Shri. Parasmal Dhanraj, Bangalore V. ITO, Bangalore

ITA 357/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8703 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 17-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: K KIRAN KUMAR
• Keywords: Proportionate interest; Non-deduction of tax
• Section: 143(3); 12; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC A BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.357/BANG/2014 ASSESSMENT YEAR : 2008-09 SHRI PARASMAL DHANRAJ, PROP. ALUMINIUM ALLOYS & ALLIED, NO.20, N.R. ROAD, BANGALORE 560 002. PAN: ACAPD 2130N VS. THE INCOME TAX OFFICER, WARD 1(4), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K. KIRAN KUMAR, ADVOCATE RESPONDENT BY : DR. P.K. SRIHARI, ADDL. CIT(DR) DATE OF HEARING : 22.12.2015 DATE OF PRONOUNCEMENT : 14.01.2016 O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 09.12.2013 OF THE CIT(APPEALS)-I, BANGALORE FOR THE ASSESSMENT YEAR 2008-09. 2. THE APPELLANT, A DEALER IN ALUMINIUM ALLOYS AS P ROPRIETOR OF M/S ALUMINIUM ALLOYS & ALLIED, FILED HIS RETURN OF INCO ME FOR THE AY 2008-09 ON 30/9/2008, DECLARING THE TOTAL INCOME AT RS.4,02,40 3. INITIALLY THE RETURN WAS PROCESSED U/S 143(1) AND THEN SELECTED FOR SCRUTINY . IN THE ASSESSMENT ITA NO. 357/BANG/2014 PAGE 2 OF 12 COMPLETED U/S 143(3) VIDE ORDER DATED 27/12/2011, T HE TOTAL INCOME OF THE ASSESSEE HAS BEEN DETERMINED AT RS.6,18,230 DUE TO THE DISALLOWANCE OF AN AMOUNT OF RS.2,16,187 OUT OF INTEREST PAID. 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). BEFORE THE CIT(A), THE ASSESSEE FURNISHED DETAILS O F INTEREST PAID AS UNDER:- 4. THE CIT(A) OBSERVED THAT AS THE INTEREST PAID/PA YABLE EXCEEDS RS. 10,000, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SO URCE U/S 194A (3) OF THE ACT. HOWEVER, INFORMATION AVAILABLE ON RECORD REVEA LED THAT TAX WAS NOT DEDUCTED WHILE MAKING PAYMENT OR CREDIT OF INTEREST IN THE ACCOUNT OF THE LENDERS. FURTHER, IT WAS OBSERVED THAT INTEREST SO CLAIMED IS STILL OUTSTANDING AS ON 31..03.2008. IN VIEW OF THE FACTS STATED ABOV E, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WAS ATTRACTED AND THE CIT(A) THEREFORE, PROPOSED TO DISALLOW AN AMOUNT OF RS. 2,91,103 (RS. 5,07,290 MINUS RS. 2,16,187) U/S 40(A) (IA) OF THE ACT. 5. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT OU T OF RS.2,16,187, THE ASSESSEE HAS CREDITED INTEREST ON LOAN OF RS.81 ,231 IN HIS BOOKS OF ACCOUNTS IN RESPECT OF LOANS GIVEN TO SRI DINESH JA IN AND M/S. PRIME COATS AS FOLLOWS:- ITA NO. 357/BANG/2014 PAGE 3 OF 12 6. IT WAS THEREFORE SUBMITTED BEFORE THE CIT(A) THA T THE AO HAS ERRONEOUSLY DISALLOWED RS.1,01,500 WHICH IS A MISTA KE APPARENT ON RECORD AND THEREFORE THE DISALLOWANCE WAS UNCALLED FOR. 7. FURTHER, REGARDING THE BALANCE DISALLOWANCE OF R S.1,14,687 (2,16,187 MINUS 1,01,500), IT WAS SUBMITTED THAT TH E ASSESSEE HAD OWN CAPITAL FUND AVAILABLE FOR ADVANCING LOANS AGGREGAT ING TO RS.7,90,914 AS FOLLOWS:- 8. THE ASSESSEE SUBMITTED THAT THERE WAS A CAPITAL BALANCE OF RS.26,75,103 AS ON 31.3.2008 AND HENCE THERE WAS SU FFICIENT OWN CAPITAL FUND TO ADVANCE THE LOANS TO THE ABOVE LOANEES. NO PART OF THE BORROWED ITA NO. 357/BANG/2014 PAGE 4 OF 12 FUND WAS UTILISED FOR THE SAID LOAN OF RS.7,90,914. THEREFORE, THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.1,14,6 87 BEING PROPORTIONATE INTEREST ON THE AFORESAID LOAN OF RS.7,90,914 WAS U NJUSTIFIED. THE ASSESSEE RELIED ON THE DECISIONS OF CIT V. TIN BOX CO. (2003) 260 ITR 637 (DEL) AND CIT V. BHARATI TELEVENTURE LTD. (2011) 331 ITR 582 (DEL). 9. WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS, THE ASSESSEE SUBMITTED THAT INTEREST WAS NOT CHARGED ON THE ABOVE LOANS, S INCE ITS RECOVERY WAS DOUBTFUL AND THERE WAS NO ACCRUAL OF INTEREST INCOM E AND RELIED ON THE DECISION OF DIT V. BRAHAMPUTRA CAPITAL FINANCIAL SERVICES LTD. [2011] 335 ITR 182 (DEL) . 10. THE CIT(A) NOTED THAT THE SOURCE AND APPLICATIO N OF FUND FROM THE BALANCE SHEET AS UNDER:- ITA NO. 357/BANG/2014 PAGE 5 OF 12 11. FROM THE ABOVE DETAILS, THE CIT(APPEALS) WAS OF THE OPINION THAT ADMITTEDLY, TRANSACTIONS WERE MADE THROUGH COMMON P OOL OF FUNDS AND HENCE IT WAS NOT ASCERTAINABLE WHETHER LOANS & ADVA NCES WERE MADE OUT OF INTEREST FREE FUNDS ONLY. THE CIT(A) OBSERVED T HAT THE AO DISALLOWED INTEREST OF RS. 2,16,187 ON LOAN & ADVANCES GIVEN O F RS. 14,90,944. THE ASSESSEE RECEIVED RS.93,557 ON LOAN AND ADVANCES GI VEN TO PRIME COATS, PARSWANATH IMP-EXP TRADING CORPORATION AND DINESH J AIN TOTALING TO RS. 7,01,115. THUS INTEREST CHARGEABLE ON RS. 7,90,944 COMES TO RS. 1,14,687, THE CIT(A) CONCLUDED THAT LOAN AND ADVAN CES WERE GIVEN OUT OF INTEREST BEARING FUNDS AND THEREFORE, DISALLOWANCE TO THE EXTENT OF RS. 1,14,687 WAS CONFIRMED, GRANTING RELIEF OF RS.1,01, 500 TO THE ASSESSEE. 12. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASS ESSEE IS IN APPEAL BEFORE ME ON THE FOLLOWING GROUNDS:- 1. SINCE THE APPELLANT HAS GIVEN LOANS OF RS.7,90, 914 OUT OF HIS OWN CAPITAL, THE DISALLOWANCE OF INTEREST OF RS .1,14,687 IS AN ERROR. 2. SINCE THE RECOVERY OF LOANS OF RS.7,90,914 IS DO UBTFUL, THE DISALLOWANCE OF INTEREST OF RS.1,14,687 IS AN ERROR . ITA NO. 357/BANG/2014 PAGE 6 OF 12 13. BEFORE ME, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE THE CIT(APPEALS). HE SUBMI TTED THAT THE ASSESSEE HAD A CAPITAL BALANCE OF RS.26,75,103 AS O N 31.03.2008. ALSO, THERE WAS SUFFICIENT OWN CAPITAL FUND ON THE DAY ON WHICH THE LOANS AGGREGATING TO RS.7,90,914 WERE LENT TO THE AFORESA ID LOANEES. THAT BEING, SO, THE DISALLOWANCE OF INTEREST OF RS. 1,14,687, B EING PROPORTIONATE INTEREST ON THE AFORESAID LOAN OFRS.7,90,914, IS UN JUSTIFIED. 14. MY ATTENTION WAS DRAWN TO SAMPATH LYENGARS LAW OF INCOME TAX 11 TH EDITION AT PAGE 3833, WHEREIN THE LEARNED AUTHOR A .C. SAMPATH LYENGAR OPINED THAT:- FOR THE SAME REASON, A PRESUMPTION APPEARS TO BE P ERMISSIBLE THAT WHERE AN ASSESSEE HAS HIS OWN CAPITAL AS ALSO BORROWED FUNDS, THE FORMER, RATHER THAN THE LATTER COULD HAV E BEEN UTILIZED FOR THE NON-BUSINESS OR PERSONAL EXPENSES. 15. THE LD. COUNSEL FOR THE ASSESSEE CITED AN ILLUS TRATION THAT THE BALANCE SHEET OF X AS ON 31.3.2013 IS AS FOLLOWS:- 16. HE SUBMITTED THAT IT IS APPARENT THAT THE INTE REST-FREE FUNDS AVAILABLE WITH X IS RS, 10,00,000 (BEING CAPITAL AND RESERVE) . X DECIDES TO ADVANCE INTEREST-FREE LOANS OF RS.3,00,000 AND FOR THAT PUR POSE BORROWS THE ENTIRE ITA NO. 357/BANG/2014 PAGE 7 OF 12 AMOUNT WHICH IS INTEREST BEARING. ON THESE FACTS, I T WAS SUBMITTED THAT FOR ALLOWABILITY OF THE INTEREST, WHY SHOULD X AT ALL B E REQUIRED TO PROVE THE BUSINESS NEXUS BETWEEN THE BORROWING AND ITS USE; B ECAUSE IT IS OBVIOUS THAT X HAS ADEQUATE OWN RESOURCES (WHICH ARE FREE OF INTEREST) AVAILABLE WITH HIM. 17. IN THE PRESENT CASE, THE PROPORTIONATE INTEREST ON THE AFORESAID LOAN OF .RS7,90,914 WAS RS.1,14,687. THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT NO PART OF THE BORROWED FUND WAS UTI LIZED FOR GIVING AFORESAID LOAN OF RS.7,90,914. IN OTHER WORDS, THE ASSESSEE H AD GIVEN THE AFORESAID LOANS FROM OUT OF HIS OWN CAPITAL FUND AND NOT FROM OUT OF THE BORROWED FUND. MOREOVER, THE LD. COUNSEL FURTHER SUBMITTED THAT THE AO HAS NOT FOUND THAT THE BORROWED FUND HAS BEEN UTILIZED IN G IVING THE AFORESAID LOANS. THEREFORE, DISALLOWANCE OF INTEREST OF RS. 1,14,687 IS, THEREFORE, UNJUSTIFIED. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS:- CIT V. TIN BOX CO. (2003) 260 ITR 637 (DEL) CIT V. BHARATI TELEVENTURE LTD. (2011) 331 ITR 502 CIT V. SEVEN HILLS HOSPITALS P. LTD. [2015] 370 ITR 69 (T&AP) 18. THE LD. DR, ON THE OTHER HAND, STATED THAT THE CIT(APPEALS) HAS NOT BROUGHT OUT THE FACTS WITH RESPECT TO RESERVES AND SURPLUS AVAILABLE IN ORDER TO ESTABLISH THAT ASSESSEE HAD ENOUGH OWN FUNDS FOR GIVING THE LOANS, EXCEPT THAT HE HAS MENTIONED THAT THE ASSESSEE HAS SUFFICIENT RESERVES, AND THEREFORE, THIS ISSUE HAS TO BE FURTHER VERIFIE D BY THE AO. IN THESE CIRCUMSTANCES, I SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO ITA NO. 357/BANG/2014 PAGE 8 OF 12 EXAMINE WHETHER THE OWN CAPITAL WITH THE ASSESSEE E XCEEDED AMOUNT OF INTEREST FREE LOANS AND THEREAFTER DECIDE THE ISSUE IN THE LIGHT OF THE DECISION IN THE CASE OF CIT V. BHARATI TELEVENTURE LTD. (2011) 331 ITR 582 (DEL). 19. WITH RESPECT TO THE SUBMISSION OF THE ASSESSEE THAT INTEREST HAS NOT BEEN CHARGED SINCE THE RECOVERY OF LOANS IS DOUBTFU L, I AM OF THE VIEW THAT THE SAME HAS TO BE EXAMINED BY THE ASSESSING OFFICE R, WHO SHALL VERIFY WHETHER THE ASSESSEE HAS TAKEN STEPS FOR RECOVERY O F LOAN AND WHETHER THE LOAN HAS BECOME IRRECOVERABLE. ACCORDINGLY, THIS I SSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AS D IRECTED ABOVE AND THEREAFTER DECIDE THE ISSUE WITH RESPECT DISALLOWANCE OF RS.1, 14,687 IN THE LIGHT OF THE DECISION IN DIT V. BRAHAMPUTRA CAPITAL FINANCIAL SERVICES LTD. [2011] 335 ITR 182 (DEL) . 20. GROUNDS NO.3 TO 5 IS REGARDING THE DISALLOWANCE OF INTEREST OF RS.5,05,290 U/S. 40(A)(IA) OF THE ACT. 21. THE ASSESSEE HAD CLAIMED THE FOLLOWING INTEREST AMONGST OTHER THINGS:- ITA NO. 357/BANG/2014 PAGE 9 OF 12 22. THE ASSESSEE SUBMITTED BEFORE THE CIT(APPEALS) THAT AGAINST THE INTEREST OF RS.1,76,130 CLAIMED AGAINST PARASMAL (H UF), THE ASSESSEE HAS DEDUCTED RS.14,260 TOWARDS TDS. STATEMENT OF TOTAL INCOME, FORM 16A AND TDS CHALLANS WERE FURNISHED. SIMILARLY, THE A SSESSEE SUBMITTED THAT FROM THE MATERIAL FURNISHED BEFORE THE CIT(A), VIZ. , ITR-V, STATEMENT OF TOTAL INCOME, P&L ACCOUNT, CAPITAL ACCOUNT AND THE BALANCE SHEET AS ON 31.3.2008, IT WAS CLEAR THAT RS.13,345 HAS BEEN DED UCTED AS TDS. IT WAS HENCE SUBMITTED THAT THE PAYMENT OF INTEREST TO PAR ASMAL (HUF) AND SMT. LALITHA DEVI PARASMAL IS NOT HIT BY THE PROVISIONS OF SECTION 40(A)(IA). 23. AS REGARDS SRI AMIT KUMAR, IT WAS SUBMITTED THE RE WAS NON- DEDUCTION OF TAX AT SOURCE, SINCE SRI AMIT KUMAR HA D FURNISHED FORM NO.15G AND THEREFORE DEDUCTION OF INTEREST OF RS.22 ,600 IS NOT HIT BY THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. RELIAN CE WAS PLACED ON THE DECISION IN THE CASE OF KARWAT STEEL TRADERS V. ITO, REPORTED IN [2013] 37 TAXMANN.COM 190 (MUM. TRIB). 24. THE ASSESSEE FURTHER SUBMITTED THAT ALL THE AFO RESAID FOUR INTEREST INCOME RECIPIENTS SUBMITTED RETURN OF INCOME U/S 13 9 BY DECLARING INTEREST INCOME AND ALSO PAID THE TAX DUE. THE ASSESSEE IS, THUS, NOT DEEMED TO BE IN DEFAULT UNDER THE FIRST PROVISO TO SEC.201(1) R. W. 2 ND PROVISO TO SEC.40(A)(IA) OF THE ACT AND THEREFORE ENTITLED TO THE ALLOWANCE OF RS.5,05,290. ITA NO. 357/BANG/2014 PAGE 10 OF 12 25. IT WAS FURTHER SUBMITTED THAT THOUGH THE FINANC E ACT, 2012 INSERTED THE 2 ND PROVISO TO SEC.40(A)(IA) IN RELATION TO ASSESSME NT YEAR 2013-14 AND SUBSEQUENT YEARS, IT HAS TO HE TREATED AS RETRO SPECTIVE WITH EFFECT FROM 1 ST APRIL, 2005 I.E. A.Y. 2005-06 AND SUBSEQUENT YEARS BECAUSE THE SAID AMENDMENT IS REMEDIAL IN NATURE AND DESIGNED TO ELI MINATE UNINTENDED CONSEQUENCES WHICH MAY CAUSE UNDUE HARDSHIP TO THE TAX PAYERS AND IS CLARIFICATORY IN NATURE. IT WAS SUBMITTED THAT TH E MAIN INTENT OF INSERTING OF THE SECTION WAS TO MAKE THE ASSESSEE TAX COMPLIANT AND IT WAS NEVER MEANT TO RESULT INTO HAZARDOUS RESULTS, WHICH IS AL SO CLEAR FROM THE FACT THAT THE LEGISLATION ALLOWS DEDUCTION OF EXPENSE IN THE SUBSEQUENT YEARS WHEN THE TAX IS DEPOSITED. IT WAS FURTHER SUBMITTED THA T TDS IS ONLY A MODE OF RECOVERY, WHICH WAS INSERTED FOR EARLY TAX COLLECTI ON AND ONCE IT IS RECOVERED, IT CANNOT BE TAXED AGAIN. 26. THE ASSESSEE REFERRED TO THE MEMORANDUM EXPLAIN ING THE FINANCE ACT, 2012, WHEREIN IT WAS STATED AS UNDER:- IN ORDER TO RATIONALIZE THE PROVISIONS OF DISALLO WANCE ON ACCOUNT .OF NON-DEDUCTION OF TAX FROM THE PAYMENTS MADE TO A RESIDENT PAYEE, IT IS PROPOSED TO AMEND SECTION 40( A)(IA) TO PROVIDE THAT WHERE AN ASSESSEE MAKES PAYMENT OF THE NATURE SPECIFIED IN THE SAID SECTION TO A RESIDENT PAYEE W ITHOUT DEDUCTION OF TAX AND IS NOT DEEMED TO BE AN ASSESSEE IN DEFAU LT U/S.201(1) ON ACCOUNT OF PAYMENT OF TAXES BY THE PAYEE, THEN, FOR THE PURPOSE OF ALLOWING DEDUCTION OF SUCH, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYE E. ITA NO. 357/BANG/2014 PAGE 11 OF 12 27. IT WAS THE ASSESSEES SUBMISSION THAT FROM THE LANGUAGE USED IN THE MEMORANDUM EXPLAINING THE FINANCE ACT, 2012, THAT I T HAS BEEN INTRODUCED AS A REMEDY FOR THE MALADY BEING FACED BY THE TAX P AYERS AND IS CLARIFICATORY IN NATURE. THE PROVISION IS NOT INTEN DED FOR PUNITIVE ACTION ON NON-COMPLIANCE AND SHOULD BE TREATED AS WITH RETROS PECTIVE EFFECT. RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD. [(2009) 319 ITR 306 (SC). 28. THE CIT(APPEALS) HAS AT PAGE 11 TO 14 OF THE IM PUGNED ORDER DISCUSSED THE ISSUE OF DISALLOWANCE OF INTEREST U/S . 40(A)(IA) IN RESPECT OF INTEREST PAYMENTS IN THE CASE OF PARASMAL (HUF), SM T. LALITHA DEVI PARASMAL, SRI AMIT KUMAR AND SMT. POSI BAI AND THE CIT(A) HAS CONFIRMED THE DISALLOWANCE OF INTEREST AND ENHANCEMENT OF INC OME OF RS.5,05,290 U/S. 40(A)(IA) OF THE ACT. 29. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE ME. 30. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(APPEALS). ON THE OTHER HAND, THE L D. DR STATED THAT DETAILS OF TDS PAYMENTS FILED BEFORE US HAS NOT BEEN PLACED BEFORE THE AO AND THE AO HAS TO NECESSARILY VERIFY WHETHER TDS HAS BE EN DEDUCTED WITH RESPECT TO INTEREST PAID. IN THESE CIRCUMSTANCES, IT WAS PRAYED THAT THE MATTER BE SET ASIDE TO THE FILE OF THE AO FOR VERIF ICATION. ITA NO. 357/BANG/2014 PAGE 12 OF 12 31. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. I AM OF THE OPINION THAT THE ISSUE REQUIRES VERIFICAT ION BY THE AO. ACCORDINGLY, THE ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL VERIFY THE FACT OF TDS PAYMENTS IN THE CASE O F PARASMAL HUF, SMT. POSI BAI AND SMT. LALITHA DEVI PARASMAL AND FORM 15 G FURNISHED BY THE LENDER, SHRI AMIT KUMAR JAIN CLAIMING NON-DEDUCTION OF TDS. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW. 32. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF JANUARY, 2016. SD/- (ASHA VIJAYARAGHAVAN ) JUDICIAL MEMBER BANGALORE, DATED, THE 14 TH JANUARY, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPON DENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.