M/s The Right Address Ltd., Kolkata V. The Income Tax Officer,(TDS) Ward-59(4) (TDS),Kolkata Kolkata, Kolkata

ITA 46/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4538 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 07-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 10-01-2014
• Court: TRIBUNAL
• Department Lawyers: R P NAG
• Keywords: Sale consideration of property below Jantri Value; Business income; Business expenditure; Source of fund; Proportionate interest; Date of conversion; Non-deduction of tax
• Section: 143(3); 244A; 194C

Judgement Text

ITA NOS.46&47/KOL/2014 M/D. THE RIGHT ADDRESS LTD. A.Y.20008-09&2009-10 1 1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NOS.46&47/KOL/2014 ASSESSMENT YEARS:2008-09 & 2009-10 M/S. THE RIGHT ADDRESS LTD., SAGAR ESTATE, 4 TH FLOOR, UNIT-1, 2, CLIVE GHAT STREET, KOLKATA- 700001. PAN:AAACT9353J / V/S . INCOME TAX OFFICER (TDS), WARD-59(4), KOLKATA /APPELLANT .. /RESPONDENT ITA NO.50/KOL/2014 ASSESSMENT YEAR:2005-06 DCIT, CIRCLE-4, AAYAKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 / V/S . M/S. THE RIGHT ADDRESS LTD., SAGAR ESTATE, 4 TH FLOOR, UNIT-1, 2, CLIVE GHAT STREET, KOLKATA-700001. PAN:AAACT9353J /APPELLANT .. /RESPONDENT /BY ASSESSEE SHRI RAVI TULSIYAN, FCA /BY DEPARTMENT SHRI R.P.NAG, ADDL.CIT(DR) /DATE OF HEARING 07-09-2016 /DATE OF PRONOUNCEMENT 09-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- ITA NOS.46&47/KOL/2014(ASSESSEES APPEAL)A.Y.2008-0 9&2009-10: THESE APPEALS BY THE ASSESSEE ARE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA DATED 29.08.2013. ASSESSME NTS WERE FRAMED BY I.T.O.(TDS), WARD-59(4), KOLKATA U/S 201(1)/201(1A) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORD ER DATED 16.03.2011 FOR ASSESSMENT YEARS 2008-09 & 2009-10. THE GROUNDS RAISED BY THE ASSESSEE IN BOTH THE APPEALS ARE AS UNDER:- 1. THE APPELLATE ORDER PASSED BY THE CIT(A) IS UNW ARRANTED, ARBITRARY, WITHOUT PROPER REASONS, INVALID AND BAD IN LAW, TO THE EXTENT TO W HICH IT IS PREJUDICIAL TO THE INTERESTS OF THE APPELLANT ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) ERRED IN HOLDING THAT LEVY OF INTEREST U/S 201(LA) OF THE INCOME-TAX ACT, 1961, IS MANDATORY AND IN THAT VIEW IN CONFIRMING LEVY OF INTEREST U/S 201(LA) OF THE ACT TO THE EXTENT OF RS.3,61,761/- (RS.46,604/- FOR A.Y.2009-2010). 3. WITHOUT ANY PREJUDICE TO THE ABOVE, IN ACCORDANC E TO THE PROVISO TO SECTION 201(LA) OF THE ACT, THE CALCULATION OF INTEREST U/S 201(LA) OF THE ACT, SHOULD HAVE BEEN LIMITED UPTO THE DATE OF FILING OF THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. 4. THE APPELLANT CRAVES LEAVE TO AMEND, ALTER, MODI FY, ADD TO, ABRIDGE AND/ OR RESCIND ANY OR ALL THE ABOVE GROUNDS IN FUTURE. SHRI RAVI TULSIYAN, FCA, LD. ADVOCATE APPEARED ON B EHALF OF ASSESSEE AND SHRI R.P.NAG, ADDL. CIT(DR) LD. DEPARTMENTAL REPRESENTAT IVE APPEARED ON BEHALF OF REVENUE. 2. SINCE THE ISSUES INVOLVED IN BOTH THE ASSESS MENT YEARS ARE SAME, THEREFORE WE DEEM IT FIT TO DISPOSE BOTH THE APPEALS BY A CONSOL IDATED ORDER FOR THE SAKE OF CONVENIENCE. THEREFORE WE DECIDED TO TREAT ITA NO. 46/KOL/2014 AS LEAD CASE. ITA 46/KOL/2014 3. THE ASSESSEE HAD TAKEN LOAN FROM M/S MKJ ENTE RPRISES LTD. ON WHICH INTEREST @ 9% WAS PAYABLE TO IT. THE ASSESSEE FOR THE YEAR END ED ON 31/03/2008, CREDITED INTEREST TO THE TUNE OF RS.2,56,94,4411- TO THE ACCOUNT OF M /S MKJ ENTERPRISES LTD. THE ASSESSEE HAD DEDUCTED TDS @ 1.133%, BEING RS.2,91,1 18/- ON THE AMOUNT OF INTEREST PAID SINCE A CERTIFICATE FOR LOWER DEDUCTION OF TAX U/S 197(1) OF THE ACT WAS SUBMITTED BY THE SAID PARTY. HOWEVER, THE CERTIFICA TE PROVIDED FOR LOWER DEDUCTION OF TAX @ 1.133% ONLY UPTO INTEREST PAID TO THE TUNE OF RS.2,10,27,030.00. THUS, ON THE BALANCE INTEREST OF RS.46,67,411/- TDS @ 22.66% WAS DEDUCTIBLE. THEREBY, THERE WAS A SHORT-DEDUCTION OF TDS TO THE TUNE OFRS.10,04,893 /-. THE ASSESSEE IN THE COURSE OF TDS ASSESSMENT PROCEEDINGS EXPLAINED THAT THE RECIP IENT OF INTEREST, NAMELY, MKJ ENTERPRISES LTD. HAD ALREADY INCLUDED THE IMPUGNED INTEREST IN ITS TOTAL INCOME AND PAID THE REQUISITE TAX ON IT. THEREBY, THERE WAS NO OCCASION FOR RAISING DEMAND FOR COLLECTION OF THE IMPUGNED AMOUNT FROM THE ASSESSEE OR FOR TREATING THE APPELLANT AS 'ASSESSEE IN DEFAULT'. HOWEVER THE AO DISREGARDED THE SUBMISSION OF THE ASSESSEE AND HAS CHARGED INTEREST U/S 201(1A) TO THE TUNE OF RS. 3,61,7611. 4. AGGRIEVED BY THE ABOVE ORDER PASSED U/S 201(1)/2 01(1A) BY THE LEARNED TDS OFFICER TREATING THE ASSESSEE IN DEFAULT, THE ASSES SEE FILED AN APPEAL BEFORE THE LEARNED CIT(A). 4.1. THE LEARNED CIT(A) UPHELD THE ORDER OF THE AO FOR CHARGING THE INTEREST LIABILITY U/S 201(1A) OF THE ACT AMOUNTING TO RS.3,61,761. 5. AGGRIEVED WITH THE ORDER OF THE LEARNED CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR BEFORE US SUBMITTED THAT INTEREST CHARGE ABLE U/S 201(1A) IS COMPENSATORY IN NATURE, I.E., THE GOVERNMENT IS ENTITLED TO INTE REST FOR THE PERIOD DURING WHICH THE TAX, WHICH IS THE MONEY BELONGING TO THE GOVERNMENT , WAS WITHHELD BY THE ASSESSEE. THIS LOGIC/RATIO IS TRUE IF THE DEDUCTEE -PAYEE IS LIABLE TO PAY INCOME TAX. HOWEVER, IN THE PRESENT CASE THE DEDUCTEE-PAYEE I.E. MKJ ENTERP RISES LTD. HAD ALREADY INCLUDED THE IMPUGNED INTEREST IN ITS TOTAL INCOME AND PAID THE REQUISITE TAX ON IT. FURTHER, AS EVIDENT FROM THE INCOME TAX RETURN FILED FOR THE AS SESSMENT YEAR UNDER CONSIDERATION M/S MKJ ENTERPRISES LTD HAS CLAIMED REFUND OF TAXES . A COPY OF THE ITR ACKNOWLEDGMENT FOR THE YEAR IS ENCLOSED. AS SUCH, T HERE WAS NO SHORTFALL FOR PAYMENT OF TAXES BY MKJ ENTERPRISES LTD AND AS SUCH THERE W AS NO LOSS TO THE REVENUE AS THE TAX WAS DIRECTLY DEPOSITED BY MKJ ENTERPRISES LTD T O THE CREDIT OF THE CENTRAL GOVERNMENT AND SINCE MKJ ENTERPRISES LTD HAD CLAIME D REFUND ON THE TAXES SO PAID, IT WAS ENTITLED TO CLAIM REFUND U/S 244A OF THE ACT . 6. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTE D THE ORDER OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE CONTENTIONS OF RIVAL PARTIE S AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE FOREGOING DISCUSSION WE FIND T HAT THE ASSESSEE HAS DEDUCTED TDS AT A LOWER RATE AND ACCORDINGLY THE AO HAS CHARGED THE INTEREST ON THE SHORT DEDUCTION OF TDS AMOUNT WHICH WAS SUBSEQUENTLY CONFIRMED BY T HE LD. CIT(A). NOW THE QUESTION BEFORE US ARISES SO AS TO WHETHER THE INTE REST IS CHARGEABLE UNDER THE AFORESAID FACTS & CIRCUMSTANCES UNDER SECTION 201(1A) OF THE ACT. IN THIS REGARD, WE FIND THAT THAT IN A PLETHORA OF JUDGMENTS, IT HAS BEEN HELD T HAT IN SUCH SITUATIONS WHERE THE RECIPIENT HAS NO TAXES PAYABLE AT ALL AND HAS CLAIM ED REFUND OF TAXES, NO INTEREST IS TO BE CHARGED FROM THE DEFAULTING DEDUCTOR SINCE THE R EVENUE IS REQUIRED TO REFUND OF INCOME TAX ALONG WITH DUE INTEREST. THIS HAS BEEN E XPLAINED IN THE FOLLOWING JUDGMENTS: THE HON'BLE HIGH COURT DISMISSED THE APPEAL IN THE ADMISSION STAGE IN THE CASE OF COMMISSIONER OF INCOME-TAX V. RAJASTHAN RAJYA VIDYU T PRASARAN NIGAM LTD. [2006] 287 ITR 354 (RAJ) 'DEDUCTION OF TAX AT SOURCE-FAILURE TO DEDUCT-LEVY OF INTEREST-FINDING THAT RECIPIENT HAD CLAIMED REFUND DUE TO TAX DEDUCTED AT SOURCE-INTERE ST COULD NOT BE LEVIED-INCOME-TAX ACT, 1961, S. 201(LA). 'THE FOLLOWING QUESTION IS PROPOSED FOR ADMISSION O F THE APPEAL: 'WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE TRIBUNAL WAS JUSTIFIED IN LAW IN UPHOLDING THE ORDER OF THE COMMISSIONER OF INCOME-T AX (APPEALS) DELETING THE INTEREST OF RS. 1,60,105 LEVIED UNDER SECTION 201 (LA) OF THE ACT?' THE FACTS ARE NOT IN DISPUTE THAT AS AND WHEN THE A MOUNT IS PAID, THE TAX HAS BEEN DEDUCTED AND THAT HAS BEEN PAID TO THE DEPARTMENT. THE TRIBU NAL HAS CONSIDERED THIS ASPECT IN PARA 6 AND 7 OF ITS ORDER. FOR READY REFERENCE, THEY READ AS UNDER: '6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT IN THIS CASE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAD HELD THAT TAX AT SOURCE WAS TO BE DEDUCTED ON THE COMPOSITE CONTRACT INCLUDING ON SUPPLY OF MATERIAL. THE REVENUE'S APPEALS ARE DIRECTED ONLY AGAINST THE DIR ECTION OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FOR DELETION OF INTEREST CHARG ED UNDER SECTION 201 (LA) OF THE ACT FOR BOTH THE YEARS AFTER DUE VERIFICATION OF THE FACTS THAT THE RECIPIENT HAD ALREADY DEDUCTED TAX AT SOURCE IN FULL. THE PROVISION OF SECTION 201 PROVID ES NOT ONLY FOR COLLECTION OF TAX WHICH HAD NOT BEEN DEDUCTED BUT FOR LEVY AND CHARGE OF INTERE ST ALSO. IF THE TAX HAD ALREADY BEEN PAID BY THE RECIPIENT ON SUCH INCOME IT MAY NOT BE JUSTIFIE D TO RECOVER THE SAID AMOUNT OF TAX, BUT SO FAR AS THE LIABILITY OF INTEREST IS CONCERNED, THAT CANNOT BE CONSIDERED TO BE NON- EXISTENT ON ACCOUNT OF DEPOSIT OF TAX BY THE RECIPIENT AT A SUB SEQUENT OR LATER STAGE. IT WAS ALSO HELD BY THE HON'BLE RAJASTHAN HIGH COURT AT PAGE 101 IN THE CASE OF CIT V. RATHI GUM INDUSTRIES [1995) 213 ITR 98 THAT THE INTEREST IS TO COMPENSAT E THE REVENUE FOR THE LOSS, WHICH IT HAD SUFFERED ON ACCOUNT OF LATE RECEIPT OF THE TAX. THE PROVISIONS OF INTEREST ARE MANDATORY AND AUTOMATIC AND INTEREST HAS TO BE PAID FROM THE DATE ON WHICH THE TAX WAS DEDUCTIBLE TILL THE DATE ON WHICH THE TAX IS ACTUALLY PAID. WE MAY ALSO REFER TO THE DECISION IN CITV. DHANALAKSHMY WEAVING WORKS [2000} 245 ITR 13 (KER). IN THIS CASE, IT WAS HELD THAT THE PURPOSE OF THE LEVY IS TO CLAIM COMPENSATION ON THE AMOUNT WHICH OUGHT TO HAVE BEEN DEDUCTED AND DEPOSITED AND HAS NOT BEEN DONE BY THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE HAD RELIED UPON THE DECISION OF CIT V. RISHIKESH APARTMENTS CO-OPERATIVE HOUSING SOCIETY LTD. [2002} 253 ITR 310 (GUJ). IN T HIS CASE, IT WAS HELD THAT THERE WAS NO QUESTION OF LEVYING ANY INTEREST ON THE ASSESSEE AS THE AMOUNT WHICH WAS PAYABLE TO THE REVENUE HAD BEEN DULY PAID. 7. AFTER PERUSAL OF THE FACTS OF THE CASE AND RELEV ANT LAW AS ON THE SUBJECT, WE ARE OF THE OPINION THAT LEARNED CIT(A) HAD RIGHTLY HELD THAT I NTEREST UNDER S. 201(1A) OF THE ACT WAS TO BE DELETED AFTER DUE VERIFICATION BY THE AO FROM TH E ENCLOSURES WITH SUPPORTING DOCUMENTS. IN ALL THE CASES, THE RECIPIENT OF THE INCOME HAD CLAI MED REFUND, WHICH HAD ARISEN DUE TO TDS. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) AND THE SAME IS HEREBY SUSTAINED. 3. WHEN THE ASSESSEE HAS PAID MORE TAX THAN THE TAX PA YABLE AND REFUND IS DUE, EVEN TDS IS COUNTED, IN SUCH CASE, THERE IS NO JUSTIFICATION FO R CHARGING OF INTEREST UNDER S. 201(1A). 4. THE APPEAL STANDS DISMISSED AT THE ADMISSION STAGE. SIMILARLY THE HONBLE HIGH COURT OF GUJRAT IN THE C ASE OF CIT V. RISHIKESH APARTMENTS CO-OPERATIVE HOUSING SOCIETY LTD [2002] 253 ITR 310 (GUJ) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE RELEVANT EXTRACT I S REPRODUCED BELOW : DEDUCTION OF TAX AT SOURCE-FAILURE TO DEDUCT TAX-I NTEREST-ENTIRE TAX PAYABLE BY PAYEE PAID BY HIM AS ADVANCE TAX AND TAX ON SELF ASSESSMENT-IN TEREST CANNOT BE LEVIED UNDER SECTION 201(1A)-INCOME-TAXACT, 1961, SS. 4, 190, 194C, 199, 201(LA). IF ONE LOOKS AT THE PROVISIONS OF THE ACT WHICH PER TAIN TO IMPOSITION OF TAX, IT IS VERY CLEAR THAT AS PER THE PROVISIONS OF SECTION 4 OF THE INCOME-TA X ACT, 1961, WHICH IS THE CHARGING SECTION, THE TAX IS TO BE PAID ON THE INCOME OF THE ASSESSEE AND AS PER THE PROVISIONS OF THE ACT, THE SAID TAX CAN ALSO BE DEDUCTED AT SOURCE. ACCORDING TO THE PROVISIONS OF SECTION 190 OF THE ACT, IN CERTAIN CASES, AS PROVIDED UNDER CHAPTER XVII OF THE ACT, THE TAX IS TO BE PAID BY DEDUCTION AT SOURCE. THE SAID AMOUNT IS TO BE DEDUCTED BY WAY OF TAX BY THE PERSON WHO HAS TO MAKE PAYMENT TO THE CONCERNED PERSON (PAYEE) AND AS PER THE PROVISIONS OF SECTION 199 OF THE ACT, WHENEVER ANY PERSON WHO DEDUCTS TAX BEFORE MAKING P AYMENT TO ANOTHER PERSON PAYS THE SAME TO THE CENTRAL GOVERNMENT, HE PAYS THE TAX WHI CH IS PAYABLE BY THE PAYEE OF THE SAID AMOUNT. IF THE PERSON ON WHOSE BEHALF TAX WAS TO BE DEDUCTED AT SOURCE HAD PAID SUCH TAXES AND THAT TOO AT THE TIME WHEN IT HAD BECOME DUE, IT WOULD NOT BE PROPER ON THE PART OF THE REVENUE TO LEVY ANY INTEREST UNDER SECTION 201 (LA) . THE ASSESSEE WAS A CO-OPERATIVE SOCIETY WHICH HAD E NTERED INTO TWO CONTRACTS WITH RB FOR CONSTRUCTION OF ITS BUILDING. FROM THE AMOUNT WHICH WAS TO BE PAID BY THE ASSESSEE-SOCIETY TO THE CONTRACTOR, THE ASSESSEE DID NOT DEDUCT ANY AMO UNT OF TAX WHICH IT WAS REQUIRED TO DEDUCT AS PER THE PROVISIONS OF SECTION 194C OF THE ACT. T HOUGH THE ASSESSEE-SOCIETY DID NOT DEDUCT THE AMOUNT OF TAX AS PER THE PROVISIONS OF SECTION 194C, THE CONTRACTOR HAD PAID ADVANCE TAX AS WELL AS TAX ON SELF-ASSESSMENT WITH RESPECT TO T HE AMOUNT RECEIVED BY IT FROM THE ASSESSEE- SOCIETY. AS THE ASSESSEE-SOCIETY HAD NOT DEDUCTED T HE TAX AT SOURCE, IN THE PROCESS OF ASSESSMENT OF THE INCOME OF THE SOCIETY FOR THE ASS ESSMENT YEARS 1974-75 TO 1977-78, THE ASSESSING OFFICER CHARGED INTEREST UNDER THE PROVIS IONS OF SECTION 201 (LA) OF THE ACT, ON THE TAX WHICH WAS DEDUCTIBLE BY THE ASSESSEE-SOCIETY FR OM THE AMOUNT WHICH WAS PAID TO THE CONTRACTOR. IT WAS THE CASE OF THE ASSESSEE THAT TH OUGH NO TAX WAS DEDUCTED FROM THE AMOUNT PAYABLE TO THE CONTRACTOR, THE CONTRACTOR HAD ALREA DY PAID TAX AND, THEREFORE, INTEREST UNDER THE PROVISIONS OF SECTION 201 (LA) COULD NOT HAVE B EEN LEVIED BY THE REVENUE ON THE ASSESSEE BUT THE SAID ARGUMENT OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE ASSESSING OFFICER. THE ASSESSEE FILED AN APPEAL TO THE APPELLATE ASSISTANT COMMISSIONER. FOR TWO YEARS, I.E., FOR THE ASSESSMENT YEARS 1974-75 AND 1975-76, SUFFICIENT AD VANCE TAX AND TAX ON SELF-ASSESSMENT WAS PAID BY RB AND, THEREFORE, THE APPELLATE ASSISTANT COMMISSIONER HELD THAT THE LEVY OF INTEREST UNDER THE PROVISIONS OF SECTION 201 (LA) WAS NOT JU STIFIED FOR THOSE TWO YEARS. SO FAR AS THE OTHER TWO ASSESSMENT YEARS WERE CONCERNED, THE CONT RACTOR HAD NOT PAID SUFFICIENT ADVANCE TAX AND, THEREFORE, THE APPELLATE ASSISTANT COMMISS IONER CAME TO THE CONCLUSION THAT AS ADVANCE TAX WAS NOT PAID BY RB AND AS THE REVENUE H AD NOT RECEIVED THE AMOUNT OF TAX ON THE DUE DATE, THE ACTION OF THE ASSESSING OFFICER WITH REGARD TO LEVY OF INTEREST FOR THE SAID YEARS WAS JUSTIFIED. THUS, THE APPEAL WAS PARTLY ALLOWED BY THE APPELLATE ASSISTANT COMMISSIONER. THE ORDER OF THE APPELLATE ASSISTANT COMMISSIONER W AS UPHELD BY THE TRIBUNAL. ON A REFERENCE: HELD, THAT FOR THE ASSESSMENT YEARS 1974-75 AND 197 5-76, IT WAS NOT IN DISPUTE THAT RB, ON WHOSE BEHALF THE TAX WAS TO BE DEDUCTED AND PAID UN DER SECTION 194C OF THE ACT, HAD PAID MORE AMOUNT OF TAX BY WAY OF ADVANCE TAX THAN WHAT WAS PAYABLE AND HAD ALSO PAID TAX ON SELF-ASSESSMENT. THERE WAS NO QUESTION OF LEVYING A NY INTEREST ON THE ASSESSEE AS THE AMOUNT WHICH WAS PAYABLE TO THE REVENUE HAD BEEN DULY PAID . FOR THE OTHER TWO YEARS, TAX WAS PAID BY RB A LITTLE LATE. SO FAR AS THE LATE PAYMENT WAS CONCERNED, THE APPELLATE ASSISTANT COMMISSIONER HELD THAT THE ASSESSEE HAD TO PAY INTE REST UNDER SECTION 201 (LA) FOR THE SAID YEARS AND THE ASSESSEE HAD ACCEPTED THE SAID FINDIN G. ' IN THE CASE OF THOMAS MUTHOOT VS. DCIT (2012) 34 CC H 0170 (COPY ENCLOSED AT PAGE 1-12 OF THE PAPER BOOK), THE COCHIN TRIBUNAL DISCUS SED THE CASE OF THE ASSESSEE IN DETAIL. IN THIS CASE, THE ASSESSEE FAILED TO DEDUCT THE TDS ON PAYMENTS MADE TO THE DEDUCTEE-ASSESSEE. IT WAS SUBMITTED