Sh. Ajay Kumar Garg, Khanna V. ACIT, Khanna

ITA 678/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8348 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 15-03-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 09-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Opportunity of being heard; Retrospective amendment
• Section: 201(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 678/CHD/2015 ASSESSMENT YEAR : 2012-13 SH. AJAY KUMAR GARG, VS. THE ASST. CIT PROP. M/S. CHANDI STEEL , CIRCLE- KHANNA CORPORATION, VILL. ALLOUR, G.T. ROAD KHANNA PAN NO. AKHPG7832M (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUDHIR SEHGAL RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 15/03/2016 DATE OF PRONOUNCEMENT : 21/03/2016 ORDER PER BHAVNESH SAINI, J.M. THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAIN ST THE ORDER OF LD. CIT(A)-2, LUDHIANA, DT. 08/06/2015, IN ASSESSMENT YEAR 2012 -13. 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AND PERUSED THE MATERIALS ON RECORD. 3. ON GROUND NO. 1 & 2, ASSESSEE CHALLENGED THE ADD ITION OF RS. 60,000/- BEING INTEREST CHARGED @ 12% ON ADVANCE OF RS. 5,0 0,000/- GIVEN TO M/S ALCARGO GLOBAL LOGISTICS LTD., MUMBAI UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT. 4. BRIEF FACTS OF THIS ISSUE ARE THAT ASSESSEE IS I N THE BUSINESS OF IRON & STEEL TRADING AND RUNNING OF CRANES / JCBS / TIPPERS EXC AVATORS ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTED THAT THE ASSESSEE HAD GIVEN ADVANCE OF RS. 5,00,000/- TO M/S ALCARGO GLOBAL LOG ISTICS LTD., MUMBAI. THE AO 2 FURTHER NOTED THAT NO BUSINESS TRANSACTION HAD BEEN DONE WITH THIS PARTY DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE CONTENDE D THAT THE ADVANCE WAS GIVEN FOR PURCHASE OF CRANES AND THEREFORE THE ADVA NCE WAS A BUSINESS ADVANCE. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE NEITHER RECEIVED THE DELIVERY OF THE CRANES NOR THE ADVANCE AMOUNT RETUR NED BACK DESPITE REQUEST MADE TO THIS PARTY. THE AO WAS HOWEVER WAS NOT SATI SFIED WITH THE EXPLANATION OF ASSESSEE AND DISALLOWED RS. 60,000/- UNDER SECTI ON 36(1)(III) OF THE INCOME TAX ACT. 5. ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) AND THE SAME SUBMISSIONS WERE REITERATED. IT WAS EXPLAINED THAT ASSESSEE DEALT WITH ABOVE MACHINERY AND SINCE THERE WAS A DISAGREEMENT BETWEE N THE PARTIES AS TO THE PRICE SETTLED AND QUALITY NEGOTIATED, THEREFORE ASS ESSEE DID NOT WANT TO PROCEED WITH THE TRANSACTION AND THE SAID PARTY REF USED TO RETURN THE MONEY ADVANCED BY THE ASSESSEE. ULTIMATELY WHOLE ADVANCE WAS FORFEITED WHICH IS CLEAR FROM THE ACCOUNTS OF THE PARTIES. THE ASSESSE E WHEN FAILED TO RECOVER THE AMOUNT, IT WAS FINALLY TRANSFERRED THE AMOUNT AS IR RECOVERABLE IN ASSESSMENT YEAR 2013-14. 6. LD. CIT(A) ON GORING THROUGH THE COPY OF THE ACC OUNT OF THE ASSESSEE FOUND CHEQUE OF RS. 5,00,000/- WAS GIVEN ON 12/09/2 008 TO THE ABOVE PARTY WHICH CONTINUED TILL 30/03/2013. AS PER SUBMISSIONS OF THE ASSESSEE THIS AMOUNT WAS WRITTEN OFF AS BAD DEBT ON 30/03/2013. THE LD. CIT(A) HOWEVER, NOTED THAT NO EVIDENCE OF ANY BUSINESS TRANSACTION WITH THE SA ID CONCERN PRIOR TO OR SUBSEQUENT TO THE TRANSACTION OF GIVING RS. 5,00,00 0/- WAS FILED THEREFORE CLAIM OF ASSESEE IS NOT SUBSTANTIATED THROUGH ANY EVIDENC E. THE LD. CIT RELIED UPON DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. (2006) 286 ITR 1, CONFIRMED THE DIS ALLOWANCE OF INTEREST. THE LD. CIT(A) ALSO DID NOT ACCEPT THE CONTENTION OF THE AS SESSEE WITH REGARD TO FACT 3 THAT AO HAS NOT PROVED ANY NEXUS THAT THE INTEREST FREE ADVANCES WERE MADE OUT OF BORROWED FUNDS IN VIEW OF THE ABOVE JUDGMENT . 7. AFTER HEARING RIVAL CONTENTIONS WE ARE OF THE VI EW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF AO. 8. IT IS ADMITTED FACT THAT ADVANCES OF RS. 5,00,00 0/- WAS GIVEN ON 12/09/2008 AND NOTHING HAS BEEN BROUGHT ON RECORD AS TO WHAT T REATMENT HAVE BEEN GIVEN TO THE SAID AMOUNT IN PRECEDING YEAR AND WHET HER ANY INTEREST HAS BEEN DISALLOWED IN EARLIER YEARS AS WELL. THE AO HAS ALS O NOT DECIDED THE SUBMISSIONS OF THE ASSESSEE THAT THERE WAS NO NEXUS BETWEEN THE BORROWED FUNDS AND AMOUNT GIVEN TO THE AFORESAID PARTY. THE LD. CIT(A) FOLLOWED THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. (SUPRA) WHICH HAVE BEEN OVER RULED BY HONBLE SUPREME COURT IN THE CASE OF HERO CYCLES P. LTD. VS. CIT (2015) 379 ITR 347. THE MATTER THEREFORE REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. WE ACCORD INGLY SETASIDE THE ORDERS OF THE AUTHORITY BELOW AND RESTORE THIS ISSUE TO THE F ILE OF AO WITH DIRECTION TO DECIDE THIS ISSUE IN ACCORDANCE WITH LAW BY GIVING REASONABLE AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THESE G ROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 9. ON GROUND NO. 3, ASSESSEE CHALLENGED THE ORDER O F THE LD. CIT(A)IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 41,6 7,587/- FOR NOT DEDUCTING TDS BY APPLYING THE PROVISIONS OF SECTION 40A(IA) OF TH E INCOME TAX ACT. 10. BRIEF FACTS ARE THAT AO NOTED THAT ASSESSEE HAD RAISED LOANS FROM NON BANKING FINANCIAL COMPANIES AND HAD ALSO PAID INTER EST TO THEM. THIS INTEREST WAS LIABLE TO DEDUCTION OF TDS UNDER SECTION 194 A OF THE I.T. ACT. THE AO NOTED THAT ASSESSEE HAD NOT DEDUCTED TDS ON THE INTEREST PAID TO THESE NBFCS THEREFORE DISALLOWED THE AMOUNT ABOVE. 4 11. THE ASSESSEE SUBMITTED BEFORE LD. CIT(A) THAT A SSESSEE HAD BORROWED FUNDS FROM NBFCS NAMELY RELIANCE CAPITAL LTD., L&T FINANCE LIMITED, RELIGARE FINVEST LIMITED FOR THE PURPOSES OF BUSINESS AND PA ID THE INTEREST TO THEM TOTALING TO RS. 41,67,581/-, BUT THE ASSESSEE WAS HAVING NO KNOWLEDGE FOR DEDUCTION OF THE TDS. SINCE ASSESSEE PAID INTEREST TO THE ABOVE NBFCS THEREFORE ACCORDING TO BANKING REGULATION ACT 1949 NO TAX WAS TO BE DEDUCT ED ON THE INTEREST. THE AO FAILED TO APPRECIATE THAT THE TRANSACTION OF THE AS SESSEE WERE GENUINE. THERE IS A AMENDMENT IN SECTION 201(1) OF THE ACT AS WELL AS SECOND PROVISO HAVE BEEN ADDED TO PROVISION OF SECTION 40(A)(IA) OF THE ACT, ACCORDING TO WHICH IF THESE CONCERNED PARTIES (NBFCS) HAVE PAID TAXES ON THE IN COME EARNED BY THEM, ASSESSEE COULD NOT BE CONSIDERED TO BE IN DEFAULT. THE APPROPRIATE EVIDENCE IN SUPPORT OF THE SAME WERE ALSO FILED AND ALL THE ABO VE NBFCS HAVE DECLARED THE AMOUNT IN QUESTION IN THEIR RETURN OF INCOME. THE S ECOND PROVISO OF SECTION 40(A)(IA) IS APPLICABLE RETROSPECTIVELY AND ASSESSE E RELIED UPON SEVERAL DECISIONS IN SUPPORT OF HIS CONTENTION. 12. LD.CIT HOWEVER FOLLOWING THE DECISION OF KERALA HIGH COURT IN THE CASE OF M/S PRUDENTIAL LOGISTICS AND TRANSPORT VS. ITO IN ITA NO. 1/2014 VIDE JUDGMENT DT. 13/01/2014, REJECTED THE CLAIM OF THE ASSESSEE BECA USE IN THIS CASE IT WAS HELD THAT THE PROVISO WAS NOT APPLICABLE FOR EARLIER YEA RS. 13. AFTER HEARING RIVAL CONTENTION WE ARE OF THE VI EW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. HONBLE DEL HI HIGH COURT IN THE RECENT JUDGMENT IN THE CASE OF CIT VS. ANSAL LAND MARK TOW NSHIP P. LTD.(2015) 377 ITR 635 VIDE JUDGMENT DT. 26/08/2015 HELD AS UNDER: SECTION 40(A)(IA) OF THE INCOME-TAX ACT, 1961, IS AIMED AT ENSURING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN T HE HANDS OF AN ASSESSEE IN A SITUATION IN WHICH INCOME EMBEDDED IN SUCH EXPENDIT URE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT I S NOT A PENALTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CUR ATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM APRIL 1, 2005, BEING THE DATE FROM WHICH SUB-CLAUSE(IA) 5 OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2 ) ACT, 2004. THE FIRST PROVISO TO SECTION 201(1) OF THE ACT HAS BEEN INSERTED TO BENE FIT THE ASSESSEE. IT ALSO STATES THAT WHERE A PERSON FAILS TO DEDUCT TAX AT SOURCE O N THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT , SUCH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF S UCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139. W HAT IS COMMON TO BOTH PROVISOS TO SECTIONS 40(A)(IA) AND 201(1) OF THE AC T IS THAT AS LONG AS THE PAYEE OR RESIDENT HAS FILED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS A LSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERS ON IN DEFAULT. HELD, DISMISSING THE APPEAL, THAT THE PAYEES HAD FI LED RETURNS AND OFFERED THE SUMS RECEIVED TO TAX. NO DISALLOWANCE COULD BE MADE UNDER SECTION 40(A)(IA). IT IS A LATER DECISION AS AGAINST THE JUDGMENT OF T HE HONBLE KERALA HIGH COURT RELIED UPON BY THE LD. CIT(A) THEREFORE LATER DECIS ION WILL PREVAIL BECAUSE NO JUDGMENT OF THE JURISDICTIONAL HIGH COURT HAVE BEEN BROUGHT TO OUR NOTICE AGAINST THE ASSESSEE. FURTHER IT IS WELL SETTLED LA W THAT WHEN TWO VIEWS ARE POSSIBLE THE VIEW FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED. WE ACCORDINGLY FOLLOWING THE JUDGMENT OF THE HONBLE D ELHI HIGH COURT ABOVE SETASIDE THE ORDER OF THE AUTHORITIES BELOW AND RES TORE THIS ISSUE TO THE FILE OF AO WITH DIRECTION TO RE-DECIDE THIS ISSUE AFTER VERIFY ING THE FACTS FROM THE EVIDENCE FILED BY THE ASSESSEE ON RECORD VERIFYING IF PAYEES FILED INCOME TAX RETURN OFFERING SAME RECEIPT FOR TAXATION AND PAID TAXES, IN THE LIGHT OF JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP P. LTD. THE AO SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEI NG HEARD TO THE ASSESEE. 14. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES . 15. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (RANO JAIN) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 ST MARCH 2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR