The Calicut city Service Co-op Bank Ltd, Calicut V. The ACIT, Calicut

ITA 567/COCH/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8511 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 30-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHANARAJ
• Assessee Lawyers: R KRISHNA IYER
• Keywords: Question of law; Competent authority; Revised return
• Section: 37

Judgement Text

ITA NO S 564 TO 567/C/2014 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO S . 564 TO 567/COCH/2014 ( A SST YEAR ) THE CALICUT CITY SERVICE COOP BANK LTD CALICUT VS THE ASST COMMR OF INCOME TAX CIRCLE 1(1), CALICUT ( APPELLANT) (RESPONDENT) PAN NO. AACCT8810G ASSESSEE BY SH R KRISHNA IYER REVENUE BY SH DHANARAJ, SR DR DATE OF HEARING 8 TH JUNE 2016 DATE OF PRONOUNCEMENT 9 TH , JUNE 2016 OR D ER PER GEORGE GEORGE. K. J M: THESE APPEALS, AT THE INSTANCE OF THE A SSESSEE ARE DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE CIT(A) DATED 11.9.2014. THE RELEVANT ASSESSMENT YEARS ARE 2007 - 08 TO 2010 - 11. 2 IDENTICAL ISSUES ARE RAISED IN THESE APPEALS; HENCE, THEY WERE HEARD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATED O RDER. 2.1 THE GROUNDS RAISED ARE ELABORATE AND EXHAUSTIVE. HOWEVER, AS ADMITTED BY THE ASSESSEE AT PARA 5 OF THE STATEMENT OF FACTS, ANNEXED ALONG WITH FORM 36 OF THE APPEAL MEMO, THE ISSUES RAISED ARE THREEFOLD, NAMELY : ( I ) DISALLOWANCE OF THE CLAIM U/S 80 P; ( II ) DISALLOWANCE U/S 40 A(IA) FOR NON DEDUCTION OF TAX ON INTEREST PAID TO NON MEMBERS IN EXCESS OF RS. 5000/ - & ( III ) EXPENDITURE DISALLOWED BEING ONLY PROVISIONS ITA NO S 564 TO 567/C/2014 2 2.2 WE SHALL TAKE UP FOR ADJUDICATION THE ISSUES AS UNDER: (I) DISALLOWANCE OF THE CLA IM U/S 80P: 3 THE AO, WHILE COMPLETING THE ASSESSMENTS FOR THE ABOVE MENTIONED ASSESSMENT YEARS HAD DISALLOWED THE CLAIM OF THE ASSESSEE U/S 80P FOR THE REASONS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BANKING , H ENCE, IN VIEW OF THE INSERTION OF SEC TION 80P(4), THE COOPERATIVE SOCIETY, DOING THE BUSINESS OF BANKING, WAS NOT ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2) OF THE ACT. THE VIEW TAKEN BY THE AO WAS CONFIRMED BY THE CIT BY FOLLOWING THE ORDERS OF THE TRIBUNAL IN THE CASE OF M/S KUNNAMANGA LAM COOPERATIVE BANK VS ITO IN ITA NO.156/COCH/2014 DT 25.7.2014 AN D M/S PINARAYI SERVICE COOP BANK LD VS ITO IN ITA NO. 123/COCH/2012 DATED 31.7.2014. 3.1 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE RECENT JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE CHIRAKKAL SERVICE COOPERATIVE BANK LTD & OTHERS IN ITA NO.212 OF 2013 ( JUDGMENT DATED 15 TH FEBRUARY 2016). THE LD DR ON THE OT HER HAND FAIRLY ADMITTED THAT THE ISSUE OF DEDUCTION U/S 80P(2) IS COVERED IN FAVOUR OF THE ITA NO S 564 TO 567/C/2014 3 ASSESSEE BY THE ABOVE MENTIONED JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT . 3.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.. T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE CHIRAKKAL SERVICE COOPERATIVE BANK LTD & OTHERS (SUPRA) HAS HELD THAT THE PRIMARY AGRICULTURAL CREDIT SOCIETY REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES ACT, 1969 IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2). THE HONBLE HIGH COURT WAS CONSIDERING THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION, THE TRIBUNAL IS CORRECT IN LAW IN DECIDING AGAINST THE ASSESSEE, THE ISSUE REGARDING ENTITLEMENT FOR EXEMPTION UNDER SECTION 80P, IGNORING THE FACT THAT THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY? 3.3 IN CONSIDERING THE ABOVE QUESTION OF LAW, THE HONBLE HIGH COURT RENDERED THE FOLLOWING FINDINGS: 15. APPELLANT S IN THESE DIFFERENT APPEALS ARE INDISPUTABLY SOCIETIES REGISTERED UNDER THE KERALA CO - OPERATIVE SOCIETIES ACT, 1969, FOR SORT, KCS ACT AND THE BYE - LAWS OF EACH OF THEM, AS MADE AVAILABLE TO THIS COURT AS PART OF THE PAPER BOOKS, CLEARLY SHOW THAT THEY HAV E BEEN CLASSIFIED AS PRIMARY AGRICULTURAL CREDIT SOCIETIES BY THE COMPETENT AUTHORITY UNDER THE PROVISIONS OF THAT ACT. THE PARLIAMENT, HAVING DEFINED THE TERM 'CO - OPERATI VE SOCIETY' FOR THE PURPOSES OF THE BR ACT WI TH REFERENCE TO, AMONG OTHER THINGS, THE REGISTRATION OF A SOCIETY U N DER ANY STATE LAW RELATING TO CO - OPERATIVE SOCIETIES FOR THE TIME BEING; IT CANNOT BUT BE TAKEN THAT THE PURPOSE OF THE SOCIETIES SO REGISTERED UNDER THE STATE LAW AND ITS OBJECTS HAVE TO BE UNDERSTOOD AS THOSE WHICH HAVE BEEN APPROVED BY THE COMPETENT AUTHORITY UNDER SUCH STATE LAW. THIS, WE VISUALISE AS DUE RECIPROCATIVE LEGISLATIVE EXERCISE BY THE PARLIAMENT RECOGN I SING THE PREDOMINANCE OF DECISIONS RENDERED UNDER THE RELEVANT STATE LAW. IN TH I S VIEW OF THE MATTER, ALL THE A PPELLANTS HAV I NG BEEN CLASSIFIED AS PRIMARY AGRICULTURAL CRED I T SOC I ET I ES B Y THE COMPETENT AUTHOR I TY UNDE R TH E KCS ACT , I T HAS NECESSAR IL Y TO BE HELD THAT THE PRINCIPAL OBJECT OF SUCH SOCIETIES IS TO UNDERTAKE AGR I CULTURAL ITA NO S 564 TO 567/C/2014 4 CREDIT ACTIVITIES AND TO PROVID E LOANS AND ADVANCES FOR AGRICULTURAL PURPOSES , THE RATE ' OF INTEREST ON SUCH LOANS AND ADVANCES TO BE AT THE RATE FIXED BY THE REGISTRAR OF CO - OPERATIVE SOCIETIES UNDER THE KCS ACT AND HAV I NG I TS AREA OF OPERATION CONFINED TO A VILLAGE, PANCHAYAT OR A MU NICIPALITY. THIS IS THE CONSEQUENCE OF THE DEFINITION CLAUSE IN SECTION 2(OAA) OF THE KCS ACT. THE AUTHORITIES UNDER THE IT ACT CANNOT PROBE INTO ANY ISSUE OR SUCH MATTER RELATING TO SUCH APPLICANTS. 16. THE POSITION OF 1 AW BEING AS ABOVE WITH REFERENCE T O THE STATUTORY PROVISIONS, THE APPELLANTS HAD SHOWN TO THE AUTHORITIES AND THE TRIBUNAL THAT THEY ARE PRIMARY AGRICULTURA L CREDIT SOCIETIES IN TERMS OF CLAUSE (CCIV) OF SECTION 5 OF THE BR ACT, HAVING REGARD TO THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF EACH OF THE APPELLANTS. IT IS ALSO CLEAR FROM THE MATERIALS ON RECORD THAT THE BYE - LAWS OF EACH OF THE APPELLANTS DO . NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS MEMBER, EXCEPT MAY BE, IN ACCORDANCE WITH THE PROVISO TO SUB - CLAUSE 2 OF SECTIO N 5(CCIV) OF THE BR ACT. THE DIFFERENT ORDERS OF THE TRIBUNAL WHICH ARE IMPEACHED IN THESE APPEALS DO NOT CONTAIN ANY FINDING OF FACT TO THE EFFECT THAT THE BYE - 1AWS OF ANY OF THE APPELLANT OR ITS CLASS I FICATION BY THE COMPETENT AUTHORITY UNDER THE KCS AC T LS ANYTHING DIFFERENT FROM WHAT WE HAVE STATED HEREIN ABOVE. FOR THIS REASON, IT CANNOT BUT BE HELD THAT THE APPELLANTS ARE ENTITLED TO EXEMPTION FROM THE PROVISIONS OF SECTION 80P OF THE IT ACT BY VIRTUE OF SUB - SECTION 4 OF THAT SECT; ON. IN THIS VIE W OF THE MATTER, THE APPEALS SUCCEED. 17. IN THE LIGHT OF THE AFORESAID, WE ANSWER SUBSTANTIA 1 QUESTION 'A' IN FAVOUR OF THE APPELLANTS AND HOLD THAT THE TRIBUNAL ERRED IN LAW IN DECIDING THE ISSUE REGARDING THE ENTITLEMENT OF EXEMPT I ON UNDER SECTION 80 P AGAINST THE APPELLANTS. WE HOLD THAT THE PRIMARY AGRICULTURAL CREDIT SOCIETIES, REGISTERED AS SUCH UNDER THE KCS ACT; AND CLASSIFIED SO, UNDER THAT ACT, INCLUDING THE APPELLANTS AR E ENTITLED TO SUCH EXEMPTION. 3.4 THE AO HAS DISALLOWED THE CLAIM OF SECTION 80P MADE BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE IS ENGAGED IN BANK BUSINESS. IN THE INSTANT CASE, THE ASSESSEE HAS PRODUCED THE CERTIFICATE FROM THE JOINT REGISTRAR OF COMPANIES UNDER THE KERALA COOPERATIVE SOCIETIES ACT TO THE EFFECT TH AT IT IS A PRIMARY AGRICULTURAL CREDIT SOCIETY. THE HONBLE JURISDICTIONAL HIGH COURT, IN THE ABOVE CITED JUDGMENT , HAS HELD THAT PRIMARY AGRICULTURAL CREDIT SOCIETY REGISTERED ITA NO S 564 TO 567/C/2014 5 UNDER THE KERALA COOPERATIVE SOCIETIES ACT, ARE ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2) OF THE ACT. IN VIEW OF THE ABOVE FINDINGS OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2) OF THE ACT. HENCE, WE REVERSE THE ORDER OF THE C IT (A) ON THIS ISS UE AND DIRECT THE AO TO GRANT DEDUCTION U/S 80P(2) . IT IS ORDERED ACCORDINGLY. II) DISALLOWANCE U/S 40 (A )(IA) FOR NON DEDUCTION OF TAX ON INTEREST PAID TO NON MEMBERS IN EXCESS OF RS. 5000/ - 4 THE AO BY INVOKING THE PROVISIONS OF SECTION 40 ( A ) (IA) HAD MADE CERTAIN DISALLOWANCE FOR NON DEDUCTION OF TAX WITH REGARD TO INTEREST PAYMENT ON DEPOSITS RECEIPTS FROM NON MEMBERS . THE REASONING OF THE AO READ AS FOLLOWS: 5. DISALLOWANCE U/S 40 ( A ) (IA): DURING THE COURSE OF A SSE S S MENT P R OCEEDINGS, IT WAS NO T I CED T HAT T HE ASSESSEE WAS N O T DEDUC TIN G TDS O N T HE IN T ERES T ON DE P OS I TS DEB I TE D IN TH E P & L A CCO UNT . A S PER SEC T ION 1 94 A( 3 ) ( V) I N T E R ES T PAID BY A C O - O P E RATI VE S OC I E T Y T O I T S MEMBER A L ONE IS EXE M PT FR O M 1D S. OU T O F R S. 2, 4 4, 8 2,2 3 6 / - DEB I TED AS INTERES T EXPE ND I T U RE , RS . 57, 1 3 , 587 / - REL A T ES T O INT E R ES T O N D E P OS I T S B Y N O N M E MBERS I N WHOSE CASE I NT ERES T A CCRUED DU RIN G THE YE AR I S G R EA T E R T HAN R S . 1 0,000/ - , TH E LIMI T P R ESC R I B ED U/S 1 9 4 A ( 3 ) ( A ) . AS PER T H E P R OVIS I ONS O F SEC T I ON 40 ( A ) ( IA ) OF THE IN CO M E ; T AX ACT, NO INT E RE S T, C O M M I S S I ON OR BROKE R AGE, RE N T . R OYALTY , F EES FOR P R O F ESSIO N A L O R T EC HNI C AL SE R VICE O R CON T RAC T PAY M E NT FR OM WH ICH T AX I S D E D U C T IBL E A T S OU R CE S H AL L B E A L LO WED , AS AN EXPENDITURE WHEN SUCH TAX HAS NOT BEEN DEDUCTED OR PAID BEFORE THE DUE DATE FOR FILING RETURN OF INCOME. THE BANK HAS FAILED TO DEDUCT TAX AT SOURCE FROM INTEREST ACCRUED TO NON MEMBERS. THEREFORE, THE SAME CANNOT BE ALLOWED AS A DEDUCTION WHILE COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD BUSINESS OR PROFESSION. ACCORDINGLY A SUM OF RS. 57,13,387 IS DISALLOWABLE AND TO BE ADDED BACK TO THE TOTAL INCOME FROM BUSINESS. THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO PUT FORWARD ANY OBJECTIONS TO THIS PROPOSAL VIDE NOTICE DT 124.2.2013. 5.1 THE ASSESSEE VIDE ITS SUBMISSION DATED 26.2.103 H AS STATED THAT SEC 40 ( A ) (IA) WOULD BE APPLICABLE ONLY TO THE EXPENDITURE WHICH IS PAYABLE AS ON 31 ST MARCH OF THE PREVIOUS YEAR AND CANNOT BE INVOKED TO DISALLOW THE ITA NO S 564 TO 567/C/2014 6 AMOUNTS WHICH ARE ALREADY PAID DURING THE YEAR WITHOUT DEDUCTING TAX AT SOURCE. IT HAS CIT ED THE DECISION OF IAT KOCHI BENCH IN ITA NO.400 & 401/COCH/2011 IN THE CASE OF CEE PEE GRANITES PVT LTD MALAPPURAM IN THIS REGARD. 4.1 THE VIEW TAKEN BY THE AO WAS CONFIRMED BY THE CIT(A). THE RELEVANT FINDINGS OF THE CIT(A) READ AS UNDER: 6 . THE NEXT COMMON GROUND OF APPEAL IS AGAINST THE DISA LL OWANCE MADE UNDE R SECTION 40(A)(IA) OF T H E ACT FOR NOT DEDUCTING TAX ON THE AMOUNT OF INTEREST PA I D TO NON - MEMBERS. BY RELYING ON THE DECISION OF HON'BIE HIGH COURT OF ALLAHABAD IN THE CASE OF M/S VECTOR SHIPPI NG SERVICES {P} LTD VS (IT 357 ITR 642 , IT WAS CONTE N TE D B Y THE ID COUNSEL THAT