THAT THE DEDUCT EE-ASSESSEE HAS DECLARED LOSSES IN THE RETURN OF INCOME FILED FOR THE YEAR AND AS SUCH FAILURE TO DEDUCT TDS WILL NOT MAKE THE ASSESSEE AS 'ASSESSEE IN DEFAULT'. HOWEVER, INT EREST U/S 201(1A) WAS CHARGED BY THE LEARNED AO AND THE SAME WAS SUSTAINED BY THE LE ARNED CIT(A). AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE HON'BLE ITAT. TH E HON BIE ITAT DISCUSSED THE FACTS OF THE CASE IN DETAIL AND HELD THAT, 21. NOW WE SHALL TURN TO THE FACTS OF THE INSTANT C ASES BEFORE US, WHEREIN INTEREST U/S 201(1A) WAS LEVIED UPON THE ASSESSEES. IT MAY BE NOTED THAT INTEREST S 201 (LA) IS LEVIED IF THERE IS ANY FAILURE ON THE PART OF ANY ASSESSEE TO DEDUCT TAX A T SOURCE (TDS)/REMIT THE SAME AT THE RIGHT POINT OF TIME ON THE INCOME PAID BY HIM. THE TDS AM OUNT TO BE SO DEDUCTED/REMITTED BELONGS TO THE REVENUE/GOVERNMENT. HENCE, INTEREST U/S 201 (LA) IS CHARGED; SINCE THE ASSESSEE IS CONSIDERED TO BE ENJOYING THE TDS AMOUNT, WHICH BEL ONGS TO THE GOVERNMENT, TILL THE TIME HE DEDUCTS AND REMITS THE SAME TO THE ACCOUNT OF THE G OVERNMENT. IT IS PERTINENT TO NOTE THAT THE TAX SO DEDUCTED AT SOURCE IS GIVEN CREDIT IN THE AC COUNT OF DEDUCTEE- ASSESSEE. IF THE ASSESSMENT OF THE DEDUCTEE ASSESSEE RESULTS IN REFU ND OF TDS AMOUNT, THE GOVERNMENT SHALL REFUND THE AMOUNT ALONG WITH INTEREST U/S 244A OF T HE ACT. THE REASON FOR PAYING INTEREST U/S 244A IS THAT THE GOVERNMENT IS CONSIDERED TO HAVE E NJOYED THE AMOUNT, WHICH IT IS NOT ENTITLED TO. THUS THE INTEREST IS CHARGED/PAID AS COMPENSATI ON FOR WITHHOLDING/ENJOYING FUNDS NOT BELONGING TO THE ASSESSEE/REVENUE. 22. LET US CONSIDER ABOUT EXIGIBILITY OF INTEREST U /S 201 (LA) OF THE ACT UNDER THE PECULIAR CONDITIONS PREVAILING IN THE INSTANT CASES, WHEREIN THE RECIPIENT OF INTEREST VIZ., THE PARTNERSHIP FIRMS HAVE DECLARED LOSSES EVEN AFTER A CCOUNTING FOR THE INTEREST PAID BY THE ASSESSEES HEREIN. EVEN IF THE ASSESSEES HEREIN DEDU CT AND REMIT THE TDS AMOUNT ON THE INTEREST PAID TO THE PARTNERSHIP FIRMS, THE SAME IS LIABLE TO BE REFUNDED TO THE SAID PARTNERSHIP FIRMS, AS THERE IS NO TAX LIABILITY IN THEIR RESPEC TIVE HANDS. UNDER THIS SITUATION, CAN IT BE SAID THAT THE GOVERNMENT IS DEPRIVED OF THE FUNDS DUE TO IT OR ANY LOSS IS CAUSED TO THE GOVERNMENT. 23. WE SHALL NOW EXAMINE THE SAID QUESTION WITH AN EXAMPLE. LET US ASSUME THAT 'MR. A' PAYS AN INTEREST OF RS.1.00 LAKH TO 'MR. B' ON 31.3.2007 . MR. A IS LIABLE TO DEDUCT TAX AT SOURCE ON THE SAID PAYMENT U/S 194A OF THE ACT. MR. B INCLUDE S THE SAID INTEREST RECEIPT IN HIS INCOME STATEMENT, BUT HIS TOTAL INCOME TURNS INTO LOSS. HE NCE MR. B IS NOT LIABLE TO PAY INCOME TAX, AS HE HAS DECLARED LOSS IN HIS RETURN OF INCOME. LET U S ANALYSE THE ABOVE SAID FACTS UNDER TWO SITUATIONS, VIZ., (A) IF TDS WAS DEDUCTED BY MR. A AND (B) IF TDS WAS NOT DEDUCTED. (A) IF TDS WAS DEDUCTED:- (A) IN THIS SITUATION, IF MR. A HAS DEDUCTED AND RE MITTED THE TDS WITHIN THE PRESCRIBED TIME, THE PROVISIONS OF SEC. 201 OF THE ACT SHALL NOT APP LY TO HIM. HOWEVER, IF THERE IS BELATED DEDUCTION/PAYMENT, MR. A WOULD BE CHARGED WITH INTE REST U/S 201 (LA) OF THE ACT, SINCE HE IS CONSIDERED TO HAVE WITHHELD/ENJOYED THE TAX AMOUNT, WHICH OTHERWISE BELONGS TO THE GOVERNMENT. (B) IN THE HANDS OF MR. B, THE REVENUE IS LIABLE TO REFUND THE TDS AMOUNT OF RS.10,000/- TO HIM, AS HE IS NOT LIABLE TO PAY ANY TAX, IN VIEW OF THE LOSS RETURN. SINCE THE GOVERNMENT HAS WITHHELD/ENJOYED THE FUNDS BELONGING TO MR. B, WHIC H IT IS NOT ENTITLED TO, THE REVENUE IS LIABLE TO PAY INTEREST U/S 244A OF THE ACT TO MR. B. (B) IF TDS WAS NOT DEDUCTED:- IF TDS WAS NOT DEDUCTED BY MR. A ON THE INTEREST PA YMENT MADE TO MR. B, THEN MR. B WOULD NOT CLAIM ANY REFUND FROM THE REVENUE. IN THAT CASE , THE QUESTION OF PAYMENT OF INTEREST U/S 244A BY THE REVENUE TO MR. B DOES NOT ARISE. SINCE MR. B HAS DECLARED LOSS IN HIS RETURN OF INCOME, HE IS ALSO NOT LIABLE TO PAY ANY TAX. IN TH IS SITUATION, CAN IT BE SAID THAT MR. A HAS WITHHELD/ENJOYED THE TAX AMOUNT BELONGING TO THE GO VERNMENT? THE ANSWER WOULD BE YES, ONLY IF MR. B IS LIABLE TO PAY TAX. IN THIS EXAMPLE , MR. B IS NOT LIABLE TO PAY ANY TAX AND HENCE QUESTION OF 'WITHHOLDING ANY TAX MONEY' BELONGING T O REVENUE DOES NOT ARISE. ACCORDINGLY, IT CANNOT BE SAID THAT MR. A HAS WITHHELD/ENJOYED THE TAX AMOUNT BELONGING TO THE GOVERNMENT. EVEN IF HE IS COMPELLED TO DEDUCT TDS, ULTIMATELY, THE SAME IS LIABLE TO REFUNDED TO MR. B. HENCE, UNDER THIS KIND OF SITUATION, IT CANNOT BE S AID THAT THE GOVERNMENT IS DEPRIVED OF ITS FUND OR ANY LOSS WAS CAUSED TO THE GOVERNMENT. 