DCIT 24(3), MUMBAI V. ROHIT MOHIT CONSTRUCTION CORPORATION, MUMBAI

ITA 4970/MUM/2014

• Counselvise Citation: 497019914 RSA 2014
• Duration Of Justice: 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 31-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: Y P TRIVEDI
• Keywords: Bogus purchase; Opportunity of being heard; Proportionate interest; Additional evidence; Non-deduction of tax; Deemed dividend
• Section: 143(3); 194C; 68

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER & SHRI SANJAY GARG, J.M. {{ { {{ ./ I.T.A. NO.3434 /MUM/2013 ( / ASSESSMENT YEAR : 2009-2010 ROHIT MOHIT CONSTRUCTION CORPORATION, 301, M.K. PLAZA, B WING, KASARWADAVLI, GHODBUNDER ROAD, THANE 400 607. / VS. DY. COMMISSIONER OF INCOME TAX 24(3), MUMBAI. ./ PAN : AACFR7258R ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.3125 /MUM/2013 ( / ASSESSMENT YEAR : 2009-2010 DY. COMMISSIONER OF INCOME TAX 24(3), MUMBAI. / VS. ROHIT MOHIT CONSTRUCTION CORPORATION, 301, M.K. PLAZA, B WING, KASARWADAVLI, GHODBUNDER ROAD, THANE 400 607. ./ PAN : AACFR7258R ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.4595 /MUM/2014 ( / ASSESSMENT YEAR : 2010-2011 ROHIT MOHIT CONSTRUCTION CORPORATION, 301, M.K. PLAZA, B WING, KASARWADAVLI, GHODBUNDER ROAD, THANE 400 607. / VS. DY. COMMISSIONER OF INCOME TAX 24(3), MUMBAI. ./ PAN : AACFR7258R ( / APPELLANT ) .. ( / RESPONDENT ) ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 2 ./ I.T.A. NO.4970 /MUM/2014 ( / ASSESSMENT YEAR : 2010-2011 ASSTT. COMMISSIONER OF INCOME TAX 24(3), MUMBAI. / VS. ROHIT MOHIT CONSTRUCTION CORPORATION, 301, M.K. PLAZA, B WING, KASARWADAVLI, GHODBUNDER ROAD, THANE 400 607. ./ PAN : AACFR7258R ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI Y.P. TRIVEDI DEPARTMENT BY SHRI PITAMBAR DAS / DATE OF HEARING : 17-09-2014 / DATE OF PRONOUNCEMENT :22-10-2014 [ !' / O R D E R PER R.C. SHARMA, A.M . : THESE ARE THE CROSS APPEALS BY THE ASSESSEE AND REV ENUE AGAINST TWO SEPARATE ORDERS OF THE CIT(A) - 34, MUMBAI DATE D 14-02-2013 AND 30-5-2014 FOR THE ASSESSMENT YEARS 2009-10 AND 2010 -11 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED T HE RECORDS. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PARTNERSH IP FIRM ENGAGED IN THE BUSINESS OF CIVIL AND LABOUR CONTRACTORS. DURING T HE COURSE OF SCRUTINY ASSESSMENT, THE A.O. DISALLOWED ASSESSEES CLAIM OF REMUNERATION PAID TO THE PARTNERS. DISALLOWANCE WAS ALSO MADE ON ACCO UNT OF INTEREST PAYMENT U/S 36(1)(III) OF THE ACT, DISALLOWANCE U/S 40(A)(IA) OF THE ACT AND EXCAVATION CHARGES, FREIGHT CHARGES, RENT & STA FF QUARTERS ETC. BY THE IMPUGNED ORDER OF THE LD. CIT(A) PARTLY ALLOWED THE ASSESSEES APPEAL WITH REGARD TO INTEREST U/S 36(1)(III), DISA LLOWANCE OF LOAN U/S 68 ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 3 AND DISALLOWANCE OF 25% EXPENSES OF DIESEL AND FUEL MADE IN CASH. BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US A ND FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE AND REVENU E WHICH READS AS UNDER:- ASSESSEES APPEAL FOR A.Y. 2009-10. 1. THE DISALLOWANCE OF RS. 15,00,000/- OUT OF REMU NERATION PAID TO PARTNERS; 2 . THE DISALLOWANCE OF RS. 5,76,960/- OUT OF INTEREST PAID ON BANK LOAN; 3. THE ADDITION OF RS. 1,50,000/- AS INTEREST ON DE POSIT OF RS. 20,00,000/- ADVANCED TO SMT. ASHA R. MEHTA; 4. THE ADDITION/DISALLOWANCE OF RS.27,94,806/- OUT OF PURCHASES OF BUILDING MATERIALS AND 5. THE ADDITION OF RS. 13,84,050/- AS DEEMED DIVIDE ND UNDER SECTION 2(22)(E). REVENUES APPEAL FOR A.Y. 2009-10 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE OF INTEREST OF RS. 14,83,077/- ATTRIBUTABLE TO INTEREST BEARING LOAN DIVERTED BY T HE FIRM FOR PURCHASE OF FLATS FOR PARTNERS BY ADMITTIN G ADDITIONAL EVIDENCE IN CONTRAVENTION TO RULE 46A OF THE ACT.; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING DISA LLOWANCE OF LOAN OF RS. 32,00,000/- U/S. 68 BY ADMITTING ADD ITIONAL EVIDENCE IN CONTRAVENTION TO RULE 46A OF THE ACT; 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING DISALLOWAN CE OF 25% OF EXPENSES TOWARDS DIESEL AND FUEL MADE IN CAS H BY ADMITTING ADDITIONAL EVIDENCE IN CONTRAVENTION T O RULE 46A OF THE ACT..' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) O N THE ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 4 GROUNDS BE SET ASIDE AND MATTER MAY BE DECIDED ACCORDING TO LAW. THE APPELLANT CRAVES LEAVE TO AME ND OR ALTER ANY GROUND OR ADD NEW GROUND WHICH MAY BE NECESSARY. ASSESSEES APPEAL FOR A.Y. 2010-11 1. FAILING TO DIRECT THE LEARNED ASSISTANT COMMI SSIONER OF INCOME TAX TO DELETE THE DISALLOWANCE OF RS.5,00,00 0 BEING REMUNERATION PAID TO SMT. DAKSHA R. MEHTA; 2. CONFIRMING THE DISALLOWANCE OF RS.33,63,608 OUT OF INTEREST PAID ON BANK OVERDRAFT; 3. FAILING TO FOLLOW THE DECISION OF HONOURABLE COMMISSIONER (APPEALS) IN THE APPELLANT'S CASE FOR ASSESSMENT YEAR 2009/10 DELETING THE DISALLOWANCE O F ESTIMATED INTEREST PROPORTIONATE TO BANK LOAN/OVERD RAFT WRONGLY PRESUMED BY THE ASSESSING OFFICER AS DIVERTED FOR BUYING FLATS AND CONFIRMING THE DISALLOWANCE OF RS.16,48,450 IN THE CURRENT ASSESSM ENT YEAR; 4. CONFIRMING THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF RS.4,15,50,174 PAID TO LABOUR CONTRACTORS DESPITE T AX OF RS.4,22,550 HAVING BEEN DEDUCTED AT SOURCE UNDER SECTION 194C AND PAID TO THE CENTRAL GOVERNMENT; 5. CONFIRMING THE DISALLOWANCE OF TAX AUDIT FEE OF RS. 1,75,000 UNDER SECTION 40(A)(IA) DESPITE TAX OF RS.27,450 (INCLUDING RS.17,500 FROM TAX AUDIT FEE) HAVING BEE N DEDUCTED AT SOURCE UNDER SECTION 194J AND PAID TO T HE CENTRAL GOVERNMENT; 6. CONFIRMING THE DISALLOWANCE OF RS. 82,29,527/- DEBI TED TO EXCAVATION CHARGES; 7. CONFIRMING THE DISALLOWANCE OF RS. 7,24,836/- DEBIT ED TO FREIGHT CHARGES; AND 8. CONFIRMING THE DISALLOWANCE OF RS. 13,99,292/- DEBI TED TO RENT FOR STAFF QUARTERS. REVENUES APPEAL FOR A.Y. 2010-11 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSES SING OFFICER TO DELETE THE ADDITION MADE OF RS. 10,00,000/- MADE ON ACCOUNT OF REMUNERATION PAID TO PARTNER NILAY MEHTA AND RAH UL MEHTA IGNORING THE FACT THAT THE SAME REMUNERATION PAID W ERE NOT JUSTIFIABLE AND WERE NOT ALLOWABLE DEDUCTION WITHIN THE MEANING OF PROVISIONS OF SECTION 409B) OF THE ACT. ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 5 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE OF RS. 10,00,000/- MADE ON ACCOUNT OF REMUNERATION PAID TO PARTNER NILAY MEHTA AND RAHUL MEHTA IGNORING THE FACT THAT THE PARTNERSHIP DEED RELATING TO REMUNERATION TO PARTNERS WAS QUITE GENERAL AND V ERY VAGUE IN NATURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS 57,26,170/- ON ACCOUNT OF BOGUS PURCHASES MADE FROM PARAG ENTERPRISES AND RS 18,79, 567/- ON ACCOUNT OF BOGUS PURCHASES MADE FROM M/S SHREE ENTE RPRISES, M/S YASH ENTERPRISES AND M/S V M UDYOG IGNORING THE FACT THAT THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEE DINGS HAD NOT BEEN ABLE TO FURNISH ANY EVIDENCE TO NEGATE THE SE CLINCHING EVIDENCE BY PRODUCING THESE PURCHASE PARTIES WITH T HE RELEVANT BOOKS OF ACCOUNTS/DOCUMENTS AND HAS NOT EVEN PRODUC ED THE STOCK REGISTER TO SHOW THAT THE MATERIALS ALLEGEDLY SUPPLIED BY THESE HAWALA PARTIES WERE INDEED CONSUMED; 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHA SES IGNORING THE FACT THAT THE IT IS A SETTLED PROVISIO N OF LAW THAT THE ONUS IS UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE ALLEGED PURCHASES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHA SES WITHOUT TAKING INTO CONSIDERATION THE DECISION OF T HE 'HON'BLE ITAT BENCH IN THE CASE OF DCIT VS. SMT PHOOLWATI DE VI (2009) 314 ITR AT 1(DELHI), WHEREIN IT IS HELD THAT DESPIT E THE DOCUMENTARY SUPPORTING THE CLAIM OF THE ASSESSEE SU PERFICIALLY, THE EVIDENCE COULD NOT BE ACCEPTED IN VIEW OF THE S URROUNDING CIRCUMSTANCES AND HUMAN PROBABILITIES. THESE WERE C ERTAIN FEATURES OF THE CASE WHICH BELIE THE DOCUMENTARY EV IDENCE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHA SES, WITHOUT TAKING INTO CONSIDERATION THE DECISION OF T HE HON'BLE SUPREME COURT IN THE CASE SUMATI DAYAL VS CIT(1995) 214 ITR 801 ,WHEREIN IT HAS BEEN HELD THAT A SUPERFICIAL AP PROACH TO 'THE PROBLEM SHOULD BE ESCHEWED AND THE MATTER HAS TO BE CONSIDERED IN THE LIGHT OF HUMAN PROBABILITIES AND FURTHER THA T ANY ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 6 TRANSACTION ABOUT WHICH DIRECT EVIDENCE IS RARELY A VAILABLE SHOULD BE INFERRED ON THE BASIS OF CIRCUMSTANCES AV AILABLE ON THE RECORD. IN THAT CASE, THE MAJORITY OPINION OF T HE SETTLEMENT COMMISSION WAS APPROVED AS IT WAS TAKEN AFTER CONSIDERING THE SURROUNDING CIRCUMSTANCES AND APPLYING THE TEST OF HUMAN PROBABILITIES. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHA SES, BY ACCEPTING ADDITIONAL EVIDENCE DURING THE COURSE OF APPELLATE PROCEEDINGS WITHOUT GRANTING ANY OPPORTUNITY TO THE ASSESSING OFFICER FOR VERIFYING THE DETAILS SUBMITTED BY WAY OF REMAND REPORT WHICH IS CLEARLY IN VIOLATION OF RULE 46A(3) OF THE INCOME TAX RULES 1962. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAREFU LLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. FROM THE RECORDS, WE FIND THAT REMUNERATION WAS PAID BY THE ASSESSEE FIRM TO FOUR PARTNERS OF T HE FIRM NAMELY ROHIT MEHTA, SMT. DAKSHA MEHTA, NILAY MEHTA AND RAHUL MEH TA EACH RS. 5,00,000/- FOR THE YEAR ENDED 31 ST MARCH, 2009 AND CHARGED TO ITS PROFIT AND LOSS ACCOUNT TOTALED TO RS. 20,00,000/-. HOWEVER, W HILE COMPUTING TAXABLE INCOME FOR A.Y. 2009-10, THE ASSESSEE FIRM HAS ADDE D BACK RS. 20,00,000/- AND CLAIMED DEDUCTION OF RS. 19,47,217/- CALCULATED IN ACCORDANCE WITH THE PROVISIONS OF CLAUSE (V) OF SECTION 40(B). THE LEA RNED DY. CIT HAS DISALLOWED RS. 15,00,000/- OUT OF REMUNERATION PAID TO THE PAR TNERS, NAMELY SMT. DIKSHA MEHTA, NILAY MEHTA AND ROHIT MEHTA. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. FOR A.Y. 2009-10. HOWEVER, IN THE A.Y. 2010- 11, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE OF RS. 5 LACS PAID TO MR S. DAKSHA MEHTA. BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 5. WE HAVE CONSIDERED THE RIVAL CONTENTION AND FOUN D THAT DURING THE PREVIOUS YEAR ENDED 31-03-2009 RELEVANT TO A.Y. 200 9-10, THE PARTNERSHIP WAS RECONSTITUTED WITH EFFECT FROM IST AUGUST, 2008 . ON SUCH ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 7 RECONSTITUTION NIRMAN BUILDERS PVT. LTD.(WITH 25% S HARE) CEASED TO BE PARTNER AND SHRI RAHUL R. MEHTA AND SHRI NILAY R ME HTA BECAME PARTNERS WITH 20% SHARE EACH. CLAUSE NO. 8 OF THE DEED EFFEC TIVE UPTO 31/07/2008 AND CLAUSE NO. 8 OF THE DEED EFFECTIVE FROM 01/08/2 008 CONTAIN VERBATIM IDENTICAL PROVISION REGARDING SALARY TO PARTNERS AS UNDER- THE PARTNERS HERETO MAY BE PAID SUCH SUM BY WAY OF SALARY AND/OR REMUNERATION FOR THE SERVICES RENDERED TO TH E FIRM AS MAY FROM TIME TO TIME BE MUTUALLY AGREED UPON. ANY REMUNERATION SO PAYABLE SHALL BE CONSIDERED AS EXPE NDITURE OF THE FIRM AND SHALL BE PAYABLE IRRESPECTIVE OF THE P ROFITS MADE OR LOSS INCURRED BY THE FIRM. THE LEARNED DY. CIT HAS REASONED THE DISALLOWANCE O F RS. 15,00,000/- OUT OF SALARY TO THE PARTNERS AS UNDER:- (A) ' ......NONE OTHER THAN SHRI ROHIT MEHTA WAS ACTUAL LY A WORKING PARTNER. (B) ' ......ON PERUSAL OF THE DEED OF PARTNERSHIP AS RE CONSTITUTED, SHRI ROHIT BHUPALRAI MEHTA WAS THE ONLY MANAGING PA RTNER AND THEREFORE ALLOWAHILITY OF REMUNERATION TO OTHER PARTNERS WAS APPARENTLY NOT JUSTIFIED.' AND (C) 'THE TERMS OF THE PAYMENT OF REMUNERATION TO THE PARTNERS AS REPRODUCED HEREINABOVE IS VERY GENERAL IN NATURE AND DOES NOT CLEARLY AND SPECIFICALLY PROVIDE AS TO WHO IS THE WORKING PARTNER AND HOW MUCH OF SALARY/ REMUNERATIO N SHALL BE PAID. THE TERMS OF PAYMENT PROVIDED IN THE DEED OF PARTNERSHIP IS VERY VAGUE AND ON THE BASIS OF THE F ACTS OF THE CASE DISCUSSED HEREINABOVE, THE REMUNERATION PAID T O THE PARTNERS OTHER THAN SHRI ROHIT MEHTA IS NOT ELIGIBL E FOR DEDUCTION U/S. 40(B) OF THE ACT ........ WE FIND THAT SHRI ROHIT B. MEHTA (WHO EXPIRED ON 26 /03/2010), WHO FOUNDED THE FIRM WAS THE MANAGING PARTNER. HE WAS Q UALIFIED B. E. (CIVIL). SHRI ROHIT MEHTA HAD PRACTICAL FIELD EXPERIENCE IN CIVIL ENGINEERING FOR MORE THAN 42 YEARS DURING HIS EMPLOYMENT WITH LEADING CO MPANIES IN INDIA AND ABROAD, INCLUDING TATA CONSULTING ENGINEERS. SH RI ROHIT MEHTA IN HIS ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 8 CAPACITY AS MANAGING PARTNER NEGOTIATED AND BROUGHT BUSINESS DEALS. HE ACTIVELY PLANNED AND MANAGED EXECUTION OF PROJECTS AT VARIOUS SITES. SHRI RAHUL MEHTA AND SHRI NILAY MEHTA ARE HOLDERS OF DIP LOMA IN CIVIL ENGINEERING. THEY TOO HAD GAINED VAST EXPERIENCE IN CIVIL ENGINEERING JOBS BEFORE THEY WERE JOINED THE ASSESSEE. THEY WERE ASS OCIATED WITH THE FIRM'S BUSINESS AS PROJECT MANAGERS WITH RESPONSIBILITY TO SUPERVISE JOBS BEING EXECUTED AT VARIOUS SITES EVEN PRIOR TO BECOMING PA RTNERS AND HAVE BEEN REMUNERATED THEREFOR. COPIES OF IT RETURNS SUB MITTED BY THEM FOR EARLIER ASSESSMENT YEARS SHOWING THEIR REMUNERATION FROM THE APPELLANT FIRM FOR THOSE YEARS WERE ALSO ENCLOSED AND MARKED ' ANNEXURES 1(A) TO 1(H). THEY HAVE CONTINUED TO FOCUS THEIR ATTENTION TO PRO JECT SUPERVISORY RESPONSIBILITIES EVEN AFTER THEY BECAME PARTNERS. SHRI ROHIT MEHTA, IN ADDITION TO CO-ORDINATING IN THE PROJECT WORK WAS ALSO RESPONSIBLE FOR THE FIRM'S ADMINISTRATIVE AND FINAN CIAL MATTERS AS MANAGING PARTNER. MERELY BECAUSE SHRI ROHIT MEHTA W AS THE MANAGING PARTNER IN THE APPELLANT FIRM, THE A.O. CANNOT CONC LUDE THAT OTHER PARTNERS ARE NOT WORKING PARTNERS AND HENCE NOT ENTITLED TO REMUNERATION. 6. IT IS CLEAR THAT BOTH MR. ROHIT B. MEHTA AND MR. RAHUL MEHTA WERE TECHNICALLY QUALIFIED BEING CIVIL ENGINEERING AND D IPLOMA IN CIVIL ENGINEERING. BOTH HAD VAST EXPERIENCE IN CIVIL ENG INEERING JOBS BEFORE THEY JOINED THE ASSESSEE FIRM. EARLIER THEY WERE ASSOCI ATED WITH THE ASSESSEE FIRM WITH RESPECT TO SUPERVISE JOBS BEING EXECUTED AT VARIOUS SITES AND ACCORDINGLY PAID REMUNERATION FOR THE SAME. AFTER BECOMING PARTNERS THE SAME RESPONSIBILITY CONTINUED AND THEY WERE PAID RE MUNERATION IN THE FORM OF PARTNERS SALARY AS PROVIDED IN THE PARTNERSHIP DEED. FURTHER THE SALARY PAID TO THE PARTNERS WAS WITHIN THE ELIGIBLE LIMIT FOR DEDUCTION U/S 40(B) OF THE ACT. ACCORDINGLY WE DO NOT FIND ANY MERIT IN TH E DISALLOWANCE OF REMUNERATION PAID TO MR. ROHIT B. MEHTA AND MR. RA HUL MEHTA. - ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 9 7. AS PER THE CONTENTION OF THE ASSESSEE BEFORE THE A.O., SMT. DAKSHA MEHTA HAS BEEN A PARTNER SINCE COMMENCEMENT OF THE FIRM. SMT. DAKSHA MEHTA HAS ACTIVELY BEEN ENGAGED IN CONDUCTING THE F IRMS FINANCIAL NEEDS BY PROVIDING SECURITY AND GUARANTEE FOR LOAN/CASH CRED IT FACILITIES AVAILED BY THE FIRM FROM BANK OF INDIA. HENCE, SHE IS VERY MU CH A WORKING PARTNER AS PER EXPLANATION 4 TO SECTION 40 OF THE IT ACT. AS PER THE LD. A.R., IN THE CONTEXT OF SUCH SIGNIFICANT FACTS, THE FIRM IS OBLI GED TO PAY REMUNERATION TO HER AS PARTNER. THIS FACT HAS NOT BEEN CONTROVERTED BY THE A.O. BY BRINGING ANY POSITIVE MATERIAL ON RECORD. IN THE INTEREST O F JUSTICE, WE RESTORE THIS GROUND BACK TO THE FILE OF THE A.O. WITH REGARD TO THE SALARY OF SMT. DAKSHA MEHTA FOR DECIDING THE SAME AFRESH IN THE LIGHT OF ABOVE OBSERVATION. WE DIRECT ACCORDINGLY. 8. IN THE RESULT, WE ALLOW THE CLAIM OF SALARY OF R AHUL MEHTA AND NILAY MEHTA FOR A.Y. 2009-10. THE LD. CIT(A) HAS ALREADY ALLOWED THE REMUNERATION TO BOTH IN THE A.Y. 2010-11. HOWEVER, THE REMUNERATION PAID TO SMT. DAKSHA MEHTA IN BOTH THE YEARS ARE RESTORED BACK TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AS PER OUR ABOVE OBSERVATION. 9. IN A.Y. 2009-10, THE A.O. HAS ALSO DISALLOWED AN AMOUNT OF RS. 5,76,960/- OUT OF INTEREST PAID ON BANK LOAN. THE A .O. HAS DISCUSSED THIS ISSUE IN PARA 4 CLAUSE (II) OF THE ASSESSMENT ORDER . THE A.O. FOUND THAT THE ASSESSEE HAD GRANTED LOANS AND ADVANCES TO THE TU NE OF RS. 48.08 LACS TO 11 PARTIES AS PER SCHEDULE 12 OF THE BALANCE SHEET. THE ASSESSEE HAD DEBITED A SUM OF RS. 58,46,412/- TOWARDS INTEREST P AID TO THE BANK AND BANK CHARGES. AS PER A.O. THE ASSESSEE HAD BEEN PAY ING HUGE INTEREST ON THE BORROWAL AND AT THE SAME TIME ADVANCED LOAN WIT HOUT CHARGING ANY INTEREST AND ACCORDINGLY 12% PER ANNUM INTEREST WAS CALCULATED BY THE A.O. TOWARDS INTEREST-FREE LOANS AND ADVANCES GRANTED. A SUM OF RS. 5,76,960/- WAS DISALLOWED FROM THE TOTAL INTEREST CLAIMED. BY THE IMPUGNED ORDER, THE ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 10 LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. 10. WE HAVE CONSIDERED THE RIVAL CONTENTION AND FOU ND THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS FOR TH E PURPOSES OTHER THAN THE BUSINESS, THEREFORE, WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF THE LOWER AUTHORITIES IN SUSTAINING THE DISALLOWANCE OF RS. 5 ,76,960/- ON THE LOANS AND ADVANCES GIVEN TO THE FAMILY MEMBERS FOR NON-BU SINESS PURPOSE. 11. IN THE A.Y. 2009-10 THE A.O. HAS ALSO DISALLOWE D AN AMOUNT OF RS. 1,50,000/- AS INTEREST ON DEPOSIT OF RS. 20,00,000/ - ADVANCED TO SMT. ASHA R. MEHTA. 12. THE A.O. FOUND THAT LOAN OF RS. 20 LACS AND RS. 4 LACS RESPECTIVELY HAVE BEEN ADVANCED TO SMT. ASHA RAJESH MEHTA AND RA JESH I MEHTA ON WHICH INTEREST OF 7.5% WAS CHARGED FROM SMT. ASHA R AJESH MEHTA AND 15% WAS CHARGED IN THE CASE OF RAJESH I. MEHTA. THE A.O . FOUND THAT THE ASSESSEE WAS PAYING INTEREST RANGING FROM 12 TO 15% ON THE BORROWALS AND HENCE THE DIFFERENCE IN AMOUNTS CHARGED FROM SMT. A SHA RAJESH MEHTA WAS WORKED OUT TO RS. 1,50,000/- AND THE SAME WAS ADDED . BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE A .O. 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FO UND THAT THE ADVANCE WAS ALLEGED TO BE GIVEN AS A COMMERCIAL CON SIDERATION INSOFAR AS SMT. ASHA RAJESH MEHTA WAS MANAGING THE FINANCIAL A FFAIRS OF THE ASSESSEE FIRM. HOWEVER, THIS ASPECT OF COMMERCIAL CONSIDERA TION HAS NOT BEEN EXAMINED BY THE A.O. THERE IS NO DISPUTE TO THE FA CT THAT WHENEVER ANY ADVANCES GIVEN FOR NON-BUSINESS PURPOSES, INTEREST PAID BY THE ASSESSEE FIRM WHICH IS ATTRIBUTABLE TO SUCH ADVANCE IS REQUI RED TO BE DISALLOWED BUT WHERE ADVANCE IS GIVEN FOR COMMERCIAL CONSIDERATION EVEN WITHOUT CHARGING INTEREST, THE SAME CANNOT BE DISALLOWED WITHOUT GIV ING COGENT REASONS. IN THE INTEREST OF JUSTICE, WE RESTORE THIS GROUND BAC K TO THE FILE OF THE A.O. FOR ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 11 DECIDING THE SAME AFRESH AFTER CONSIDERING THE COMM ERCIAL CONSIDERATION FOR SUCH ADVANCES GIVEN TO SMT. ASHA RAJESH MEHTA WHO W AS MANAGING THE FINANCIAL AFFAIRS OF THE ASSESSEE FIRM. 14. THE NEXT GRIEVANCE OF THE ASSESSEE IN A.Y. 2009 -10 RELATES TO THE DISALLOWANCE OF PROPORTIONATE INTEREST OF RS. 14,83 ,077/- U/S 36(1)(III) OF THE INCOME TAX ACT, 1961. SIMILAR DISALLOWANCE WAS ALSO BY THE A.O. ON A.Y. 2010-11. IN THE A.Y. 2009-10, THE LD. CIT(A) HAS D ELETED THE DISALLOWANCE WHEREAS IN THE A.Y. 2010-11, THE LD. CIT(A) CONFIRM ED THE DISALLOWANCE MADE BY THE A.O. IN THE A.Y. 2009-10, THE LD. CIT(A ) WHILE DELETING THE DISALLOWANCE OF PROPORTIONATE INTEREST OF RS. 14,83 ,077/-, THE FOLLOWING OBSERVATIONS WERE MADE :- 5.4 I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIONS OF THE APPELLANT, THE IMPUGNED ASSESSMENT ORDER AND THE MATERIALS AVAILABLE ON REC ORD AND ANNEXURES FURNISHED WITH THE SUBMISSION. IT IS THE SUBMISSION OF THE A I R THAT THE PARTNERS HAVE INVESTED IN THE MALAD FLAT OUT OF THE SALE PROCEEDS OF THE FLAT AT GOREGAON & KANDIVALI. IT WAS CLAIMED THAT A SUM OF RS.69,32,000/- CREDITED INTO ROHIT B MEHTAS A/C INCLUDES THE SALE PROCEEDS RS.50,32,238/- OF GOREGAON FLAT. THE AR WAS DIRECTED TO SUBSTANTIATE THIS CLAIM. IN SUPPORT OF THIS, COPY OF THE STATEME NT OF ACCOUNTS OF SHRI ROHIT B. MEHTA MAINTAINED WITH BANK OF INDIA, FOR THE PERIOD 1/04/2007 TO 2/08/2098 WAS FURNISHED. THE PERUSAL INDICATES THAT HE HAD RECEIVED RS.50.5 LACS ON 20/04/2007. THE APPELLANT HAD DIVERTED THE SAME INTO A SHORT TERM DEPOSIT WHICH GOT SUBSEQUENTLY MATURED ON 21/02/2008. THE CLOSURE PROCEEDS OF THE SHORT TERM DEPOSIT ALONGWITH CASH CREDIT OF RS.19 LACS TOGETHE R RS.69.32 LACS WHICH WAS ISSUED AS A CHEQUE TOWARDS PURCHASE OF THE NEW FLAT. THE DETAILS OF LEDGER EXTRACTS AND THE STATEMENT OF ACCOUNTS ARE AVAILABLE IN ANNEXURE 5A & 5B OF THE SUBMISSION. SIMILARLY, IN RESPECT OF THE OTHER PARTNER SMT. DAKSHA MEHTA, THE LEDGER EXTRACT AND THE BANK ACCOUNT MAINTAINED WITH BANK OF INDIA WAS FURNISHED. THE PERUSAL INDICATED THAT SHE HAS RECEIVED RS38,79,500/- ON 15/09/2008 ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 12 TOWARDS SALE PROCEEDS OF THE FLAT WHICH WAS IN TURN INVESTED IN THE MALAD FLAT ON 31/03/2009. 5.5 FROM THE ABOVE, IT IS CLEAR THAT THE BANK LOAN OBTAINED RS4 CRORE WAS NOT DIVERTED TOWARDS PURCHASE OF FIAT AT MALAD SINCE THE SOURCES HAVE BEEN TRACED TO THE SALE OF FLAT BY THE PARTNERS, TH E DISALLOWANCE MADE U/S 36(1)(III) CANNOT BE SUSTAINED. HENCE, THE ADDITION MADE BY THE A.O. IS HEREBY DELETED. THIS GROUND OF APPEAL IS ALIOWED. 15. IN THE A.Y. 2010-11, THE REVENUE IS IN APPEAL BEFORE US ALLEGING THAT THE LD. CIT(A) HAS DELETED THE DISALLOWANCE OF PROP ORTIONATE INTEREST OF RS. 14,83,077/- BY SUBMITTING THE ADDITIONAL EVIDENCE I N CONTRAVENTION TO SECTION 46-A OF THE ACT. 16. WE FIND THAT THE LD. CIT(A) HAS DELETED THE AD DITION AFTER RECORDING DETAIL FINDINGS TO THE EFFECT THAT INTEREST BEARING FUNDS HAVE NOT BEEN DIVERTED. HOWEVER, THERE APPEARS TO BE CERTAIN EVID ENCES BEING CONSIDERED BY THE LD. CIT(A) WITHOUT GIVING OPPORTUNITY TO THE A. O. IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS GROUND FOR BOTH THE ASSESSMENT YEARS I.E. 2009- 10 & 2010-11 TO THE FILE OF THE A.O. FOR DECIDING T HE SAME AFRESH AFTER CONSIDERING THE ADDITIONAL EVIDENCE FILED BY THE AS SESSEE BEFORE THE LD. CIT(A) ON THE BASIS OF WHICH THE LD. CIT(A) DELETED THE DI SALLOWANCE. WE DIRECT ACCORDINGLY. 17. THE A.O. ALSO MADE DISALLOWANCE ON ACCOUNT OF P URCHASE OF RAW MATERIALS IN THE A.Y. 2009-10 & 2010-11. 18. IN THE A.Y. 2009-10, THE LD. CIT(A) CONFIRMED T HE DISALLOWANCE MADE BY THE A.O. WHEREAS IN THE A.Y. 2010-11 THE LD. CIT(A) HAS DELETED THE DISALLOWANCE AFTER HAVING MADE THE FOLLOWING OBSERV ATION:- 5.3. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND THE IMPUGNED ASSESSMENT ORDER ON THIS ISSUE. I FIND FORCE IN THE ARGUMENTS OF THE APPELLANT. REGAR DING PARAG ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 13 ENTERPRISES, DURING THE COURSE OF APPELLATE PROCEED INGS, THE APPELLANT HAS FILED DETAILED LEDGER ACCOUNT FOR THE FINANCIAL YEARS FROM 2007-08 TO 2011-12 WHICH CONTAINED PARTICULARS OF PURCHASES MADE FROM THAT PARTY AS WELL AS PAYMENTS MADE THROUGH REGULAR BANKING CHANNEL TOGETHER WITH INVOI CES AND BANK DOCUMENTS TO SUBSTANTIATE ITS CLAIM WHICH WERE FILE D BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS ALSO. AS REGARDS PURCHASES FROM SHREE GANESH ENTERPRISES (RS . 7,30,778/-)AND M/S.YASH ENTERPRISES,(RS.2,898,389/- )THE APPELLANT HAS FURNISHED LEDGER ACCOUNTS TOGETH ER WITH RELEVANT BILLS ETC. TO PROVE THAT THE TRANSACTIONS WERE GENU INE WHICH WERE FILED BEFORE THE ASSESSING OFFICER DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS ALSO. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE FILING OF LEDGER A CCOUNT OF THE PARTIES FROM THE BOOKS OF THE APPELLANT AND COPIES OF INVOICES CLAIMED TO HAVE BEEN RAISED BY THE RESPECTIVE PARTIES DOES NOT PROVE THE GENUINENESS OF CLAIM MADE BY THE APPELLANT WHICH IS FOUND BE INCORRECT. THE APPELLANT IS NOT RELYING MERELY ON P AYMENTS TO THE PARTIES FOR CLAIMING DEDUCTION. SUPPLIERS' BILLS/IN VOICES (WITH THEIR ADDRESSES, TELEPHONE NUMBERS, VAT & CST NOS.) AS WE LL AS THEIR DELIVERY CHALLANS SHOWING RELEVANT DETAILS SUCH AS DATE, QUANTITY, SITE WHERE THE MATERIAL WERE DELIVERED ARE READILY AVAIL ABLE WITH THE APPELLANT. THE BILLS/DELIVERY CHALLANS TOGETHER WIT H PAYMENT DETAILS ARE PROOF ENOUGH TO ESTABLISH THAT THE PURCHASES AN D EXPENSES BOOKED BY THE APPELLANT ARE GENUINE AND THAT THEY W ERE WHOLLY AND EXCLUSIVELY INCURRED IN THE ORDINARY COU RSE OF APPELLANT'S BUSINESS. THE APPELLANT HAD RELIED ON T HE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS. NIKUNJ EXIMP ENTERPRISES (P)LTD. (2013) 216 TAXMAN 171 SUPPORTS THE CASE OF THE APPE LLANT WHEREIN THE BOMBAY HIGH COURT HAS HELD THAT 'WHERE PURCHASE AND PAYMENT WAS MADE THROUGH BANKS, MERELY BECAUSE SUPPLIERS HA D NOT APPEARED BEFORE ASSESSING OFFICER, PURCHASE COULD N OT BE REJECTED AS BOGUS. AGAINST THE ABOVE DELETION OF DISALLOWANCE IN A.Y. 2010-11, THE REVENUE IS IN APPEAL BEFORE US ON THE PLEA THAT THE LD. CIT(A) HA S ALLOWED THE GROUND OF THE ASSESSEE IN VIOLATION OF RULE 46A(3) OF THE INCOME TAX RULES, 1962. 19. WE FIND THAT THE LD. CIT(A) HAS DEALT WITH IN D ETAIL REGARDING PURCHASES MADE FROM THESE FOUR PARTIES AND AFTER APPLYING THE JUDICIAL PRONOUNCEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NIKUNJ EXI MP ENTERPRISES (P) LTD. (2013) 216 TAXMAN 171, DELETED THE SAME BY OBSERVIN G THAT WHERE PURCHASE AND PAYMENT WAS MADE THROUGH BANKS, MERELY BECAUSE SUPPLIERS HAD NOT I ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 14 APPEARED BEFORE ASSESSING OFFICER, PURCHASE COULD N OT BE REJECTED AS BOGUS. KEEPING IN VIEW THE REVENUES OBJECTION REGARDING V IOLATION OF RULE 46A(3), WE RESTORE THIS ISSUE REGARDING BOGUS PURCHASES IN BOT H THE ASSESSMENT YEARS TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH A FTER CONSIDERING THE ADDITIONAL EVIDENCES, IF ANY, FILED BEFORE THE LD. CIT(A) IN T HE A.Y. 2010-11, BY RELYING ON WHICH LD. CIT(A) HAS DELETED THE ADDITION. AS THE R EASONS DISCUSSED BY A.O. FOR DISALLOWANCE OF PURCHASES IN THE A.Y. 2009-10 ARE S AME, FOLLOWING THE SAME REASONING, WE RESTORE THIS GROUND OF A.Y. 2009-10 T O THE FILE OF A.O. FOR DECIDING AFRESH. NEEDLESS TO SAY THAT THE ASSESSEE SHOULD BE GIVEN PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD. WE DIRECT ACCORDINGLY. 20. IN A.Y. 2009-10, THE ASSESSEE IS ALSO AGGRIEVED BY THE ADDITION OF RS. 13,84,050/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND FOUND T HAT THE A.O. HAD EXAMINED THE BALANCE SHEET OF THE ASSESSEE FIRM AND FOUND THAT UNSECURED LOAN OF RS. 10,74,250/- WAS OBTAINED FROM M/S NIRMA N BUILDERS PVT. LTD. IN WHICH THE PARTNERS OF THE FIRM WERE HOLDING 10% OF THE SHARES. SINCE THE PARTNERS OF THE FIRM ARE DIRECTORS OF THE COMPANY, THE A.O. WAS UNDER THE IMPRESSION THAT LOAN GIVEN BY THE COMPANY TO THE FI RM NEEDS TO BE TAXED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT. THE ABOVE COMPANY WAS A PARTNER IN THE ASSESSEE FIRM TILL 31/07/2008 SUBSEQUENT TO THE DATE OF RETIREMENT I.E