M/s Samar & Samar, Kolkata V. ACIT, CIR-33, KOLKATA, Kolkata

ITA 538/KOL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6074 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 09-10-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 07-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHERJEE
• Keywords: Notional interest
• Section: 201(1)

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI, M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 538 / KOL / 20 15 ASSESSMENT YEAR :2010-11 M/S SAMAR & SAMAR 103/B, BELIAGHATA MAIN ROAD, KOLKATA-10 [ PAN NO.AAMFS0210 N ] V/S . ACIT, CIRCLE-33 10, MIDDLETON ROW, KOLKATA /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SUBASH AGARWAL, ADVOCATE /BY RESPONDENT SHRI A. BHATTACHERJEE, ADDL. CIT-DR /DATE OF HEARING 12-06-2018 /DATE OF PRONOUNCEMENT 11-07-2018 / O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11 ARISES AGAINST COMMISSIONER OF INCOME TAX (APPEALS)-9, KOLKATAS O RDER 23.01.2015 IN CASE NO.67/CIT(A)-9/CIRCLE-33/2014-15/KOL UPHOLDING ASSE SSING OFFICERS ACTION DISALLOWING / ADDING AMOUNT(S) OF 16,01,158 @ 10% OF LABOUR CHARGES PAYMENTS, INTEREST OF 13,26,873/- U/S. 36(1)(III), MISCELLANEOUS CASH PURCHASES OF 6,80,842/-, SALES PROMOTION EXPENSE OF 2,34,810/- AND PAYMENT MADE TO CERTAIN INDIVIDUALS OF 3,82,000/-; RESPECTIVELY IN ASSESSMENT ORDER DATED 25.03.2013. 2. WE ADVERT TO FIRST ISSUE OF ESTIMATED DISALLOWAN CE AMOUNTING TO 16,01,158/- @ 10% OF THE TOTAL LABOUR CHARGES PAID AMOUNTING TO 1,60,11,582/- THERE DOES NOT APPEAR TO BE MUCH DISP UTE ABOUT THE FACT THAT BOTH THE LOWER AUTHORITIES HAVE MADE THE IMPUGNED D ISALLOWANCE ON ACCOUNT OF ASSESSEE HAVING PAID THIS LABOUR CHARGES IN CAS H WITHOUT BEING SUPPORTED ITA NO.538/KOL/2015 A.Y.2010-11 M/S SAMAR & SAMAR VS. ACIT, CIR-33, KO L. PAGE 2 BY THE RELEVANT BILLS/VOUCHERS PRODUCED FOR NECESSA RY VERIFICATION DURING ASSESSMENT AS WELL AS LOWER APPELLATE PROCEEDINGS. THE ASSESSING OFFICER AND THE CIT(A) HAVE THEREFORE MADE THE IMPUGNED EST IMATED DISALLOWANCE @ 10%. 3. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RI VAL CONTENTION AGAINST AND IN SUPPORT OF IMPUGNED DISALLOWANCE. THERE IS N O DISPUTE ABOUT THE FACT THAT THIS ASSESSEE IS A CONTRACTOR EXECUTING GENERA L ORDERS AS WELL AS ACTING AS A SUPPLIER. WE DO NOT FIND ANY DISCUSSION EITHE R IN ASSESSMENT OR LOWER APPELLATE ORDER THAT THE IMPUGNED EXPENDITURE CARRI ES INFLATED CLAIM VIS--VIS PRECEDING AND SUCCEEDING ASSESSMENT YEARS. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO DISPUTE THAT SUCH CASH PAYM ENTS ARE VERY COMMON IN ASSESSEES LINE OF BUSINESS INVOLVING INTENSIVE LAB OUR EMPLOYMENT. THE FACT ALSO REMAINS AT THE SAME TIME IS THAT THE ASSESSEE HAS NOT FILED ON RECORD THE RELEVANT DETAILS FOR THE PURPOSE OF PAYEES VERIFICA TION AS WELL. WE THEREFORE DEEM IT APPROPRIATE IN LARGER INTEREST OF JUSTICE T HAT THE IMPUGNED DISALLOWANCE @ 10% IS ON LITTLE HIGHER SIDE IS LIABLE TO BE REST RICTED TO 5% ONLY WITH A RIDER THAT IT SHALL NOT FORM A PRECEDENT IN ASSESSEES CA SE IN PRECEDING AS WELL AS SUCCEEDING ASSESSMENT YEARS. THE INSTANT SUBSTANTIV E ISSUE IS TREATED AS PARTLY ACCEPTED. 4. THE ASSESSEES SECOND SUBSTANTIVE GRIEVANCE CHAL LENGES BOTH THE LOWER AUTHORITIES ACTION DISALLOWING U/S. 36(1)(III ) INTEREST OF 13,26,873/- IN RELATION TO ITS INTEREST FREE ADVANCES AS UPHELD D URING THE COURSE OF LOWER APPELLATE PROCEEDINGS AS UNDER:- 10- GROUND NO.(VII) RELATES TO DISALLOWANCE OF RS.1 3,26,873/- MADE BY THE AO. THE FACT OF THE CASE IS THAT THE AO FOUND THAT THEE APP ELLANT HAD TAKEN SECURED/UNSECURED LOAN ON WHICH INTEREST DURING THE YEAR OF RS.14,53,036/- WAS PAID AND CLAIMED. BUT AT THE SAME TIME CERTAIN INTEREST FREE LOAN AND ADVANCES TO THE TUNE OF RS.1,31,24,199/- WAS GIVEN TO VARIOUS PERSONS ON WHICH NO INTEREST WAS CHARGED. THE AO CALCULATED INTEREST ON SUCH ADVANCES AT RS.1 3,26,873/- AND ACCORDINGLY CLAIM OF INTEREST U/S. 36(1)(III) WAS REDUCED/DISAL LOWED. HOWEVER, THE APPELLANT CLAIMED THAT OUT OF TOTAL ADVANCES RS.15,00,000/- W AS PAID TO EASTERN INDIA HEALTH CARE FOUNDATION WHO WERE RUNNING A HOSPITAL, RS.1,5 0,000/- WAS GIVEN TO SUPPLIER, KOTLRON COMPONENTS, ADVANCE GIVEN TO SANROY DEVELOP MENT AND SUPPORT SERVICES LTD. WAS IN EARLIER YEAR WHICH WAS REPAID DURING AS SESSMENT YEAR 2011-12. RS.34,26,000/- WAS PAID TO SAMAR & SAMAR INFRASTRUC TURAL DEVELOPMENT (P) LTD. TO HELP IN GETTING CIVIL CONTRACT. AFTER GOING THROUGH THE FACT AND CIRCUMSTANCES OF THE CASE, I DO NOT FIND ANY MERIT IN THE ARGUMENT OF TH E APPELLANT AS THE APPELLANT COULD ITA NO.538/KOL/2015 A.Y.2010-11 M/S SAMAR & SAMAR VS. ACIT, CIR-33, KO L. PAGE 3 NOT PROVE WITH THE HELP OF SUPPORTING DOCUMENT/DETA ILS THAT THE INTEREST FREE ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINESS OR THERE WAS DIRECT NEXUS BETWEEN THE INTEREST FREE ADVANCES GIVEN AND BUSINESS REQUIREME NT. SINCE, THE INTEREST BEARING LOANS WERE DIVERTED FOR NON-BUSINESS PURPOSES BY GI VING INTEREST FREE ADVANCES TO THE PERSONS WITH WHOM NO BUSINESS CONNECTION WAS EX ISTED. UNDER THESE CIRCUMSTANCES, THE AO WAS JUSTIFIED TO MAKE DISALLO WANCE OF RS.13,26,873/-. 5. BOTH PARTIES REITERATE THEIR RESPECTIVE STANDS I N SEEKING TO DELETE AND CONFIRM THE IMPUGNED DISALLOWANCE. THERE IS NO DISP UTE ABOUT THE BASIC FACT ABOUT ASSESSEE HAVING MADE THE IMPUGNED ADVANCES TO VARIOUS PARTIES TOTALING TO 1,31,24,199/-. THE SAID ADVANCE MADE TO M/S SAMAR & SAMAR INFRASTRUCTURAL DEVELOPMENT (P) LTD., EASTERN INDIA HEALTH CARE FOUNDATION AND SANROY DEVELOPMENT AND SUPPORT SERVICES LTD. IN VOLVED CORRESPONDING SUMS OF 34.26 LAKH, 1.05 LAKH, 15 LAKH AND 80,48,199/-; RES PECTIVELY. 6. IT EMERGES FROM ASSESSMENT ORDER DATED 25.03.201 3 THAT THE ASSESSING OFFICER HAS NOT PROVED DIVERSION OF INTEREST BEARIN G FUNDS AS PER ASSESSEES BOOKS OF ACCOUNT QUA THE IMPUGNED LOANS. HE HAS RAT HER ADDED NOTIONAL INTEREST THEREUPON TO THE TUNE OF 1,63,090/- 18,000/-, 1,80,000/- AND 9,65,783/-; RESPECTIVELY, TOTALING TO THE SUM IN DI SPUTE OF 13,26,873/-. HON'BLE DELHI HIGH COURTS DECISION IN M/S SHIVNAND AN BUILD CON PVT. LTD. VS. CIT WRIT PETITION 625/2013 DATED 30.02.2015 SUMMARI SES THE RELEVANT SETTLED LEGAL PROPOSITION TO CONCLUDE THAT SUCH AN ADDITION OF NOTIONAL INTEREST IS NOT SUSTAINABLE. WE THUS DIRECT THE ASSESSING OFFICER T O DELETE THE INSTANT DISALLOWANCE IN QUESTION OF 13,26,873/-. 7. WE PROCEED FURTHER TO NOTICE THAT ASSESSEES NEX T TWO SUBSTANTIVE GROUNDS CHALLENGE CORRECTNESS OF DISALLOWANCE / ADD ITION(S) OF MISCELLANEOUS CASH PURCHASE AS WELL AS ADVERTISEMENT AND SALES P ROMOTION EXPENDITURE OF 6,80,842/-, 1,60,538/- AND 2,34,810/-; RESPECTIVELY. THE ASSESSING OFFICER SOLE REASON FOR DISALLOWING ALL THE SAID THREE CLAI MS APPEARS TO BE ASSESSEES FAILURE IN PRODUCING THE RELEVANT DOCUMENTS IN THE NATURE OF CASH PURCHASES, BILLS, CASH BOOKS QUA ITS MISCELLANEOUS CASH PURCHA SES AS WELL AS ABSENCE OF ANY MATERIAL ON RECORD INDICATING THE SALES PROMOTI ON / ADVERTISEMENT EXPENDITURE TO HAVE BEEN WHOLLY AND EXCLUSIVELY INC URRED FOR THE PURPOSE OF ITS BUSINESS. ALL THIS RESULTED IN THREE CLAIMS TO BE C OMPLETELY DISALLOWED. ITA NO.538/KOL/2015 A.Y.2010-11 M/S SAMAR & SAMAR VS. ACIT, CIR-33, KO L. PAGE 4 LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPOR TS BOTH THE LOWER AUTHORITIES ACTION IN THIS REGARD. HE FAILS TO REBU T THE FACT THAT SUCH KIND OF MISCELLANEOUS CASH PURCHASE OR SALES PROMOTION / AD VERTISEMENT EXPENSES MAY BE REQUIRED IN ASSESSEES SERVICES INVOLVING CO NTRACTOR AND SUPPLIERS ACTIVITIES. THERE IS NO ABNORMALITY OR INFLATION BE ING POINTED OUT IN THE LOWER AUTHORITIES RESPECTIVE ORDERS. THE FACT ALSO REMAIN S THAT THE TAXPAYER HAS ALSO NOT DISCHARGED ITS ONUS OF HAVING INCURRED THE IMPU GNED EXPENSES. WE THEREFORE ACCEPT ASSESSEES IMPUGNED CLAIM(S) TO TH E EXTENT 50% ONLY IS AS ALL THESE THREE HEADS BY TAKING NOTE OF ITS FAILURE IN FILING ALL SUPPORTIVE DETAILED EVIDENCE. IT IS MADE CLEAR OUR INSTANT ESTIMATION O F THE IMPUGNED DISALLOWANCES(S) @ 50% SHALL NOT BE TREATED AS A PR ECEDENT IN ANY PRECEDING OR SUCCEEDING ASSESSMENT YEAR. THE ASSESSEE PARTLY SUCCEEDS IN ITS INSTANT CORRESPONDING SUBSTANTIVE GROUNDS. 8. THIS LEAVES US WITH THE ASSESSEES LAST GRIEVANC E CHALLENGING BOTH THE LOWER AUTHORITIES ACTION DISALLOWING ITS PAYMENT OF 3,82,000/- MADE IT VARIOUS INDIVIDUALS ON ACCOUNT OF ITS FAILURE IN DEDUCTING TDS ATTRACTING U/S. 40(A)(IA) OF THE ACT. THERE IS NO DISPUTE AS PER ASSESSMENT O RDER THAT THE IMPUGNED PAYMENT MADE TO RAMASHISH MUKHERJEE, ANJAN COOOMER, NIRMALA SAHA, A.S. KHAN, N.K. MAITY AND BIPULENDRA THAKUR INVOLVE ACCO UNTING CHARGES AND LEGAL/PROFESSIONAL CHARGES PAID DEDUCTING TDS. THE ASSESSING OFFICER REJECTED ASSESSEES PLEA CLAIMING THE SAME TO BE SA LARY PAYMENTS BECAUSE THE FACT THAT THERE WAS NO EVIDENCE OF REGULAR EMPL OYMENT AS UPHELD IN THE COURSE OF LOWER APPELLATE PROCEEDINGS. 9. BOTH PARTIES REITERATE THEIR RESPECTIVE PLEADING S AGAINST AND IN SUPPORT OF IMPUGNED DISALLOWANCE. WE NOTICE IN THIS BACKDRO P OF FACTS THAT A CO- ORDINATE BENCH IN SAMANWAYA VS. ACIT (2009) 34 SOT 332(KOL) HOLDS THAT SECTION 194-J OF THE ACT DOES NOT APPLY IN CASE OF PAYMENT MADE TO FOR ACCOUNTING CHARGES. IT DRAWS A DISTINCTION BETWEEN THIS KIND OF SERVICE AND THE PAYMENT MADE TO CHARTERED ACCOUNTANTS. WE THEREFORE DELETE THE IMPUGNED DISALLOWANCE QUA ACCOUNTING CHARGES OF 72,000/- IN QUESTION. COMING TO BALANCE COMPONENT OF THE IMPUGNED DISALLOWANCE, THE ASSESSEES CASE IS THAT ITA NO.538/KOL/2015 A.Y.2010-11 M/S SAMAR & SAMAR VS. ACIT, CIR-33, KO L. PAGE 5 ITS PAYEES IN QUESTION HAVE ALREADY BEEN ASSESSED T O TAX QUA THE CORRESPONDING INCOME IN THEIR HANDS. IT QUOTES HON' BLE DELHI HIGH COURTS DECISION IN CIT VS. ANSAL LANDMARK TOWNSHIP P. LTD. 377 ITR 635 (DEL) UPHOLDING THIS TRIBUNALS DECISION IN RAJIV KUMAR A GARWAL VS. JCIT IN ITA NO.338/AGRA/2013 DATED 29.05.2014 THAT SECTION 40(A )(IA) DOES NOT APPLY IN CASE THE PAYER ASSESSEE IS NOT AN ASSESSEE IN DEFAU LT AS PER SECOND PROVISO THERETO INSERTED IN THE ACT BY THE FINANCE ACT, 201 2 WITH EFFECT FROM 01.04.2013 R.W.S SECTION 201(1) FIRST PROVISO. THEI R LORDSHIPS HAVE HELD THE ABOVE 2 ND PROVISO TO SECTION 40(A)(IA) AS HAVING RETROSPECTI VE EFFECT BEING CURATIVE IN NATURE. WE THEREFORE LEAVE IT OPEN FOR THE ASSESSING OFFICER TO CARRY OUT NECESSARY VERIFICATION EXERCISE IN CONSEQ UENTIAL PROCEEDINGS. THE INSTANT SUBSTANTIVE IS TAKEN AS PARTLY ACCEPTED. 10. THIS ASSESSEES APPEAL IS PARTLY ALLOWED IN ABO VE TERMS. ORDER PRONOUNCED IN THE OPEN COURT 11/ 07/2018 SD/- SD/- ( %) (' %) (M.BALAGANESH) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP, SR.P.S (- 11 / 07 /201 8 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/S SAMAR & SAMAR, 103/B, BELIAGHATA MAI N ROAD, KOLKATA-10 2. /RESPONDENT-ACIT, CIRCLE-33, 10, MIDDLETON ROW, KOL KATA 3. 3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA (SENT THROUGH E-MAIL) 5. 7 ''3, 3, / DR, ITAT, KOLKATA (SENT E-MAIL) 6. < / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 3,