24. THE FACTS ANALYSED IN SITUATION B IS APPLICABLE TO THE FACTS PREVAILING IN THE INSTANT CASES. ON THE BASIS OF ANALYSIS MADE IN SITUATION B, WE AR E OF THE VIEW THAT THE ASSESSEES HEREIN ARE NOT LIABLE TO PAY INTEREST U/S 201 (LA) OF THE ACT, IF THE RECIPIENT OF INTEREST, VIZ., THE PARTNERSHIP FIRMS, ARE NOT LIABLE TO PAY TAX ON THE IMPUGNED INTEREST INCOME. HOWEVER, IN THE PAPER BOOK FILED BEFORE US, ONLY COPIES OF THE RETU RNS OF INCOME FILED BY THE PARTNERSHIP FIRMS HAVE BEEN FURNISHED IT IS NOT KNOWN WHETHER THE SAI D RETURNS OF INCOME WERE ACCEPTED AS IT IS BY THE REVENUE OR NOT, SINCE COPIES OF THE ASSESSME NT ORDERS FOR RELEVANT YEARS, IF ANY, WERE NOT FILED BEFORE US. HENCE, WE ARE UNABLE TO EXAMIN E, WHETHER THE SAID PARTNERSHIP FIRMS WERE LIABLE TO PAY TAX ON THE IMPUGNED INTEREST INCOME O R NOT, IN THE ABSENCE OF THE ASSESSMENT ORDERS. HENCE THESE FACTS REQUIRE VERIFICATION AT T HE END OF THE DCIT (FDS). IF THEY ARE NOT LIABLE TO PAY TAX ON THE IMPUGNED INTEREST INCOME, THEN AS PER THE DISCUSSIONS MADE IN THE FOREGOING PARAGRAPHS, THESE ASSESSEES ARE NOT LIABL E TO PAY INTEREST U/S 201 (LA) OF THE ACT. 25. IT MAY BE NOTED THAT THE PREVAILING RATE OJ INT EREST CHARGEABLE/ PAYABLE U/S 201 (LA)/244A ARE DIFFERENT, I.E., THE RATE OF INTEREST PAYABLE U/S 244A IS LESSER THAN THE INTEREST CHARGEABLE U/S 201 (LA) OF THE ACT. DUE TO THIS DIS PARITY, A QUESTION MAY ARISE AS TO THE CORRECTNESS OF THE VIEW TAKEN BY US IN THE PRECEDIN G PARAGRAPHS. IN OUR VIEW, THE RATE OF INTEREST IS PRESCRIBED BY THE GOVERNMENT ON THE BAS IS OF VARIOUS FACTORS. THE MAIN PRINCIPLE CONSIDERED BY US IS THAT PRONOUNCED BY THE HON'BLE COURTS, VIZ., THAT, INTEREST IS COMPENSATORY IN NATURE FOR DEPRIVING FUNDS BELONGING TO THE REVE NUE/ASSESSEE. HENCE THE DISPARITY IN THE RATE OF INTEREST SHALL NOT HAVE ANY EFFECT ON THE S AID PRINCIPLE. 26. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SET AS IDE THE ORDERS PASSED BY LD CIT(A) ON THE ISSUE OF LEVY OF INTEREST U/S 201 (LA) IN ALL CASES BEFORE US AND RESTORE THE SAME TO THE FILE OF THE DCIT (FDS) WITH THE DIRECTION TO VERIFY WHETHER OR NOT THE RECIPIENTS OF THE INTEREST INCOME, VIZ., THE PARTNERSHIP FIRMS WERE LIABLE TO PAY TAX ON THAT INCOME AND THEN TAKE APPROPRIATE DECISION ABOUT THE CHARGEABILITY OF INT EREST U/S 201 (LA) OF THE ACT IN THE HANDS OF THE ASSESSEES HEREIN IN ACCORDANCE WITH THE PRINCIP LES DISCUSSED BY US IN THE PRECEDING PARAGRAPHS. 27. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE FACTS OF THE CASE IN SITUATION B ABOVE ARE SQUA RELY APPLICABLE TO THE FACTS OF THE APPELLANT. IN THE PRESENT CASE, MKJ ENTERPRISES LTD WAS NOT LIABLE TO PAY ANY TAX AND HENCE QUESTION OF 'WITHHOLDING ANY TAX MONEY' BELON GING TO REVENUE DOES NOT ARISE. ACCORDINGLY, IT CANNOT BE SAID THAT THE APPELLANT H AS WITHHELD/ENJOYED THE TAX AMOUNT BELONGING TO THE GOVERNMENT TO WARRANT THE LEVY OF INTEREST U/S 201(1A) OF THE ACT FURTHER, IN A RECENT DECISION OF THE ITAT, PANAJI I N THE CASE OF RBL BANK LTD VS ITO (TDS) (ITA 329 TO 331/PNJ/2015) (COPY ENCLOSED AT P AGE 13-20 OF THE PAPER BOOK) DATED 24-11-2015, IT WAS HELD THAT : 'WE FIND THAT IT IS NOT IN DISPUTE THAT THE RECIPIE NT OF INTEREST INCOME I. E. VISVESVARAYA TECHNOLOGICAL UNIVERSITY HAS FILED ITS RETURN OF IN COME AND HAS INCLUDED THE INTEREST PAID BY THE ASSESSEE AS ITS INCOME IN THE SAID RETURN OF IN COME. AS PER SEC. 4 OF THE INCOME TAX ACT, IT IS THE RECIPIENT OF INTEREST WHO IS LIABLE TO PAY T AX. THE MACHINERY OF TDS PROVISIONS MADE IN STATUTE IS TO FACILITATE THE COLLECTION OF THAT TAX WHICH IS THE PRINCIPALLY PAYABLE BY THE RECIPIENT OF THE INCOME. THE TDS IS NOT A SEPARATE OR INDEPENDENT TAX. ONCE THE RECIPIENT OF THE INCOME HAS INCLUDED, THE INCOME PAID BY THE PAY ER AND DISCLOSED THE SAME TO THE DEPARTMENT AND PAID TAX THEREON AS PER COMPUTATION MADE BY THE RECIPIENT OR NO TAX WAS PAID BY THE RECIPIENT OF INCOME BECAUSE AS PER THE RECIPIENT, ITS ENTIRE INCOME IS EXEMPT OR ON WHICH NO TAX IS PAYABLE, THEN THE INCOME IS DISCLOS ED TO THE DEPARTMENT BY THE PRINCIPAL PERSON WHO IS LIABLE TO PAY TAX THEREON AND IN SUCH CASES, UNLESS IT CAN BE SHOWN THAT THE DUE TAX COULD NOT BE RECOVERED BY THE DEPARTMENT FROM T HE PRINCIPAL PERSON, WHO WAS LIABLE TO TDS UNTIL THEN THE PAYER OF THE INCOME CANNOT BE TR EATED AS 'ASSESSEE IN DEFAULT'. APPLYING THE RATIO OF THE ABOVE CASE DECISIONS TO T HE FACTS OF THE APPELLANTS CASE, IT IS CLEAR THAT SINCE M/S. MKJ ENTERPRISES LTD HAS INCLU DED THE INCOME FROM THE APPELLANT IN THE RETURN OF INCOME FILED FOR THE SUBJECT ASSES SMENT YEARS PAID TAXES ON THE SAME AND HAD CLAIMED REFUND OF TAXES THERE IS NO LOSS TO THE REVENUE EVEN IF THE TDS WAS NOT DEDUCTED BY THE APPELLANT. AS SUCH, INTEREST U/ S 201(1A) CANNOT BE LEVIED ON THE APPELLANT. HOWEVER, THE LEARNED CIT(A) HAS NOT ALLOWED THE CLA IM OF THE APPELLANT WITH REGARD TO THE CONSEQUENTIAL INTEREST LIABILITY IN VIEW OF THE DECISION OF CIT VS CHENNAI METROPOLITAN WATER SUPPLY AND SEWARAGE BOARD (MAD) 202 TAXMAN 454. IN THIS REGARD, WE FIND THAT IT HAS BEEN HELD IN A PLETHORA OF JUDGMENTS THAT IN CASE WHERE TWO VIEWS ARE POSSIBLE ON THE SAME ISSUE AND THERE BEING NO JUDGMENT ON THE SAID ISSUE FROM THE JURISDICTIONAL HON'BLE HIGH COU RT OR HON'BLE APEX COURT, THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPT ED. IN OTHER WORDS, HON'BLE NON JURISDICTIONAL HIGH COURT'S JUDGMENT IN FAVOUR OF T HE ASSESSEE, IS TO BE PREFERRED OVER THE HON'BLE NON JURISDICTIONAL HIGH COURT'S JUDGMEN T NOT FAVOURABLE TO THE ASSESSEE. IN THIS CONNECTION WE RELY IN THE FOLLOWING JUDGMENTS. >PETRON ENGG. CONSTRUCTION (P) LTD. & ANR. VS. CBDT & ORS. [(1989) 175 ITR 523 (SC)) 'THE PRINCIPLE THAT WHEN TWO INTERPRETATIONS ARE PO SSIBLE TO BE MADE, THE INTERPRETATION WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED, IS WELL-SETTLED AND THERE IS NO DOUBT ABOUT THAT.' >CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88ITR 192 ( SC) 'ON THE OTHER HAND, IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED. THIS IS A WELL-ACCEPTED RULE OF CONSTRUCTION RECOGNISED BY THIS COURT IN SEVERAL OF ITS DECISIONS. ' >CIT VS. KULU VALLEY TRANSPORT CO. P. LTD (1970) 77 ITR 518 (SC): INTERPRETATION OF STATUTES-TAXING STATUTE-TWO VIEWS POSSIBLE-IF TWO VIEWS ARE POSSIBLE, THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE MUST B E ACCEPTED WHILE CONSTRUING THE PROVISIONS OF A TAXING STATUTE. HELD 'EVEN IF TWO VIEWS ARE POSSIBLE THE VIEW WHICH IS F AVOURABLE TO THE ASSESSEE MUST BE ACCEPTED WHILE CONSTRUING THE PROVISIONS OF A TAXING STATUTE . ' >CIT VS. MADHO PRASAD JATIA (1976) 105 ITR 179 (SC) INTERPRETATION OF STATUTES-AMBIGUOUS PROVISIONS-ADM ITTING TWO INTERPRETATIONS-VIEW WHICH IS FAVOURABLE TO SUBJECT SHOULD BE ADOPTED. 'IT IS WELL-SETTLED THAT THERE IS NO EQUITY ABOUT T AX. THE PROVISIONS OF A TAXING STATUTE ARE CLEAR AND UNAMBIGUOUS, FULL EFFECT MUST BE GIVEN TO THEM IRRESPECTIVE OF ANY CONSIDERATION OF EQUITY. WHERE, HOWEVER, THE PROVISIONS ARE COUCHED IN LANGUAGE WHICH IS NOT FREE FROM AMBIGUITY AND ADMITS OF TWO INTERPRETATIONS A VIEW WHICH IS FAVOURABLE TO THE SUBJECT SHOULD BE ADOPTED. THE FACT THAT SUCH AN INTERPRETATION IS ALSO IN CONSONANCE WITH ORDINARY NOTIONS OF EQUITY AND FAIRNESS WOULD FURTHER FORTIFY THE CO URT IN ADOPTING SUCH A COURSE. >VODAFONE ESSAR GUJARAT LIMITED VS ACIT (I.T.A. NO. 386/AHD/11) (COPY ENCLOSED AT PAGE 21-36 OF THE PAPER BOOK) 18. THE CHOICE OF WHICH OF HON'BLE HIGH COURT TO FO LLOW MUST, THEREFORE, BE MADE ON SOME OBJECTIVE CRITERION. WE HAVE TO, WITH OUR HIGHEST R ESPECT OF ALL THE HON'BLE HIGH COURTS, ADOPT AN OBJECTIVE CRITERION FOR DECIDING AS TO WHICH OF THE HON 'BLE HIGH COURT SHOULD BE FOLLOWED BY US. WE FIND GUIDANCE FROM THE JUDGMENT OF HON'BL E SUPREME COURT IN THE MATTER OF CIT VS. VEGETABLE ITA. NO.: 386 /AHD/11 ASSESSMENT YEAR: 20 08-09 PRODUCTS LTD. [(1972) 88 ITR 192 (SC)]. HON'BLE SUPREME COURT HAS LAID DOWN A PRINCI PLE THAT 'IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCT ION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED' ALTHOUGH THIS PRINCIPLE SO LAID DOWN WAS I N THE CONTEXT OF PENALTY, AND THEIR LORDSHIPS SPECIFICALLY STATED SO IN SO MANY WORDS, IT HAS BEEN CONSISTENTLY FOLLOWED FOR THE INTERPRETATION ABOUT THE STATUTORY PROVISIONS AS WE LL. IN ANOTHER SUPREME COURT JUDGMENT, PETRON ENGG. CONSTRUCTION (P) LTD. & ANR. VS. CBDT & ORS. [(1989) 175 ITR 523 (SC)) THE ABOVE PRINCIPLE OF LAW HAS BEEN REITERATED BY OBSER VING AS FOLLOWS: ' COUNSEL SUBMITS THAT WHEN TWO INTERPRETATIONS ARE POSSIBLE TO BE MADE, THE INTERPRETATION WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPT ED. IN SUPPORT OF THAT CONTENTION, LEARNED COUNSEL HAS PLACED RELIANCE UPON A FEW DECISIONS OF THIS COURT IN CIT VS. MADHO PRASAD JATIA (1976) 105 ITR 179 (SC); CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC) AND CIT VS. KULU VALLEY TRANSPORT CO. P. LTD. (1970) 77 ITR 518 (SC) : THE ABOVE PRINCIPLE OF LAW IS WELL-ESTABLISHED AND THERE IS NO DOUBT ABOUT THAT.. ..... ' FURTHER HELD THAT, 'THERE CAN BE NO DISPUTE ON THE PROPOSITION THAT IR RESPECTIVE OF WHETHER OR NOT THE JUDGMENTS OF HON'BLE NON JURISDICTIONAL HIGH COURTS ARE BINDI NG ON US, THESE JUDGMENTS DESERVE UTMOST RESPECT WHICH IMPLIES THAT, AT THE MINIMUM, THESE J UDGMENTS ARE TO BE CONSIDERED REASONABLE INTERPRETATIONS OF THE RELATED LEGAL AND FACTUAL SI TUATION. VIEWED THUS, WHEN THERE IS A REASONABLE INTERPRETATION OF A LEGAL AND FACTUAL SI TUATION, WHICH IS FAVOURABLE TO THE ASSESSEE, SUCH AN INTERPRETATION IS TO BE ADOPTED BY US. IN O THER WORDS, HON 'BLE NON JURISDICTIONAL HIGH COURT'S JUDGMENT IN FAVOUR OF THE ASSESSEE, IN THE LIGHT OF THIS LEGAL PRINCIPLE LAID DOWN BY HON 'BLE SUPREME COURT, IS TO BE PREFERRED OVER THE HON 'BLE NON JURISDICTIONAL HIGH COURT NOT FAVOURABLE TO THE ASSESSEE. IN OUR HUMBLE UNDER STANDING, IT IS ONLY ON THIS BASIS, WITHOUT SITTING IN VALUE JUDGMENT ON THE VIEWS EXPRESSED BY A HIGHER TIER OF JUDICIAL HIERARCHY, THAT THE CONFLICTING VIEWS OF HON'BLE NON JURISDICTIONAL HIG H COURTS CAN BE RESOLVED BY US IN A TRANSPARENT, OBJECTIVE AND PREDICTABLE MANNER. ' >SHRI MAHILA SEWA SAHAKARI VS ACIT (OSD) I.T.A. NO. 62/AHD/2014(COPY ENCLOSED AT PAGE 37-55 OF THE PAPER BOOK) '5.3 THE HON'BLE COORDINATE BENCH HAS NOTED THAT TH ERE IS A DIVERGENT VIEW BETWEEN THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S. VASIST H CHAY VYAPAR LTD. REPORTED AT 330 ITR 440, DELHI AND THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD. REPORTED AT (2013) 31 TAXMANN.COM 305 (MAD.), IN RE SPECT OF APPLICATION OF THE JUDGEMENT OF THE HON'BLE APEX COURT RENDERED IN THE CASE OF SOUT HERN TECHNOLOGY LTD. (SUPRA) ON INCOME RECOGNITION NORMS PRESCRIBED BY R.B.I. THE HON 'BL E COORDINATE BENCH IN VIEW OF THE FACT THAT THERE WERE DIVERGENT VIEWS OF HON 'BLE DELHI H IGH COURT AND HON 'BLE MADRAS HIGH COURT, APPLIED THE RATIO OF THE HON 'BLE SUPREME CO URT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. REPORTED AT (1973) 88ITR 192 (SC). IN THE PRESENT CASE ALSO, THERE IS NO JUDGEMENT BY THE HON'BLE JURISDICTIONAL HIGH COURT, THEREFORE FOR THE SAME REASONING, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE AO IS HEREBY DIRECTED TO DELETE THE ADDITION. THUS, GROUND OF ASSESSEE'S APPEAL IS ALLO WED.' >CIT (TDS) VS. RELIANCE ENGINEERING ASSOCIATES (P.) LTD. (2012) 80 CCH 0113 GUJ HC (COPY ENCLOSED AT PAGE 56-59 OF THE PAP ER BOOK) 'IT IS SETTLED LAW THAT WHERE TWO INTERPRETATIONS A RE POSSIBLE, THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED APPEAL DISMISSED' 8. IN VIEW OF ABOVE WE FIND THAT IT IS SETTLED L AW WHERE TWO INTERPRETATIONS ARE POSSIBLE, THE ONE WHICH IS FAVOURABLE TO ASSESSEE S HOULD BE ADOPTED. APPLYING THE RATIO OF THE ABOVE CASE DECISIONS TO THE FACTS OF T HE CASE, IT CAN BE SAFELY SAID THAT WHEN TWO VIEWS ARE POSSIBLE ON THE SAME SUBJECT, THE VIE W FAVORING THE ASSESSEE SHOULD BE ADOPTED. ACCORDINGLY THE DISALLOWANCE MADE BY THE A O AND SUSTAINED BY THE LEARNED CIT(A) U/S 201(1A) OF THE ACT OF RS.3,61,761/- IN A Y 2008-09 IS NOT SUSTAINABLE IN LAW. ACCORDINGLY WE REVERSE THE ORDER OF AUTHORITIE S BELOW. HENCE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 47/KOL/2014 9. AT THE OUTSET WE FIND THAT THE ISSUE INVOLVE D IN THIS APPEAL IS THE SAME AS OF ITA 46/KOL/2014 WHICH WE HAVE DECIDED IN FAVOUR OF ASSE SSEE. FOLLOWING THE SAME WE ALSO REVERSE THE ORDER OF AUTHORITIES BELOW. HENCE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.50/KOL/2014(REVENUES APPEAL)A.Y.2005-06: 10. THIS APPEAL BY THE REVENUE IS AGAINST THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IV, KOLKATA DATED 11.09.2013. ASSESSMENTS WERE FRAMED BY A.C.I.T., CIRCLE-4, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 31.12.2007 FOR ASSE SSMENT YEAR 2005-06 THE GROUNDS RAISED BY THE REVENUE IN THIS APPEAL ARE AS UNDER: - I. ON THE FACT AND CIRCUMSTANCES OF THE CASE, THE I.D. CIT(A) HAS ERRED IN IGNORING THE FACT THAT AS THE ASSESSEE HAS SHOWN CA PITAL GAIN WHEN INVESTMENTS ARE SOLD CANNOT CLAIM INTEREST ON LOAN ATTRIBUTABLE TO SUCH INVESTMENTS AS BUSINESS INCOME. 2) THAT THE INCREASE OF INVESTMENTS FROM 9.5 CR. LA ST YEAR TO 19.1 CR. THIS YEAR AS EVIDENCED FROM SCHEDULE 14 TO THE P/L ACCOUNT & BAL ANCE SHEET, WAS DUE TO CONVERSION OF SHARES OF RS. 8.5 CR. WRITTEN OFF FRO M STOCK TO INVESTMENT AS ON 01.04.2004 AND, THEREFORE, INTEREST CLAIMED ON PURC HASE /STOCK OF SUCH INVESTMENTS SHOULD BE DISALLOWED. 3) THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DELE TE OR MODIFY ANY GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. THE ONLY ISSUE RAISED BY THE REVENUE IS THAT THE LD . CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS.96,00,000/- ON ACCOU NT OF INTEREST ON LOAN ATTRIBUTABLE TO THE INVESTMENTS IN SECURITIES FOR RS.19.1 CRORES . 11. THE FACTS IN BRIEF AS CULLED OUT FROM THE ORDER OF THE LOWER AUTHORITIES AND THE DOCUMENTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT, TRADING IN GOODS & MERCHANDISE AND SECURITIES. THE ASSESSEE FOR THE YEAR UNDER CONSIDE RATION HAS FILED ITS RETURN OF INCOME ON DATED 30 TH OCTOBER, 2005 DECLARING BUSINESS LOSS OF RS.1,32,6 9,170/-. THEREAFTER THE CASE WAS PROCESSED U/S 143(1) OF THE ACT AND TAKEN UP FOR SCRUTINY. ACCORDINGLY NOTICES U/S 143(2) AND 143(1) WERE ISSUED UPON THE ASSESSEE. THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT AT AN INCOME OF RS.-36 ,69,170/- BY DISALLOWING THE INTEREST EXPENSES FOR RS.96,00,000/-. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS S HOWN THE FOLLOWING FIGURES IN ITS BALANCE SHEET AS ON 31.3.2005 :- SOURCE OF FUND APPLICATION OF FUND SHAREHOLDER FUND 11 CRORE FIXED ASSET NEGLIGIBL E LOAN FUNDS 17 CRORE INVESTMENT 19 CRORE DEFERRED TAX ASSET 2 CRORE CURRENT ASSETS (NET) 7 CRORE THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED T HAT THE ASSESSEE HAS SHOWN THE INVESTMENT AS ON 31.03.2004 FOR RS.9.6 CRORES AND D URING THE YEAR IT HAS INCREASED BY RS. 9.5 CRORES. ACCORDINGLY THE BALANCE SHOWN AS IN VESTMENT AT THE END OF THE FINANCIAL YEAR 31.3.2005 WAS SHOWN AT RS. 19.1 CROR E. THE MAJOR REASON FOR INCREASED IN THE VALUE OF INVESTMENT IS DUE TO THE CONVERSION OF ITS SECURITIES HELD AS STOCK IN TRADE INTO INVESTMENTS FOR RS.8.5 CRORES AS ON 01.0 4.2004. BESIDES THE ABOVE THE AO ALSO OBSERVED THAT THE CAPITAL OF THE ASSESSEE IS O F RS.11 CRORE AND BORROWED FUNDS OF RS.17 CRORE AS ON 31.03.2005. ACCORDINGLY THE AO OP INED THE BORROWED FUND HAS BEEN INVESTED IN THE INVESTMENT ON WHICH THE ASSESSEE HA S INCURRED THE INTEREST EXPENSES. AS THE INCOME FROM INVESTMENTS IS TAXABLE UNDER THE HEAD CAPITAL GAIN AND THEREFORE THE INTEREST EXPENSES ON THE LOAN IS NOT ALLOWABLE DEDUCTION UNDER THE HEAD BUSINESS AND PROFESSION. FINALLY THE AO DISALLOWED THE INTE REST EXPENSES PERTAINING TO THE INVESTMENTS OF RS.8.5 CRORES WHICH WAS WORKED OUT A T RS.96,00,000/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 12. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE SHARES HEL D AS STOCK IN TRADE FOR RS.8.5 CRORES WERE CONVERTED ON DATED 31.03.2005 AND THE AO HAS W RONGLY TAKEN THE DATE OF CONVERSION AS ON DATED 01.04.2004. THE ASSESSEE TIL L 31 ST MARCH, 2005 HAS SHOWN STOCK IN TRADE OF THE SHARES FOR RS.8.5 CRORES. THE REFORE THE INTEREST PAID ON THE LOAN IS A BUSINESS EXPENSES AND VERY MUCH ALLOWABLE FOR DED UCTION. THE LD. CIT(A) ACCORDINGLY DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER :- 3.2 I HAVE EXAMINED THE ASSESSMENT ORDER AS WELL A S THE ARGUMENT GIVEN BY THE A.R. OF THE APPELLANT. I HAVE ALSO EXAMINED THE LEDGER ACCO UNT OF BOTH STOCK-IN-TRADE AS WELL AS INVESTMENT. THE APPELLANT HAS ALSO BROUGHT TO MY KN OWLEDGE A LETTER ADDRESSED TO THE A.O. DT.18.12.2007 IN WHICH IT HAS BEEN STATED AT P ARA-5 THAT THE SHARES OF M/S. SANTOSH INDUSTRIES LTD. WERE NOT SOLD DURING THE YEAR BUT S HOWN IN INVESTMENT AS ON 31 03.2005. THE LEDGER ACCOUNT ALSO ESTABLISHED THAT THE CONVER SION OF SHARES OF M/S. SANTOSH INDUSTRIES LTD. WORTH RS.8.50CRORES WAS WITH EFFECT FROM 31.03.2005 AND NOT 1.4.2004 AS WRONGLY PRESUMED BY THE A.O. I AM ALSO IN AGREEM ENT WITH THE ARGUMENT OF THE A.R. OF THE APPELLANT THAT DISALLOWANCE U/S.14A CAN BE M ADE ONLY WHEN THERE IS A TAX FREE INCOME. REFERENCE IN THIS CONTEXT IS BEING MADE TO THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS M/S. DELITE ENTERP RISES ITA NO. 110 OF 2009. IN VIEW OF THE ABOVE ARGUMENTS AND FOLLOWING THE DECISION O F BOMBAY HIGH COURT, I AM OF THE VIEW THAT ADDITION MADE U/S.14A FOR RS.96,00,000/- SHOULD BE DELETED. 13. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) TH E REVENUE IS IN APPEAL BEFORE US. THE LD. DR BEFORE US SUBMITTED THAT IT IS VERY MUCH CLE AR FROM THE BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2005 THAT INTEREST BEARING LOA N HAS BEEN UTILIZED IN THE INVESTMENT WHICH WERE GENERATING THE INCOME UNDER THE HEAD CA PITAL GAIN. THEREFORE THE PROPORTIONATE INTEREST AMOUNT PERTAINING TO THE INV ESTMENT SHOULD BE DISALLOWED WHILE WORKING OUT THE BUSINESS PROFIT OF THE ASSESSEE. T HE LD. DR FURTHER SUBMITTED THAT THE SHARES HELD AS STOCK IN TRADE WERE CONVERTED INTO I NVESTMENT ON DATED 01.04.2004. THEREFORE THE INTEREST IS NOT ALLOWABLE UNDER THE B USINESS HEAD. THE LD. DR ALSO REQUESTED TO RESTORE THE MATTER TO THE AO FOR FRESH ADJUDICATION TO ASCERTAIN WHETHER THE SHARES HELD AS STOCK IN TRADE WERE CONVERTED AS INVESTMENT DATED 01.04.2004. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO. 14. ON THE OTHER HAND, THE LD. AR FOR THE ASSE SSEE BEFORE US FILED A PAPER BOOK WHICH IS RUNNING FROM PAGES 1 TO 33 AND SUBMITTED T HAT THE SHARES HELD AS STOCK IN TRADE WERE CONVERTED AS INVESTMENT IN SHARES AS ON 31.03.2005. THE LD. AR IN SUPPORT OF HIS CLAIM HAS SUBMITTED THE BOARD RESOLUTION PAS SED 28 TH FEBRUARY, 2005 RESOLVING THAT 2,12,500 EQUITY SHARES OF SANTOSH INDUSTRIES L TD. WILL BE CONVERTED FROM INVENTORIES INTO INVESTMENTS W.E.F. 31.03.2005 WHIC H IS PLACED AT PAGE 27 OF THE PAPER BOOK. THE LD. AR ALSO DREW OUR ATTENTION TO PAGERS 25 TO 26 OF THE PAPER BOOK WHERE THE LEDGER COPY OF THE INVESTMENT WAS PLACED. THE L D. AR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). 15. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOT H THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING D ISCUSSIONS WE FIND THAT THE AO HAS PRESUMED THAT THE SHARES HELD AS STOCK IN TRADE WER E CONVERTED INTO INVESTMENTS ON DATED 01.04.2004 AND ACCORDINGLY INTEREST EXPENSES PERTAINING TO THE INVESTMENT WERE DISALLOWED. HOWEVER, THE LD. CIT(A) HAS GRANTED RE LIEF TO THE ASSESSEE BY HOLDING THAT THE SHARES WERE CONVERTED AS INVESTMENT ON DATED 31 .03.2005. NOW THE QUESTION BEFORE US ARISE SO AS TO WHETHER THE SHARES WERE CO NVERTED ON 01.04.2004 OR 31.03.2005. ON QUERY FROM THE BENCH THE LD. DR HAS NOT SHOWN ANY EVIDENCE THAT THE SHARES WERE CONVERTED ON DATED 01.04.2004. THE LD. DR FAILED TO BRING ANYTHING ON RECORD. ON THE OTHER HAND, THE LD. AR HAS GIVEN SUF FICIENT PROOF AS STATED ABOVE IN SUPPORT OF HIS CLAIM THAT THE SHARES WERE CONVERTED AS INVESTMENT ON DATED 31.03.2005. AT THE TIME OF HEARING THE LD. DR FAILED TO BRING A NYTHING CONTRARY TO THE FINDINGS OF THE LD. CIT(A). IN VIEW OF THE ABOVE WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A). HENCE THIS GROUND OF APPEAL OF T HE REVENUE IS DISMISSED. 16. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED AN D ASSESSEES APPEALS ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 16 /09/2016 SD/- SD/- (K.NARASIMHA CHARY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *RG.PS - 16 /09/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIRCLE-4, AAYAKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA700 069 2. /RESPONDENT-M/S THE RIGHT ADDRESS LIMITED, SAGAR ES TATE, 4 TH FLOOR, UNIT-1, 2, CLIVE GHAT STREET, KOLKATA-700001. 3. ' % / CONCERNED CIT 4. % - / CIT (A) 5. & ))' , ' / DR, ITAT, KOLKATA 6. + / GUARD FILE. BY ORDER/ , / ',