Shree Mahavir Carbon Ltd, Cuttack V. ACIT, Cuttack

ITA 321/CTK/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52353 (ITAT-CUTTACK)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 08-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 13-06-2011
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: J M PATTNAIK
• Keywords: Non-deduction of tax; TDS; Set aside

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 321/CTK/2011 (ASSESSMENT YEAR 2006 - 07) SHREE MABAVIR CARBON LTD., AT: PLOT NO.85, PHASE III, NEW INDUSTRIAL ESTATE,JAGATPUR, CUTTACK. PAN: AAECS 6716 J VERSUS ASST.COMMISSIOENR OF INCOME - TAX, CIRCLE 1(1), CUTTACK. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI J.M.PATTNAIK, AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR DATE OF HEARING : 08.08.2011 DATE OF P RONOUNCEMENT : 12.08.2011 ORDER SHRI K.S.S.PRASAD RAO, JM : THIS APPEAL IS FILED THE ASSESSEE HAVING BEEN AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) DT.29.10.2009 FOR THE ASSESSMENT YEAR 2006 - 07 IN THE CASE OF THE ASSESSEE. 2. T HE SOLE ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT THE DISALLOWANCE OF 2,56,702 BEING INTEREST PAYABLE BY THE ASSESSEE U/S.201(1A) ON DELAY DEPOSIT OF TAX DEDUCTED AT SOURCE AS PENALTY. 3. BOTH THE PARTIES WERE HEARD REGARDING THE ISSUES RAISED IN THE RESPECTIVE APPEALS AND THEIR LEGAL IMPLICATIONS. 4. ON CAREFUL CONSIDER ATION OF THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL AND ANALYZING THE SAME IN THE LIGHT OF RIVAL SUBMISSIONS OF BOTH THE PARTIES, THE UNDISPUTED FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE COMPANY HAD PROVIDED FOR TDS PAYABLE AMOUNTING TO 25,38,47 7 FOR THE IMMEDIATE PREVIOUS YEAR. DURING THE CURRENT YEAR SUCH AMOUNT WAS 17,32,671 I.E., AS ON DT.31.3.2006. BOTH THESE AMOUNTS ARE DULY REFLECTED IN THE BALANCE ITA NO.321/CTK/2011 2 SHEETS. WHILE MAKING THE RESPECTIVE PAYMENTS TO THE PARTIES MOSTLY BY CREDITING THEIR ACCO UNTS IN COMPANIES BOOK, THE COMPANIES HELD UP THE TDS AMOUNT BY BOOK ENTRY FROM THE CREDITED AMOUNT. TO SAY, IN EFFECT THE PARTIES WERE CREDITED WITH THE AMOUNT THAT WAS DUE TO THEM BEFORE TDS. THIS HAPPENED BECAUSE OF A SEVERE CASH CRASH IN THE COMPANY WH EN NO FUND WAS AVAILABLE TO EFFECT THE PAYMENT TO THE PARTIES, WHICH HAD TO BE CREDITED TO THEIR RESPECTIVE ACCOUNTS WITHOUT PHYSICAL PAYMENTS. THEREFORE, TDS WAS BASED ON BOOK ENTRIES. THE ASSESSEE IS ACCOUNTABLE TO THE GOVERNMENT OF INDIA FOR PAYMENT OF TDS BY GENERATING FUNDS IN THE SUBSEQUENT PERIOD OF ITS OWN SOURCES. DURING THE FY 2005 - 06, THE ASSESSEE TRIED TO LIQUIDATE THE LIABILITY OF 25,38,477 PERTAINING TO THE FY 2004 - 05 IN INSTALLMENTS. AS THE COMPANYS FINANCIAL POSITION WAS NOT GOOD, THE A SSESSEE HAS PHYSICALLY COLLECTED THE AMOUNT OF TDS AND CREDITED THE SAME TO THE PAYEES ACCOUNT. DURING THE FY 2005 - 06, THE COMPANY HAS LIQUIDATED THE LIABILITY OF TDS FROM ITS OWN RESOURCES AS PER THE PROVISIONS OF SECTION 201(1A) OF THE I.T.ACT ,1961 BY MA KING LOANS. IN THAT PROCESS, THE ASSESSEE HAS PAID SIMPLE INTEREST OF 2,36,702 TO THE GOVERNMENT AND CHARGED TO ITS PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER DISALLOWED THIS EXPENDITURE HOLDING IT IS A PENAL INTEREST. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) AN D IS UNSUCCESSFUL AND HENCE, THE PRESENT APPEAL IS FILED BY THE ASSESSEE BEFORE THE TRIBUNAL. 5. DURING THE COURSE OF HEARING, THE LEARNED AR OF THE ASSESSEE HAS VEHEMENTLY ARGUED CONTENDING INTER ALIA THAT ONCE THE ASSESSEE WAS FOUND AS ASSESSEE IN DEFA ULT U/S.201, LEVY OF INTEREST U/S.201(1A) OF THE ACT IS CONSEQUENTIA L AND MANDATORY AS IT IS ONLY COMPENSATORY NATURE FOR BELATED PAYMENT OF THE DUES TO THE GOVERNMENT. THE PROVISIONS AFORESAID NEVER SAYS ITA NO.321/CTK/2011 3 THAT IT IS A PENALTY FOR DELAY PAYMENT OF TDS BY T HE CONCERN. THEREFORE, HE CONTENDED THAT THE OBSERVATION OF THE DEPARTMENTAL AUTHORITIES THAT THIS INTEREST IS PENAL INTEREST IS NOT JUSTIFIED UNDER LAW. IN SUPPORT OF HIS CONTENTION, HE RELIED ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CI T V. DHANALAXMI WEAVING WORKS (245 I TR 13) , WHEREIN HONBLE COURT HAS HELD THAT DEDUCTION OF TAX AT SOURCE IS A MANDATORY OBLIGATION ON THE PART OF THE ASSESSEE. THE FAILURE TO DEDUCT TAX AT SOURCE ON INTEREST PAYMENT IS LIABLE TO BE LEVIED WITH INTEREST. THAT LEVY OF INTEREST IS COMPENSATORY ONE AND NOT PENAL IN NATURE SINCE THE LEVY OF INTEREST IS MANDATORY. THIS PROPOSITION WAS ANNUNCIATED BY HONBLE KERALA HIGH COURT WHILE EXAMINING THE PROVISIONS CONTAINED IN SECTION 201(1A) OF THE I.T.ACT ONLY. HENC E, STRICTLY FOLLOWING THE SAID DECISION OF THE HONBLE KERALA HIGH COURT, HE SOUGHT FOR SETTING ASIDE THE ORDER OF THE LEARNED CIT(A) BY ALLOWING THE APPEAL OF THE ASSESSEE. 6. CONTRARY TO THIS, THE LEARNED DR HAS VEHEMENTLY ARGUED SUPPORTING THE ORDERS P ASSED BY THE LOWER AUTHORITIES AND SOUGHT FOR UPHOLDING THEM BY DISMISSING THE APPEAL OF THE ASSESSEE. 7. ON CAREFUL ANALYSIS OF THE ORDERS PASSED BY THE AUTHORITIES BELOW IN THE LIGHT OF RIVAL SUBMISSIONS OF BOTH THE PARTIES AND THE PROVISIONS CONTAINED IN SECTION 201(1A) OF THE I.T.ACT,1961 AS WELL AS THE DICTUM OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT V. DHANALAXMI WEAVING WORKS (245 I TR 13) , WE ARE OF THE CONSIDERED VIEW THAT THE INTEREST LEVIED U/S.201(1A) IS ONLY TO COMPENSATE THE BELATED PAYMENT OF THE AMOUNT PAYABLE TO THE GOVERNMENT. IT IS NEVER A PENALTY DISENTITLING THE CLAIM OF THE SAME AS EXPENDITURE. THEREFORE, RESPECTFULLY FOLLOWING THE SAID DICTUM OF HONBLE KERALA HIGH COURT (SUPRA) MORE SO IN T HE ABSENCE OF ANY CONTRARY DECISION CITED BY THE ITA NO.321/CTK/2011 4 DEPARTMENT, WE ARE OF THE CONSIDERED VIEW THAT THE ACTION OF THE LOWER AUTHORITIES IN NOT ALLOWING THE SAME AS EXPENDITURE IS NOT SUSTAINABLE FOR LEGAL SCRUTINY AND IS LIABLE TO BE SET ASIDE. ACCORDINGLY THA T PORTION OF THE ORDER OF THE LEARNED CIT(A) IS HEREBY SET ASIDE BY ALLOWING THE APPEAL OF THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. SD/ - SD/ - (K.K.GUPTA) ACCOUNTANT MEMBER ( K.S.S.PRASAD RAO) JUDICIAL MEMBER DATE: 12.08.2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: SHREE MABAVIR CARBON LTD., AT: PLOT NO.85, PHASE III, NEW INDUSTRIAL ESTATE,JAGATPUR, CUTTACK. 2. THE RESPONDENT: ASST.COMMISSIOENR OF INCOME - TAX, CIRCLE 1(1), CUTTACK. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE S ECRETARY.