M/s Sri Sudhir Jain, Kolkata V. ITO, WD-3(3), , Kolkata

ITA 384/KOL/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9139 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 28-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS; Set aside
• Section: 40(a)(ia)

Judgement Text

ITA No.384/Kol/2019 Shri Sudhir Jain, AY 2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENCH “C” KOLKATA Before Shri Sanjay Garg, Judicial Member and Shri Rajesh Kumar, Accountant Member आयकर अपील सं.य/ ITA No. 384/Kol/2019 Assessment Year:2013-14 Shri Sudhir Jain (PAN: AEUPJ6167K) बनाम/ V/s. Income-tax Officer, Ward- 1(1), Kolkata अपीलाथᱮ/Appellant .. ᮧ᭜यथᱮ/Respondent Hearing through video Conferencing अपीलाथᱮकᳱओरसे/By Appellant Shri Miraj D. Shah, AR ᮧ᭜यथᱮकᳱओरसे/By Respondent Shri Biswanath Ghosh, Addl. CIT सुनवाईकᳱतारीख/Date of Hearing 06-01-2022 घोषणाकᳱतारीख/Date of Pronouncement 09-02-2022 आदेश/O R D E R Per Sanjay Garg, Judicial Member:- The captioned appeal has been preferred by the assessee against the order dated 31.07.2018 of the Commissioner of Income Tax (Appeals) - 1, Kolkata [hereinafter referred to as ‘CIT(A)’]. 2. The assessee in this appeal has raised the following grounds of appeal: a. That the order passed by the Hon’ble CIT(A)-1, Kol is bad in law as well as on facts of the case. b. That the Hon’ble CIT(A0-1, Kol erred in law as well as on facts by confirming the additions made by the Ld. Assessing Officer who arbitrarily disallowed part interest expenses of Rs.5,82,80,708/- for the period till March, 2012 on estimated basis, treating the same as prior period expenses that also without issuing a show cause notice and giving an opportunity to the appellant to furnish any explanation in regards thereto. ITA No.384/Kol/2019 Shri Sudhir Jain, AY 2013-14 2 c. That the Hon’ble CIT(A)-1, Kol erred in law as well as on facts by confirming the additions made by the Ld. Assessing Officer who did not appreciate the fact that though part interest pertained to earlier years, the actual payment/credit was made during the year by deducting and remitting the applicable TDS and hence the same fails under the second limb of the provisions of section 40(a)(ia) and hence are fully allowable during the AY 2013-14.” 3. The Ld. counsel for the assessee at the outset has submitted that sole issue involved in the present appeal pertains to disallowance of interest expense of Rs. 5,82,80,708/- by holding it as prior period expense despite the fact that actual credit and payment of this interest amount and TDS relating thereto occurred in A.Y. 2013-14 i.e. the assessment year under consideration. 4. From the brief facts culled out from the material on record and submissions made in the appellate proceedings, it is observed that the appellant assessee is an individual and trader in shares, securities and commodities. The appellant had borrowed funds for his business activities from M/s. India Bulls Financial Services Limited (hereinafter referred to as ‘IBFSL’). The AO noted that the interest expenditure included the amount of Rs.5,82,80,708/- on account of arrears of interest for the period from 05.06.2009 to 31.03.2012, which was prior period expenditure. The Ld. Counsel has submitted that the appellant has neither paid nor provided for interest for the period from 05.06.2009 to 31.03.2012 owing to a dispute between the appellant and IBFSL since 05.06.2009. From the ledger account of the appellant in the books of IBFSL for the period 01.04.2009 to 31.03.2013, the Ld. AR submitted that IBFSL has not recognized any interest income on the amounts borrowed by the appellant from IBFSL for the period 05.06.2009 to 31.03.2012 in the preceding years. Ld. AR pointed out the fact that IBFSL levied the interest and subsequently reversed it in the ledger account of the appellant in the preceding years. 5. Ld. AR invited the attention of the Bench to state that loan borrowed by the appellant from IBFSL is secured against shares and securities held by the appellant in his DEMAT account with IBFSL. Owing to dispute between the appellant and IBFSL, shares and securities in the DEMAT account of the appellant were sold by IBFSL ITA No.384/Kol/2019 Shri Sudhir Jain, AY 2013-14 3 during the year under consideration by which it realized all of its dues of Rs. 20,26,62,695/- including principal and interest for the period from 05.06.2009 to 31.12.2012. It was submitted by the Ld. Counsel that IBFSL accounted for interest income from the appellant in the sum of Rs. 7,05,45,624/- in its books of account for the financial year 2012-13 relevant to A.Y. 2013-14 for which the appellant also correspondingly accounted the same in his books of account as interest expense since the loan account was settled by IBFSL suo motto. The Ld. Counsel strongly submitted that the interest liability on the appellant devolved and crystallized only during the assessment year under consideration owing to the dispute, the same being contingent in nature for the earlier years. 