THE PROVISIONS OF SECT I ON 40(A)(IA) CAN ONLY BE ' INVOKED ON THE AMOUNTS PAYABLE AT THE END OF THE YEAR AND NOT ON THE AMOUNTS ALREADY P A ID D URING THE YEAR. SINCE THE INTEREST H AS ALREADY BEEN DISBURSED DURING THE YEAR , IN VI E W O F THE DECISION CITED SUPRA , I T WAS PLEADED BY THE ID COUNSEL THAT THE ADD I T I O N BE DELETED. THE ASSESSEE STATED THAT THE SLP AGAINST THE ORDER OF THE HON ' B LE A LL A H A BA D HIGH COURT HAS BEEN ' D I SMISSED BY THE SUPREME COURT , BUT HE COULD NOT G IV E A NY C I TATION . 6 . 1 I HAVE CONSIDERED THE SUBMISS I ON OF THE I D COUNSEL . ON A P ERUSA L OF E DECISIONS CITED ABOVE , I F IND THAT THE DECISION OF THE HON ' BLE ALAHABAD H IGH C OURT . AS BASED ON A FINDING OF FACT, WHICH IS VER Y D I FFE R ENT FROM THE FACTUAL MATR IX IN O U R CASE . IN THAT CASE , THE COURT HAD H E LD THAT THE ASSESSEE NEED NOT DEDUCT T DS S I NCE A N O TH E R ENTITY HAD ALREADY DEDUCTED THE REQUIRED TDS ON THE PAYMENTS CONCER NED. OUR CASE I S COVERED BY THE HON ' BLE COCHIN TRIBUNA L ' S DECISION IN THE CASE OF KA R I VE LLUR S E R VI CE CO - OPERAT I VE BAN K L T D V S I TA I N I TA NO . 311/COCH/2012 DATED 22 . 03 . 2 013 W H E R E I T WAS HE L D THAT - ' THE T A X PAYER I S ENGAGED I N THE BANK I NG A C T I VITY A ND MA INTA IN IN G SAVINGS BANK ACCOUNT , CURRENT ACCOUNT AND PROVI DING CHEQUE FAC I L I TY TO I TS C U S T O ME RS. THEREFORE, THE TAXPAYER I S BOUND TO DEDUCT TAX IN RESPEC T OF INT E RES T O N T H E DEPOSITS.. MOREOVER, THE DECISION IN THE CASE OF MERILYN SHIPPNG & TRANSPORTER 136 ITD 23(SB) HAS NOT BEEN AGREED TO BY THE HONBLE COCHI N TRIBUNAL IN THE CASE OF SMT PRASANNA RADHAKRISHNAN DAWSON VS ITO, WARD 1(2) KOZHIKODE IN ITA NO.153/COCH/2014 DATED 8.8.2014 FOR THE ASSESSMENT YEAR 2009 - 10. IN VIEW OF THIS, I DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE AO. 4.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE EXTRACTED HEREINBELOW: ITA NO S 564 TO 567/C/2014 7 40(A)(IA) (A) IN THE CASE OF THE ASSESSEE - (IA) ANY INTEREST, COMMISSION OR BROKERAGE, (RENT, ROYALTY) F EES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB - CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDU CTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139: PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX 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 A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN P AID: EXPLANATION - FOR THE PURPOSES OF THE SUB - CLAUSE: - (I) COMMISSION OR BROKERAGE SHALL HAVE THE SAME MEANING AS IN CLAUSE (I) OF THE EXPLANATION TO SECTION 194H; (II) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CL AUSE (VII) OF SUB - SECTION(1) OF SECTION 9; (III) PROFESSIONAL SERVICES SHALL HAVE THE SAME MEANING AS IN CLAUSE (A) OF THE EXPLANATION TO SECTION 194J; (IV) WORK SHALL HAVE THE SAME MEANING AS IN EXPLANATION III TO SECTION 194C; (V) RENT SHALL HAV E THE SAME MEANING AS IN CLAUSE (I) TO THE EXPLANATION TO SECTION 194I; (VI) ROYALTY SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VI) OF SUB - SECTION (1) OF SECTION 9; 4.3 THE TERM PAYABLE APPEARING IN THE AFORESAID PROVISION HAS BE EN THE SUBJECT MATTER OF JUDICIAL INTERPRETATION IN VARIOUS JUDGMENTS. THE SPECIAL BENCH OF THE ITAT IN THE CASE OF M/S. MERILYN SHIPPING & TRANSPORTS VS. ACIT REPORTED IN 136 ITD 23 (SB) HAD HELD THAT DISALLOWANCE UNDER SECTION 40(A)(IA) IS ITA NO S 564 TO 567/C/2014 8 TO BE RESTRI CTED TO THE EXPENDITURE THAT IS PAYABLE AND THE EXPENDITURE THAT HAS BEEN PAID DURING THE YEAR SHALL NOT COME WITHIN ITS PURVIEW. THE SAID JUDGMENT WAS STAYED BY THE HONBLE HIGH COURT OF ANDHRA PRADESH. THE ITAT, MUMBAI BENCH IN THE CASE OF ACIT VS. AMI T NARESH SINHA IN I.T.A. NO. 4154/MUM/2013 HAS TAKEN THE VIEW THAT UNLESS THE DECISION OF M/S. MERILYN SHIPPING & TRANSPORTS (SUPRA) IS REVERSED BY THE HONBLE HIGH COURT OF ANDHRA PRADESH, THE SAME HAS TO BE FOLLOWED BY THE TRIBUNAL. THE HONBLE ALLAHABA D HIGH COURT IN THE CASE OF M/S. VECTOR SHIPPING SERVICES (SUPRA) HAS TAKEN THE VIEW IN FAVOUR OF THE ASSESSEE. 4.4 . HOWEVER, A CONTRARY STAND HAS BEEN TAKEN BY THE HONBLE JURISDICTIONAL KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT IN I.T.A 278 OF 2014 DATED 3.7.2015 WHEREIN IT WAS HELD THAT THAT PROVISION OF SECTION 40(A)(IA) DOES NOT WARRANT AN INTERPRETATION THAT IT WOULD BE ATTRACTED ONLY IF THE EXPENDITURE REMAINED PAYABLE ON THE LAST DATE OF THE FINANCIAL YEAR. IN THE AFORESAID DECISION, IT WAS HELD AS UNDER: 17. ANOTHER CONTENTION THAT WAS PRESSED INTO SERVICE WAS THAT THE APPELLANTS HAD ALREADY PAID THE AMOUNT AND THEREFORE, THE PROVISIONS OF SECTION 40 (A)(IA), APPLICABLE ONLY IN RESPECT OF THE AMOUNT WHICH I.T. ACT 278/14 & CON CASES REMAINS TO BE PAYABLE ON THE LAST DAY OF THE FINANCIAL YEAR, IS NOT ATTRACTED. THEREFORE, ACCORDING TO THE APPELLANTS, DISALLOWANCE CANNOT BE SUSTAINED. THIS CONTENTION WAS SOUGHT TO BE SUBSTANTIATED BY RELYING ON THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN COMMISSIONER OF INCOME TAX V. VECTOR SHIPPING SERVICES (P) (2013) 387 ITR 642 (ALL.). PRIMARILY, THIS CONTENTION SHOULD BE ANSWERED WITH REFERENCE TO THE LANGUAGE USED IN ITA NO S 564 TO 567/C/2014 9 THE STATUTORY PROVISION. SECTION 40(A)(IA) MAKES IT CLEAR THAT THE CONSEQUENCE OF DISALLOWANCE IS ATTRACTED WHEN AN INDIVIDUAL WHO IS LIABLE TO DEDUCT TAX ON ANY INTEREST PAYABLE TO A RESIDENT ON WHICH TAX IS DEDUCTIBLE AT SOURCE, COMMITS DEFAULT. THE LANGUAGE OF THE SECTION DOES NOT WARRANT ON INTERPRETATION THAT IT IS ATTRACTED ON LY IF THE INTEREST REMAINS PAYABLE ON THE LAST DAY OF THE FINANCIAL YEAR. IF THIS CONTENTION IS TO BE ACCEPTED, THIS COURT WILL HAVE TO ALTER THE LANGUAGE OF SECTION 40(A)(IA) AND SUCH AN INTERPRETATION IS NOT PERMISSIBLE. THIS VIEW THAT WE HAVE TAKEN IS SUPPORTED BY JUDGMENTS OF THE CALCUTTA HIGH COURT IN CRESCENT EXPORTS SYNDICATE AND ANOTHER (ITAT 20 OF I.T.A. 278/14 & CON CASES 2013) AND THE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SIKANDARKHAN N TUNVAR (I.T.A. NOS. 905 OF 2012 & CONNECTED CASES), WHICH HAVE BEEN RELIED ON BY THE TRIBUNAL. RESULTANTLY, WE DO NOT FIND ANY MERIT IN THE CONTENTIONS AND QUESTIONS OF LAW ARE ANSWERED AGAINST THE ASSESSEE. APPEALS ARE ONLY TO BE DISMISSED AND WE DO SO. 4.5 . THE SAID DECISION A LSO REFERS TO THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES (2013) 357 ITR 642. THE AFORESAID VIEW OF THE HONBLE KERALA HIGH COURT IS ALSO SUPPORTED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIKANDARKHAN N TUNVAR & ORS. , REPORTED IN 357 ITR 312 WHEREIN THE HONBLE GUJARAT HIGH COURT WAS PLEASED TO HOLD THAT THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT REPORTED IN 13 6 ITD 23 (SB) DOES NOT LAY DOWN THE CORRECT LAW. FURTHERMORE, THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF PMS DIESELS VS. CIT IN I.T.A. NO. 716 OF 2009 DID NOT AGREE WITH THE VIEW TAKEN BY THE DIVISION BENCH OF THE ALLAHABAD HIGH COURT IN TH E CASE OF VECTOR SHIPPING SERVICES (SUPRA) AND REJECTED THE CONTENTION THAT THE DISALLOWANCE CONTEMPLATED BY SECTION 40(A)(IA) CANNOT BE APPLIED WHEN THE ITA NO S 564 TO 567/C/2014 10 PAYMENT HAS ALREADY BEEN MADE BY THE ASSESSEE TO THE PAYEE. IT IS PERTINENT TO MENTION THAT THE ITAT, COCHIN BENCH IN THE CASE OF SIRAJ V E VS. ITO IN I.T.A. NO. 147/COCH/2015 DATED 07/10/2015 BY FOLLOWING THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT (SUPRA) HELD THE ISSUE AGAINST THE ASSESSEE. 4.6 IN VIEW OF THE ABO VE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT (SUPRA) , WE DECIDE THE ABOVE ISUSE AGAINST THE ASSESSEE. IT IS ORDERED ACCORDINGLY. III) EXPENDITURE DISALLOWED BEING ONLY PROVISIONS : 5 THE AO HAD ADDED BACK CE RTAIN AMOUNTS TO THE TOTAL INCOME RETURNED BY THE ASSESSEE. THE REASONING OF THE AO WAS THAT THE EXPENDITURE CLAIMED AS DEDUCTION U/S 37 IS ONLY A PROVISIONS AND THE SAME HAS NOT ACCRUED IN THE RELEVANT YEAR. THE RELEVANT FINDINGS OF THE AO IN THIS REGARD READ AS UNDER: 6.4 I HAVE GONE THROUGH THE SUBMISSIONS. NONE OF THESE PROVISIONS ARE A LL OWABLE DEDUC T IONS AS PER ' SECTION 37 OF THE ACT . EXPENDITU R ES ACCOUNTED OH ACCRUAL BASIS ARE ONLY ALLOWABLE TO THE EXTENT THAT THEY ARE ACTUAL EXPENSES ACCRUED DURING THE YEAR. THE ITEMS MENTIONED ARE NOT YET ACCRUED AND ARE ONLY PROVISIONS . HENCE THEY ARE DISALLOWED AND ADDED BACK TO THE 10101 INCOME RETURNED BY THE ASSESSEE . THE ASSESSEE HAS CREDITED SOME AMOUNTS IN THE P&L ON REVERSAL O F THESE PROVISIONS AS SHOWN BE LOW. THE NET AMOUNT DEBITED IS ADDED BACK TO THE TOTAL INCOME RETURNED . RS.11,00,000/ - SHOWN AS PROVISION FOR SERVICE T AX HAS BEEN ADDED BACK IN THE REVISED RETURN FILED BY THE ASSESSEE . HENCE THIS IS EXCLUDED. ITA NO S 564 TO 567/C/2014 11 5.1 THE VIEW TAKEN BY THE AO WAS CONFIRMED BY THE CIT(A). THE RELEVANT FINDING OF THE CITIA) READS AS FOLLOWS: 8 . 1 I HAVE CONSIDERED THE SUBMISSION OF THE ID COUNSEL . THIS ISSUE HAS BEEN EXTENSIVELY DEALT WITH BY THE HON'BLE SUPREME COURT IN THEIR ORDER DATED 17.02.2012 IN CIVIL APPEAL NO.1143 OF 2011(SC) IN THE CASE OF CATHOLIC SYRIAN BANK LTD VS CIT AND CAME TO THE CONCLUSION THAT : - 'IT WOULD BE MEANINGLESS TO INVOKE THE SAID PROVISO WHERE THERE I S NO THREAT OF DOUBLE DEDUCTION . IN CASE OF RURAL ADVANCES , WHICH ARE COVERED BY THE PRO VI SIONS OF C L AUSE ( V II A) , THERE WOULD BE NO SUCH DOUBLE DEDUCTION. THE PROVISO L I M I TS I TS APP LI CAT I O N TO THE CASE OF A BANK TO W H I CH CL AUSE ( VIIA) APPLIES. CLAUSE ( VII A) APPL I ES O NLY TO RUR A L AD V AN C ES. TH I S H AS BEE N EXP L A IN ED BY THE CIRCULARS I SSUED BY CBOT . THUS , T HE PROV I SO I ND I CATES THAT I T I S LIM I TED IN I TS APPLICAT I ON TO BAD DEBT(S) ARISING OUT OF RURAL AD V ANCES OF A BANK . ' IN VIEW OF THIS, I AM NOT I NCLINED TO ACC EPT TH E CON T ENTION OF THE ASSESSEE . 5.2 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD COUN SEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. THE LD DR, ON THE OTHER HAND, SUPPORTED THE FINDINGS/CONCLUSION OF THE AUTHORITIES BELOW. 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. T HE LD COUNSEL FOR THE ASSESSEE ARGUED THAT THE PROVISIONS ARE THE EXPENDITURE INCURRED/ACCRUED DURING THE CURRENT ASSESSMENT YEAR . T HE ASSESSEE HAS NOT SUBMITTED ANY DETAILS BEFORE THE AUTHORITIES BELOW. NO DETAILS ARE SUBMITTED EVEN BEFORE US TO SHOW TH AT THE EXPENDITURE CLAIMED AS PROVISIONS, ARE EXPENDITURE ACTUALLY INCURRED/ACCRUED DURING THE RELEVANT ASSESSMENT YEAR. HENCE, WE HAVE NO REASONS TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW AND WE CONFIRM THE SAME. IT IS ORDERED ACCORDINGLY. ITA NO S 564 TO 567/C/2014 12 6 IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH , DAY OF JUNE 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 9 TH JUNE 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN