STRATEGIC GROUP TRUST, MUMBAI V. ADDL CIT 12(1), MUMBAI

ITA 3343/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55819 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 10-09-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 29-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NAVAJIT KAPOOR
• Assessee Lawyers: VIMAL PUNAMIYA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI B.R. MITTAL (JM) & SHRI RAJENDRA (AM) I.T.A. NO. 3343/MUM/2010 (ASSESSMENT YEAR : 2006-07) M/S. STRATEGIC GROUP TRUST STRATEGIC HOUSE 44, MINT ROAD, FORT MUMBAI-400 001. VS. ACIT-12(1) MUMBAI PAN/GIR NO.AADTS6484K (APPELLANT) .. (RESPONDENT) ASSESSEE BY : SHRI VIMAL PUNAMIYA DEPARTMENT BY : SHRI NAVAJIT KAPOOR DATE OF HEARING : 10.9.2013 DATE OF PRONOUNCEMENT : 20.9.2013 O R D E R PER B.R. MITTAL (JM) : THE ASSESSEE HAS FILED THIS APPEAL FOR A.Y. 2006-07 OF LEARNED CIT(A) DATED 12.3.2010 ON FOLLOWING GROUNDS :- 1) THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSES SING OFFICER TO VERIFY UNDER DOUBLE ADDITION TO INTEREST ON SECUR ITIES RS. 15,53,710/- IN SPITE OF UNDERSTANDING AND SATISFYIN G HERSELF THAT THE TREATMENT GIVEN BY THE ASSESSEE IS ABSOLUTELY C ORRECT. 2) THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 44,00,000/- MADE ON ACCOUNT OF INTEREST EXPENSES PA ID TO DIFFERENT PARTIES AND ADDED THE SAME IN VIEW OF SECTION 40A(I A) OF THE I.T. ACT. 3) THE LEARNED CIT(A) ERRED IN THE CHARGING INTEREST U /S. 234B&234C OF THE I.T. ACT, 1961. 4) THE LEARNED CIT(A) ERRED IN CONFIRMING INITIATION O F PENALTY U/S. 271(1)(C) OF THE I.T. ACT, 1961. 2. AT THE TIME OF HEARING LEARNED AR SUBMITTED THAT GROUND NO. 1 OF THE APPEAL IS NOT PRESSED AS THE ASSESSING OFFICER WHIL E GIVING EFFECT TO THE ORDER OF M/S. STRATEGIC GROUP TRUST 2 LEARNED CIT(A) HAS PROVIDED RELIEF TO THE ASSESSEE. HENCE GROUND NO. 1 OF THE ASSESSEE TAKEN BY THE ASSESSEE IS REJECTED. 3. IN RESPECT OF THE GROUND NO. 2 OF THE APPEAL REL EVANT FACTS ARE THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING IN SLR AND N ON-SLR BONDS ISSUED BY VARIOUS GOVERNMENT ORGANIZATIONS. THE ASSESSEE HAS BEEN TREATED AS INVESTOR AND NOT AS A TRADER IN BONDS AND OTHER SECURITIES IN THE ASSESSMENT YEAR UNDER CONSIDERATION FOR THE REASONS MENTIONED IN TH E ASSESSMENT ORDER FOR A.Y. 2004-05. THE ASSESSEE HAS NOT DISPUTED THE SAI D OBSERVATIONS OF THE ASSESSING OFFICER. FOR ASSESSMENT YEAR UNDER CONSID ERATION THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 1,05 ,41,023/- ON 31.10.2006. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD RETURNED THE FINANCE INCOME OF RS. 2,47,23,342/- AND FROM THAT, THE ASSESSEE DEDUCTED INTEREST EXPENSES, OUT OF WHICH INTEREST INCOME ON SECURITIES COMES TO RS. 59 ,53,710/-. ON BIFURCATION OF THE SAID AMOUNT, THE ASSESSEE STATED THAT THE AM OUNT OF RS. 44 LAKHS OUT OF RS. 59,53,710/- WAS PAID TO DIFFERENT PARTIES; TOWA RDS INTEREST RECEIVED BY THE ASSESSEE FROM THE REGISTRAR OF THE BONDS AFTER DEDU CTING TDS ON THE SAID INTEREST RECEIVED BY THE ASSESSEE. THE ASSESSEE STA TED THAT IT WAS THE INTEREST WHICH WAS RECEIVED BY THE ASSESSEE BUT LATER ON PAI D TO THE PARTIES TO WHOM THE BONDS WERE TRANSFERRED/SOLD. THE