6. It is also brought to our attention that the appellant has not claimed interest expenditure in any of the earlier assessment years relating to the amount settled with IBFSL. The appellant accounted for the interest expense in his books of accounts as on 31.03.2013 relevant to A.Y. 2013-14 and deducted tax at source under section 194A of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) which was paid to the credit of Central Government on 28.09.2013 i.e. before the due date of filing of return of income. The same was also reported in the TDS return in Form 26Q for Quarter 4, as submitted by the Ld. AR. 7. The Ld. DR confronted on the submissions made by the Ld. AR and contended that the Ld. AO rightly disallowed the interest expense of Rs. 5,82,80,708/- being it relating to the prior period from 05.06.2009 to 31.03.2012. The Ld. DR invited our attention to the impugned assessment order to point out that the assessee debited an amount of Rs. 6,78,58,646/- on 16.11.2012 in his books of account being interest from 05.06.2009 to 16.11.2012 for which the Ld. AO held that it comprises of arrear interest for the period from 05.06.2009 to 31.03.2012. The Ld. AO computed the interest for the period from 01.04.2012 to 16.11.2012 i.e. period comprised in the year under consideration @ 12% for Rs. 95,77,738/- and made a disallowance of Rs. 5,82,80,708/- (Rs. 6,78,58,646 – Rs. 95,77,738) and added it back to the total income of the assessee for the previous year 2012-13 relevant to assessment year 2013-14. ITA No.384/Kol/2019 Shri Sudhir Jain, AY 2013-14 4 8. We have heard the rival contentions made by the learned representatives of the parties and perused the material placed on record. We observe that in this case, admittedly the genuineness of interest expenditure has not been doubted nor the assessee has claimed the interest expense for the period from 05.06.2009 to 31.03.2012 in the financial years 2009-10, 2010-11 and 2011-12. We find merit in the contention of the Ld. AR that interest liability on the appellant crystallized only during the assessment year under consideration owing to the dispute with IBFSL. We also note the fact that IBFSL from whom the assessee borrowed the amount has recognized and accounted for interest income in its books account in the financial year 2012-13 relevant to A.Y. 2013-14 only and not in the earlier years. 9. On the basis of the fact that in the confirmation of account of the assessee in the books of IBFSL, the loan creditor (IBFSL) debited an amount of Rs. 6,78,58,646/- on 16.11.2012 being interest from 05.06.2009 to 16.11.2012, the Ld. AO came to a conclusion that interest element comprises of the arrear interest for the period from 05.06.2009 to 31.03.2012 in not allowable and made the addition to the total income of the assessee for A.Y. 2013-14. 10. We further find that when the matter came up before the Ld. CIT(A), he found that there is no dispute over the quantification of the interest expense but sustained the addition by holding that expenses are allowable in respect of income which had arisen or accrued from the same source. 11. In the given facts and circumstances where the assessee has not claimed interest expenses in the preceding years and the loan creditor IBFSL has also not recognized the corresponding interest income in the preceding years, it will not be justified to disallow the claim of interest expense in the hands of the assessee when it remained contingent in the preceding years and which devolved and crystallized only during the relevant year under consideration before us, owing to realization of its dues by IBFSL in one shot from the assessee. It is not a case as if the Revenue has been deprived of ITA No.384/Kol/2019 Shri Sudhir Jain, AY 2013-14 5 any tax. In fact, by not claiming interest expense in the earlier years, assessee has reported higher amounts of total income. Hence, there is no loss of tax to the Revenue. 12. Under these given facts and circumstances of the case we are of the considered view that Ld. CIT(A) was not justified in sustaining the disallowance of interest expense claimed by the assessee in his profit and loss account when the documentary evidence to substantiate the claim were placed on record. We accordingly set aside the finding given by the Ld. CIT(A). Consequently, addition made by the Ld. AO by making a disallowance of Rs. 5,82,80,708/- as arrear interest is deleted. 13. In the result, the appeal of the assessee stands allowed. Order is pronounced in the open court on 9 th February, 2022. Sd/- Sd/- (Rajesh Kumar) (Sanjay Garg) Accountant Member Judicial Member Dated: 09.02.2022 JD(Sr.P.S.) Copy of the order forwarded to: 1. Appellant– Shri Sudhir Jain, 13, B. B. Ganguly Street, Room No. 205, Bow Bazar, Kolkata-700 012. 2. Respondent– ITO, Ward-1(1), Kolkata. 3. CIT(A)-1, Kolkata. (sent through e-mail).. 4. CIT, Kolkata. 5. DR, ITAT, Kolkata, (sent through e-mail). True Copy By Order Sr. Private Secretary/DDO ITAT, Kolkata Bench, Kolkata