AFTER 1/08/2008 THE COMPANY HAD GRANTED RS. 21 LACS AS LOAN. THE COMPANY HAD SHOWN ACCUMULATED PROFIT OF RS. 13,84,050/-. T HEREFORE, THE A.O. HAD TREATED LOAN EXTENDED TO THE FIRM OF THE ACCUMULATE D PROFIT AS DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT. THE LD. CIT(A) BY HIS IMPUGNED ORDER OBSERVED THAT THE ASSESSEE IS NOT A SHAREHOLDER IN THE COMPANY AN D HENCE THE FIRST LIMB OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT DOES NOT GET ATTRACTED. HOWEVER, BY RELYING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 15 NATIONAL TRAVEL SERVICES REPORTED IN 347 ITR 305, H E CONFIRMED THE DISALLOWANCE AGAINST WHICH THE ASSESSEE IS IN FURTH ER APPEAL BEFORE US. 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FO UND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF SPECIAL BENCH O F ITAT IN THE CASE OF ACIT VS. BHAUMIK COLOUR P. LTD. [2009] 313 ITR (IT) 146 (MUM BAI)[SB] WHEREIN IT WAS HELD THAT FOR ATTRACTING PROVISIONS OF SECTION 2(22 )(E), ASSESSEE SHOULD BE REGISTERED AS WELL AS BENEFICIAL OWNER OF THE SHARE S OF THE COMPANY FROM WHOM ALLEGED LOAN IS RECEIVED. IN THE INSTANT CASE BEFOR E US, IT HAS BEEN CATEGORICALLY ACCEPTED EVEN BY THE LD. CIT(A) THAT THE ASSESSEE F IRM IS NOT A REGISTERED SHAREHOLDER OF THE COMPANY, WE THEREFORE, HOLD THAT LOAN RECEIVED BY THE ASSESSEE FIRM WHO IS NOT A REGISTERED SHARE HOLDER OF THE COMPANY, THEREFORE DO NOT ATTRACT THE PROVISIONS OF SECTION 2(22)(E) O F THE ACT. THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NAT IONAL TRAVEL SERVICES REPORTED IN 347 ITR 305 RELIED ON BY THE LD. CIT(A) IS DISTINGUISHABLE INSOFAR AS SHARES PURCHASED BY PARTNERSHIP FIRM NAMELY NATI ONAL TRAVEL SERVICES (SUPRA) THROUGH ITS PARTNER BY USE OF FUNDS PROVIDE D BY THE PARTNERSHIP FIRM AND AS SUCH INVESTMENT WAS DULY REFLECTED IN THE BA LANCE SHEET OF THE PARTNERSHIP FIRM. HOWEVER, IN THE INSTANT CASE BEFO RE US, THERE IS NO FINDING BY THE LOWER AUTHORITIES THAT THE FUNDS WERE PROVID ED TO THE PARTNER BY THE ASSESSEE FIRM FOR ACQUIRING THE SHARES IN THE COMPA NY NOR INVESTMENTS WERE REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE FIRM . ACCORDINGLY, THE FACTS OF THE INSTANT CASE ARE QUITE DISTINGUISHABLE FROM THE FACTS OF NATIONAL TRAVEL SERVICES (SUPRA) RELIED ON BY THE LD. CIT(A). RESPE CTFULLY FOLLOWING THE PROPOSITION OF SPECIAL BENCH IN THE CASE OF BHAUMIC COLOUR P. LTD. (SUPRA), WE DELETE THE ADDITION MADE BY THE A.O. U/S 2(22)(E ) OF THE ACT. 23. IN THE A.Y. 2010-11, THE ASSESSEE IS ALSO AGGRI EVED FOR THE DISALLOWANCE OF INTEREST PAID TO THE BANK ON OVERDRAFT. FOLLOWI NG THE REASON GIVEN BY US FOR A.Y. 2009-10, WE RESTORE THIS GROUND BACK TO TH E FILE OF THE A.O. FOR ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 16 DECIDING THE SAME AFRESH AFTER GIVING PROPER OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. 24. IN A.Y. 2010-11, THE ASSESSEE IS AGGRIEVED FOR THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT IN RESPECT OF PAYMENT MADE TO LABOUR CONTRACTORS AND AUDIT FEE. 25. IT WAS THE CONTENTION OF THE ASSESSEE THAT DUE TAXES HAS BEEN DEDUCTED AT SOURCE IN RESPECT OF PAYMENTS MADE TO LABOUR CON TRACTORS AND THE SAME HAS BEEN DEPOSITED IN THE CENTRAL GOVERNMENT ACCOUN T. IN RESPECT OF DISALLOWANCE OF AUDIT FEE OF RS. 1,75,000/- U/S 40( A)(IA) OF THE ACT, TDS OF RS. 75,500/- WAS DEDUCTED AT SOURCE U/S 194 J OF THE AC T AND PAID TO THE CENTRAL GOVERNMENT. SIMILARLY, OUT OF LABOUR PAYMEN T TAX OF RS. 4,22,550/- WAS DEDUCTED U/S 194C OF THE ACT. 26. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FO UND THAT TAX HAS BEEN ALLEGED TO BE DEDUCED AT SOURCE AND PAID TO THE GOV ERNMENT ACCOUNT BEFORE LAST DATE OF FILING OF RETURN. IN THE INSTANT CASE, THE CLAIM OF THE ASSESSEE WHICH IS SUPPORTED BY DOCUMENTARY EVIDENCE IS PLACE D ON RECORD INDICATED THAT TAXES HAS BEEN DEDUCTED AT SOURCE AND DEPOSITE D IN THE CENTRAL GOVERNMENT ACCOUNT. IN THE INTEREST OF JUSTICE, BO TH GROUNDS ARE RESTORED BACK TO THE FILE OF A.O. FOR DECIDING THE SAME AFRE SH AFTER VERIFYING THE ACTUAL DEDUCTION AND PAYMENT OF TAX AT SOURCE. 27. FOR A.Y. 2010-11, THE A.O. HAS ALSO DISALLOWED EXCAVATION CHARGES, FREIGHT CHARGES AND RENT FOR STAFF QUARTERS DEBITED TO THE P&L ACCOUNT. 28. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FO UND THAT THE AMOUNTS DEBITED TO THE EXCAVATION CHARGES REPRESENTED CHARG ES PAID FOR CRANES, DUMPERS, CONCRETE MIXERS, AIR COMPRESSORS, JACK HAM MERS, GENERATORS ETC. HIRED BY THE ASSESSEE. AS PER THE LD. A.R. HIRING OF TRACTORS/TROLLEYS FOR PURPOSE OF USING THEM IN BUSINESS CANNOT BE EQUATED TO A CONTRACT FOR TRANSPORTATION OR CARRIAGE AS CONTEMPLATED U/S. 194 C. INVOKING OF SECTION ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 17 40(A)(IA) OF THE ACT TO MAKE THE IMPUGNED DISALLOWA NCE WAS UNWARRANTED. FOR THIS PURPOSE, RELIANCE WAS PLACED ON THE DECISI ON OF PUNE BENCH IN THE CASE OF NALAWADE C. MARUTI VS. JCIT [2011] 48 S OT 566 (PUNE). AS PER THE LD. A.R., PAYMENT MADE FOR TAKING CRANES ON LEA SE ON TIME BASIS DID NOT CONSTITUTE PAYMENT WITH REGARD TO WORK CONTRACT AS DEFINED IN SECTION 194 C OF THE ACT REQUIRING DEDUCTION OF TAX AT SOUR CE. FOR THIS PURPOSE, RELIANCE WAS PLACED IN THE CASE OF ACIT VS. SANJAY KUMAR [2011] 48 SOT 615 (DELHI). RELIANCE WAS ALSO PLACED IN THE CASE OF KIRAN CONSTRUCTIONS [2013] 22 ITR (TRIB.) 356 (HYD.) IN SUPPORT OF THE PROPOSITION THAT MERE PROVIDING OF MACHINERY ON HIRE WITHOUT ANY MANPOWER CANNOT BE TERMED AS CARRYING OUT OF ANY WORK BY PLANT AND MACHINERY AND THUS, NO TAXES ARE REQUIRED TO BE DEDUCTED U/S 194-C OF THE ACT. FROM THE RECORD WE FOUND THAT IT WAS THE CONTENTION OF THE ASSESSEE BEFORE THE LO WER AUTHORITIES THAT THE AMOUNTS DEBITED TO FREIGHT ARE NOT FREIGHT CHARGES PAID BY THE ASSESSEE TO TRANSPORT CONTRACTORS, BUT FREIGHT CHARGES PAID BY SUPPLIERS OF VARIOUS BUILDING MATERIAL AND INCLUDED IN THEIR SAL ES INVOICES. INSTEAD OF INCLUDING SUCH AMOUNTS AS INTEGRAL PART OF COST OF MATERIAL BOUGHT, THEY HAVE BEEN DEBITED SEPARATELY TO FREIGHT A/C. T HUS, THERE IS NO QUESTION OF DEDUCTING TAX AT SOURCE BY THE ASSESSEE FROM THE AMOUNTS CHARGED TO ITS PROFIT AND LOSS ACCOUNT UNDER THE HE AD 'FREIGHT. WITH RESPECT TO THE PAYMENT OF RENT FOR STAFF QUARTERS, THE CONT ENTION OF THE LD. A.R. WAS THAT THE ASSESSEE FIRM IS ENGAGED IN CIVIL CONSTRUC TION WHICH IS LABOUR INTENSIVE. THE REMOTE AREAS IN WHICH CONSTRUCTION C ONTRACTS ARE BEING CARRIED OUT, THE ASSESSEE HAS TO EMPLOY LABOUR THRO UGH CONTRACTORS. THE LABOUR CONTRACTORS NORMALLY ARRANGE FOR ACCOMMODATI NG THE LABOUR IN KUTCHA HOUSES/THATCHED HUTMENTS EASILY ACCESSIBLE FROM THE CONSTRUCTION SITES. THESE PREMISES FOR TEMPORARY ACCOMMODATION O F CONSTRUCTION LABOUR AND PAYMENTS THEREFOR ARE NOT RENT FOR TENAN CY IN THE STRICT SENSE OF THE TERM, ALTHOUGH SUCH PAYMENTS ARE CHARG ED TO 'RENT' IN THE ASSESSEE'S BOOKS. THE PREMISES ARE NOT HIRED BY THE ASSESSEE FOR THE ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 18 STAFF/LABOUR ON ITS CONSTRUCTION JOBS UNDER TERMS O F FORMAL TENANCY AGREEMENT. IN THE VERY NATURE AND CONTEXT OF ASSESS EE'S BUSINESS, THE HIRING OF LABOUR AND HIRING OF ACCOMMODATION FOR SU CH LABOUR ARE PART OF UNORGANISED SECTOR. IN THESE CIRCUMSTANCES AND O N THE FACTS OF THE CASE, THE PAYMENT OF SO CALLED RENT BY THE ASSESSEE IS NOT COVERED BY THE TDS PROVISIONS OF SECTION 194. AS A NATURAL AND LEG AL CONSEQUENCE, THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE INVOKED T O DISALLOW SUCH RENT FOR NON-DEDUCTION OF TAX AT SOURCE. IT WAS THE CONT ENTION OF THE LD. A.R. THAT IN SOME CASES THE TDS WAS DEDUCTED AND ALSO DEPOSIT ED BEFORE FILING OF THE RETURN OF INCOME. 29. IN THE LIGHT OF ABOVE CONTENTIONS OF LD. A.R., WE SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND IN THE INTEREST OF JUSTICE AN D FAIR PLAY, WE RESTORE ALL THESE THREE GROUNDS NAMELY GROUND NO. 6,7 & 8 TO TH E FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AFTER GIVING PROPER OPPORT UNITY OF BEING HEARD TO THE ASSESSEE AND VERIFYING THE ACTUAL DEDUCTION AND DEP OSIT OF TAX AT SOURCE. WE DIRECT ACCORDINGLY. 30. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE IN ITA NO. 3434/MUM/2013 & ITA NO. 4595/MUM/14 AND THE REVENUE IN ITA NO. 3125/MUM/2013 & ITA NO. 4970/MUM/2014 FOR ASSESSMEN T YEARS 2009-10 & 2010-11 ARE ALLOWED IN PART IN TERMS INDICATED HE REINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND OCTOBER, 2014. SD/- SD/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER . / MUMBAI ; 0! DATED 22-10-2014 [ ITA 3434/M/13, 3125/M/13, ITA 4595/M/14 & 4 970/M/14 19 .1../ RK , SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 2 () / THE CIT(A) XXVII, MUMBAI 4. 2 / CIT CITY - 3, MUMBAI 5. 567 1189 , 89 , . / / DR, ITAT, MUMBAI B BENCH 6. 7;< = / GUARD FILE. ' / BY ORDER, 5 1 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , . / / ITAT, MUMBAI