ITO, Kanpur V. Shri Jagjit Singh, Kanpur

ITA 67/LKW/2011

• Counselvise Citation: 6723714 RSA 2011
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K RAM
• Assessee Lawyers: R R JAIN
• Keywords: Additional evidence
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI S. V. MEHROTRA , ACCOUNTANT MEMBER ITA NO. 67/LKW/2011 ASSESSMENT YEAR: 2007 - 08 INCOME TAX OFFICER 2(2) KANPUR V. SHRI. JAGJIT S INGH 118/585, KAUSHALPURI, KANPUR PAN: ACKPS3201K (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. R. K. RAM, D.R. RESPONDENT BY: SHRI. R. R. JAIN, C.A. DATE OF HEARING: 15.05.2012 DATE OF PRONOUNCEMENT: 18.05.2012 O R D E R PER S UNIL KUMAR YADA V : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) ON VARIOUS GROUNDS WHICH ARE AS UNDER: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) - II , KANPUR HAS ERRED IN LAW AND ON FACTS IN ALLOWING PAYM ENT OF FREIGHT AMOUNTING TO RS. 10,18,825 / - WITHOUT DEDUCTION OF TAX AT SOURCE WITHOUT APPRECIATING THAT AS PER PROVISION OF SECTION 40(A)(IA), ANY CLAIM OF EXPENDITURE FALLING UNDER THE AMBIT OF TDS IS ALLOWABLE ONLY AFTER TDS AT APPROPRIATE RATES HAS BEEN MADE. 2. IN DOING SO, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - LL, KANPUR HAS NOT APPRECIATED THE FACT THAT DURING THE ASSESSMENT : - 2 - : PROCEEDING THE ASSESSEE HIMSELF HAS ADMITTED THAT NO DEDUCTION OF TAX WAS MADE BY HIM BEFORE MAKING PAYMENT ON ACCOUNT OF FREIGHT. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 10 ,18,825 / - AFTER CONSIDERING THE ADDITIONAL EVIDENCES DURING THE COURSE OF APPELLATE PROCEEDINGS. ALSO, NO PROPER OPPORTUNITY HAS BEEN ALLOWED TO THE ASSESSING OFFICER TO EXAMINE THESE EVIDENCES AS PROVIDED UNDER RULE 46A OF THE INCOME TAX RULES 1962. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.25,000 / - ON ACCOUNT OF LIFTI NG CHARGES WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IL, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 3,66,239 / - UNDER SECTION 14A OF THE INCOME T AX ACT, 1961 READ WITH RULE 8D WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS TO INVEST IN AVENUES INCOME FROM WHICH IS EXEMPT FROM TAX. 6. THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) - II , KANPUR HAS ERRED IN LAW AND ON FACTS IN CONCLUDING THAT RULE 8D IS APPLICABLE FROM A.Y.2008 - 09 WITHOUT APPRECIATING THE FACT THAT THE SAID RULE IS ONLY A MACHINERY PROVISION AND CAN BE APPLIED ONLY IN CONJUNCTION WITH SECTION 14A(2), WHICH IS APPLICABLE FROM A.Y. 2007 - 08. : - 3 - : 7. TH AT THE ORDER OF THE LD. C1T (A) - L, KANPUR DATED 15.10.2010 NEEDS TO BE QUASHED AND THE ORDER PASSED BY THE ASSESSING OFFICER DATED 30.12.2009 BE RESTORED. 8. THAT THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF APPEAL MENTIONED ABOVE AND/OR TO ADD ANY FRESH GROUNDS AS AND WHEN IT IS REQUIRED TO DO SO. 2 . GROUNDS NO.1 TO 3 RELATE TO THE INVOCATION OF PROVISIONS OF SECTION 40 (A)(IA) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT) WITH REGARD TO PAYMENT OF FREIGHT AMOUNTING TO ` 1 0,18,825. 3 . THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS OBSERVED THAT OUT OF TOTAL AMOUNT DEBITED UNDER THE HEAD FREIGHT AND CARTAGE, A SUM OF ` 10,18,825 HAS BEEN PAID TO FIVE PERSONS EXCEEDING THE PRESCRIBED LIMIT OF ` 50,000 ON WHICH NO TAX HAS BEEN DEDUCTED AT SOURCE. ACCORDING TO THE ASSESSING OFFICER, SINCE NO TAX HAS BEEN DEDUCTED AT SOURCE, THE SAID EXPENDITURE IS NOT ALLOWABLE. HE ACCORDINGLY MADE DISALLOWANCE OF THE S AME AFTER INVOKING PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT. 4 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE ASSESSEE HAS DEPOSITED TAX AMOUNTING TO ` 25,398 ON THE SAME WITH BOB (BANK OF BARODA) ON 28.3.2007. THIS AM OUNT HAS BEEN DEBITED BY HIM IN TDS ACCOUNT INSTEAD OF DEBITING TO THE RESPECTIVE PARTIES ACCOUNTS. THUS, THERE IS NO FAILURE ON THE PART OF THE ASSESSEE NOT TO DEDUCT TAX AT SOURCE AND TO DEPOSIT THE SAME. IT WAS FURTHER CONTENDED BEFORE THE LD. CIT(A) THAT THE ASSESSING OFFICER HAS WRONGLY CONCLUDED THAT TAX DEDUCTED AT SOURCE AND DEPOSITED WITH THE EXCHEQUER IS NOT A TDS AND THERE IS A VIOLATION OF SECTION 40(A)(IA) OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, THE TAX SHOULD BE DEDUCTED AND THE BA LANCE SHOULD HAVE BEEN PAID TO THE PAYEE. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT : - 4 - : SIMPLY BECAUSE THE TAX DEDUCTED HAS NOT BEEN DEBITED TO THE ACCOUNT OF THE PAYEE, IT WOULD NOT MAKE ANY DIFFERENCE. THE ASSESSEE HAS NOT CLAIMED THE AMOUNT OF TDS A S EXPENDITURE DIRECTLY, RATHER IT IS THE AMOUNT DUE FROM THE RESPECTIVE PARTIES. MOREOVER, NO SINGLE PAYMENT HAS BEEN MADE EXCEEDING ` 50,000. IT IS ALTOGETHER AN INTERNAL MATTER/UNDERSTANDING BETWEEN THE PAYER AND THE PAYEE AND THE ASSESSEE WOULD RECOVER THE AMOUNT OF TAX DEDUCTED AT SOURCE FROM THE PAYEE. THEREFORE, THE OBLIGATION CAST ON THE ASSESSEE STANDS DISCHARGED. 5 . THE LD. CIT(A) VERIFIED THE FACTS AND BEING CONVINCED WITH THE EXPLANATION S OF THE ASSESSEE, DELETED THE ADDITION AFTER HAVING OBSERVED THAT THERE HAS BEEN NO VIOLATION OF PROVISIONS OF SECTION 94C OF THE ACT AND THEREFORE THE ASSESSING OFFICER WAS NOT RIGHT IN INVOKING THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT. 6 . NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SU BMISSION THAT THE ASSESSEE HAS NOT PLACED CHALLAN FOR DEPOSIT OF ` 25,398 BEFORE THE ASSESSING OFFICER. SINCE THE ASSESSEE HAS FAILED TO PRODUCE EVIDENCE WITH REGARD TO THE DEPOSIT OF TDS, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSES SEE. 7 . THE LD. COUNSEL FOR THE ASSESSEE, BESIDES PLACING HEAVY RELIANCE UPON THE ORDER OF THE LD. CIT(A), HAS CONTENDED THAT THE CHALLAN FOR DEPOSIT OF ` 25,398 WAS PRODUCED BEFORE THE LD. CIT(A) AND HE HAS VERIFIED THE FACTUM OF DEPOSIT. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS V. ACIT [2012] 70 DTR (VISAKHA) (SB)(TRIB) 81 WITH THE SUBMISSION THAT ALL THE PAYMENTS WERE MADE BEFORE THE END OF THE FINANCIAL YEAR, THEREFORE, NO DISALLOWANCE CAN BE MADE IN THE LIGHT OF THE AFORESAID ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL. : - 5 - : 8 . HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSEE HAS MADE DEPOSIT OF THE TDS THOUGH IT MIGHT NOT HAVE BEEN DEDUCTED FROM THE PAYMENTS MADE TO THE PAYEE, BUT IT RELATED TO THOSE PAYMENTS. THE FACT THAT ALL THE PAYMENTS HAVE BEEN MADE BEFORE THE END OF THE FINANCIAL YEAR HAS NOT BEEN DISPUTED BY THE REVENUE. THEREFORE , EVEN IF THE TDS WAS NOT DEDUCTED ON THESE PAYMENTS BUT THESE PAYMENTS WERE MADE BEFORE THE END OF THE FINANCIAL YEAR, DISALLOWANCE UNDER SECTION 40 (A) (IA) OF THE ACT CANNOT BE MADE IN THE LIGHT OF THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL REFERRED TO ABOVE. THEREFORE , FROM ANY ANGLE IF WE EXAMINE THE CASE OF THE ASSESSEE, WE WOULD FIND THAT THE DISALLOWANCE UNDER SECTION 40 (A)(IA) OF THE ACT IS NOT CALLED FOR. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE . 9 . GROUND NO.4 RELATES TO THE DELETION OF AD DITION OF ` 25,000 MADE ON ACCOUNT OF LIFTING CHARGES. 10 . DURING THE COURSE OF HEARING OF THE APPEAL, OUR ATTENTION WAS INVITED TO THE FACT THAT THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ON AD - HOC BASIS WITHOUT POINTING OUT ANY SPECIFIC DEFECT. THE L D. CIT(A) HAS DELETED THE ADDITION AFTER HAVING OBSERVED THAT LIFTING CHARGES ARE MORE OR LESS FIXED AT ` 160 PER M.T OR ` 180 PER M.T (WHICH HAS BEEN PAID FOR LIFTING OF COILS PURCHASED FROM TISCO/SAIL). THE LD. CIT(A) HAS FURTHER OBSERVED THAT THE ASSESSI NG OFFICER SHOULD HAVE RATHER VERIFIED IF SUCH QUANTITIES OF STEEL INDEED LIFTED BY THE ASSESSEE DURING THE YEAR, WHICH HAS NOT BEEN DONE BY HIM. 11 . BEFORE US, THE LD. D.R. COULD NOT POINT OUT ANY SPECIFIC DEFECT IN THE CLAIM OF THE ASSESSEE. HE HAS SIMPLY R ELIED UPON THE ORDER OF THE ASSESSING OFFICER. 12 . ON PERUSAL OF RECORD, WE FIND THAT THE ASSESSING OFFICER HAS MADE AD - HOC DISALLOWANCE OF ` 25,000 WITHOUT IDENTIFYING A PARTICULAR EXPENDITURE : - 6 - : WHICH IS NOT SUPPORTED BY ANY BILL/VOUCHER. WE, THEREFORE, FIND NO MERIT IN THIS AD - HOC DISALLOWANCE AND ACCORDINGLY THE ORDER OF THE LD. CIT(A) LD. CIT(A) ON THIS ISSUE IS CONFIRMED. 13 . GROUNDS NO.5 AND 6 RELATE TO THE DISALLOWANCE OF ` 3,66,241 ON ACCOUNT OF APPLICATION OF SECTION 14A OF THE ACT. 14 . THE FACTS IN BRIEF BORNE O UT FROM THE RECORD ARE THAT THE ASSESSING OFFICER HAS DISALLOWED A SUM OF ` 3,66,241 BY APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT AFTER HAVING ANALYSED THE AFFAIRS OF THE ASSESSEE. WHILE MAKING DISALLOWANCE , THE ASSESSING OFFICER HAS ALSO NOTED THA T THE ASSESSEE HAD CONSIDERABLE INTEREST BEARING BORROWINGS WHICH WAS, INTER - ALIA, USED BY THE ASSESSEE IN MAKING INVESTMENTS AND THE INCOME THEREFROM WAS NOT CHARGEABLE TO TAX. THE ASSESSING OFFICER ACCORDINGLY INVOKED PROVISIONS OF SECTION 14A OF THE AC T IN TERMS OF RULE 8D OF THE INCOME - TAX RULE AND COMPUTED THE DISALLOWANCE AT ` 3,66,241 AFTER PLACING RELIANCE UPON THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT, 117 ITD 169. 15 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT NO INVESTMENT HAS BEEN MADE IN ANY TAX FREE SECURIT Y . THE TOTAL CAPITAL OF THE ASSESSEE IN THE BUSINESS ITSELF IS ` 25,15,618. ALL THE AMOUNTS BORROWED, WHETHER IT IS AGAINST HYPOTHECATION OF STOCKS OR TERM LOAN, HA VE BEEN UTILIZED FOR THE PURPOSE OF BUSINESS. NO PART OF BORROWED FUND HAS BEEN UTILIZED FOR ANY INVESTMENT ELSEWHERE. AS PER CAPITAL ACCOUNT APPEARING IN THE BALANCE SHEET, A SUM OF ` 3,43,513 HAS BEEN DEBITED TOWARDS WITHDRAWALS. HIS PERSONAL BALANCE S HEET IS DIFFERENT THAN THE BALANCE SHEET OF THE BUSINESS ENTER PRISE AND IN HIS PERSONAL BALANCE SHEET THERE IS NO BORROWING AT ALL AND THE ENTIRE INVESTMENT S HAVE BEEN MADE FROM HIS CAPITAL. THEREFORE, NO PART OF BORROWED FUND HAS BEEN UTILIZED FOR TAX FR EE INCOME. IT WAS ALSO CONTENDED THAT RULE 8D CAME INTO : - 7 - : FORCE W.E.F. 24.3.2008 RELEVANT TO THE ASSESSMENT YEAR 2009 - 10, THEREFORE, THE DISALLOWANCE CANNOT BE COMPUTED IN ACCORDANCE WITH RULE 8D. 16 . HAVING CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, THE L D. CIT(A) DELETED THE ADDITION AFTER HAVING OBSERVED THAT SINCE THE APPELLANT HA D SUFFICIENT CAPITAL AND ALSO THE FACT THAT CURRENT YEARS INVESTMENT IN PPF AND INSURANCE HAVE BEEN MADE FROM CURRENT YEARS WITHDRAWALS, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT IS CALLED FOR. 17 . AGGRIEVED , THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT THE BORROWED FUNDS WERE INVESTED IN VARIOUS INVESTMENTS ON WHICH INTEREST FREE INCOME WAS GENERATED. THEREFORE, THE ASSESSING OFFICER HAS RI GHTLY MADE DISALLOWANCE UNDER SECTION 14A OF THE ACT. 18 . THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS SUBMITTED THAT THE ASSESSEE HAS BEEN MAINTAINING A SEPARATE ACCOUNT RELATING TO THE INVESTMENTS AND SINCE NO BORROWED FUND WAS INVESTED IN THOSE INVESTMENTS ON WHICH TAX FREE INCOME WAS GENERATED, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT IS CALLED FOR. IT WAS FURTHER CONTENDED THAT FOR THE BUSINESS ACTIVITIES , A SEPARATE ACCOUNT W AS MAINTAINED. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS ALSO AGREED THAT IF THE MATTER IS SENT BACK TO THE ASSESSING OFFICER, HE IS READY TO PROVE THIS FACT. THE LD. D.R. HAS ALSO AGREED THAT THE MATTER MAY BE SENT BACK TO THE ASSESSING OFFICER AND IF THE ASSESSEE SUCCEEDS IN PROVING THAT HE HAS BE EN MAINTAINING SEPARATE ACCOUNT FOR MAKING INVESTMENTS , ON WHICH INTEREST FREE INCOME WAS GENERATED AND NO BORROWED FUND WAS INVESTED IN INVESTMENTS, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE. 19 . HAVING CAREFULLY EXAMINED THE ORDER OF TH E LOWER AUTHORITIES, WE FIND THAT BOTH THE LOWER AUTHORITIES HAVE EXAMINED THE ISSUE IN DISPUTE ON : - 8 - : DIFFERENT ASPECTS. THEY HAVE NOT EXAMINED WHETHER THE ASSESSEE HAS MAINTAINED SEPARATE ACCOUNT FOR MAKING INVESTMENTS. UNDISPUTEDLY THE ASSESSEE HAS BORROW ED SOME FUNDS BUT ACCORDING TO HIM THESE FUNDS WERE UTILIZED FOR BUSINESS PURPOSES. SINCE THERE IS NO CATEGORICAL FINDING OF THE LOWER AUTHORITIES IN THIS REGARD, WE ARE OF THE VIEW THAT LET THE MATTER GO BACK TO THE ASSESSING OFFICER FOR EXAMINATION WHET HER INVESTMENTS WERE MADE FROM SEPARATE ACCOUNT OF THE ASSESSEE IN WHICH HE HAS NOT MADE ANY DEPOSIT OF THE BORROWED FUNDS. IF THE BORROWED FUNDS WERE NOT UTILIZED IN INVESTMENTS ON WHICH TAX FREE INCOME WAS GENERATED, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT IS CALLED FOR. THEREFORE, THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION OF THE ISSUE AFRESH IN TERMS INDICATED ABOVE. 20 . IN THE RESULT, APPEAL OF THE REVENUE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18.5.2012. SD/ - SD/ - [ S. V. MEHROTRA ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18.5.2012 JJ: 1605 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT( A) 4 . CIT 5 . DR ASSISTANT REGISTRAR