MADHU MEHTA, MUMBAI V. DCIT 12(3), MUMBAI

ITA 579/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4253 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBE
• Assessee Lawyers: G P MEHTA
• Keywords: Double taxation relief; Source of fund; Proportionate interest; Non-deduction of tax; Notional interest
• Section: 143(3); 194C

Judgement Text

B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 579 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09) SMT. MADHU MEHTA, C/O G.P. MEHTA & CO. CAS, 807, TULSIANI CHAMBERS, 212, NARIMAN POINT, MUMBAI 400 021. / V. THE DY. COMMISSIONER OF INCOME TAX CIR.12(3), 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 020. ./ PAN : AAEPM 1552D ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI G.P. MEHTA REVENUE BY : SHRI SACHCHIDANAND DUBE (D.R.) / DATE OF HEARING : 27-01-2016 / DATE OF PRONOUNCEMENT : 11-04-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 579/MUM/2012, IS DIRECTED AGAINST THE ORDER DATED 02-12-2011 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 23, MUMBAI (HEREINAFTER CA LLED THE CIT(A) ), FOR THE ASSESSMENT YEAR 2008-09, THE APPELLATE PROCEEDINGS BEFORE THE CIT(A) ARISING FROM THE ASSESSMENT ORDER DATED 04-10-2010 PASSED B Y THE LEARNED ASSESSING OFFICER(HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1961(HEREINAFTER CALLED THE ACT). ITA 579 /MUM/2012 2 2. THE GROUNDS RAISED BY THE ASSESSEE IN THE MEMO O F APPEAL FILED WITH THE TRIBUNAL READ AS UNDER:- 01. THE ORDERS PASSED BY THE LEARNED LOWER AUTHORITIE S ARE BAD IN LAW AND BAD IN FACTS. 02. THE LEARNED LOWER AUTHORITIES HAVE GROSSLY ERRED IN MAKING/UPHOLDING AN ADDITION OF RS. 71,519/- BY RECO URSE TO SECTION 40(A)(IA) OF THE I.T. ACT, 1961, EVEN THOUGH SAID PR OVISIONS ARE NOT ATTRACTED IN APPELLANT CASE. 03. THE LEARNED LOWER AUTHORITIES HAVE GROSSLY ERRE D IN HOLDING THAT PROVISIONS OF SEC.194-C OF THE I.T. ACT, 1961, WERE APPLICABLE TO PAYMENTS MADE TO C.HA FOR REIMBURSEMENT OF EXPENSES ON ACCOUNT OF AIR FREIGHT AT RS. 67,297/- AND BALANCE SERVICE CHAR GES RS. 4,222/-. REASONS ASSIGNED FOR THE IMPUGNED ADDITION/DISALLOWA NCE ARE WRONG AND CONTRARY TO THE PROVISIONS OF THE ACT READ WITH JUDI CIAL PRECEDENTS. 04. THE LEARNED LOWER AUTHORITIES HAVE GROSSLY ERRED IN MAKING/UPHOLDING AN ADDITION OF RS. 118,000/- ON ACC OUNT OF NOTIONAL INTEREST, EVEN THOUGH, NO PROVISION FOR ASSESSING NOTI ONAL INTEREST EXISTS IN THE I.T. ACT, 1961. THE REASONS ASSIGNED FOR THE IMPUGNED ADDITION ARE WRONG AND CONTRARY TO THE SCHEME OF THE ACT. 05. HAVING REGARD TO THE FACTS OF THE CASE, PROVISIONS OF LAW AND JUDICIAL PROPOSITIONS, THE IMPUGNED DISALLOWANCES/AD DITIONS ARE WRONG AND UNTENABLE IN LAW. 06. THE APPELLANT MAY PLEASE BE PERMITTED TO RAISE AN Y ADDITIONAL OR ALTERNATIVE GROUND ON OR BEFORE THE HEARING OF APPEA L. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE ES SOURCES OF INCOME DURING THE YEAR ARE FROM HOUSE PROPERTY INCOME, BUS INESS AND OTHER SOURCES. THE A.O. OBSERVED FROM THE DETAILS FURNISHED BY THE ASSESSEE THAT SHE HAS MADE PAYMENT TO THE C & F AGENT OF RS. 71,519/- BUT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THE PAYMENT MADE TO C & F AGENT WHICH IS COVERED BY THE PROVISIONS OF SECTION 194C OF THE ACT. THE ASSESSEE WAS SPECIFICALLY ASKED AS TO WHY THE EXPENDITURE INCURRED ON PAYMENT TO C & F AGENT SHOULD NOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT AS THE A SSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THE SAME. THE ASSESSEE COULD NOT JUSTI FY ITS CLAIM OF NON- ITA 579 /MUM/2012 3 DEDUCTION OF TAX AT SOURCE AND AGREED FOR THE DISAL LOWANCE OF RS.71,519/-. IN VIEW OF NON-DEDUCTION OF TAX AT SOURCE IN VIEW OF P ROVISIONS OF SECTION 194C OF THE ACT, THE EXPENDITURE OF RS.71,519/- ON THE PAYM ENT MADE TO C & F AGENT WAS DISALLOWED BY THE A.O. U/S.40(A)(IA) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE, VIDE ASSESSMENT ORDER DATED 04-10-2010 PASSED BY THE AO U/S. 143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 04-10-20 10 PASSED BY THE AO U/S. 143(3) OF THE ACT, THE ASSESSEE PREFERRED AN A PPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE PAYMENT FOR THE BILL OF THE FREIGHT AND FORWARDING CHARGES WAS PAID TO A SHIPPING AGENT WHICH PAYMENT WAS MADE ON 16-01-2008. THUS, AS AT THE EN D OF THE FINANCIAL YEAR, NOTHING IS PAYABLE AND / OR OUTSTANDING. THE ASSES SEE SUBMITTED THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE APPL ICABLE ONLY IN RESPECT OF AMOUNTS PAYABLE AND NOT FOR PAYMENTS ALREADY MADE B EFORE THE END OF THE YEAR. IN SUPPORT OF HER CONTENTIONS, SHE RELIED UP ON THE DECISION OF THE TRIBUNAL IN THE CASE OF JAIPUR VIDYUT VITRAN NIGAM LTD., 26 DTR (JP)(TRIBUNAL) 79. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE CIT(A), WITHOUT PREJUDICE, THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT ATTRACTED BECAUSE OUT OF A TOTAL SUM OF RS.71,519/-, A SUM OF RS.67,297/- RELATES TO REIMBURSEMENT OF EXPENSES BEING AIR FREIGHT AND INS URANCE INCURRED BY THE SHIPPING AGENT AND RS. 4,222/- IS THE AMOUNT ATTRIB UTABLE TO SHIPPING AGENT CHARGES AND UNDER THE PROVISIONS OF SECTION 194C OF THE ACT, WHAT IS INTENDED TO TAX IS ONLY THAT PORTION OF THE PAYMENT WHICH HA S SOME INCIDENCE OF INCOME. THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. SIEMENS AKTIONGESELLSCH AFT 2008 TIOL 569 (BOM.HC) AND ITAT MUMBAI DECISION IN UTILITY POWERT ECH LTD. V. ACIT (2010) TIOL 545 (MUM.). THE CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE IN THE LIGHT OF DECISION IN THE CASE OF JA IPUR VIDYUT VITRAN NIGAM ITA 579 /MUM/2012 4 LTD.,(SUPRA) OBSERVED THAT THE ASSESSEE HAS ARGUED THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE FOR TWO REASONS, ONE THAT NO AMOUNT WAS PAYABLE AS AT THE END OF THE YEAR SINCE THE AMOUNT HAD BEEN PAID BEFORE THE END OF THE FINANCIAL YEAR, SECOND T HAT TAX DEDUCTED AT SOURCE PROVISIONS ARE NOT APPLICABLE TO REIMBURSEMENT OF E XPENSES. THE DECISION IN JAIPUR VIDYUT VITRAN NIGAM LIMITED(SUPRA) IS GIVEN IN THE CONTEXT OF PAYMENT OF TRANSMISSION CHARGES, WHEELING AND SLDC CHARGES TO AN ELECTRICITY TRANSMISSION COMPANY WITH WHOM THE TAX-PAYER, AN EL ECTRICITY DISTRIBUTION COMPANY ENTERED INTO A TRANSMISSION SERVICE AGREEM ENT AND THE MAIN FINDING WAS THAT THERE IS NO LIABILITY TO DEDUCT TA X AT SOURCE ON TRANSMISSION/ WHEELING/ SLDC CHARGES U/S.194J AND 194C OF THE ACT AND THE OBSERVATION OF THE ITAT ON WHETHER SEC. 40(A)(IA) OF THE ACT AP PLIES ONLY WHEN THE AMOUNT IS PAYABLE OR WHERE THE EXPENDITURE IS PAID IS A SU PPLEMENTARY OBSERVATION MORE IN THE NATURE OF 'OBITER DICTA'. THE CIT(A) HE LD THAT THE CASE LAW RELIED UPON BY THE ASSESSEE IS DISTINGUISHABLE AND SECTION 40(A)(IA) OF THE ACT IS APPLICABLE IN ASSESSEES CASE. RELIANCE IN THE CAS E OF SIEMENS AKTIONGESELLSCHAFT (SUPRA) IS NOT RELEVANT AS IT RE FERS TO THE TAXABILITY OF REIMBURSEMENT OF EXPENSES OF A GERMAN COMPANY IN TH E CONTEXT OF DTAA, THUS, SECTION 40(A)(IA) OF THE ACT IS APPLICABLE AN D ACCORDINGLY A.O.S ACTION WAS CONFIRMED, VIDE ORDERS DATED 02-12-2011. 6. AGGRIEVED BY THE ORDERS DATED 02-12-2011 OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS A TOTAL AMOUNT OF RS. 71,519/- PAID BY THE ASSESSEE TO C & F AGENT , OUT OF WHICH REIMBURSEMENT OF AIR FREIGHT CHARGES OF RS. 65021/- FOR EXPORT CONSIGNMENT TO LUSAKA(ZAMBIA) FROM INDIA AND REIMBURSEMENT OF INSU RANCE CHARGES OF RS. 2246/- WAS PAID WITH RESPECT TO INSURING THE EXPORT CONSIGNMENT TO C & F AGENTS M/S S. NATESA IYER & CO. VIDE THEIR INVOICE DATED 12-1-2008, THUS ITA 579 /MUM/2012 5 THERE WAS A REIMBURSEMENT OF EXPENSES AMOUNTING TO RS. 67,297/- TOWARDS AIR FREIGHT , INSURANCE CHARGES AND RS.30/- TOWARDS POSTAGE CHARGES , TOWARDS EXPORT CONSIGNMENT TO LUSAKA(ZAMBIA) AND BALANCE RS . 4,222/- WAS PAID TOWARDS AGENCY CHARGES OF THE CLEARING AND FORWAR DING AGENT M/S. S. NATESA IYER & CO. THE ASSESSEE SUBMITTED COPY OF BILL OF M /S S. NATESA IYER & CO. DATED 12-1-2008 AND SUBMITTED THAT NO TAX IS TO BE DEDUCTED AT SOURCE AS THE AMOUNT PAYABLE TO M/S S. NATESA IYER & CO. IS ONLY RS. 4222/- TOWARDS THEIR AGENCY CHARGES FOR HANDLING EXPORT SHIPMENT CONSIGN MENT WHICH IS BELOW THE THRESHOLD LIMIT AS PRESCRIBED U/S 194C OF THE ACT A ND NO TAX NEED TO BE DEDUCTED AT SOURCE AS PER PROVISIONS OF SECTION 194 C OF THE ACT. THE LD. COUNSEL RELIED ON THE DECISION OF HONBLE DELHI HIG H COURT IN THE CASE OF CIT V. OPERA GLOBAL PRIVATE LIMITED (2014) 109 DTR (DEL .) 121, HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. SIEMENS AKTIONGESE LLSCHAFT , 2008-TIOL-569- HC-MUM-IT AND THE MUMBAI-TRIBUNAL DECISION IN THE C ASE OF UTILITY POWERTECH LTD. V. ACIT,2010-TIOL-545-ITAT-MUM AND EMERSONS PROCESS MANAGEMENT INDIA PRIVATE LIMITED (2011) 13 TAXMANN. COM 149(MUM. TRIB.), DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN TH E CASE OF CIT V. JANAPRIYA ENGINEERS SYNDICATE, (2015)113 DTR 311 (A P) AND ITAT- VISAKHAPATNAM SPECIAL BENCH IN THE CASE OF MERLYN SHIPPING & TRANSPORTERS V. ADDL. CIT, (2012) 16 ITR (TRIB) 1 (VISAKHAPATNAM, [S.B.] . 