ASSESSEE STATE D THAT THE BONDS WERE SOLD ALONGWITH TOTAL CONSIDERATION I.E. PRICE ALONGWITH INTEREST THEREON AND THE ASSESSEE RECEIVED INTEREST AS THE SAID BONDS WERE N OT TRANSFERRED BY THE TRANSFEREES IN THEIR NAMES. THE ASSESSEE STATE THAT WHEN SAID INTEREST AMOUNT WERE PAID BY THE ASSESSEE TO DIFFERENT PARTIES, NO TDS WAS DEDUCTED ON SAID INTEREST PAYMENT AS THE SAID AMOUNT WAS TOWARDS REI MBURSABLE AMOUNT. THE ASSESSING OFFICER STATED THAT SAID CONTENTION OF TH E ASSESSEE IS NOT ACCEPTABLE. THE ASSESSEE WAS REQUIRED TO DEDUCT TDS AND THE CON TENTION OF THE ASSESSEE IS NOT SUBSTANTIATED BY ANY EVIDENCE. THEREFORE THE AS SESSING OFFICER DISALLOWED SAID SUM OF RS. 44 LAKHS AS PER SECTION 40(A)(IA) O F THE ACT. M/S. STRATEGIC GROUP TRUST 3 BEING AGGRIEVED, THE ASSESSEE FILED THE APPEAL BEFO RE THE FIRST APPELLATE AUTHORITY. 5. THE ASSESSEE MADE THE SUBMISSIONS ON LINE OF THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE HAD SOLD VARIOUS STOCKS I.E. BONDS AND SECURITIES TO THE PARTIES AND TOTAL CONSI DERATION RECEIVED ALONGIWTH INTEREST THEREON AS PER BONDS COUPON RATE. THAT THE TRANSACTION OF THE BONDS DEAL WAS DONE ON DELIVERY VERSA PAYMENT. THAT WHEN THE PAYMENT IS RECEIVED FROM BUYER PARTY, BONDS/SECURITIES ARE BEING TRANSF ERRED FROM THE ASSESSEES DEMAT ACCOUNT TO THE BUYERS DEMAT ACCOUNT OR BOND S/SECURITIES WHICH ARE IN THE FORM OF PHYSICAL ARE HANDED OVER TO BUYER PA RTY AFTER DULY TRANSFERRED IN THEIR NAME. THAT IN THE CASE OF PHYSICAL CERTIFICA TE IF DELIVERY IS TO BE GIVEN IN DEMAT ACCOUNT ON BUYER PARTYS REQUEST THEN THE PHY SICAL CERTIFICATE IS SENT TO DEMATERIALIZATION TO TRANSFER AGENT, AND AFTER DEMA TERIALIZATION PROCEDURE IS COMPLETE, THEN STOCK IS TRANSFERRED TO BUYER DEMAT ACCOUNT. IN SUCH A CASE HALF YEARLY INTEREST PAYMENT OR YEARLY INTEREST PAY MENT DATE ARISES DURING THE PROCESS OF DEMATERIALIZATION, THEN THE HOLDER OF BO NDS ON SUCH PERIOD RECEIVED THE INTEREST FROM BONDS/SECURITIES ISSUER. THE BON DS/SECURITIES ISSUER CREDIT THE GROSS INTEREST ON INTEREST PAYMENT DATE TO THE BOND HOLDER THROUGH ISSUANCE OF CHEQUE/PAY ORDER/ECS CREDIT AFTER DEDUC TION OF TDS AT PREVAILING RATE OF TAXATION AND TDS CERTIFICATE ISSUED ON THE SAME. THE ASSESSEE STATED THAT SUCH INTEREST RECEIVED DUE TO HOLDING OF BONDS WHICH HAS BEEN PREVIOUSLY SOLD TO BUYER PARTIES ARE TO BE REPAID. ASSESSEE HA S REPAID THE INTEREST RECEIVED FROM BONDS/SECURITIES ISSUER ON BEHALF OF BUYER PAR TIES TO WHOM THEY HAVE SOLD THE STOCK. HENCE THE ASSESSEE HAS NOT DEDUCTED TDS ON REPAYMENT OF INTEREST TO BUYER PARTIES. 6. LEARNED CIT(A) AFTER CONSIDERING ABOVE SUBMISSIO NS OF THE ASSESSEE VIDE PARA 4.3 CONFIRMED THE ACTION OF THE ASSESSING OFFI CER TO MAKE THE DISALLOWANCE OF THE SAID AMOUNT OF RS. 44 LAKHS U/S . 40(A)(IA) OF THE ACT. THE SAID PARA READS AS UNDER :- M/S. STRATEGIC GROUP TRUST 4 THE I.T. ACT LAYS AN OBLIGATION UPON THE PERSON RES PONSIBLE FOR PAYING ANY INCOME BY WAY OF INTEREST TO DEDUCT INCOME TAX AT S OURCE AT THE RATES IN FORCE ON THE AMOUNT OF INTEREST PAYABLE. THERE IS N O DISTINCTION O EXCEPTION MADE FOR PERSONS WHO RECEIVE BUT REPAY THE INTEREST RECEIVED AS IS CLAIMED TO BE THE CASE OF THE PRESENT APPELLANT. THUS, THE APPELLANTS CONTENTION CANNOT BE ACCEPTED. THE ASSESSING OFFICER HAS RIGHT LY MADE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. HENCE THIS APPEAL BY THE ASSESSEE. 7. DURING THE COURSE OF HEARING LEARNED AR MADE HIS SUBMISSIONS ON THE LINE OF THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, AS MENTIONED HEREINABOVE. IT WAS CONTENDED THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS ON SAID PAYMENT OF INTEREST PAID TO THE PARTIES AS THE INTEREST WAS RECEIVED BY THE ASSESSEE ON THEIR BEHALF TO WHOM THE ASSESSEE H AD ALREADY SOLD BONDS/SECURITIES. THAT IT AMOUNTS TO REIMBURSE BACK TO THOSE PARTIES THE INTEREST AND THEREFORE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS AS THIS AMOUNT WAS PAID TO THE ACTUAL PARTIES. THE ASSESSEE HAS ALSO FILED DETAILED SUBMISSIONS VIDE LETTER DATED 8.11.2012 AND AGAIN A T THE TIME OF HEARING OF THE APPEAL FILED A FACT-SHEET REITERATING ABOVE FACTS A ND MAKING SUBMISSIONS ON LINE OF THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. IN THE FACTS SHEET THE ASSESSEE HAS ALSO STATED THAT SUCH INTEREST REC EIVED BY THE ASSESSEE ON BONDS/SECURITIES SOLD TO DIFFERENT PARTIES WERE MAI NLY ON ACCOUNTS OF PROVIDENT FUND AND SAID INTEREST RECEIVED WAS REIMBURSED TO T HEM ON GROSS BASIS WITHOUT TDS DEDUCTION. THAT THE FUNDS ARE TAX EXEMPT AND TH EY DO NOT ACCEPT PAYMENT OF INTEREST AFTER DEDUCTION, AND DUE TO COMPETITIVE REASONS, THE ASSESSEE HAD NO CHOICE BUT TO PAY GROSS. THE INTEREST RECEIVED B Y THE ASSESSEE FROM REGISTRAR ON BEHALF OF THE CLIENT IS PURELY IN THE NATURE OF REIMBURSEMENT OF EXPENSES. IT IS ALSO RELEVANT TO STATE THAT THE ASSESSEE HAS STA TED NUMBER OF CASES IN THE SAID STATEMENT OF FACTS WHICH WE HAVE CONSIDERED AN D STATE THAT THOSE CASES MENTIONED BY THE ASSESSEE IN THE STATEMENT OF FACTS AND ALSO FILING A SEPARATE LIST OF SIX CASES, NAME OF WHICH ARE MENTIONED HERE INAFTER ARE NOT RELEVANT TO THE FACTS OF THE CASE BEFORE US FOR THE REASONS THA T IN THOSE CASES THERE WERE ACTUAL REIMBURSEMENT OF EXPENSES AS PER DETAILS MEN TIONED IN BILLS/VOUCHERS M/S. STRATEGIC GROUP TRUST 5 RAISED AND IN THAT CONTEXT IT WAS HELD THAT SAID RE IMBURSEMENT DID NOT HAVE ANY INCOME ELEMENT. THEREFORE NO TDS WAS REQUIRED T O BE DEDUCTED. HOWEVER IN THE CASE BEFORE US IT IS NOT A CASE THAT THE PAY EE/RECIPIENT OF INTEREST HAVE INCURRED ANY EXPENSES ON BEHALF OF THE ASSESSEE AND IT WAS REIMBURSED BY THE ASSESSEE TO THE PARTIES OF AN AGGREGATE AMOUNT OF R S. 44 LAKHS. IT IS A CASE WHERE THERE IS A PAYMENT OF INTEREST ON BONDS/SECUR ITIES RECEIVED BY THE ASSESSEE FROM THE ISSUERS OF SAID SECURITIES/BONDS AFTER DEDUCTING TDS BUT ASSESSEE MADE PAYMENT OF GROSS AMOUNT TO ALLEGED BU YER OF THE BONDS/SECURITIES WITHOUT DEDUCTING TDS. THE LIST OF SAID CASES, WHICH WERE GIVEN AT THE TIME OF HEARING OF THE APPEAL SEPARATE LY (BESIDES DISCUSSING CASES IN THE STATEMENT OF FACTS SHEET) ARE AS UNDER :- 1) KARNAVATI CO-OPERATIVE BANK LTD. VS. CIT 134 ITD 48 6 (AHD) 2) SHARMA KAJARIA & CO., KOLKATA VS. DCIT (ITA NO. 12 88/KOL/2011) 3) EXPEDITORS INTERNATIONAL (INDIA) (P) LTD. VS. ADDL. CIT 118 TTJA 652 (DEL) 4) ACIT VS. M/S. J.B. BODA SURVEYORS PVT. LTD.(ITA NO. 4252/MUM/2009) 5) UTILITY POWERTECH LTD.VS. ACIT (2010) TIOL 545 (MUM ) ITAT (BCAJ) 6) MAHYCO MONSANTO BIATECH (INDIA) LTD. VS. CIT (ITA N O. 5842/MUM/2012) 8. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESENT ATIVE VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND S UBMITTED THAT THE ASSESSEE RECEIVED INTEREST AND THE ASSESSEE ALSO PAID INTERE ST TO OTHER PARTIES AND IT IS NOT A CASE OF REIMBURSEMENT. HENCE, THE ASSESSEE A S PER SECTION 193 OF THE I.T. ACT IS REQUIRED TO DEDUCT TDS. 9. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE A UTHORITIES BELOW AND SUBMISSIONS OF THE REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO CONSIDERED THE WRITTEN SUBMISSION FILED BY THE ASSESSEE AND THE CA SES REFERRED THEREIN. WE HAVE ALREADY STATED HEREINABOVE THAT THE CASES MENT IONED BY LEARNED AR ARE NOT RELEVANT ON THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US AS THOSE CASES RELATE TO ACTUAL REIMBURSEMENT OF EXPENSES TO THE ASSESSEES INCURRED ON BEHALF OF THE OTHER PARTIES. HOWEVER, IN CASE BEFOR E US IT IS A CASE THAT THE ASSESSEE HAS MADE PAYMENT OF INTEREST RECEIVED BY I T. WE OBSERVE THAT THE M/S. STRATEGIC GROUP TRUST 6 ASSESSEE HAS NOT FILED ANY EVIDENCE ON RECORD THAT IT WAS MERELY A REIMBURSEMENT OF INTEREST TO OTHER PARTIES AS PER T HE MANDATE OF OTHER PARTIES BUT THE ASSESSEE ON THE OTHER HAND RECEIVED INTERES T AMOUNT ON THE SECURITIES/BONDS FROM THE ISSUER IN ITS NAME AND HA S STATED THAT ASSESSEE HAD SOLD THE SECURITIES/BONDS BUT SAID SECURITIES/BONDS WERE REGISTERED ON THE DUE DATE IN THE NAME OF THE ASSESSEE PENDING TRANSFER I N THE NAME OF BUYERS. WE ALSO OBSERVE THAT THE ASSESSEE RECEIVED INTEREST FR OM THEM AFTER DEDUCTING TDS AND AS ADMITTED BY THE ASSESSEE AT THE TIME OF HEAR ING OF THE APPEAL THAT ASSESSEE TOOK CREDIT FOR TDS IN THE RETURN FILED. F URTHER THE ASSESSEE HAS ALSO MADE PAYMENT OF THE AMOUNT TO OTHER PARTIES, AS CON TENDED BY THE ASSESSEE, AS AN INTEREST OF GROSS AMOUNT. HENCE, WE ARE OF TH E CONSIDERED VIEW THAT SAID PAYMENT IS IN THE NATURE OF INTEREST PAID BY THE AS SESSEE TO OTHER PARTIES AND THE ASSESSEE, THUS, WAS REQUIRED TO DEDUCT TDS AS P ER SECTION 193 OF THE ACT. SINCE THE ASSESSEE FAILED TO DEDUCT TDS, WE HOLD TH AT LEARNED CIT(A) HAS RIGHTLY CONFIRMED ACTION OF THE ASSESSING OFFICER T O DISALLOW THE SAID AMOUNT AS PER SECTION 40(A)(IA) OF THE ACT. 10. BEFORE WE PART WITH THE GROUNDS OF APPEAL, WE M AY STATE THAT THERE IS NO EVIDENCE ON RECORD AND/OR ANY EVIDENCE THAT THE REC IPIENT OF THE INTEREST/PAYEE OF THE INTEREST FROM THE ASSESSEE WERE EXEMPTED FRO M PAYMENT OF TAX ON THE INTEREST AMOUNT RECEIVED FROM THE ASSESSEE, AS CONT ENDED BY THE ASSESSEE BEFORE US, AS MENTIONED HEREINABOVE AND THEREFORE W E DO NOT CONSIDER TO DEAL WITH IT. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED ON 20 TH DAY OF SEPTEMBER, 2013. SD/- (RAJENDRA) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI; DATED : 20/9/2013 COPY OF THE ORDER FORWARDED TO : M/S. STRATEGIC GROUP TRUST 7 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ( ( ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS