M/s.Vijaya Palace, Kollam V. The iTO, Kollam

ITA 506/COCH/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8118 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-03-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 29-10-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: G SURENDRANATH RAO
• Keywords: Non-deduction of tax; TDS; Set aside
• Section: 40A(3); 40(a)(ia)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFOR E S/ SHRI CHANDRA POOJARI , AM & GEORGE GEORGE K., J M I .T . A. NO . 506/COCH/2 018 ASSESSMENT YEAR : 2013 - 14 M/S. THE VIJAYA PALACE, HOUSE NO.CPXII/83877C, THATTASSERY, CHAVARA, KOLLAM - 691 583. [PAN:AADFT 7970K] VS. THE INCOME - TAX OFFICER, WARD - 5, ALAPPUZHA. (ASSESSEE - APPELLANT) (REVENUE - RESPONDENT) A SSESSEE BY SHRI G. SURENDRANATH RAO, CA REVENUE BY SMT. A.S. BINDHU, SR. DR D ATE OF HEARING 21 / 0 3 / 201 9 DATE OF PRONOUNCEMENT 0 3 / 0 4 /201 9 O R D E R PER CHANDRA PO OJARI, AM: TH IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), KOTTAYAM DATED 20/08/2018 AND PERTAIN TO THE A SSESSMENT YEAR 2013 - 14. 2. THE FIRST GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO DISALLOWANCE U/S. 40( A)(IA) OF THE ACT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER ON EXAMINATION OF BOOKS OF ACCOUNTS AND OTHER DETAILS/DOCUMENTS FURNISHED, IT WAS OBSERVED THAT THE ASSESSEE FIRM HAD GIVEN INTEREST ON LOAN AMOUNTING TO RS.8,08,029/ - TO ITS S ISTER CONCERN, I.T.A . NO . 506/COCH/2018 2 M/S. VNP & CO. AND THE SAME WAS RECORDED IN THE LEDGER ACCOUNT OF M/S. VNP & C O. IN THE BOOKS OF THE ASSESSEE. THE ASSESSEE EXPLAINED THAT THE LOAN WAS AVAILED BY THE SISTER CONCERN, M/S. VNP & CO. BUT THE INTEREST WAS GIVEN BY THE ASSESSEE TO KERALA FINANCE CORPORATION WHERE FROM THE SISTER CONCERN AVAILED LOAN DIRECTLY AND THE ENTRY WAS MADE IN THE LOAN ACCOUNT OF M/S. VNP & C O. THE INTEREST AMOUNT WAS GIVEN BY THE ASSESSEE TO KFC ON BEHALF OF THE SISTER CONCERN AND AS SUCH THE ASSESSEE S HOULD HAVE DEDUCTED TAX ON SUCH INTEREST PAYMENT AS THE PAYEE, M/S. VNP & CO. IS A PRIVATE PARTY. THEREFORE, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND ADDED THE IMPUGNED INTEREST TO THE INCOME OF THE ASSESSEE. 4. ON APPEAL, THE CIT(A) OBSERVED FROM THE BALANCE SHEET OF THE ASSESSEE FOR THE PERIOD ENDING ON 31/03/2013 THAT M/S. VNP & CO. WAS THE CREDITOR FOR THE AMOUNT OF RS.76,73,777/ - . THEREFORE, THE INTEREST AMOUNT OF RS.8,08,029/ - PAID TO THE SISTER CONCERN VN P & CO. BY THE ASSESSEE IS AGAINST THE SAID LOAN IN THE NAME OF THE SISTER CONCERN. THUS, ACCORDING TO THE CIT(A), THE ASSESSEE WAS LIABLE TO DEDUCT TAX ON THE SAID INTEREST PAID WHICH THE ASSESSEE FAILED TO DO SO AND THE SAME WAS DISALLOWED. 5. AGAI NST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD UTILISED THE LOAN FROM KERALA FINANCIAL CORPORATION (KFC) FOR THE LAST MANY YEARS COMMENCING FROM ASSESSEMENT YEAR 2006 - 07. THE LD. AR SUBMITTED THAT THE CREDIT APPE ARING IN THE NAME OF KFC WAS TRANSFERRED TO V.NARAYANA PILLAI & I.T.A . NO . 506/COCH/2018 3 CO . DURING THE FINANCIAL YEAR 2012 - 13 AS THE STATEMENT OF ACCOUNT WITH KFC WAS ISSUED IN THE NAME OF V N P & C O,. A SISTER CONCERN IN WHICH THERE WERE COMMON PARTNERS . IT WAS SUBMITTED THAT THE AMOUNT OF INTEREST CHARGED BY KFC W AS PAID BY THE SISTER CONCERN V N P& CO. ON ITS BEHALF , IN THE FIRST PLACE AND THEREAFTER , REIMBURSED BY THE ASSESSEE. THE SISTER CONCERN HAD NOT TREATED THE AMOUNT PAID BY THE ASSESSEE TO THEM AS THEIR INCOME. ACCORDING T O THE LD. AR, EVEN IF SECTION 194A WAS NOT APPLICABLE , NO TAX DEDUCTION WAS REQUIRED, AS IT WAS ONLY A REIMBURSEMENT OF THE AMOUNT ACTUALLY PAID BY THE SISTER CONCERN TO A F INANCIAL CORPORATION TO WHICH THE PROVISIONS OF SECTION 194A APPLIED. I T WAS SUBMI TTED THAT WHETHER THE AMOUNT WAS PAID BY THE ASSESSEE OR THE SISTER CONCERN TO KFC, EXEMPTION PROVIDED U/S 194A WOULD APPLY. IT WAS SUBMITTED THAT EVEN IF THERE WAS FAILURE TO DEDUCT TAX AT SOURCE, THE DISALLOWANCE SHOULD HAVE BEEN RESTRICTED TO THIRTY PE RCENT OF THE AMOUNT AS THE AMENDMENT TO THE PROVISIONS OF S. 40(A)(IA) WAS RETROSPECTIVE. 6. THE LD. DR RELIED ON THE ORDER OF THE CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. AS RIGHTLY OBSERVED BY THE CIT(A) THERE WAS A OUTSTANDING AMOUNT IN THE NAME OF V N P & CO . AS ON 31/03/2013 FOR AN AMO U NT OF RS. 76,73,777/ - AND THE ASSESSEE CLAIMED INTEREST AT RS.8 , 08 ,02 9 / - WHICH WAS PAID TO THE SISTER CONCERN V N P & C O. IT WA S SUBMITTED THAT THE ASSESSEE WAS NOT OWING ANY AMOUNT TO V N P & CO. ON THE OTHER HAND, I T WAS OWING MONEY TO K FC AND THE INTEREST PAYABLE TO KFC WAS R OUTED THROUGH VNP & CO. , WHICH IS THE SISTER CONCERN OF THE ASSESSEE. HOWEVER , WE ARE OF I.T.A . NO . 506/COCH/2018 4 T HE OPINION THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX ON THE INTEREST AM OUNT OF RS. 8 , 08 , 029 / - PAID BY THE ASSESSEE TO KFC ROUTED THROUGH VNP& CO. WHICH THE ASSESSEE HAS FAILED TO DO SO . THE LOWER AUTHORITIES WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 8. THE LD. AR MADE AN ALTERNATE PLEA TO RESTRICT THE DISALLOWANCE AT 30% OF THE ADDITION AND NOT THE ENTIRE AMOUNT ON THE GROUND THAT S ECTION 40(A)(IA) OF THE ACT WAS AMENDED BY FINANCE (NO. 2) ACT, 2014 WITH EF FECT FROM 1.4.2015 . BY VIRTUE OF INSERTION OF THIS PROVISO TO SECTION 40(A)(IA) , IF ANY SUCH SUM TAXED HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139, SUCH SUM SHALL BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME OF PREVIOUS Y EAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB - SECTION(1) OF SECTION 139, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF PREVIOUS YEAR, AND FURTHER, SECTION 40(A)(IA) HAS BEEN SUBSTITUTED WHEREIN 30% OF ANY SUM PAYABLE TO A RESIDENT HAS BEEN SUBSTITUTED. ACCORDING TO HIM, THOUGH SUBSTITUTION TO SECTION 40(A)(IA) HAS BEEN MADE WITH EFFECT FROM 1/4/2015, THE AMENDMENT IS TO BE TREATED AS RETROSPECTIVE IN VIEW OF THE FOLLOWING JUDGMENTS OF THE TRIBUNAL AND SUPREME COURT RELIED UPON BY H IM: 1) SMT. KANTA Y ADAV VS. ITO IN ITA NO. 6312 /D EL/2016 DATED 12/05/2017 (ITAT, DELHI). 2) SHRI RAJENDRA YADAV VS. ITO IN ITA NO.895/JP/2012 DATED 29/01/2016 (ITAT JAIPUR). I.T.A . NO . 506/COCH/2018 5 3) SMT. SONU KHANDELWAL VS. ITO IN ITA NO.597/JP/2013 DATED 13/05/201 6 (ITAT, JAIPUR) 4) CIT VS. CALCUTTA EXPORT COMPANY (93 TAXMANN.COM 51) (SC) 5) KOLLI GOPI KRISHNA VS. DY. DIRECTOR OF INCOME - TAX (INTL.TAXATION) (83 TAXMANN.COM 330) (HYDERABAD - TRIB.) 6) A. DAGA ROYAL ARTS VS. ITO (94 TAXMANN.COM 401) (JAIPUR TRIB.) 8.1 FURTHER, THE LD. AR SUBMITTED THAT THIS ISSUE WAS CONSIDERED BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF CHOPRA PROPERTIES VS. ADDL. CIT IN ITA NO.3099/DEL/2015 DATED 01/08/2018 WHEREIN IT WAS HELD AS UNDER: 7. AFTER HEARING BOTH THE SIDES, WE FIND THE ONLY ISSUE TO BE DECIDED IN THE GROUNDS OF APPEAL IS REGARDING THE RESTRICTION OF THE DISALLOWANCE TO 30% OF THE ADDITION. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SMT. KANTA YA DAV VS. ITO. WE FIND THE TRIBUNAL IN ITA NO.6312/DEL/2016 ORDER DATED 12.05.2017 FOR ASSESSMENT YEAR 2012 - 13 HAS DECIDED THE IDENTICAL ISSUE AND HAS OBSERVED AS UNDER: - 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND FIND THAT ISSUE IS COVERED IN FAVOUR O F THE ASSESSEE BY ORDER OF ITAT JAIPUR BENCH IN THE CASE OF SHRI R AJENDRA Y ADAV VS. ITO AND SMT. SONU KHANDELWAL VS. ITO. IN THESE ORDERS IT WAS HELD THAT THE DISALLOWANCE U/S. 40(A)(IA) TO BE RESTRICTED TO 30% OF THE ADDITION. IN THESE ORDERS THE TRIBUN AL HAS CONSIDERED THE AMENDED PROVISIONS OF SECTION 40(A)(IA) OF I.T. ACT. IN THESE ORDERS THE ASSESSMENT YEARS INVOLVE WAS 2007 - 08 AND 2008 - 09. IN THE PRESENT APPEAL THE ASSESSMENT YEAR IS 2012 - 13. THEREFORE FACTS ARE IDENTICAL. IN THIS VIEW OF THE MAT TER AND FOLLOWING THE ABOVE DECISIONS OF JAIPUR BENCH, WE SET ASIDE AND MODIFY THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADDITION TO 30% OF THE TOTAL ADDITION MADE ON ACCOUNT OF DEDUCTION OF TDS U/S. 40(A)(IA) OF THE ACT. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL, WE HOLD THAT THE DISALLOWANCE U/S. 40(A)(IA) SHOULD BE RESTRICTED TO 30% OF THE TOTAL ADDITION ON ACCOUNT OF NON - DEDUCTION OF TDS. SO FAR AS THE ARGUMENT OF THE L D . COUNSEL FOR THE ASSESSEE THAT DIRECTION MAY BE GIVEN TO THE ASSESSING OFFICER TO ALLOW SUCH DISALLOWANCE MADE IN THIS YEAR IN THE ORDER OF THE SUBSEQUENT YEARS, WE HOLD THAT THE ASSESSEE MAY MOVE APPROPRIATE APPLICATION BEFORE THE ASSESSING OFFICER WHO S HALL DECIDE THE ISSUE AS PER FACT I.T.A . NO . 506/COCH/2018 6 AND LAW. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY PARTLY ALLOWED. 8.2 ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE ABOVE AMENDMENT CANNOT BE APPLIED RETROSPECTIVELY IN VIEW OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRUDENTIAL LOGISTICS AND TRANSPORT S VS. ITO (364 ITR 7 89) (KER.) WHEREIN IT WAS HELD THAT SECOND PR OVISO TO SECTION 40(A)(IA) WHICH WAS INSERTED BY FINANCE ACT OF 2012 WITH EFFECT FROM 1 - 4 - 2013 CANNOT BE APPLIED TO THE ASSESSMENT YEAR 2006 - 07. 8.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE FIND NO MERIT IN THE ARGUMENT OF THE LD. AR IN VIEW OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRUDENTIAL L OGISTICS AND TRANSPORTS (SUPRA) WHEREIN IT WAS HELD THAT SECOND PROVISO TO SECTION 40(A)(IA) WHICH WAS INSERTED BY FINANCE ACT OF 2012 WITH EFFECT FROM 1.4.2013 CANNOT BE APPLIED RETROSPECTIVELY. ON THE SAME ANALOGY, FIRST PROVISO TO SECTION 40(A)(IA) WHI CH WAS INSERTED BY FINANCE (NO.2) ACT, 2014 WITH EFFECT FROM 1.4.2015 CANNOT BE MADE APPLICABLE TO THE ASSESSMENT YEAR 2013 - 14 WHICH IS IN THE PRESENT CASE. BEING SO, WE ARE INCLINED TO DISMISS THE ALTERNATE PLEA MADE BY THE LD. AR. 9 THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE MADE U/S. 40A(3) OF THE ACT. 9. 