8. THE LD. D.R., ON THE OTHER HAND, STRONGLY SUPPOR TED THE ORDERS OF CIT(A). 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PER USED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT REIMBURS EMENT OF EXPENSES BEING AIR FREIGHT OF RS. 65021/- FOR EXPORT CONSIGNMENT S ENT TO LUSAKA(ZAMBIA) , INSURANCE CHARGES FOR INSURING EXPORT CONSIGNMENT T O LUSAKA(ZAMBAI) OF RS. 2246/- WAS PAID AND RS.30/- TOWARDS POSTAGE CHARGES WERE PAID TO M/S S. NATESA IYER & CO. AGAINST THEIR INVOICE DATED 12-1- 2008 TOWARDS THE EXPORT CONSIGNMENT SENT BY THE ASSESSEE TO LUSAKA (ZAMBAI) . THESE PAYMENTS WERE ITA 579 /MUM/2012 6 MADE TOWARDS REIMBURSEMENT OF AIR FREIGHT , INSURAN CE AND POSTAGE CHARGES IN CONNECTION WITH EXPORT CONSIGNMENT SENT BY THE A SSESSEE FROM INDIA TO LUSAKA(ZAMBIA). THE HONBLE DELHI HIGH COURT HAS DE ALT WITH NON- APPLICABILITY OF PROVISIONS WITH RESPECT TO TAX DED UCTED AT SOURCE WITH RESPECT TO AIR FREIGHT ON EXPORT CONSIGNMENT IN CIT V. OPER A GLOBAL PRIVATE LIMITED (SUPRA) AS UNDER: 4. SECTION 194C WAS INSERTED BY FINANCE ACT, 1972 TO MANDATE DEDUCTION OF TAX AT SOURCE, ON PAYMENTS MADE TO A C ONTRACTOR FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR. TAX WAS TO BE DEDUCTED BY THE STIPULATED PAYER AT THE RATE OF 1 OR 2 PER CENT. 5. THE EXPRESSION 'CARRYING OUT ANY WORK' OR THE WORD 'WORK' WAS INTERPRETED BY THE DELHI HIGH COURT, FOR THE PURPOS E OF THE SAID SECTION, IN S.R.F. FINANCE LTD. V. CBDT [1995] 211 ITR 861 , TO EXCLUDE PROFESSIONAL SERVICES. IT WAS OBSERVED, THE SAID EX PRESSION AND WORD WAS WIDE ENOUGH TO INCLUDE ANY KIND OF WORK WHICH C OULD BE UNDERTAKEN BY ANOTHER, BUT WAS RESTRICTED TO THE WORK WHICH WA S TO BE CARRIED OUT. THEREFORE, IT WOULD NOT INCLUDE BROKERAGE PAID TO T HE BROKER WHO PROCURED OR SECURED FIXED DEPOSITS FROM THIRD PARTI ES AS THE SAID BROKER WAS NOT CARRYING OUT ANY WORK BUT HAD PROCURED MONE Y FOR FIXED DEPOSITS. THE BROKER WORKED FOR HIMSELF AND GOT PAI D. 6. IN BIRLA CEMENT WORKS V. CBDT, [2001] 248 ITR 216/115 TAXMAN 359 (SC) QUESTION AROSE BEFORE THE SUPREME COURT, WHETHER D EDUCTION UNDER SECTION 194C WAS MANDATED WHEN PAYMENT WAS MADE TO TRANSPORTERS AND WHETHER THE SAID PAYMENTS WERE FOR 'CARRYING OU T ANY WORK'. IT WAS HELD THAT THE EXPRESSION 'ANY WORK' WAS WIDER AND S HOULD NOT BE ITA 579 /MUM/2012 7 CONFINED TO A MERE 'WORK CONTRACT', BUT, IT WOULD N OT INCLUDE PAYMENT MADE TO THE TRANSPORT CONTRACTOR BEFORE EXPLANATION III WAS ADDED TO THE SAID SECTION W.E.F. 1ST JULY, 1995. FURTHER, EXPLAN ATION III WAS NOT RETROSPECTIVE. 7. AS EXPLANATION III IS APPLICABLE TO THE ASSESSMENT YEARS IN QUESTION, WE DEEM IT APPROPRIATE TO REPRODUCE THE SAID EXPLAN ATION ALONG WITH RELEVANT PORTION OF SECTION 194C OF THE ACT, AS ON 1ST APRIL, 2008: '194C:- PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS .(1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HER EINAFTER IN THIS SECTION REFERRED TO AS THE CONTRACTOR) FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURS UANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND (A) THE CENTRAL GOVERNMENT OR ANY STATE GOVERNMENT ; OR (B) ANY LOCAL AUTHORITY ; OR (C) ANY CORPORATION ESTABLISHED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT ; OR (D) ANY COMPANY ; OR (E) ANY CO-OPERATIVE SOCIETY ; OR (F) ANY AUTHORITY, CONSTITUTED IN INDIA BY OR UNDER ANY LAW, ENGAGED EITHER FOR THE PURPOSE OF DEALING WITH AND SATISFYING THE NEED FOR HOUSING ACCOMMODATION OR FOR THE PURPOSE OF PLANNIN G, DEVELOPMENT OR IMPROVEMENT OF CITIES, TOWNS AND VILLAGES, OR FO R BOTH ; OR (G) ANY SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRA TION ACT, 1860 (21 OF 1860) OR UNDER ANY LAW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF ITA 579 /MUM/2012 8 INDIA ; OR (H) ANY TRUST ; OR (I) ANY UNIVERSITY ESTABLISHED OR INCORPORATED BY OR UN DER A CENTRAL, STATE OR PROVINCIAL ACT AND AN INSTITUTION DECLARED TO B E A UNIVERSITY UNDER SECTION 3 OF THE UNIVERSITY GRANTS COMMISSION ACT, 1956 (3 OF 1956) ; OR (J) ANY FIRM ; OR (K) ANY INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, OR AN A SSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS, WHETHER INCORPORATED OR NOT, OTHER THAN THOSE FALLING UNDER ANY OF THE PRECEDING CLAUSES WHOSE TO TAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR C LAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDIN G THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUN T OF THE CONTRACTOR, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO- (I) ONE PER CENT. IN CASE OF ADVERTISING, (II) IN ANY OTHER CASE TWO PER CENT., OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THERE IN : PROVIDED THAT NO INDIVIDUAL OR A HINDU UNDIVIDED FA MILY SHALL BE LIABLE TO DEDUCT INCOME-TAX ON THE SUM CREDITED OR PAID TO TH E ACCOUNT OF THE CONTRACTOR WHERE SUCH SUM IS CREDITED OR PAID EXCLU SIVELY FOR PERSONAL PURPOSES OF SUCH INDIVIDUAL OR ANY MEMBER OF HINDU UNDIVIDED FAMILY. (2) ANY PERSON (BEING A CONTRACTOR AND NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY), RESPONSIBLE FOR PAYING ANY SUM T O ANY RESIDENT ITA 579 /MUM/2012 9 (HEREAFTER IN THIS SECTION REFERRED TO AS THE SUB-C ONTRACTOR) IN PURSUANCE OF A CONTRACT WITH THE SUB-CONTRACTOR FOR CARRYING OUT, OR FOR THE SUPPLY OF LABOUR FOR CARRYING OUT, THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR OR FOR SUPPLYING WHETHER WHOLLY OR PARTL Y ANY LABOUR WHICH THE CONTRACTOR HAS UNDERTAKEN TO SUPPLY SHALL, AT THE T IME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE SUB-CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTH ER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO ONE PER CENT. OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN. ** ** ** EXPLANATION I.--FOR THE PURPOSES OF SUB-SECTION (2) , THE EXPRESSION 'CONTRACTOR' SHALL ALSO INCLUDE A CONTRACTOR WHO IS CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE GOVERNMENT OF A FOREIGN STATE OR A FOREIGN ENTERPRISE OR ANY ASSOCIATION OR BODY EST ABLISHED OUTSIDE INDIA. ** ** ** EXPLANATION III.--FOR THE PURPOSES OF THIS SECTION, THE EXPRESSION 'WORK' SHALL ALSO INCLUDE (A) ADVERTISING; (B) BROADCASTING AND TELECASTING INCLUDING PRODUCTION O F PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING; (C) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRA NSPORT OTHER THAN BY RAILWAYS ; ITA 579 /MUM/2012 10 (D) CATERING. (3) NO DEDUCTION SHALL BE MADE UNDER SUB-SECTION(1) OR SUB-SECTION (2) FROM-- (I) THE AMOUNT OF ANY SUM CREDITED OR PAID OR LIKEL Y TO BE CREDITED OR PAID TO THE ACCOUNT OF, OR TO, THE CONTRACTOR OR SUB-CON TRACTOR, IF SUCH SUM DOES NOT EXCEED TWENTY THOUSAND RUPEES : PROVIDED THAT WHERE THE AGGREGATE OF THE AMOUNTS OF SUCH SUMS CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR EXCEEDS FIFTY THOUSAND RUPEES, THE PERSON RESPONSIBLE FOR P AYING SUCH SUMS REFERRED TO IN SUB-SECTION (1) OR, AS THE CASE MAY BE, SUB-SECTION (2) SHALL BE LIABLE TO DEDUCT INCOME-TAX UNDER THIS SECTION : ** ** **' 8. EXPLANATION III IN CLAUSE (C) STATES THAT THE 'WOR K', FOR THE PURPOSE OF SECTION 194C, SHALL ALSO INCLUDE CARRIAGE FOR GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN RAILWAYS. 9. IN THIS CONTEXT, WE WOULD LIKE TO REFER TO CIRCULA R NO. 715 DATED 8TH AUGUST, 1995 ISSUED BY CBDT EXPLAINING REVENUE'S PO INT OF VIEW WITH REFERENCE TO AMENDED SECTION 194C W.E.F. 1ST JULY, 1995. QUESTION NO'S. 6 AND 7 ARE RELEVANT FOR THE PURPOSE OF UNDERSTANDI NG WHETHER TAX AT SOURCE WAS REQUIRED TO BE DEDUCTED IN THE PRESENT C ASE. THE SAID QUESTIONS AND OPINIONS/ANSWERS GIVEN BY CBDT IN THE SAID CIRCULAR READ AS UNDER: 'QUESTION 6: WHETHER PAYMENT UNDER A CONTRACT FOR C ARRIAGE OF GOODS OR PASSENGERS BY ANY MODE OF TRANSPORT WOULD INCLUDE P AYMENT MADE TO A TRAVEL AGENT FOR PURCHASE OF A TICKET OR PAYMENT MA DE TO A CLEARING AND FORWARDING AGENT FOR CARRIAGE OF GOODS? ITA 579 /MUM/2012 11 ANSWER : THE PAYMENTS MADE TO A TRAVEL AGENT OR AN AIRLINE FOR PURCHASE OF A TICKET FOR TRAVEL WOULD NOT BE SUBJECTED TO TA X DEDUCTION AT SOURCE AS THE PRIVITY OF THE CONTRACT IS BETWEEN THE INDIVIDU AL PASSENGER AND THE AIRLINE/TRAVEL AGENT, NOTWITHSTANDING THE FACT THAT THE PAYMENT IS MADE BY AN ENTITY MENTIONED IN SECTION 194C(1). THE PROV ISIONS OF SECTION 194C SHALL, HOWEVER, APPLY WHEN A PLANE OR A BUS OR ANY OTHER MODE OF TRANSPORT IS CHARTERED BY ONE OF THE ENTITIES MENTI ONED IN SECTION 194C OF THE ACT. AS REGARDS PAYMENTS MADE TO CLEARING AND F ORWARDING AGENTS FOR CARRIAGE OF GOODS, THE SAME SHALL BE SUBJECTED TO T AX DEDUCTION AT SOURCE UNDER SECTION 194C OF THE ACT. QUESTION 7 : WHETHER A TRAVEL AGENT/CLEARING AND FO RWARDING AGENT WOULD BE REQUIRED TO DEDUCT TAX AT SOURCE FROM THE SUM PAYABLE BY THE AGENT TO AN AIRLINE OR OTHER CARRIER OF GOODS OR PA SSENGERS? ANSWER : THE TRAVEL AGENT, ISSUING TICKETS ON BEHAL F OF THE AIRLINES FOR TRAVEL OF INDIVIDUAL PASSENGERS, WOULD NOT BE REQUI RED TO DEDUCT TAX AT SOURCE AS HE ACTS ON BEHALF OF THE AIRLINES. THE PO SITION OF CLEARING AND FORWARDING AGENTS IS DIFFERENT. THEY ACT AS INDEPEN DENT CONTRACTORS. ANY PAYMENT MADE TO THEM WOULD, HENCE, BE LIABLE FOR DE DUCTION OF TAX AT SOURCE. THEY WOULD ALSO BE LIABLE TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENTS TO A CARRIER OF GOODS.' 10. A READING OF THE AFORESAID QUESTIONS AND ANSWERS W OULD INDICATE THAT PAYMENT MADE TO A TRAVEL AGENT OR AIRLINE FOR PURCHASE OF THE AIR TICKET FOR TRAVEL WAS NOT REQUIRED TO BE SUBJECTED TO DEDUCTION OF TAX AT SOURCE. HOWEVER, IN CASE OF A CHARTERED FLIGHT OR B US ETC., PROVISIONS OF SECTION 194C WOULD BE ATTRACTED. PAYMENT MADE TO CL EARING AND FORWARDING AGENTS FOR CARRIAGE OF GOODS WOULD BE SU BJECTED TO TAX AT ITA 579 /MUM/2012 12 SOURCE UNDER SECTION 194C OF THE ACT. A PERUSAL OF ANSWER TO QUESTION NO.7 CLARIFIES THAT TRAVEL AGENTS ISSUING TICKETS O N BEHALF OF AIRLINES FOR TRAVEL OF INDIVIDUAL PERSONS WOULD NOT BE REQUIRED TO DEDUCT TAX AT SOURCE, BUT IN CASE OF CLEARING AND FORWARDING AGEN TS, WHO ACT AS INDEPENDENT CONTRACTORS, PAYMENT MADE TO THEM WOULD BE LIABLE FOR DEDUCTION OF TAX AT SOURCE. 11. THE TRIBUNAL IN THE ORDERS HAS HELD THAT THE BILLS , SUBJECT MATTER OF THE DISPUTE WERE FOR REIMBURSEMENT OF THE AIR FREIG HT CHARGES PAID TO AIRLINES. AIR FREIGHT CHARGES WOULD NOT INCLUDE COM MISSION, HANDLING OR OTHER CHARGES, WHICH WERE PAYABLE FOR THE SERVICES RENDERED BY THE CLEARING AND FORWARDING AGENTS. FOR THE SAID SERVIC ES, SEPARATE BILLS WERE ISSUED AND TAX AT SOURCE WAS DEDUCTED UNDER SECTION 194C. IT IS NOT THE CASE OF THE REVENUE THAT TDS HAD TO BE DEDUCTED ON AIR FREIGHT PAID TO AIRLINES. THE PAYMENT TOWARDS AIR FREIGHT WAS REQUI RED FOR EXPORTING THE GOODS AS THE RESPONDENT ASSESSEE WAS AN EXPORTER AN D THE CONSIGNOR. DELHI HIGH COURT IN CIT V. HARDARSHAN SINGH [2013] 350 ITR 427/216 TAXMAN 283/30 TAXMANN.COM 245 , HAS HELD THAT ON APPLYING PRINCIPLE OF PRIVITY OF CONTRACT, MERE REIMBURSEMENT OF CHARGES WOULD NOT REQUIRE DEDUCTION OF TAXES AT SOURCE. 12. THE FINDINGS OF THE TRIBUNAL BEING FACTUAL AND THE REVENUE HAVING PREFERRED THESE APPEALS CHALLENGING THE SAID FINDIN GS, BY THE ORDER DATED 23RD SEPTEMBER, 2013 PASSED IN ITA 359/2012, IT WAS INTER ALIA DIRECTED : 'LEARNED COUNSEL FOR THE APPELLANT HAS FILED TWO CH ARTS ALONG WITH COPIES OF SAMPLE INVOICES. INITIALLY, SHE HAD SUBMITTED TH AT MSS-I INVOICES SUBMITTED BY THE RESPONDENT WERE INCORRECT AND NO B REAK UP WAS GIVEN. ITA 579 /MUM/2012 13 HOWEVER, WE FIND THAT MSS-I INVOICES HAVE BEEN ALSO FILED BY THE APPELLANT THEMSELVES. LEARNED COUNSEL FOR THE RESPONDENT HAS DRAWN OUR AT TENTION TO THE ASSESSMENT ORDER AND REFERRED TO PARAGRAPH 8 AND 9 THEREOF. IN PARAGRAPH 9, THE ASSESSING OFFICER HAS MENTIONED TH AT THE EXPENSES AMOUNTING TO RS.1240288/- WERE CLAIMED UNDER THE HE AD CLEARING AND FORWARDING AND LIST OF 31 PARTIES WAS FURNISHED. PA YMENTS TO 30 PARTIES WERE BELOW THE AMOUNT ON WHICH TDS WAS REQUIRED TO BE DEDUCTED. IN RESPECT OF ONE PARTY, THE ASSESSEE HAD FURNISHED A CERTIFICATE ISSUED BY THE DEPARTMENT THAT NO TDS WAS REQUIRED TO BE DEDUC TED. THE ASSESSING OFFICER THEREBY DID NOT MAKE ANY DISALLOWANCE ON TH E SAID PAYMENTS. THE SUBMISSION OF THE RESPONDENT IS THAT ADDITION R S.4861509/- MADE BY THE ASSESSING OFFICER WAS TOWARDS FREIGHT CHARGE S ON EXPORT OUTWARDS AS PER THE HEADING OF PARAGRAPH 8 OF THE ORDER. FRE IGHT CHARGES WERE REIMBURSED AND THERE WAS NO ELEMENT OF COMMISSION O R SERVICE CHARGES. CLEARING OR FORWARDING AGENCIES WHO WERE PAID SERVI CE CHARGES ETC WERE COVERED BY PARAGRAPH 9. LEARNED COUNSEL FOR THE APPELLANT SUBMITS THAT THIS IS NOT CORRECT AND THE AMOUNT MENTIONED IN PARAGRAPH 8 INCLUDES THE COMMIS SION AND OTHER SERVICE CHARGES. THE APPELLANT WILL FILE AN AFFIDAVIT OF THE COMMISS IONER THAT THE AMOUNTS MENTIONED IN PARAGRAPH 8 AS PER THE ASSESSMENT ORDE R AND THE RECORDS, ITA 579 /MUM/2012 14 INCLUDES THE COMMISSION OR SERVICE CHARGES OTHER TH AN FREIGHT CHARGES. THE SAID AFFIDAVIT WILL BE FILED WITHIN A PERIOD OF TWO WEEKS. DOCUMENTS FILED BY THE APPELLANT ARE RETURNED TO BE FILED ALONG WITH AFFIDAVIT. THE COMMISSIONER WILL ALSO STATE WHETHER THE INVOICES WITH REGARD TO RS.1240288/- WERE ON RECORD AND FILED BEF ORE THE ASSESSING OFFICER AND IT WILL BE STATED WHETHER THE INVOICES OF FREIGHT CHARGES AND CLEARING AND FORWARDING AGENTS WERE ISSUED BY THE S AME PARTY.' 13. IT IS CLEAR FROM THE SAID ORDER THAT THE ASSESSING OFFICER IN PARAGRAPH 9 OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2 008-09 HAD ACCEPTED THAT ON RS.12,40,288/- PAID TO CLEARING AN D FORWARDING AGENTS, TAX AT SOURCE WAS DEDUCTED AND PAID, BUT ON PAYMENT OF RS.48,61,509/-, NO TAX AT SOURCE WAS DEDUCTED. THE TRIBUNAL HAD ACC EPTED THAT THIS AMOUNT WAS TOWARDS REIMBURSEMENT OF AIR FREIGHT CHA RGES PAID TO AIRLINES AND DID NOT INCLUDE WORK/SERVICE CHARGES P AID TO THE CLEARING AND FORWARDING AGENTS, WHICH WERE TO THE TUNE OF RS . 12,40,288/- ON WHICH TDS HAD BEEN DEDUCTED. 14. COMMISSIONER OF INCOME TAX HAS FILED AFFIDAVIT DAT ED 21ST DECEMBER, 2013, IN WHICH HE HAS ACCEPTED THAT 14 OUT OF 15 PA RTIES MENTIONED IN PARAGRAPH 8 OF THE ASSESSMENT ORDER ALSO FIND MENTI ON IN PARAGRAPH 9. PARAGRAPH 9 REFERS TO OF 31 PARTIES AND RELATES TO PAYMENT OF RS.12,40,288/- TO THE PERSONS TO WHOM CLEARING AND FORWARDING CHARGES OR FEE HAD BEEN PAID ON WHICH TAX AT SOURCE WAS DED UCTED. A PERUSAL OF PARAGRAPH 4 OF THE TRIBUNAL S ORDER WOULD REVEAL THAT THE PARTIES HAD RAISED SEPARATE BILLS, WHICH WERE REIMBURSED, AS IT WAS PAID TO THE ITA 579 /MUM/2012 15 AIRLINES FOR EXPORT OF GOODS. IN OTHER WORDS, THE F ACTUAL FINDINGS OF THE TRIBUNAL ARE CORRECT AND THE PLEA AND STAND TAKEN B Y THE REVENUE IS INCORRECT AND WRONG. 15. SIMILAR DIRECTIONS WERE ISSUED TO THE COMMISSIONER OF INCOME TAX TO FILE AN AFFIDAVIT IN ITA 359/2012. IN THE AFFIDAVIT OF THE COMMISSIONER OF INCOME TAX, RELATING TO ASSESSMENT YEAR 2006-07, IT IS STATED THAT 41 PARTIES HAD RAISED INVOICES ON ACCOUNT OF FREIGHT C HARGES AND 31 PARTIES ON ACCOUNT OF CLEARING AND FORWARDING CHARGES 14 PA RTIES WERE COMMON. CERTAIN INVOICES WERE NOT AVAILABLE ON RECORD. 16. WE ARE NOT INCLINED TO ACCEPT PRAYER OF COUNSEL FO R THE REVENUE OF REMAND, ON ISSUE RELATING TO MATTER OF FACTS. ASSES SMENT YEARS ARE 5 AND 7 YEARS OLD. ASSESSING OFFICER SHOULD HAVE CONDUCTE D THE SAID EXERCISE EARLIER. 17. ON THE SECOND AMOUNT OF RS 14,57,703/- RELATING TO ASSESSMENT YEAR 2006-07, THE FINDING OF THE COMMISSIONER OF IN COME TAX (APPEALS) AND TRIBUNAL IS THAT NONE OF THE SAID PARTIES WERE PAID IN EXCESS OF THE STIPULATED AMOUNT OF RS 50,000/- AND HENCE PAYMENTS WERE NOT REQUIRED TO BE SUBJECTED TO TDS UNDER SECTION 194C(5) OF THE ACT. THE FINDING IS FACTUAL AND NO DETAILS AND PARTICULARS ARE FILED TO SHOW THAT THE FINDING IS INCORRECT OR PERVERSE. 18. IN VIEW OF THE FACTUAL FINDINGS RECORDED BY THE TR IBUNAL, AFFIRMING THE DECISION OF THE COMMISSIONER OF INCOME TAX (APPEALS ), WE HOLD THAT THERE IS NO MERIT IN THE PRESENT APPEALS AND THE SAME ARE DISMISSED. ITA 579 /MUM/2012 16 THUS, PAYMENT OF REIMBURSEMENT OF AIR FREIGHT OF RS .65,021/- , INSURANCE CHARGES OF RS.2246/- AND POSTAGE CHARGES OF RS 30/- TO C & F AGENT S. NATESA IYER AND COMPANY TOWARDS REIMBURSEMENT OF EX PENSES ON EXPORT CONSIGNMENT BEING SENT FROM INDIA TO LUSAKA(ZAMBIA) STOOD EXCLUDED FROM PROVISIONS OF DEDUCTIBILITY OF TAX AT SOURCE U/S.19 4C OF THE ACT IN VIEW OF THE FACT THESE PAYMENTS ARE IN THE NATURE REIMBURSEMENT OF EXPENSES AND THERE IS NO ELEMENT OF COMMISSION AND SERVICE CHARGES PAY ABLE TO CLEARING AND FORWARDING AGENT S. NATESA IYER AND COMPANY. THUS, IN VIEW OF DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF OPERA GLOBA L PRIVATE LIMITED(SUPRA) WHERE THE FACTS ARE IDENTICAL TO THE INSTANT CASE , WE HOLD THAT REIMBURSEMENT OF EXPENSES OF RS.67297/- PAID BY THE ASSESSEE TO S . NATESA IYER AND COMPANY FOR REIMBURSEMENT OF AIR FREIGHT , INSURANC E CHARGES AND POSTAL CHARGES IN CONNECTION WITH EXPORT CONSIGNMENT SHIP PED FROM INDIA TO LUSAKA(ZAMBIA) CANNOT BE DISALLOWED BY INVOKING PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT AS THERE IS NO LIABILITY ON TH E ASSESSEE TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT ON THESE REIMBURSEMENT O F EXPENSES PAID BY THE ASSESSEE COMPANY. HOWEVER, PAYMENT OF RS. 4,222/- W HICH WAS PAID TO M/S S. NATESA IYER & CO. VIDE INVOICE DATED 12-01-2008 FOR WORK PERFORMED BY THEM FOR HANDLING CUSTOM CLEARANCE ETC. WAS SUBJEC T TO DEDUCTION OF TAX AT SOURCE U/S 194C OF THE ACT BUT THE SAME WAS BELOW T HE THRESHOLD EXEMPTION LIMIT PROVIDED U/S 194C OF THE ACT AS PER THE FACTS EMERGING FROM THE RECORDS, HENCE , THE SAME STOOD OUT OF THE APPLICABILITY OF PROVISIONS OF SECTION 194C OF THE ACT. IN OUR CONSIDERED VIEW , THE ORDER OF THE CIT(A) IS TO BE SET ASIDE AND DISALLOWANCE OF RS.71,5119/- MADE BY THE A.O. A ND CONFIRMED BY THE CIT(A) IS ORDERED TO BE DELETED. THIS GROUND OF TH E APPEAL RAISED BY THE ASSESSEE IS ALLOWED. WE ORDER ACCORDINGLY. 10. THE SECOND GROUND IS WITH RESPECT TO UPHOLDING OF NOTIONAL INTEREST AMOUNTING TO RS. 118,000/- AS INCOME OF THE ASSESSE E. IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE HAD TAKEN A LOAN FROM 5 PART IES, ON WHICH THE ASSESSEE ITA 579 /MUM/2012 17 WAS PAYING INTEREST. THE ASSESSEE HAD ALSO GIVEN LO ANS TO TWO PARTIES, I.E., SHRI O.P. MEHTA AND SMT VIMLA MEHTA OF RS.3,03,102/ - AND RS. 6,82,617/- RESPECTIVELY. THE ASSESSEE WAS ASKED THAT SINCE THE ASSESSEE IS PAYING INTEREST ON LOAN TAKEN BY HIM , WHY THE INTEREST IS NOT CHARGED FOR LOANS GIVEN TO THE PERSONS AND WHY INTEREST AT THE RATE OF 12% SHOULD NOT BE CHARGED ON LOANS GIVEN TO THESE TWO PARTIES AND ADDED UNDER TH E HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE SUBMITTED THAT LOANS HAD BEE N GIVEN TO THE RELATIVES AND THEREFORE NO INTEREST IS CHARGED ON THE SAME. T HIS CONTENTION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE AND REJECTED BY T HE A.O. THE A.O. HELD THAT ANY PRUDENT BUSINESS MAN WHEN HE HIMSELF IS PA YING INTEREST ON LOANS WHICH ARE INTEREST BEARING SHOULD HAVE CHARGED INTE REST FROM THE PERSONS TO WHOM LOANS HAVE BEEN GIVEN. THE A.O. ACCORDINGLY WO RKED OUT DISALLOWANCE AT RS.1,18,286/- AS NOTIONAL INTEREST INCOME AND AD DED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES, VIDE ASSESSMENT ORDER DATED 04-10-2010 PASSED BY THE AO U/S. 143(3) OF THE ACT 11. AGGRIEVED BY THE ASSESSMENT ORDER DATED 04-10- 2010 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 12. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE LOANS WERE ADVANCED FOR PURCHASING A PIECE OF LAND AND CONSTRUCTION OF A RESIDENTIAL HOUSE AND OVER A PERIOD OF TIME A GOOD PORTION OF THE ADVANCE WAS REPAID AND ONLY SOME AMOUNT WAS LEFT OUTSTANDING AS AT THE END OF THE PR ESENT PREVIOUS YEAR. IT WAS STATED BEFORE THE A.O. THAT THE SAID LOAN WAS GIVEN BY THE ASSESSEE OUT OF OWN RESOURCES AND NO INTEREST-BEARING FUNDS WERE DIVERT ED FOR ADVANCING THESE INTEREST FREE LOANS. THE ASSESSEE SUBMITTED THAT AF TER VERIFICATION OF PAST RECORDS AND FINANCIAL STATEMENTS OF THE ASSESSEE, T HE A.O. WAS SATISFIED THAT NO INTEREST-BEARING FUNDS HAVE BEEN DIVERTED FOR GI VING THESE INTEREST-FREE ADVANCES WHICH IS EVIDENT FROM THE FACT THAT NO DIS ALLOWANCE OUT OF INTEREST OUTFLOW HAS BEEN MADE BY HIM. THE A.O., HOWEVER, WA S OF THE VIEW THAT THE ITA 579 /MUM/2012 18 ASSESSEE SHOULD HAVE CHARGED INTEREST AND ACCORDING LY THE AO HAS WORKED OUT INTEREST ON NOTIONAL BASIS AND MADE ADDITION TO THE RETURNED INCOME. THE CONCEPT OF 'DEEMED INTEREST INCOME ON INTEREST-FRE E ADVANCES OUT OF OWN RESOURCES HAS NOT BEEN CODIFIED IN THE ACT. THUS NO ADDITION ON THIS COUNT CAN BE MADE FOR LOAN ADVANCED IN THESE EXIGENCIES, TO AN EMPLOYEE AND HIS WIFE FOR THE PURPOSE OF PURCHASE OF A PIECE OF LAND FOR BUILDING A RESIDENTIAL HOUSE. IN SUPPORT, THE ASSESSEE RELIED ON THE DECIS ION OF THE TRIBUNAL IN THE CASE OF ITO V. C.J. RATHOD 11 ITR (TRIBUNAL) 252 (A HMEDABAD), ASHOK BROS V. ITO 76 TTJ (HYD) 427. THE CIT(A) AFTER CONSIDERING THE SUBMISSION AND THE A.O.S ORDER OBSERVED THAT THE A.O. HAS MADE ADDITI ON ESTIMATING INTEREST CHARGEABLE ON THE LOANS GIVEN TO PARTIES FROM WHOM THE ASSESSEE HAD NOT CHARGED ANY INTEREST. WHILE NO ADDITION CAN BE MADE ON THE BASIS OF NOTIONAL INTEREST PER SE, HOWEVER, IT IS ALSO THE CASE THAT WHILE INTEREST ON BORROWING ON BUSINESS IS ALLOWABLE AS DEDUCTION U/S. 36(1 )(III) OF THE ACT , SUCH BORROWING, IF DIVERTED WOULD CEASE TO BE BORROWING FOR THE PU RPOSES OF BUSINESS, SO THAT THE PROPORTIONATE INTEREST IS LIABLE FOR DISALLOWAN CE. IN SUPPORT, THE CIT(A) RELIED UPON THE DECISION IN THE CASE OF K. SOMASUND ARAM & BROTHERS (1999) 238 ITR 939 (MAD) AND THE DECISION OF HONBLE ALLAH ABAD HIGH COURT IN THE CASE OF CIT V. H. R. SUGAR FACTORY (P) LTD (1991) 187 ITR 363 (ALL.) WHEREIN IT IS HELD THAT IN CASE OF COMMON POOL OF FUNDS , PROP ORTIONATE DISALLOWANCE CAN BE MADE. THE CIT(A) ALSO REFERRED TO THE JUDGMENT O F HONBLE PUNJAB AND HARYANA HIGH COURT DECISION IN CIT V. ABHISHEK INDU STRIES LIMITED, (2006) 286 ITR 1 (P & H HC), WHEREIN IT HAS BEEN HELD THA T THERE SHOULD BE A NEXUS OF USE OF BORROWED FUNDS FOR THE PURPOSE OF BUSINES S TO CLAIM DEDUCTION U/S 36(1)(III) OF THE ACT . THE CIT(A) HELD THAT IT IS THUS FOR THE ASSESSEE TO PROVE THAT FUNDS BORROWED FOR BUSINESS WERE UTILIZED FOR THE PURPOSE OF BUSINESS, IT IS NOT FOR THE REVENUE TO ESTABLISH NEXUS BETWEEN T HE BORROWED FUNDS AND INTEREST FREE FUNDS ADVANCED, HENCE, A.O. WAS DIREC TED TO MAKE PROPORTIONATE DISALLOWANCE FROM THE INTEREST CLAIMED U/S 36(1)(II I) OF THE ACT AT THE SAME ITA 579 /MUM/2012 19 RATE OF INTEREST AS HAD BEEN PAID ON THE BORROWINGS , VIDE ORDERS DATED 02-12- 2011. 13. AGGRIEVED BY THE ORDERS DATED 02-12-2011 OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 14. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT NOTIONAL INTEREST HAVE BEEN DISALLOWED BY THE A.O. TO THE TUNE OF RS. 1,18 ,286/-. THE LD COUNSEL CONTENDED THAT THE LOANS HAVE BEEN GIVEN TO THE EMP LOYEES AND HIS WIFE FOR BUYING A PIECE OF LAND AND CONSTRUCTING BUILDING TH ERE-ON . THE EMPLOYEES ARE RELATIVES OF THE ASSESSEE. HE SUBMITTED THAT T HE CAPITAL OF THE ASSESSEE IS AROUND RS. 41.94 LACKS WHILE THE LOAN HAVE BEEN GRA NTED TO THE TUNE OF RS.9,86,874/- AS ON 31-3-2008 AND THE LOANS OUTSTAN DING WERE OF RS. 12,33,772 AS ON 31.3.2007. THE ASSESSEE IS HAVING SUFFICIENT OWNED FUNDS BEING CAPITAL OF RS. 41.94 LAKHS WHICH IS INTEREST FREE AND HENCE THERE IS A PRESUMPTION THAT THE ASSESSEE HAS DEPLOYED INTEREST FREE FUNDS TOWARDS GRANT OF INTEREST FREE ADVANCES TO EMPLOYEE OF THE ASSESS EE SHRI O.P. MEHTA AND HIS WIFE SMT. VIMLA MEHTA. THE LD. COUNSEL RELIED UPON THE DECISION IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LIMITED (200 9) 178 TAXMAN 135(BOMBAY) AND CIT V. HDFC BANK LIMITED (2014)366 ITR 505(BOM.). THE ASSESSEE HAS ALSO RELIED UPON THE FOLLOWING DECISIO NS:- 1. DCIT V. ANANDA MARAKALA, 150 ITD 323 (BANG). 2. CIT V. GAUTAM MOTORS, 45 DTR 89(DEL). 3. RELIANCE INDUSTRIES LTD V. ADDL CIT, 79 DTR 31 5 (MUM TRIB). 4. TATA CHEMICALS LTD V. ACIT, 138 ITD 458 (MUM) 5. VENUS RECORDS & TAPES (P) LTD. V ADDL CIT, 152 T T J (MUM) 1. ITA 579 /MUM/2012 20 6. PRANIK SHIPPING & SEVICES PVT LTD V ACIT, 70 DTR 17(MUM TRIB). 7. GUPTA GLOBAL EXIM P LTD V ACIT , 18 TAXMANN.COM 255. 8. MADHU INDUSTRIES LTD V. ITO, 1132 TTJ 233. (AHD). 9. YAMUNA PRASAD RESHWA V. DY CIT, 143 TTJ 615. (JD H) . 15. THE LD. D.R. RELIED UPON THE ORDER OF LD. CIT(A ). 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PE RUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE CASE LAWS RELIED UPON BY THE RIVAL PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE HAS ADVANCED INT EREST FREE LOANS TO HER EMPLOYEE AND HIS WIFE, WHO ARE ALSO RELATIVES OF TH E ASSESSEE WHICH WAS OUTSTANDING TO BE RECEIVABLE TO THE TUNE OF RS. 9,8 6,874.18 AS ON 31-3-2008 AND RS. 12,33,772.00 AS ON 31-3-2007 AS PER AUDITED FINANCIAL STATEMENTS SUBMITTED BY THE ASSESSEE . THE ASSESSEES TOTAL O WNED INTEREST FREE FUNDS BEING OWNED CAPITAL IS RS.41,93,799.52 AS AT 31-03- 2008 AND RS.34,89,597.58 AS AT 31-03-2007 AS PER AUDITED FIN ANCIAL STATEMENTS AND THERE IS A PRESUMPTION THAT ASSESSEE HAS UTILIZED I TS OWN INTEREST FREE FUNDS BEING OWNED CAPITAL FOR GRANTING INTEREST FREE LOA NS TO EMPLOYEE AND HIS WIFE WHO ARE ALSO RELATIVES OF THE ASSESSEE. AS COULD BE OBSERVED THAT THE ASSESSEE OWNED CAPITAL INVESTED IN THE CONCERN OF RS 34.89 L ACS AS AT 31-03-2007 IS MUCH HIGHER THAN THE INTEREST FREE LOAN ADVANCED OF RS.12.34 LACS AS AT 31- 03-2007 , WHEREBY IT COULD BE SEEN THAT INTEREST FR EE FUNDS OF RS.34.89 LACS OWNED BY THE ASSESSEE ARE MUCH MORE THAN THE AMOUNT OF RS.12.34 LACS ADVANCED BY THE ASSESSEE AS INTEREST FREE LOANS AN D THE PRESUMPTION AS LAID DOWN BY THE JUDGMENTS OF JURISDICTIONAL HONBLE HIG H COURT OF BOMBAY IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LIMITED (2009) 178 TAXMAN 135(BOMBAY) AND CIT V. HDFC BANK LIMITED (2014)366 ITR 505(BOM.) SHALL SQUARELY APPLY THAT THE ASSESSEE HAS DEPLOYED ITS O WNED FUNDS FOR GRANT OF INTEREST FREE LOANS AND HENCE THE ADDITIONS MADE B Y THE AO AND AS CONFIRMED ITA 579 /MUM/2012 21 BY THE CIT(A) WITH RESPECT OF INTEREST OF RS.1,18, 286/- AS INCOME FROM OTHER SOURCES IS ORDERED TO BE DELETED. WE ORDER ACCORD INGLY. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA N0. 579/MUM/2012 FOR THE ASSESSMENT YEAR 2008-09 IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH APRIL, 2016. # $% &' 11-04-2016 ( ) SD/- SD/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 11-04-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI D BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI