D.C.I.T Cir - 8,kolkata., Kolkata V. M/s Medpat Finance Limited, Kolkata

ITA 625/KOL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100211 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 22-03-2013
• Court: TRIBUNAL
• Department Lawyers: S C DASJCIT
• Assessee Lawyers: D S DAML E FCA LD
• Keywords: Unexplained investment
• Section: 69; 145; 143(3); 14A; 133(6)

Judgement Text

ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, K OLKATA BEFORE : SHRI MAHAVIR SINGH,JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 625/KOL/2013 A.Y 2009-10 D.C.I.T, CIRCLE-8, KOLKATA VS. M/S. MEDPAT FINACE LIMITED PAN: AACCM 0 685L (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI S.C DAS,JCIT, SR.DR FOR THE RESPONDENT : SHRI D.S D AMLE, FCA, LD.AR DATE OF HEARING: 30-11 -2015 DATE OF PRONOUNCEMENT: 4-12-201 5 ORDER SHRI M.BALAGANESH, AM : THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE LEARNED CIT(A), VIII, KOLKATA IN APPEAL NO. 277/CIT(A)-VIII /KOL/11-12 FOR THE ASST YEAR 2009-10 DATED 17-12-2012 AGAINST THE ORDER OF ASSE SSMENT PASSED BY THE LEARNED AO U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT). 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED AO IS RIGHT I N MAKING DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES TO THE TU NE OF RS. 10,21,245/- IN RESPECT OF DIVIDEND INCOME EARNED BY THE ASSESSEE TO THE EXTEN T OF RS. 180/-. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE IS A NON-BANKING FINANCE COMPANY AND IS HOLDING CERTIFICATE OF REGISTRATION FROM RES ERVE BANK OF INDIA TO CARRY ON THE BUSINESS OF NON BANKING FINANCE COMPANY WITH EFFECT FROM 27.2.1998. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED AO NO TICED THAT THE ASSESSEE HAD DERIVED ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 2 DIVIDEND INCOME WHICH IS EXEMPT TO THE TUNE OF RS. 180/- AND ASSESSEE WAS REQUESTED TO SHOW CAUSE AS TO WHY THE PROPORTIONATE EXPENSES DEE MED TO HAVE BEEN INCURRED IN RELATION TO THE DIVIDEND INCOME SHOULD NOT BE DISAL LOWED U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES. IN RESPONSE TO THE SAID SHO W CAUSE NOTICE, THE ASSESSEE REPLIED THAT THE INVESTMENT OF RS. 2,21,18,521/- WAS MADE B Y THE ASSESSEE OUT OF SHARE CAPITAL AND OUT OF TAXED ACCUMULATED PROFITS OVER THE YEARS AND NO EXPENDITURE HAS BEEN INCURRED ON THE INVESTMENT WHICH HAS BEEN CHARGED T O PROFITS OF THE ASSESSEE COMPANY AS PER PROFIT AND LOSS ACCOUNT. THE LEARNED AO IG NORING THE SUBMISSIONS OF THE ASSESSEE DIRECTLY ADOPTED RULE 8D OF THE RULES AND MADE DISALLOWANCE U/S 14A OF THE ACT TO THE TUNE OF RS. 10,21,245/-. ON FIRST APPE AL, THE LEARNED CITA HELD THAT THE ASSESSEES NET OWNED FUNDS AS ON 31.3.2009 WERE RS. 11.29 CRORES AND AS ON 31.3.2008 WAS RS. 7.02 CRORES. THE ASSESSEES INVESTMENT IN S HARES DURING THE YEAR WENT UP ONLY BY RS 1.5 LACS. THESE FACTS THEREFORE SUPPORTS TH E ASSESSEES CASE THAT MORE THAN 99% OF INVESTMENT WAS BROUGHT FORWARD FROM EARLIER YEAR S. HE ALSO FOUND THAT NO DISALLOWANCE U/S 14A OF THE ACT WAS MADE FOR EARLIE R ASSESSMENT YEARS. HE FOUND THAT THE LEARNED AO HAD DIRECTLY EMBARKED ON APPLYING RU LE 8D(2) OF THE RULES WITHOUT RECORDING ANY SATISFACTION WITH COGENT REASONS IN T ERMS OF RULE 8D(1) OF THE RULES AS TO WHY THE SUBMISSION OF THE ASSESSEE THAT NO EXPENDIT URE WAS INCURRED FOR EARNING DIVIDEND INCOME IS INCORRECT. HE FURTHER HELD T HAT THE LEARNED AO HAD NOT BROUGHT ANY NEXUS BETWEEN USE OF BORROWED FUNDS WITH ACQUIS ITION OF INVESTMENTS. ACCORDINGLY, HE HELD THAT NO DISALLOWANCE NEED TO B E MADE IN TERMS OF RULE 8D(2)(II) OF THE RULES. HOWEVER, IN RESPECT OF DISALLOWANCE CON TEMPLATED UNDER RULE 8D(2)(III) FOR MANAGEMENT EXPENSES, HE DIRECTED THE LEARNED AO TO DISALLOW A SUM OF RS. 25,000/- TO MEET THE ENDS OF JUSTICE. THE ASSESSEE HAD NOT P REFERRED FURTHER APPEAL BEFORE US AGAINST THIS ORDER. THE REVENUE IS IN APPEAL BEF ORE US ON THE FOLLOWING GROUND:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ACTION OF AO IN DISALLOWING A SUM OF RS.10,21,245/- INVOKING THE PROVISIONS OF SECTIO N 14A R.W.R 8D. ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 3 2.2. THE LEARNED DR ARGUED THAT DISALLOWANCE U/S 14A OF THE ACT IS MANDATORILY TO BE MADE AND HENCE PLEADED FOR RESTORATION OF ORDER OF THE LEARNED AO. IN RESPONSE TO THIS, THE LEARNED AR VEHEMENTLY SUPPORTED THE ORDER OF TH E LEARNED CIT(A). 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HOL D THAT THE LEARNED CIT(A) HAD GIVEN COGENT REASONS IN HIS APPELLATE ORDER TO DISALLOW A SUM OF RS. 25,000/- TOWARDS PROPORTIONATE MANAGEMENT EXPENSES IN TERMS OF RULE 8D(2)(III) OF THE IT RULES AS THE EXPENDITURE DEEMED TO HAVE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF EARNING DIVIDEND INCOME OF RS. 180/-. THE FACTUAL FINDINGS GIVEN BY THE LEARNED CIT(A) WITH REGARD TO THE AVAILABILITY OF OWN FUNDS WITH THE AS SESSEE FOR THE PURPOSE OF MAKING THE INVESTMENTS HAVE NOT BEEN CONTROVERTED BY THE LEARN ED DR BEFORE US. HENCE NO DISALLOWANCE IS WARRANTED IN TERMS OF RULE 8D(2)(II ) OF THE RULES. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) AND ACCORDINGLY, THE GR OUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 3. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO IS JUSTIF IED IN MAKING AN ADDITION OF RS. 1,23,56,247/- TOWARDS INTEREST INCOME ON HIRE PURCH ASE LOANS ADVANCED BY THE ASSESSEE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT ASSESSE E BEING A NON BANKING FINANCE COMPANY ADVANCED MONIES UNDER HIRE PURCHASE SCHEME TO M/S G URU MEHAR CONSTRUCTION DURING THE FINANCIAL YEAR 2003-04 RELEVANT TO ASST YEAR 20 04-05 FOR ACQUIRING VEHICLES. THE HIRE PURCHASE FINANCE CHARGES WAS RECOGNIZED AS INC OME ON MERCANTILE BASIS BY THE ASSESSEE FROM THE INCEPTION OF THE CONTRACT IN RESP ECT OF THIS PARTY M/S GURU MEHAR CONSTRUCTION TILL ASST YEAR 2007-08. DURING ASST YEAR 2008-09, THE SAID HIRE PURCHASE ACCOUNT BECAME NON-PERFORMING ASSET (NPA) DUE TO DE FAULT IN PAYMENT OF INSTALLMENTS. THE ASSESSEE BEING A NON- BANKING FINANCE COMPANY I S BOUND TO COMPLY WITH THE ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 4 PRUDENTIAL NORMS PRESCRIBED BY THE RESERVE BANK OF INDIA IN RESPECT OF INCOME RECOGNITION , CLASSIFICATION OF ASSETS AND PROVISIO N FOR NPA REQUIREMENTS IN ACCORDANCE WITH SECTION 45IA AND 45Q OF RESERVE BANK OF INDIA ACT. THE SAID PRUDENTIAL NORMS OF RBI MANDATE THE ASSESSEE TO RECOGNIZE INTEREST INCO ME ON NPA ACCOUNTS ONLY ON RECEIPT BASIS IRRESPECTIVE OF THE METHOD OF ACCOUNTING EMPL OYED BY THE ASSESSEE. SINCE THE ASSESSEE COULD NOT REALIZE THE INTEREST FROM THE SA ID PARTY I.E GURU MEHAR CONSTRUCTION, IT CHOSE NOT TO RECOGNIZE INTEREST INCOME ON ACCRUA L BASIS IN CONSONANCE WITH PRUDENTIAL NORMS PRESCRIBED BY RBI FOR THE ASST YEARS 2008-09 AND 2009-10. THE LEARNED AO OBTAINED INFORMATION FROM M/S GURU MEHAR CONSTRUCTI ON U/S 133(6) OF THE ACT WHO HAD PROVIDED FOR INTEREST PAYABLE TO ASSESSEE TO THE EX TENT OF RS. 1,23,56,247/- AND BASED ON THIS DATA, THE LEARNED AO PROCEEDED TO MAKE AN ADDI TION FOR THE SAME AMOUNT IN THE HANDS OF THE ASSESSEE AS INTEREST INCOME FROM GURU MEHAR CONSTRUCTION IGNORING COMPLETELY THE SUBMISSIONS OF THE ASSESSEE AS STATE D SUPRA. ON FIRST APPEAL, THE LEARNED CITA BY RELYING ON THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS VASISTH CHAY VYAPAR LTD REPORTED IN 330 ITR 440 (DELHI) HELD THAT THE PRUDENTIAL NORMS PRESCRIBED BY RBI WITH REGARD TO I NCOME RECOGNITION ARE TO BE MANDATORILY FOLLOWED BY THE ASSESSEE BEING A NBFC A ND FURTHER GOING BY THE CONCEPT OF REAL INCOME THEORY WHERE IN THE INSTANT CASE, EVE N THE RECEIPT OF PRINCIPAL IS DOUBTFUL OF RECOVERY, THE QUESTION OF RECOVERY OF INTEREST D OES NOT ARISE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE LEARNED AO. AGGRIEVED, TH E REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE B Y AO OF RS.1,23,56,247/- AS INTEREST INCOME IN THE HANDS OF THE ASSESSEE FOR YEAR UNDER CONSIDERATION. 3.2. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDE R OF THE LEARNED AO AND IN RESPONSE TO THIS THE LEARNED AR VEHEMENTLY SUPPORTE D THE ORDER OF THE LEARNED CIT(A). ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 5 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. THE FACTS STATED HEREINABOVE REMAIN UNDISP UTED BY BOTH THE PARTIES AND HENCE ARE NOT REITERATED HEREIN FOR THE SAKE OF BREVITY. WE FIND THAT HAVING REGARD TO THE PROVISIONS OF RBI ACT 1934 AND DIRECTIONS MADE THER EUNDER WITH REGARD TO INCOME RECOGNITION , IT IS APPARENT THAT THE ACCOUNT OF M/ S GURU MEHAR CONSTRUCTION CONSTITUTED NON-PERFORMING ASSET (NPA) AND THEREFORE INCOME THE REON COULD BE BOOKED ONLY ON RECEIPT BASIS BY THE ASSESSEE IRRESPECTIVE OF THE M ETHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. WE FIND THAT THIS ISSUE HAS BEEN ELABOR ATELY AND JUDICIALLY ADJUDICATED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS VASISTH CHAY VYAPAR LTD REPORTED IN 330 ITR 440 (DELHI) WHEREIN THE RELEVANT PROVISIONS OF THE IT ACT, RBI ACT, ACCOUNTING GUIDELINES ISSUED BY RBI AND ICAI ACCOUN TING STANDARDS ON REVENUE RECOGNITIOIN HAVE BEEN DULY CONSIDERED AND HELD THA T IN CASE OF NBFCS, THE INCOME RECOGNITION CAN ONLY BE DONE IN CONFORMITY WITH REV ENUE RECOGNITION NORMS LAID DOWN BY RBI. THE RELEVANT OPERATIVE PORTION OF THE DELH I HIGH COURT JUDGEMENT IS REPRODUCED HEREIN BELOW:- IT WAS NOT IN DISPUTE THAT ON THE APPLICATION OF T HE PROVISIONS OF THE RBI ACT AND THE 1998 DIRECTIONS, THE ICDS ADVANCED TO S BY THE ASSESSEE HAD BECOME NPA. IT WAS ALSO NOT IN DISPUTE THAT THE ASSESSEE-COMPANY BEING NBFC WAS BOUND BY THE AFORESAID PROVISIONS. T HEREFORE, UNDER THE AFORESAID PROVISIONS, IT WAS MANDATORY ON THE PART OF THE ASSESSEE NOT TO RECOGNIZE THE INTEREST ON THE ICDS AS INCOME HAVING REGARD TO THE RECOGNIZED ACCOUNTING PRINCIPLES. THE ACCOUNTING PR INCIPLES, WHICH THE ASSESSEE WAS INDUBITABLY BOUND TO FOLLOW, WERE AS-9 . [PARA 16] THEREFORE, IT COULD NOT BE SAID THAT INCOME IN THE FORM OF INTEREST, THOUGH NOT RECEIVED, HAD STILL ACCRUED TO THE ASSESSEE UND ER THE PROVISIONS OF THE INCOME-TAX ACT AND WAS, THEREFORE, EXIGIBLE TO TAX. IT WAS SO FOR THE REASONS: (1)THE ASSESSEE HAD NOT RECEIVED ANY INTEREST ON TH E SAID ICDS PLACED WITH S SINCE THE ASSESSMENT YEAR 1996-97 AS IT HA D BECOME NPA IN ACCORDANCE WITH THE PRUDENTIAL NORMS, WHICH WAS ENT ERED IN THE BOOKS OF ACCOUNT AS WELL. THE ASSESSEE HAD FURTHER SUCCESSFU LLY DEMONSTRATED THAT EVEN IN THE SUCCEEDING ASSESSMENT YEARS, NO INTERES T WAS RECEIVED AND THE POSITION REMAINED THE SAME UNTIL THE ASSESSMENT YEA R 2006-07. REASON WAS ADVERSE FINANCIAL CIRCUMSTANCES AND THE FINANCIAL C RUNCH FACED BY S. SO MUCH SO, IT WAS FACING WINDING UP PETITIONS WHICH W ERE FILED BY MANY ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 6 CREDITORS. THOSE CIRCUMSTANCES LED TO AN UNCERTAINT Y INSOFAR AS, RECOVERY OF INTEREST WAS CONCERNED, AS A RESULT OF THE AFORESAI D PRECARIOUS FINANCIAL POSITION OF S. WHAT TO TALK OF INTEREST, EVEN THE PRINCIPAL AMOUNT ITSELF HAD BECOME DOUBTFUL TO RECOVER. IN THAT SCENARIO, IT WA S LEGITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAD NOT ACCRUED. 3.3.1. WE ALSO FIND THAT THE HONBLE SUPREME COUR T IN THE CASE OF SOUTHERN TECHNOLOGIES LTD REPORTED IN 320 ITR 577 (SC) HAD HELD AS FOLLOWS:- IT IS WELL SETTLED THAT ACCOUNTING POLICY FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT CHANGE WOULD RESULT IN UNDER STATEMENT OF PROFIT. HOWEVER HERE IS A CA SE WHERE THE AO HAS TO FOLLOW THE RBI DIRECTIONS 1998 IN VIEW OF SECTION 4 5Q OF RBI ACT. HENCE, AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE. 3.3.2. WE ALSO FIND THAT THE LEARNED CIT(A) HAD MA DE THE FOLLOWING OBSERVATIONS :- 5.2.6 I, THEREFORE, FIND THAT IN THE MATTER OF RE VENUE RECOGNITION THE SUPREME COURT IN PRINCIPLE ACCEPTED THE LEGAL PROPO SITION THAT IN VIEW OF SEC 45Q OF THE RBI ACT, THE INCOME RECOGNITION PRIN CIPLES PRESCRIBED BY THE RBI ACT AND DIRECTIONS THERE-UNDER WERE HAVING OVER RIDING EFFECT IN THE ASSESSMENTS OF THE NBFCS AND THEREFORE NO INCO ME IN RELATION TO LOAN ASSETS QUALIFIED AS NPA CAN BE ASSETS TILL IT S REALIZATION EVEN THOUGH U/S. 145 OF THE I T ACT SUCH NBFC ASSESSES FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING. IN FACT I NOTE THAT NO CONTRARY PROVISI ON EXISTS CONTAINED IN THE I.T ACT WHICH IS CONTRARY TO RBIS PRUDENTIAL R EVENUE RECOGNITION NORMS. IN THIS FACTUAL BACKGROUND AND IN VIEW OF T HE OVER RIDING PROVISIONS OF SEC 45Q OF THE RBI ACT 1934, THE AO W AS BOUND TO FOLLOW THE REVENUE RECOGNITION PRINCIPLES ENGRAINED IN TH E RBIS PRUDENTIAL NORMS IN ASSESSING TOTAL INCOME OF THE APPELLANT. T HIS PROPOSITION IS ALSO ACCEPTED BY THE JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE OF CIT VS. KICM INVESTMENTS LTD AND SLP AGAINST THAT DECISION WAS DISMISSED BY THE SUPREME COURT. IN THE LIGHT OF THESE JUDICIAL DECIS IONS I HAVE NO HESITATION IN HOLDING THAT THE APPELLANT WHICH WAS AN NBFC WAS LIABLE TO FOLLOW PRUDENTIAL ACCOUNTING NORMS. IN TERMS OF THE SAID R BI DIRECTIONS THE APPELLANT COULD NOT HAVE RECOGNIZED REVENUE IN RESP ECT OF THE LOANS GRANTED TO GURU MEHAR CONSTRUCTION SINCE IT HAD CON TINUOUSLY DEFAULTED ON PAYMENT OF INTEREST FOR MORE THAN 6 MONTHS PERI OD AND THEREBY CLASSIFIED AS NPA. IN THE CIRCUMSTANCES MERELY BECA USE THE APPELLANT FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING, THE A O COULD NOT ASSESS THE ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 7 ALLEGED ACCRUED INTEREST OF RS.1,23,56,247/- AS IN COME OF THE APPELLANT CHARGEABLE IN AY 2009-10. 5.2.7 THE AO ALSO JUSTIFIED THE ADDITION OF THE AL LEGED INTEREST ON THE GROUND THAT IN ITS CONFIRMATION, GURU MEHAR CON STRUCTION HAD ADMITTED THAT THE APPELLANTS ACCOUNTS IN ITS BOOKS FOR FY 2008-09 WAS CREDITED BY THE SUM OF RS.1,2356,247/- IN RESPECT O F ACCRUED INTEREST AND OVER DUE INTEREST. IN AOS OPINION THE APPELLANT WAS LIABLE TO BE ASSESSED ON SUCH INTEREST BECAUSE IN THE BOOKS OF THE BORROW ER IT HAD ACCOUNTED THE INTEREST EXPENDITURE AND THEREFORE THE APPELLANT COULD NOT ESCAPE THE LIABILITY TO PAY TAX ON ACCRUED INTEREST BY TAKING SHELTER OF THE THEORY OF REAL INCOME. IN MY CONSIDERED OPINION HOWEVER MEREL Y ON THE BASIS OF ENTRIES PASSED IN THE BOOKS OF THE BORROWER, TAX LI ABILITY OF THE LENDER COULD NOT BE ARTIFICIALLY DETERMINED. THE CONFIRMAT ION ISSUED BY THE BORROWER PROVED THAT EXCEPT CREDITING INTEREST TO THE APPELLANTS ACCOUNT, IT DID NOT EVER COMPLY WITH LEGAL REQUIRES OF THE I .T ACT. THE BORROWER IN ITS CONFIRMATION ADMITTED THAT INTEREST OF RS.1,23, 56,247/- WAS CREDITED TO THE LENDERS ACCOUNT BUT THE PAYMENT ACTUALLY MADE WAS ONLY RS. 2 LACS. SAVE AND EXCEPT THAT ONE PAYMENT, NO OTHER SUMS WER E PAID. IF THE BORROWER ACTUALLY CREDITED INTEREST TO THE APPELLAN TS ACCOUNT IN ITS BOOKS THEN U/S. 194A OF THE I T ACT IT HAD LIABILITY TO D EDUCT TAX AT SOURCE. NOTHING WAS BROUGHT ON RECORD EITHER BY THE AO OR B Y THE BORROWER WHICH IN ANY MANNER SHOWED THAT AS REQUIRED BY SEC 194A, TAX WAS DEDUCTED AND PAID TO THE CREDIT OF THE CENTRAL GOVERNMENT IN RESPECT OF THE INTEREST OF RS.1,23,56,247/- ALLEGEDLY CREDITED BY THE BORRO WER IN ITS BOOKS TO THE ACCOUNT OF THE APPELLANT. RATHER THE INFORMATION FU RNISHED BY GURU MEHAR CONSTRUCTION SHOWED THAT SAVE AND EXCEPT FURNISHING ALLEGED CONFIRMATION OF INTEREST CREDITED, THE BORROWER DID NOT COMPLY W ITH STATUTORY REQUIREMENTS OF SEC. 194A. ON THESE FACTS THEREFO RE I AM UNABLE TO UPHOLD THE AOS ORDER ASSESSING INTEREST INCOME IN AY 2009-10 SIMPLY ON THE BASIS OF CONFIRMATION ISSUED BY THE SAID BORRO WER. 5.2.8 I ALSO FIND FORCE IN THE SUBMISSIONS OF THE A/R THAT EVEN UNDER MERCANTILE SYSTEM OF ACCOUNTING THE ENTIRE INTEREST FOR THE DEFAULTING PERIOD OF MORE THAN ONE YEAR COULD NOT BE ASSESSED AS INCOME OF THE APPELLANT IN ONE YEAR. IN PERCENTAGE TERMS INTEREST OF RS.1,23,56,247/- WORKS OUT TO BE 89% OF THE TOTAL OUTSTANDING PRINCI PAL SUM. THIS FACT ALSO SUPPORTS THE APPELLANTS PLEA THAT IN REALITY NO IN TEREST OF RS.1,23,56,247/- HAD ACCRUED TO THE APPELLANT IN THE FY 2008-09. CON SIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THEREFO RE, I HOLD THAT THE AO WAS NOT JUSTIFIED IN ASSESSING RS.1,23,56,247/- AS INTEREST INCOME OF THE APPELLANT CHARGEABLE IN AY 2009-10. THE AO SHALL H OWEVER INFORM THE ASSESSING OFFICER OF GURU MEHAR CONSTRUCTION REGARD ING THE FACT THAT THE ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 8 BORROWER CREDITED APPELLANTS ACCOUNT WITH THE ENTI RE ARREAR OF INTEREST IN ONE YEAR AND CLAIMED DEDUCTION FOR THE SAME IN ONE YEAR WHICH IS CONTRARY TO LAW. THE AO SHALL ALSO INFORM THE ASSES SING OFFICER OF THE BORROWER ABOUT DEFAULT COMMITTED BY THE BORROWER OF NON DEDUCTION OF TAX AND ITS CONSEQUENT EFFECT U/S. 40(A)(IA) OF TH E ACT. THESE DIRECTIONS ARE ISSUED TO ENSURE THAT NO LEAKAGE OF REVENUE OCC URS AS A CONSEQUENCE OF THE RELIEF ALLOWED TO THE APPELLANT. 3.3.3. IN VIEW OF THE UNDISPUTED FACTUAL FINDINGS WITH RELATED LEGAL POSITION ON THE IMPUGNED ISSUE , WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CITA ON THIS GROUND. HENCE THE GROUND NO.2 RAISED BY THE REVENUE IS DISM ISSED. 4. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED AO IS JUSTIFI ED IN ADDING THE DIFFERENCE IN HIRE PURCHASE LOAN BALANCE AS ON 1.4.2008 (OPENING BALAN CE) AS PER CONFIRMATION OBTAINED FROM M/S GURU MEHAR CONSTRUCTION U/S 133(6) OF THE ACT VIS A VIS THE BALANCE AS PER THE BOOKS OF THE ASSESSEE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LEA RNED AO OBTAINED INFORMATION U/S 133(6) OF THE ACT FROM GURU MEHAR CONSTRUCTION WHEREIN IT WAS CONFIRMED BY THE SAID PARTY THAT THE BALANCE OF HIRE PURCHASE LOAN PAYABLE TO A SSESSEE AS ON 1.4.2008 AT RS. 1,38,63,435/- . THE LEARNED AO COMPARED THIS BALAN CE WITH THAT APPEARING IN THE BOOKS OF THE ASSESSEE AND FOUND A DIFFERENCE OF RS. 8,21, 143/- WHICH HE BROUGHT TO TAX AS UNEXPLAINED INCOME OF THE ASSESSEE. ON FIRST APPE AL, THE LEARNED CITA DELETED THE ADDITION. AGGRIEVED, THE REVENUE IS IN APPEAL BE FORE US ON THE FOLLOWING GROUND:- 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF AO OF RS.8,21,143/- BEING ACCOUNTING DIFFERENCE IN THE OPENING BALANCE IN THE BOOKS OF THE ASSESSEE. ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 9 4.2. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED AO AND IN RESPONSE TO THIS THE LEARNED AR VEHEMENTLY SUPPORTE D THE ORDER OF THE LEARNED CIT(A) AND ALSO HELD THAT IN ANY CASE, THERE IS NO CASE FO R MAKING AN ADDITION TOWARDS DIFFERENCE IN THE OPENING BALANCE OF LOAN FIGURES A S THE SAME COULD BE CONSIDERED IN THE YEAR IN WHICH THE DIFFERENCE AROSE. HE ARGUED THAT GURU MEHAR CONSTRUCTION HAD SUBMITTED THE DETAILS OF TRANSACTIONS TO THE LEARNE D AO U/S 133(6) OF THE ACT ONLY IN RESPECT OF ASST YEAR 2009-10 AND NOT FOR THE EARLIE R YEARS. HENCE IT IS NOT POSSIBLE TO IDENTIFY IN WHICH YEAR THE REAL DIFFERENCE IN LOAN BALANCE AROSE. IN ANY CASE, HE ARGUED THAT THERE IS NO SCOPE FOR MAKING ANY ADDIITON IN R ESPECT OF OPENING BALANCE DIFFERENCE AND MOREOVER, THE LEARNED AO HAD NOT MENTIONED ANY SECTION UNDER WHICH THE SAID DISALLOWANCE IS CONTEMPLATED BY HIM. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LEARNED CITA HAD DELETED THE ADDIT ION BY MAKING THE FOLLOWING OBSERVATIONS:- 5.3.1 I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN THE COURSE OF HEARING THE A/R FILED YEAR-WISE SUMMARY OF ASSESSEE S AAPPELLANTS TRANSACTIONS WITH GURU MEHAR CONSTRUCTION FOR THE P ERIOD 01.04.2003 TO 31.03.2009. FROM THE SAID SUMMARY IT APPEARED THAT SUM OUTSTANDING AND DUE FROM GURU MEHAR CONSTRUCTION ON 01.04.2008 WAS RS. 1,30,42,291/- WHEREAS AS PER THE CONFIRMATION OF THE BORROWER IT WAS RS. 1,38,63,435/-. THE ADDITION IN THE IMPUGNED ORDER WAS BASED SOLEL Y ON THE CONFIRMATION OF GURU MEHAR AND NO OTHER. ADMITTEDLY, THE OPENIN G BALANCE AS ON 01.04.2008 WAS THE CULMINATION OF APPELLANTS TRAN SACTIONS WITH GURU MEHAR CONDUCTED TILL 31.03.2008. IT WAS NOT A CASE WHERE THE TRANSACTIONS WITH THE BORROWER COMMENCED ONLY IN FY 2008-09 AND IN RELATION TO THESE TRANSACTIONS DISCREPANCIES WERE FOUND. IN THE CIRCUMSTANCES I FIND FORCE THAT THE ALLEGED ACCOUNTING DISCREPANCY AS O N 01.04.2008 DID NOT EMANATE OUT OF FINANCIAL TRANSACTIONS CARRIED OUT DURING THE FY 2008-09. ALTHOUGH THE AO DID NOT SPECIFY THE SECTION OF THE I T ACT UNDER WHICH THE ADDITION WAS MADE, YET THE SAID ADDITION WAS PERMIS SIBLE ONLY BY WAY OF UNEXPLAINED INVESTMENT U/S. 69 OF THE ACT BECAUSE T HE OUTSTANDING LOAN COULD ONLY BE CONSIDERED AS APPELLANTS INVESTMEN T . HOWEVER, IN ORDER TO INVOKE SEC 69, IT WAS NECESSARY FOR THE AO TO PR OVE THAT THE ALLEGED UNEXPLAINED INVESTMENT WAS MADE OR ACQUIRED DURING THE FINANCIAL YEAR ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 10 RELEVANT TO AY 2009-10. BY AOS OWN ADMISSION THE D IFFERENCE AROSE IN THE BALANCE OUTSTANDING AS AT THE BEGINNING OF THE FY 2008-09. THIS BALANCE WAS BROUGHT FORWARD FROM 31.03.2008 MEANIN G THEREBY THE DIFFERENCE BETWEEN THE APPELLANTS BOOKS AND THE BO OKS OF GURU MEHAR CONSTRUCTION PERSISTED IN THE EARLIER YEAR. THE ACC OUNTING DIFFERENCE AS PER APPELLANTS BOOKS AND AS PER BORROWERS BOOKS D ID NOT EMANATE OUT OF APPELLANTS TRANSACTIONS FOR THE FY 2008-09. I ALSO FIND FORCE IN THE A/RS SUBMISSION THAT NO INFORMATION WAS GATHERED BY THE AO FROM GURU MEHAR CONSTRUCTION WITH REGARD TO ITS TRANSACTIONS WITH APPELLANT IN THE YEAR PRIOR TO FY 2008-09 EVEN THOUGH THE APPELLANT HAD TRANSACTIONS WITH THE SAID PARTY EARLIER. THE ACCOUNTING DIFFERENCE A S AT THE OPENING OF THE PREVIOUS YEAR WAS THE CULMINATION OF THE TRANSACTIO NS CONDUCTED PRIOR TO 01.04.2008 AND THEREFORE ADDITION IF ANY COULD HAVE BEEN MADE ONLY IN THE RELEVANT YEARS WHEN THE TRANSACTIONS GIVING RISE TO DISCREPANCY ACTUALLY TOOK PLACE. ALTHOUGH THE AO ALLEGED THE APPELLANTS FAILURE TO FURNISH PROPER EXPLANATION FOR SUCH ACCOUNTING DISCREPANCY YET I FIND THAT THE AO HIMSELF DID NOT OBTAIN SUFFICIENT INFORMATION FROM THE BORROWER TO ENABLE THE APPELLANT TO RECONCILE THE DIFFERENCE IN THE OP ENING BALANCES. CONSIDERING THE TOTALITY OF THE FACTS AND HAVING RE GARD TO LANGUAGE EMPLOYED IN SEC 69 OF THE I T ACT. I FIND MERIT IN THE A/RS SUBMISSIONS THAT THE ACCOUNTING DIFFERENCE IN THE OUTSTANDING B ALANCE BROUGHT FORWARD FROM THE EARLIER YEAR DID NOT REPRESENT UNEXPLAINED INVESTMENT OF THE FY 2008-09 AND THEREFORE COULD NOT BE ASSESSED AS UNEX PLAINED INCOME OF THE APPELLANT FOR THE AY 2009-10. ACCORDINGLY ADDITION OF RS. 8,21,143/- IN AY 2009-10 IS DELETED. THE AO SHALL HOWEVER OBTAIN THE DETAILS OF APPELLANTS YEAR WISE TRANSACTIONS FROM GURU MEHAR CONSTRUCTION AND PROVIDE OPPORTUNITY TO THE APPELLANT OF RECONCILING THE YEA R WISE BALANCE AND IF THE APPELLANT IS UNABLE TO EXPLAIN THE DISCREPANCI ES THEN THE AO SHALL MAKE THE ADDITION IN THE YEAR IN WHICH THE DISCREPA NCY ARISES. BEFORE DOING SO THE AO SHALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO THE APPELLANT. THE FACTUAL FINDINGS RECORDED HEREINABOVE HAVE NOT BEEN CONTROVERTED BY THE LEARNED DR BEFORE US. WE FIND LOT OF FORCE IN THE ARGUMENT OF THE LEARNED AR THAT EVEN ASSUMING THAT THE DIFFERENCE IN OPENING BALANCE OF LOAN FIGURE IS TO BE BROUGHT TO TAX, IT CANNOT BE ADDED AS INCOME IN THE ASST YEAR 2009-10 AND IT SHOULD BE CONSIDERED ONLY IN THE YEAR IN WHICH THE DIFFERENCE, IF ANY, AROSE. W E FIND FROM THE DETAILS SUBMITTED BY THE SAID PARTY I.E GURU MEHAR CONSTRUCTION, THAT HE HAD NOT SUBMITTED THE TRANSACTION ITA NO.625/KOL/2013-A-AM M/S. MEDPAT FINANCE LIMITED 11 DETAILS PRIOR TO ASST YEAR 2009-10 AND HENCE IT IS NOT CLEARLY DISCERNIBLE FROM THE RECORDS AS TO IN WHICH YEAR THE DIFFERENCE HAD AROS E. IN VIEW OF THIS AND IN VIEW OF ELABORATE FINDINGS RECORDED BY THE LEARNED CITA , W E FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD. AC CORDINGLY, THE GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 -12-2015. 1. . THE APPELLANT: THE DCIT, CIR-8 AAYKAR BHAWAN P-7 C HOWRINGHEE SQ., KOL-69. 2 THE RESPONDENT-M/S. MEDPAT FINANCE LIMITED 3B CAMA CT ST, KOL-16. 3 / THE CIT, 4.THE CIT(A) 5 . DR, KOLKATA BENCH 6 . GUARD FILE . TRUE COPY, BY ORDER, ASSTT REGISTRAR SD/ ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 4 /12/2015 COPY OF THE ORDER FORWARDED TO:-