUMBAI ITAT IN THE CASE OF DCIT VS. LAZARD, WHEREIN IT WAS HELD THAT SEC. 40(A)(IA) WILL NOT BE APPLICABLE IN THE CASE OF REIMBURSEMENT OF EXPENDITURE. FURTHE R, ON THE GROUND THAT NO PAYMENT WAS DUE AFTER THE CLOSE OF T HE FINANCIAL YEAR, BASED ON THE RECENT VIZAG TRIBUNAL S DECISION IN THE CASE OF MERILYN SHIPPING AND TRANSPORT THE A PPELLANT HAS CONTENDED THAT THE ADDITION MADE BY THE ASSESSI NG OFFICER IS NOT JUSTIFIED. IN ANY CASE, IT IS A CONC LUDED ISSUE THAT ON REIMBURSEMENT OF EXPENDITURE THERE IS NO EL EMENT OF INCOME AND ACCORDINGLY THE PROVISIONS OF TDS ARE NO T APPLICABLE. IN THE CIRCUMSTANCES, THE ASSESSING OFF ICER IS DIRECTED TO DELETE THE ADDITION MADE UNDER THE CATE GORY. 13.2. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES. ON CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES, W E FIND NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A). WE, TH EREFORE, CONFIRM THE SAME. GROUND NOS.8 AND 9 OF THE REVENUE ARE DIS MISSED. 11 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA 14. GROUND NO.10 IS AS UNDER : THE LD. CIT(A) OUGHT TO HAVE CONFIRMED THE DISALLO WANCE OF INTEREST OF RS.79,865 AS THE DEBIT BALANCE UNDER TH E HEAD ADVANCES ARE FROM FRIENDS AND RELATIVES AND NOT FRO M CUSTOMERS AS NOTED BY THE CIT(A). 14.1. DURING THE ASSESSMENT PROCEEDINGS, IT IS VER IFIED THAT UNDER THE HEAD DEPOSITS FROM FRIENDS AND RELATIVES I.E., UNSECURED LOANS, THERE ARE DEBIT BALANCES IN RESPEC T OF 7 PERSONS. SINCE THE ASSESSEE IS PAYING INTEREST ON T HE CREDIT BALANCES AND NOT CHARGING ANY INTEREST ON THE DEBIT BALANCES, A SHOW CAUSE LETTER DATED 12.12.2011 WAS ISSUED TO TH E ASSESSEE AS TO WHY THE INTEREST SHOULD NOT BE CHARGED ON THE DEBIT BALANCES. ASSESSEE FILED REPLY DT. 19.12.2011 STATI NG THAT INTEREST IS NOT CHARGED ON THE SMALL DEBIT BALANCES AS A GES TURE AND CONSISTENCE PRACTICE AND IT IS NORMAL AND USUAL TRA DE PRACTICE NOT TO CHARGE INTEREST ON GOODS SUPPLIED AND SERVIC ES RENDERED. HOWEVER, THE ASSESSING OFFICER DISALLOWED SUM OF RS .79,865 AND ADDED TO THE INCOME OF THE ASSESSEE. ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A), WHO, IN TURN, DELETED THE SAME. AGG RIEVED, REVENUE IS IN APPEAL BEFORE US. THE RELEVANT FINDIN GS OF THE LD. CIT(A) ON THE ISSUE ARE AS UNDER : 5H. THE EIGHTH GRIEVANCE IS ON CHARGING INTEREST O N TRADE DEBIT BALANCES AMOUNTING TO RS.79,865. TRADE DEBTOR S AND TRADE CREDITORS ARE NORMAL OCCURRENCES IN BUSINESS, ON WHICH EITHER INTEREST IS CHARGED OR INTEREST IS PAID. SIN CE THE ACTION OF THE ASSESSING OFFICER IS AGAINST TENANTS OF BUSI NESS, THE SAME IS NOT SUSTAINABLE, MORE SO, IN THE ABSENCE OF ANY COGENT MATERIAL. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE SAME. 14.2. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES. ON CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES, W E FIND NO REASON 12 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA TO INTERFERE IN THE ORDER OF THE LD. CIT(A). WE, TH EREFORE, CONFIRM THE SAME. GROUND NO.10 OF THE REVENUE IS DISMISSED. 15. GROUND NOS.11, 12 AND 13 ARE RELATING TO DISALLOWANCE UNDER SECTION 40A(3). THE ORDER OF THE LD. CIT(A) ON THESE ISSUES ARE AS UNDER : 5.I. THE NINTH GRIEVANCE IS ON NOT APPLYING THE T DS PROVISIONS ON PAYMENT OF RS.12,32,144 MADE TO M/S. PADMA PAINTS, AN ENTITY KNOWN TO HAVE SPECIALIZED IN CAR PAINTING WORKS. THE FACTS ARE THAT THE APPELLANT RENDERS AFT ER SALE SERVICES, N WHICH GETTING THE PAINTING WORKS DONE B Y THE ABOVE MENTIONED PARTY, WHICH EXPENDITURE IS BASICAL LY REIMBURSEMENT. ON REIMBURSEMENTS THERE IS NO ELEMEN T OF INCOME, FOR WHICH PURPOSE THE APPELLANT RELIED N TH E DECISION OF THE MUMBAI ITAT IN THE CASE OF DCIT VS. LAZARD, WHEREIN IT WAS HELD THAT SEC. 40(A)(IA) WILL NOT BE APPLICA BLE IN THE CASE OF REIMBURSEMENT OF EXPENDITURE. FURTHER, ON T HE GROUND THAT NO PAYMENT WAS DUE AFTER THE CLOSE OF T HE FINANCIAL YEAR, BASED ON THE RECENT VIZAG TRIBUNAL S ORDER IN THE CASE OF MERILYN SHIPPING AND TRANSPORT THE APPE LLANT HAS CONTENDED THAT THE ADDITION MADE BY THE ASSESSI NG OFFICER IS NOT JUSTIFIED. IT IS ALSO TO BE NOTED HE RE THAT THE APPELLANTS GRIEVANCE THAT ONCE THE PROVISIONS OF S ECTION 194C ARE APPLIED THEN AGAIN THE PROVISIONS OF SECTI ON 40A(3) SHOULD NOT BE APPLIED ON THE SAME SET OF CIRCUMSTAN CES IT APPRECIATED. IN ANY CASE, IT IS A CONCLUDED ISSUE T HAT ON REIMBURSEMENT OF EXPENDITURE THERE IS NO ELEMENT OF INCOME AND ACCORDINGLY THE PROVISIONS OF TDS ARE NOT APPLI CABLE. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER IS DIRECTE D TO DELETE THE ADDITION MADE UNDER THE HEAD 15.1. DURING THE COURSE OF HEARING, THE ASSESSEE C LAIMS THAT WHAT IS PAID IS MERE REIMBURSEMENT OF EXPENDIT URE. THE REVENUE SUBMITS THAT THIS REQUIRES VERIFICATION. TH E LEARNED COUNSEL FOR THE ASSESSEE MR. RAMASWAMY SUBMITTED TH AT THIS ISSUE CAN BE SENT BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION. IN VIEW OF THE ABOVE SUBMISSIONS, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRES H ADJUDICATION IN ACCORDANCE WITH LAW, AS THE EVIDENCE SUBMITTED BY T HE ASSESSEE 13 ITA.NO.28/VIZ/2013 M/S. THE MITHRA AGENCIES, VIJAYAWADA REQUIRES VERIFICATION. GROUND NOS. 11, 12 AND 13 OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 16. IN THE RESULT, APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 03.03.20 15. SD/- SD/- (SAKTIJIT DEY) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM, DATED 03 RD MARCH, 2015. VBP/- COPY TO 1. THE INCOME TAX OFFICER, WARD 2 (1), CENTRAL REVE NUE BUILDING, M.G. ROAD, VIJAYAWADA 520 002. 2. M/S. THE MITHRA AGENCIES (AUTOMOBILE DIVISION), OPP. ALL INDIA RADIO, M.G. ROAD, VIJAYAWADA. 3. CIT(A), VIJAYAWADA 4. CIT, VIJAYAWADA. 5. D.R. ITAT, VISAKHAPATNAM BENCH, VISAKHAPATNAM. //BY ORDER // ASST. REGISTRAR ITAT, VISAKHAPATNAM.