1 THE FACTS OF THE CASE ARE THAT WHILE EXAMINING THE CASH BOOK, EXPENSES FOR REPAIRS AND MAINTENANCE FOR A SUM OF RS.8,19,462/ - TO M/S. BEENA IRON & STEEL I.T.A . NO . 506/COCH/2018 7 CORPORATION AND ANOTHER SUM OF RS.21 ,450/ - TO M/S. KILCO MACHINES ON 07/05/2012 AND 12/04/2012 RESPECTIVELY WERE MADE IN CASH VIOLATING PROVISIONS CONTAINED IN SECTION 40A(3) FOR WHICH THE ASSESSEE EXPLAINED THAT IT WAS BECAUSE THE PAYEE, M/S. BEENA IRON & STEEL CORPORATION, INSISTED ON CASH PAYMENT. SINCE N O VALID EXPLANATION WAS PROVIDED BY THE ASSESSEE ON THIS ISSUE, THE ASSESSING OFFICER MADE DISALLOWANCE U/S. 40A(3) OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, CONTRAVENING PROVISIONS OF THE SEC. 40A(3) WITHOUT ANY REASONABLE GROUNDS AS ENVISAGED IN RULE 6DD OF THE I.T. RULES, 1962 WOULD ATTRACT DISALLOWANCE OF SUCH EXPENSES AND HENCE, DISALLOWANCE OF RS.8,40,912/ - WAS MADE TO THE TOTAL INCOME. 9.2 ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSER VING THAT THE REASONS STATED BY THE ASSESSEE FOR NOT COMPLYING WITH THE PROVISIONS OF SECTION 40A(3) OF THE ACT DO ES NOT FALL UNDER RULE 6DD OF THE I.T. RULES. HENCE, THE CIT(A) UPHELD THE DISALLOWANCE OF RS.8,19,462/ - MADE U/S. 40A(3) OF THE ACT. 9.3 . AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUBMITTED THAT RULE 6DD AS AMENDED IS NOT EXHAUSTIVE TO VISUALIZE ALL KINDS AND NATURE OF BUSINESS EXPEDIENCIES WHICH CAN BE CONSIDERED GENUINE SO AS TO COME WITHIN THE EXCEPTION PROVIDED IN RULE 6DD . IT WAS SUBMITTED THAT SO ALONG AS THE EXPENDITURE WAS GENUINE AND HA D BEEN SUPPORTED BY PROPER BILLS FROM THE SUPPLIERS NO PARTICULAR ADVANTAGE WAS GAINED BY THE ASSESSEE BY PAYMENT IN CASH WHICH BY IMPLICATION PROVES THAT THE CASH PAYMENT WAS MADE BY INSISTENCE FROM THE PARTIES. ACCORDING I.T.A . NO . 506/COCH/2018 8 TO THE LD. AR, THE INVOICES ISSUED BY THE PARTIES TO WHOM THE PAYMENTS WERE MADE HA D BEEN PRODUCED AND ACCEPTED BY THE ASSESSING AUTHORITY AND T HE IDENTITY OF THE PAYEES AND THE GENUINENESS OF THE SOURCE OF P AYMENTS BY THE ASSESSEE HAD BEEN PROVED AND ACCEPTED BY THE ASSESSING AUTHORITY. IT WAS SUBMITTED THAT AS PER PROVISO TO S.40A(3) , CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER FACTORS HAVE TO BE TAKEN INTO ACCOUNT AND THE SECTION DOES NOT PERMIT A BLAN KET DISALLOWANCE MERELY BECAUSE THE AMOUNT WAS PAID IN CASH. 9 . 4 THE LD. DR RELIED ON THE ORDER OF THE CIT(A). 9.5 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECOR D. THE ASSESSEE HAS N OT SHOWN AN Y REASON ABLE CAUSE FOR MAKING SUCH CA SH PAYM ENT IN VIOLATION OF SECT ION 40A(3) OF THE ACT . THE ASSESSEE DOES NOT FALL UNDER ANY EXEMPTION PROVIDED IN R ULE 6DD OF THE I.T. RULES. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME IS CONFIR M ED. ACCORDINGLY, THIS GROUND OF APP EAL OF THE ASSESSEE IS DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD APRIL , 2019 S D/ - SD/ - (GEORGE GE ORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 3 RD APRIL, 2019 I.T.A . NO . 506/COCH/2018 9 GJ COPY TO: 1 . M/S. THE VIJAYA PALACE, HOUSE NO.CPXII/83877C, THATTASSERY, CHAVARA, KOLLAM - 691 583. 2. THE INCOME - TAX OFFICER, WARD - 5, ALAPPUZHA. 3 . THE COMMISSIONER OF INCOME - TAX (AP P EALS) , KOTTAYAM. 4. THE PR. COMMISSIONER OF INCOME - TAX, KOTTAYAM. 5 . D. R., I.T.A.T., COCHIN BENCH, COCHIN. 6 . GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN