Mr.Thomas Daniel, Pathanamthitta V. The ITO, Ward-4, Thiruvalla

ITA 68/COCH/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0855 (ITAT-COCHIN)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-12-2018
• Assessment Year: 2014-2015
• Appeal Filed On: 02-03-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Keywords: Business income; Opportunity of being heard; Diversion of income; Retrospective amendment; Non-deduction of tax; Revised return; TDS
• Section: 40(a)(ia); 201(1); 56; 28; 139

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFOR E S/ SHRI CHANDRA POOJARI , AM & GEORGE GEORGE K., J M I .T . A. NO. 68 / COCH/ 201 8 ASSESSMENT YEAR : 2014 - 15 SHRI THOMAS DANIEL, INDICATTIL HOUSE, VAKAYAR P.O., PATHANMTHITTA [PAN: ABWPD 3364K] VS. THE INCOME TAX OFFICER, WARD - 3, THIRUVALLA. (ASSESSEE - APPELLANT) (REVENUE - RESPONDENT) A SSESSEE BY SHRI SIVADAS CHETTOOR, CA REVENUE BY SMT. A.S. BINDHU, SR. DR D ATE OF HEARING 16/10/ 2018 DATE OF PRONOUNCEMENT 12 / 1 1 /2018 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT (A), KOTTAYAM DATED AND PERTAINS TO THE ASSESSMENT YEAR 2014 - 15. 2. THE ASSESSEE HAS RAISED THE GROUND WITH REGARD TO DISALLOWANCE OF AN AMOUNT OF RS.67,30,90,917/ - BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. I.T.A. NO.68 /COCH/2018 2 3. THE FACTS OF THE CASE ARE THAT THE COMPUTATION STATEMENT FILED BY THE ASSESSEE SHOWED THE FOLLOWING AS INCOME: PROFIT AND GAINS OF BUSINESS OR PROFESSION PARTNERSHIP FIRM INCOME POPULAR FINANCE 4,55,000 TOTAL INCOME FROM BUSINESS AND PROFESSION 4,55,000 INCOME CHARGEABLE UNDER THE HEAD BUSINESS AND PROFESSION 4,55,000 INCOME FROM OTHER SOURCES BANK INTEREST 2,18,401 INTEREST INCOME SUB TREASURY 47,549 INTEREST ON MPL - POPULAR FINANCE 49,96,53,294 INTEREST ON MPL - POPULAR MINI FINANCE 10,18,8 4,076 INTEREST ON MPL - POPULAR FINANCE COMPANY 7,15,53,547 67,31,38,466 DEDUCTIONS PAYMENT OF INTEREST ON BORROWED FUNDS 67,30,90,917 TAXABLE INTEREST 47,549 OTHER CREDITS 5,000 INCOME CHARGEABLE UNDER THE HEAD OTHER SOURCES 2,70,950 GROSS TOTAL INCOM E 7,25,950 3.1 THE ASSESSEE IS MANAGING PARTNER OF ALL THE FIRMS AND IN THE PROFIT AND LOSS ACCOUNT OF THE ABOVE FIRMS , INTEREST WAS DEBITED AS INTEREST ON MANAGING PARTNERS LOAN SHOWN AS L IABILITY BUT THE LOAN WAS CREDITED IN THE CAPITAL ACCOUNT OF THE FIRM. THE DEFINITION OF PARTNERSHIP IS RELATION BETWEEN PERSONS WHO HAVE SHARE THE PROFITS OF THE BUSINESS CARRIED ON BY ALL OR ANY FIRM ACTING FOR ALL. AS THE PARTNERSHIP IS GOV ERNED BY UNLIMITED LIABILITY ANY LOAN TAKEN BY THE FIRM FROM ITS MANAGING PARTNER OR ANY AMOUNT CREDITED IN THE CAPITAL ACCOUNT OF THE I.T.A. NO.68 /COCH/2018 3 MANAGING PARTNER IS TREATED AS ADDITION TO THE CAPITAL. ANY INTEREST ON THAT ADDITION GIVEN TO THE MANAGING PARTNER IS T REATED AS BUSINESS INCOME OF THE PARTNER AND THE ASSESSES HAVING EARNED INCOME FROM PARTNERSHIP FIRM HAS TO FILE HIS RETURN OF IN COME IN ITR 3 . IN THE SCHEDULE BP OF ITR 3, IT HAS BEEN CLEARLY MENTIONED THAT THE COMPUTATION OF INCOME UNDER THE HEAD PROFI TS AND GAINS FROM BUSINESS OR PROFESSION (INCOME BY WAY OF SALARY, INTEREST ETC FROM FIRMS IN WHICH ASSESSES IS A PARTNER). THEREFORE , THE INTEREST RECEIVED FROM THE PARTNERSHIP FIRM IS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE AND NOT AS INCOME FRO M OTHER SOURCES. 3.2 THE ASSESSING OFFICER OBSERVED THAT AC CORDING TO S EC . 44AB OF THE I.T. ACT, 1961 ANY PERSON CARRYING ON BUSINESS WHERE HIS TOTAL SALES, TURNOVER OR GROSS RECEIPTS IN BUSINESS FOR THE PREVIOUS YEAR(S) RELATED TO THE ASSESSMENT YEAR E XCEED OR EXCEEDS RS. 1 CRORE, THE PERSON IS LIABLE TO GET HIS A C COUNT COMPULSORILY AUDITED BY A CHARTERED ACCOUNTANT AND FILE THE AUDIT REPORT ON OR BEFORE THE SPECIFIED DUE DATE. IN THIS C ASE , SINCE IT WAS FOUND THAT THE GROSS RECEIPTS OF THE ASSESSEE BY WAY OF INTEREST ON THE PARTNERSHIP EXCEED RS. 1 CRORE , THE AASESSEE WAS LIABLE FOR COMPULSORY AUDIT. T HE ASSESSES PAID INT EREST AMOUNTING TO RS.67,30,90,917/ - ON BORROWED FUNDS CONSISTING OF LOAN AVAILED FROM PARTNERSHIP FIRMS VIZ. POPULAR TRADERS VAKAYA R, POPULAR PRINTERS VAKAYAR AND POPULAR DEALERS VAKAYAR. THE ASSESSES IS ALSO THE MANAGING PARTNER O F THE ABOVE THREE FIRMS. IN THE INSTANT CASE, IT WAS FOUND THAT THE TOTAL GROSS RECEIPTS I.T.A. NO.68 /COCH/2018 4 OF THE ASSESSEE EXCEEDED RS. 1 CRORE, HE IS LIABLE TO DEDUCT TAX A T SOURCE ON PAYMENT OF INTEREST BY VIRTUE OF SEC. 194A. IT WAS FOUND THAT T HE ASSESSEE HA D NOT DEDUCTED TAX AT SOURCE ON THE INTEREST PAYMENT DURING THE RELEVANT FINANCIAL YEAR. THEREFORE, ACCORDIN G TO THE ASSESSING OFFICER, THE ASSESSEE HAD CONTRAVEN ED T HE PROVISIONS OF SEC. 194A AND O NE OF THE CONSEQUENCES OF NON - COMPLIANCE OF SEC. 194A IS CONTAINED IN SECTION N 40 OF THE I.T. ACT. IN SUCH CIRCUMSTANCES, INTEREST PAID BY THE PARTNER TO THE FIRMS WAS DISALLOWED U/S. 40(A)(IA) OF THE ACT. THE ASSESSING O FFICER RELIED ON THE JUDGMENT OF THE HIGH COURT OF KERALA IN THE CASE OF THOMAS GEORGE MUTHOOT VS. CIT IN ITA NO. 278 OF 2014 DATED 3 RD JULY, 2015 WHICH IS SQUARELY APPLICABLE TO THIS CASE. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF INTEREST EXPENDITU RE AMOUNTING TO RS.67,30,90,917/ - U/S. 40(A)(IA) OF THE ACT. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 5 . AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUBMITTED THAT THE MAIN ISSUE IS THE DI SALLOWANCE OF RS 67, 30, 90,917/ - U/S 40(A)(IA) BEING PAYMENT OF INTEREST ON BORROWED FUNDS FROM FIRMS IN WHICH APPELLANT IS A PARTNER WITHOUT TDS U/S 194A. THE LD. AR SUBMITTED THAT SECTION I94A DOES NOT APPLY TO INDIVIDUALS UNLESS HE IS A PERSON LIABLE TO TAX AUDIT U/S 44AB OF THE I.T. ACT 1961 AND IN THIS CASE, THE ASSESSEE, BEING AN INDIVIDUAL IS NOT WITHIN THE PURVIEW OF THE SAID SECTION. THEREFORE, IT WAS SUBMITTED THAT THE DEPARTMENT WILL HAVE TO I.T.A. NO.68 /COCH/2018 5 FURTHER ESTABLISH AS A CONDITION PRECEDENT THAT SECT ION 44AB APPLIES TO THE ASSESSEE. THE LD. AR SUBMITTED THAT THE AO HAS ERRED IN TAKING THE VIEW THAT THE ASSESSEE IS A PERSON COVERED BY SECTION 44AB OF THE ACT AND HENCE FELL WITHIN SECTION I94A. ACCORDING TO THE LD. AR, THE FINDING OF THE AO THAT THE INT EREST INCOME RECEIVED FROM PARTNERSHIP FIRMS IN WHICH THE ASSESSEE IS A PARTNER IS TO BE REGARDED AS HIS TURNOVER OR GROSS RECEIPTS AS PER THE SAID SECTION AND SINCE THE INTEREST EXCEEDED THE LIMIT DURING THE PREVIOUS YEAR 201 3 - 14, THE ASSESSEE IS LIABLE TO AUDIT U/S 44AB IS WRONG. 5 .1 THE LD. AR REFERRED TO THE PROVISIONS OF SECTIONS 40(A)(IA), I94A, AND SECTION 44AB OF THE ACT AS UNDER: SECTION 40(A)(IA) AS IT STOOD ON 0 1 - 04 - 2014 READS AS FOLLOWS : SECTION 40 - AMOUNTS NOT DEDUCTIBLE. NOTWITHSTAND ING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', (A) IN THE CASE OF ANY ASSESSEE (IA) 'ANY INTEREST, COMMIS SION OR BROKERAGE, RENT, ROYALTY, FEES 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)' PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE W ITH THE PROVISIONS OF CHAPTER XVII - B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB - SECTI ON (1) OF SECTION 201 , THEN FOR THE PURPOSE OF THIS SUB - CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID I.T.A. NO.68 /COCH/2018 6 THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME B Y THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. SECTION 194A - INTEREST OTHER THAN 'INTEREST ON SECURITIES 194A(1) ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF INTEREST OTHER THAN INCOME [BY WAY OF INTEREST ON SECURITIES], SHAL L, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE 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 INCOME - TAX THEREON AT THE RATES IN FORCE: P ROVIDED THAT AN IN DIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (6) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR , WHICH SUCH INTEREST IS CREDITED OR PAID, SHALL BE LIABLE TO DEDUCT INCOME - TAX UNDER THIS SECTION. SECTION 2(28A) - INTEREST' MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INC LUDING A DEPOSIT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED; SECTION 44AB - AUDIT OF ACCOU NTS OF CERTAIN PERSONS CARRYING ON BUSINESS OR PROFESSION. 44AB. EVERY PERSON, (A) CARRYING ON BUSINESS SHALL, IF HIS TOTAL SALES, TURNOVER OR GROSS RECEIPTS, AS THE CASE MAY BE, IN BUSINESS EXCEED OR EXCEEDS [ONE CRORE RUPEES] IN ANY PREVIOUS YEAR. ....GET S HIS ACCOUNTS OF SUCH PREVIOUS YEAR AUDITED BY AN ACCOUNTANT BEFORE THE SPECIFIED DATE AND FURNISH BY THAT DATE THE REPORT OF SUCH AUDIT IN THE PRESCRIBED FORM DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT AND SETTING FORTH SUCH PARTICULARS AS MAY B E PRESCRIBED : SECTION 40(A)(IA) FOR DISALLOWING THE PAYMENT OF INTEREST ON LOANS TAKEN DURING THE YEAR TO PROVE THAT THE PAYER IS LIABLE TO DEDUCT TAX - UNDER SECTION 194A. I.T.A. NO.68 /COCH/2018 7 5 .2 IT WAS SUBMITTED THAT THE LIABILITY TO DEDUCT TAX AT SOURCE UNDER SECTION 194A ARISES ONLY WHEN THE INDIVIDUAL PAYER IS LIABLE TO GET THE BOOKS OF ACCOUNTS AUDITED UNDER SECTION 44AB IN T HE PREVIOUS YEAR IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH THE INTEREST WAS PAID OR CREDITED . IT WAS SUBMITTED THAT IN THIS CASE T HAT T HERE WAS NO FINDING ANYWHERE IN THE PROCEEDINGS THAT THE ASSESSEE IS LIABLE TO AUDIT UNDER SECTION 44AB IN THE FINANCIAL YEAR 20 13 - 14 WHICH IS THE PRECEDING YEAR FOR THE FINANCIAL YEAR 2011 - 12. IT WAS SUBMITTED THAT THE PRESENT APPEAL RELATE D TO THE FINAN CIAL YEAR 2013 - 14 AND THE AO CLEARLY TOOK THE GROSS RECEIPTS ETC . OF THE FY 2013 - 14 (RELEVANT TO THE ASSESSMENT YEAR 2014 - 15) AND NOT THE GROSS RECEIPTS OF THE IMMEDIATELY PRECEDING FY. IT WAS SUBMITTED THAT THE AO HAS NOT ESTABLISHED T HE FACT THAT THE A SSESSEE IS LIABLE FOR TAX AUDIT U/S 44AB IN THE FY 2012 - 13. IT WAS SUBMITTED THAT IF THE PROVISIONS OF SECTION 44AB ARE FOUND TO BE APPLICABLE IN THE P Y 2012 - 13 STILL ASSESSING OFFICER IS DUTY BOUND TO DECIDE THE ISSUE WHETHER THE SAID SECTION IS APPLICAB LE TO THE ASSESSEE IN THA T YEAR AFTER CONSIDERING THE OBJECTIONS RAISED AGAINST THE APPLICABILITY OF 44AB TO THE PY 2013 - 14. IN OTHER WORDS , ALL THE OBJECTIONS RAISED AGAINST THE APPLICABILITY OF SECTION 44AB TO PY 2013 - 14 SHALL MUTATIS MUTANDIS APPLY TO PY 2012 - 13 AS WELL. THEREFORE , IT WAS SUBMITTED THAT UNLESS THE AO IS SATISFIED THAT SECTION 44AB IS APPLICABLE TO PY 2012 - 13 IN ACCORDANCE WITH LAW, THE AO CANNOT APPLY THE PROVISIONS OF 194A SO AS TO TAG THE ASSESSEE WITH THE LIABILITY U/S 40(A)(IA). IT WAS SUBMITTED THAT THE AO IS NOT IN POSSESSION OF THE NECESSARY DETAILS FOR THE PY 2012 - 13 SINCE THE DEPARTMENT ISSUED A NOTICE U/S 133(6 ) DT. I.T.A. NO.68 /COCH/2018 8 8.6.2018 ASK ING FOR DETAILS OF INTEREST RECEIVED AND P AID DURING 2012 - 13. THUS IT IS VERY CLEAR THAT THE ASS ESSING OFFICER TOOK INTO CONSIDERATION THE GROSS RECEIPTS OF PY 2013 - 14 AND NOT THAT OF PY 2012 - 13. 5 .3 THE LD. AR SUBMITTED THAT THE PROVISIONS OF SEC. 44AB ARE NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE REASONS ARE GIVEN BELOW : SECTION 44AB IS NOT ATTRACTED BECAUSE THE ASSESSEE RECEIVED THE INTEREST FROM THE FIRMS IN HIS CAPACITY AS PARTNER AND HENCE NOT HIS GROSS RECEIPTS IN BUSINESS DID NOT EXCEED THE LIMITS SPECIFIED. I T IS THE FIRM ALONE IS IN BUSINES WHICH IS CARRYING ON THE BUSINESS AND NOT THE PARTNER. EVEN IF HE IS SAID TO BE CARRYING ON BUSINESS IT CAN ONLY BE AS AN AGENT OF OTHER PARTNERS AS MUTUAL AGENCY IS A WELL SETTLED LEGAL RELATION OF THE PARTNERS. PLEASE SEE DEFINITION OF PARTNERSHIP U/S 4 OF THE PARTNERSHIP A CT 1932 WHICH IS AS FOLLOWS: 'PARTNERSHIP' IS THE RELATION BETWEEN PERSONS WHO HAVE AGREED TO SHARE THE PROFITS OF A BUSINESS CARRIED ON BY ALL OR ANY OF THEM ACTING FOR ALL. ' IT IS ALSO PERTINENT TO NOTE THAT A PARTNER CANNOT CARRY ON BUSINESS OF THE FI RM IN HIS INDIVIDUAL CAPACITY AND HE IS DUTY BOUND TO HAND OVER THE PROFITS OR BENEFITS IF ANY DERIVED BY HIM . IT MAY ALSO BE NOTED THAT SECTION 194A USES THE EXPRESSION GROSS RECEIPTS FROM BUSINESS AND NOT THE EXPRESSION 'IN BUSINESS' AS USED IN SECTI ON 44AB. THUS IT IS CLEAR THAT SECTION 194A IS ATTRACTED ONLY IF A PERSON GETS RECEIPTS FROM BUSINESS CARRIED ON BY HIM WHEREAS SECTION 44AB IS ATTRACTED WHEN HIS RECEIPTS IN BUSINESS EXCEEDS THE LIMITS. THUS IT IS NECESSARY TO ESTABLISH THAT THE APPELLANT IS IN BUSINESS AND GROSS RECEIPTS IN THAT BUSINESS EXCEEDED THE LIMITS. HERE THE AO FAILED TO ESTABLISH THIS CRUCIAL POINT. IT IS ALSO SUBMITTED THAT THE LAW RELATING TO PARTNERSHIP SHOULD ALSO BE KEPT IN MIND. THE APPELLANT IS NOT CARRYING ANY BUSINESS AS ENVISAGED IN SECTION 44AB. THERE IS NO BUSINESS AS PER THE COMMON PARLANCE MEANING OF THAT TERM. IF THE SHARE OF PROFIT OR RE NUMERATION OR INTEREST FROM THE FIRM ITSELF IS REGARDED AS THE BUSINESS OF THE PARTNER THEN IT VIOLATES SECTION 16 OF THE PARTN ERSHIP ACT 1932 AND ANY BENEFIT ARISING FROM, SIMILAR BUSINESS OR COMPETING BUSINESS IS TO BE HANDED OVER TO THE FIRM. THUS IF THE AO REGARDS THE INTEREST AS HIS BUSINESS THEN AS PER PARTNERSHIP LAW THE SAME IS REQUIRED TO BE MADE OVER TO THE FIRM AND IN T HAT CASE IT IS I.T.A. NO.68 /COCH/2018 9 NOT HIS INCOME BUT INCOME OF THE FIRM. THERE IS THUS NO SEPARATE BUSINESS CARRIED ON BY THE PARTNER. THE PROVISIONS OF SECTION 16 OF THE 1932 ACT IS REPRODUCED BELOW FOR EASE OF REFERENCE. S ECTI O N L6 PERSONAL PROFITS EA RNED BY PARTNERS. S UBJECT TO THE CONTRACT BETWEEN THE PARTNERS, - (A) IF A PARTNER DERIVES ANY PROFITS FOR HIMSELF FROM ANY TRANSACTION OF THE FIRM, OR FROM THE USE OF THE PROPERTY OR BUSINESS CONNECTION OF THE FIRM OR THE FIRM - NAME, HE SHALL ACCOUNT FOR THAT PROFIT AND PAY IT TO THE FIRM; (B) IF A PARTNER CARRIES ON ANY BUSINESS OF THE SAME NATURE AS AND COMPETING WITH THAT OF THE FIRM, HE SHALL ACCOUNT FOR AND PAY TO THE FIRM ALL PROFITS MADE BY HIM IN THAT BUSINESS T HUS IT IS CLEAR THAT THE APPELLANT CANNOT CARRY ON THE BUSINESS OF THE FIRM IN HIS INDIVIDUAL CAPACITY AND HENCE THE INTEREST ON CAPITAL RECEIVED BY HIM FROM THE FIRM CAN NEVER BE REGARDED AS GROSS RECEIPTS OF HIS BUSINESS. IF IT IS SO REGARDED THEN HE IS DUTY BOUND TO HAND OVER THE SAID RECEIPTS TO THE FIRM. IN OTHER WORDS IT BELONGS TO THE FIRM BY THE APPLICATION OF THE DOCTRINE OF DIVERSION OF INCOME BY OVER RIDING TITLE. 5.4 THE LD. AR SUBMITTED THAT W HAT IS TO BE CONSIDERED IS THE SALES TURNOVER OR GROSS RECEIPT OF THE BUSINESS CARRIED ON BY THE ASSES SEE. IT WAS SUBMITTED THAT A FIRM NEED NOT BE A SEPARATE LEGAL ENTITY, BUT CERTAINLY IT IS A SEPARATE TAXABLE ENTITY AND IN CASE OF PARTNERSHIP BUSINESS , IT IS THE BUSINESS OF A PARTNERSHIP FIR M T HAT IS TO BE CONSIDERED AND NOT THE BUSINESS CARRIED ON BY A PARTNER. IT WAS SUBMITTED THAT TH E INTEREST ON REMUNERATION RECEIVED FROM THE PARTNERSHIP FIRM CANNOT BE CONSIDERED AS BUSINESS RECEIPTS OR BUSINESS TURNOVER IN THE HANDS OF A PARTNER. ACCORDING TO THE LD. AR THE SUBJECT MATTER OF AUDIT IS THE BUSINESS TU RNOVER OR BUSINESS RECEIPTS, WHICH WILL BE RECEIVED IN THE COURSE OF THE I.T.A. NO.68 /COCH/2018 10 BUSINESS CARRIED ON BY THE ASSESSEE. IT WAS CONTENDED THAT T HE RECEIPTS BY WAY OF INTEREST OR REMUNERATION CANNOT BE TREATED AS TURNOVER OR BUSINESS RECEIPTS IN THE COURSE OF CARRYING ON BUSINESS BY THE RECIPIENT PARTNER AND SU CH RECEIPTS ARE OUT OF THE BUSINESS CARRIED ON BY A PARTNERSHIP FIRM AND THE PARTNER IS NOT CARRYING ON, VIS - A - VIS THE BUSINESS OF A PARTNERSHIP FIRM A SEPARATE BUSINESS OF HIS OWN. AS SUCH, IT WAS SUBMITTED THAT INTEREST OR REMUNERATION RECEIVED FROM PARTNERSHIP FIRM CANNOT BE CONSIDERED AS GROSS RECEIPT OR TURNOVER FROM BUSINESS CARRIED ON BY THE PARTNER, ACCORDINGLY, SUCH INTEREST OR REMUNERATION NORMALLY HAS NO BUSINESS CHARACTER. IN ANY CASE, SUCH RECEIPTS BY WAY OF INTEREST OR REMUNERATION CANNOT BE TREATED AS PART OF THE TURNOVER OR RECEIPT ARISING OUT OF OR IN THE COURSE OF CARRYING ON A SEPARATE BUSINESS BY SUCH PARTNER, AS SUCH, INTEREST OR REMUNERATION RECEIVED CANNOT BE CONSIDERED AS PART OF TOTAL SALES TURNOVER OF BUSINESS CARRIED ON BY THE PARTNER AND THE SAME CANNOT BE CLUBBED WITH OTHER TURNOVER OR CROSS RECEIPT OF ANY BUSINESS CARRIED ON BY SUCH PARTNER. THEREFORE, IT WAS SUBMITTED THAT AS SUCH RECEIPT IS NOT PART OF BUSINESS TURNOVER OR GROSS RECEI PT OF THE BUSINESS CARRIED ON BY THE ASSESSEE THE QUESTION OF SUCH INTEREST OR REMUNERATION RECEIVED FROM THE PARTNERSHIP FIRM CONSTITUTING PART OF THE TURNOVER OR RECEIPT FOR THE PURPOSE OF SECTION 44AB DOES NOT ARISE. 5.5 THUS , ACCORDING TO THE LD. AR , THE MOOT QUESTION IS WHETHER FOR THE PURPOSE OF APPLYING PROVISIONS OF SECTION 44AB OF THE A CT, THE ASSESSEE HAS TO TAKE INTO CONSIDERATION THE INCOME BY WAY OF INTEREST AND REMUNERATION FROM THE I.T.A. NO.68 /COCH/2018 11 FIRM? I T IS WELL SETTLED PRINCIPLE OF LAW THAT STATUTORY P ROVISIONS MUST BE READ IN THE CONTEXT AND THE PURPOSE FOR WHICH THE SAID PROVISIONS ARE ENACTED AND SECTION 44AB FALLS WITHIN THE SET OF PROVISIONS WHICH DEAL WITH COMPUTATION OF BUSINESS INCOME. THE PROVISION CONTAINED IN PART 1VD OF THE INCOME TAX ACT, 1 961 ARE FOR THE PURPOSE OF DETERMINING BUSINESS INCOME WHICH IS TAXABLE UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION'. THE PROVISIONS ARE NECESSARY FOR THE PURPOSE OF DETERMINING THE CORRECT AND PROPER BUSINESS INCOME WHICH WOULD BE TAXABLE UNDER THE ACT. NOW, THE OBJECT AND THE PURPOSE OF SECTION 44AB IS TO SEE THAT THE BUSINESS INCOME HAS BEEN PROPERLY COMPUTED AS PER THE PROVISIONS OF THE A CT SO THAT ON CORRECTLY COMPUTED BUSINESS INCOME, PROPER TAX LIABILITY IS DETERMINED. AS SUCH, THE PROVISIONS OF SECTION 44AB WHICH PROVIDE FOR AUDIT UNDER CERTAIN CIRCUMSTANCES ARE ENACTED WITH A VIEW TO SEE THAT WHILE COMPUTING BUSINESS INCOME FOR THE PURPOSE OF THE ACT THE SAME IS CORRECTLY AND PROPERLY COMPUTED AS PER THE VARIOUS PROVISIONS OF THE ACT DEALING WITH COMPUTATION OF BUSINESS INCOME. THEREFORE IT GOES, WITHOUT SAYING THAT THE QUESTION OF FINDING OUT OR DETERMINING PROPER TAX IN COMPLIANCE WITH THE ACT CONCERNING BUSINESS INCOME ARISES IF AND ONLY IF THERE IS A QUESTION OF DETERMINING PROPER TAXABLE BUSINESS INCOME. 5.6 THE LD. AR SUBMITTED THAT SECTION 44AB IS NOT ENACTED IN ISOLATION AND THE AUDIT OF ACCOUNTS PROVIDED FOR THEREIN IS NOT JUST FOR THE PURPOSE OF AUDITING, BUT WITH THE AIM TO SEE THAT THE BUSINESS INCOME WHICH IS TAXABLE IS PROPERL Y I.T.A. NO.68 /COCH/2018 12 COMPUTED AS PER THE APPLICABLE PROVISIONS. ACCORDING TO THE LD. AR, I T NECESSARILY FOLLOWS THAT ONLY THAT SOURCE OF INCOME OR THOSE RECEIPTS WHICH PLAY IMPORTANT PA RT IN COMPUTING THE TAXABLE BUSINESS INCOME UNDER THE PROVISIONS OF THE A CT WOULD BE RELE VANT. ACCORDINGLY, IT WAS SUBMITTED THAT IF, FOR SOME REASON, SOME INCOME OR SOME RECEIPTS OR SOME TURNOVER IS EXCLUDED FROM THE TAX NET OR THE SAME IS NOT PLAYING ANY ROLE IN DETERMINING THE PROPER TAXABLE BUSINESS INCOME, THEN SUCH RECEIPTS OR SUCH TURNO VER NEED NOT BE SUBJECT MATTER OF THE TAX AUDIT BECAUSE, IN THE NATURE OF THINGS, THE TAX AUDIT IS FOR DETERMINING THE CORRECT TAXABLE INCOME AS PER THE PROVISIONS OF ACT. AS SUCH, IF SUCH SOURCE OF INCOME OR SUCH SOURCE OF TURNOVER IS NOT TO BE TAKEN INTO ACCOUNT WHILE DETERMINING TAXABLE BUSINESS INCOME OF AN ENTITY, THEN, IN RESPECT OF SUCH TURNOVER ARISING OUT OF SUCH SOURCE OF INCOME, THE QUESTION OF APPLYING THE PROVISIONS OF SECTION44AB JUST CANNOT ARISE. IF SUCH TURNOVER OR THE RECEIPT IS NOT TO BE TAKEN INTO ACCOUNT FOR DETERMINING THE TAXABLE BUSINESS INCOME OF THAT ENTITY, THE QUESTION OF AUDITING SUCH TURNOVER AND FINDING OUT WHETHER THE SAME IS PROPERLY COMPUTED OR RETURNED OR NOT WILL NOT ARISE AS, IRR ESPECTIVE OF THE QUANTUM OF SUCH RECEIPT, T HE SAME CAN NOT BE PART OF THE TAXABLE INCOME OF AN ASSESSEE, NO USEFUL PURPOSE CAN BE SERVED BY SUBJECTING SUCH TURNOVER OR RECEIPT FOR AUDIT UNDER THE PROVISIONS OF SECTION 44AB. IF THE SAID TURNOVER OR RECEIPT OR WHATEVER INCOME THAT ARISES IS NOT TAXABL E IN THE HANDS OF THAT PERSON, THE QUESTION OF PROPER COMPUTATION OF SUCH INCOME WILL NOT ARISE AND IT WILL HAVE NO IMPACT FOR DETERMINING THE PROPER TAXABLE INCOME OF AN ASSESSEE FOR THE PURPOSE I.T.A. NO.68 /COCH/2018 13 OF DETERMINING THE PROPER TAX LIABILITY. THEREFORE, IT WAS S UBMITTED THAT IF A PARTICULAR TURNOVER OR RECEIPTS IS NOT TO BE TAKEN INTO ACCOUNT FOR DETERMINATION OF THE TAXABLE BUSINESS INCOME OF AN ASSESSEE, SUCH TURNOVER OR RECEIPT MAY NOT BE PART OF THE TURNOVER OR RECEIPT WHICH WILL BE SUBJECT TO THE AUDIT PROVI SIONS OF SECTION 44AB. 5.7 IT WAS SUBMITTED THAT IF INTEREST ON CAPITAL AS BUSINESS INCOME U/S 28 IS NOT INCLUDED IT MAY BE EXCLUDED AND THE ASSESSEE IS RIGHT TO A CERTAIN EXTEN T IN CLASSIFYING THE INTEREST U/S 56 INSTEAD OF SECTION 28. AS FAR AS INTER EST IS CONCERNED , IT WAS SUBMITTED THAT IF SUCH INTEREST IS DEEMED TO BE BUSINESS INCOME IN THE HANDS OF THE ASSESSEE AND WILL BE TAXABLE AS SUCH, H OWEVER, IN THE NATURE OF THINGS, SUCH INTEREST OR REMUNERATION HAS NO CHARACTER OF BUSINESS INCOME. BUT FOR THE SPECIFIC PROVISIONS OF SECTION 28 (V), SUCH INTEREST OR REMUNERATION WOULD NOT BE PART OF BUSINESS INCOME. 5.8 IT WAS SUBMITTED THAT SIMPLY BECAUSE INTEREST ON CAPITAL IS TO BE ASSESSED AS BUSINESS INCOME SHALL NOT AUTOMATICALLY LEAD TO THE CONCLUSI ON THAT THE SAME SHOULD ALSO BE TREATED AS 'GROSS RECEIPTS OR TURNOVER IN BUSINESS CARRIED ON'. SECTION 44AB SHOULD BE INTERPRETED SEPARATELY KEEPING IN VIEW THE OBJECTS AND PURPOSES OF THAT SECTION. THE FACT THAT INTEREST ON CAPITAL IS TREATED AS BUSINESS INCOME U/S 28 IS WHOLLY IRRELEVANT TO DECIDE THE SCOPE OF THE EXPRESSION 'GROSS RECEIPTS OR TURNOVER IN BUSINESS CARRIED ON' USED IN SECTION 44AB. IT WAS STATED I.T.A. NO.68 /COCH/2018 14 THAT T HE LEGISLATURE IN ITS WISDOM THOUGHT FIT TO TAX INTEREST ON CAPITAL U/S 28 AND ITS VERY SPECIFIC INCLUSION ITSELF SUGGESTS THAT OTHERWISE IT MAY NOT COME U/S 28. IN VIEW OF THE ABOVE DISCUSSION, IT WAS SUBMITTED THAT AS INTEREST OR REMUNERATION ARE NOT RECEIPTS OR TURNOVER IN THE BUSINESS CARRIED ON BY THE ASSESSEE THE SAME ALSO DO NOT FORM PART OF TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF SECTION 44AB. THOUGH THE SAID REMUNERATION OR INTEREST WILL BE DEEMED TO BE BUSINESS INCOME BECAUSE OF THE DEEMING PROVISIONS UNDER SECTION 28(V) OF THE A CT, THE SAME CANNOT BE CONSIDERED AS BUSINESS INC OME OF THE ASSESSEE AND IT IS INCOME RELATING T O T HE BUSINESS CARRIED ON BY THE PARTNERSHIP FIRM, BUT IT IS NOT INCOME ARISING OUT OF THE BUSINESS CARRIED ON BY THE ASSESSEE. 5.8.1 THE LD. AR SUBMITTED THAT THE AMENDMENT MADE IN SECTION 201(1) OF THE ACT W.E.F. FROM 01 - 0 4 - 20 13 APPLIED TO THE ASSESSEE AS THE ASSESSMENT YEAR IN THIS APPEAL IS 2014 - 15. THE LD. AR RELIED ON THE PROVISIONS OF THE SAID SECTION WHICH READS AS FOLLOWS: WHERE ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, A) WHO IS REQUIRED TO DEDUCT ANY SUM IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT; OR B) REFERRED TO IN SUB - SECTION (IA) OF SECTION 192, BEING AN EMPLOYER, DOES NOT DEDUCT, OR DOES NOT PAY, OR AFTER SO DEDUCTING FAILS TO PAY, THE WHOLE OR ANY PART OF THE TAX, AS REQUIRED BY OR UNDER THIS ACT, THEN, SUCH PERSON, SHALL, WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE MAY INCUR, BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OFSUCH TAX; [PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPA NY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER ON THE SUM PAID TO A RESIDENT OR ON THE SUM I.T.A. NO.68 /COCH/2018 15 CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT ( I ) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139; ( II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND ( III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME, (I V) AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED:] PROVIDED FURTHER THAT NO PENALTY SHALL BE CHARGED UNDER SECTION 221 FROM SUCH PERSON, UNLESS THE ASSESSING OFFICER IS SATISFIED THAT SUCH PERS ON, WITHOUT GOOD AND SUFFICIENT , HAS FAILED TO DEDUCT AND PAY SUCH TAX. T HE LD. AR REFERRED TO PROVISO TO SECTION 40(A)(IA) WHICH READS AS UNDER: P ROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII - B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB - SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB - CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFARED TO IN THE SAID PROVISO.' 5.8.2 THE LD. AR SUBMITTED THAT T HE PROVISO CLEARLY PROVIDES THAT IF AN ASSESSEE IS NOT DEEMED TO BE AN ASSESSE IN DEFAULT US 201( 1) THEN THE LAW PRESUMES THAT THE ASSESSEE HAS DEDUCTED THE TAX AND PAID SUCH TAX ON THE DATE OF FURNISHING INCOME BY THE RESIDENT PAYEE. IT WAS SUBMITTED THAT N O ATTEMPT WAS MADE BY THE AO TO DECLARE THE ASSESSEE AS AN ASSESSEE IN DEFAULT U/S 201(1) AND HENCE HE IS RESTRAINED FROM APPLYING THE PROVISIONS OF SECTION 40(A)(IA). IT WAS SUBMITTED THAT T HE THREE FIRMS FURNISHED THE RETURN OF INCOME AND THEREFORE, VIDE I.T.A. NO.68 /COCH/2018 16 THE PROVISO IT IS TO BE PRESUMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON THE DATE OF FURNISHING THE RETURN BY THE RESPECTIVE FIRMS. 5.8.3 IT WAS SUBMITTED THAT ON A READING OF THE PROVISO TO SECTION 40(A)(IA) , IT WAS CLEAR THAT DECLARATION OF AN ASSESSEE AS AN A SSESSEE - IN - DEFAULT IS A CONDITION PRECEDENT. ONLY AND ONLY AFTER A CATE GORICAL DECLARATION OF THE ASSESSEE AS AN A SSESSEE - IN - DEFAULT U/S 201(1), RESORT TO SECTION 40(A)(IA) IS PERMISSIBLE WHICH IS BECAUSE THE LIABILITY TO DEDUCT TAX AT SOURCE IS A VICARIOUS LIABILITY AND THE PRIMARY LIABILITY TO DISCHARGE THE TAX IS ON THE PAYEE OR RECIPIENT OF INTEREST. THE LD. AR RELIED ON THE F OLLOWING OBSERVATION OF THE HON SUPREME COURT IN PARA 34 OF THE DECISION IN CIT V ELI LILLY & C O ( P ) LTD (2009) 178 TAXMAN 505 WHERE IN IT CLEARLY SPELT OUT THE REQUIREMENT TO DECLARE AN ASSESSEE AS AN ASSESSEE IN DEFAULT. '34 . A PERUSAL OF SECTION 201(1) AND SECTION 201(1A) SHOWS THAT BOTH THESE PROVISIONS ARE WITHOUT PREJUDICE TO EACH OTHER. IT MEANS THAT THE PROVISIONS OF BOTH THE SUB - SECTIONS ARE TO BE CONSIDERED INDEPENDENTLY WITHOUT AFFECTING T HE RIGHTS MENTIONED IN EITHER OF THE SUB - SECTIONS. FURTHER, INTEREST UNDER SECTION 201(IA) IS COMPENSATORY FOR WITHHOLDING THE TAX WHICH OUGHT TO HAVE GONE TO THE EXCHEQUER. THE LEVY OF INTEREST IS MANDATORY AND THE ABSENCE OF LIABILITY FOR TAX WILL NOT DI LUTE THE DEFAULT. THE LIABILITY OF DEDUCTING TAX AT SOURCE IS IN THE NATURE OF A VICARIOUS LIABILITY, WHICH PRE - SUPPOSES THE EXISTENCE OF PRIMARY LIABILITY. THE SAID LIABILITY IS A VICARIOUS LIABILITY AND THE PRINCIPAL LIABILITY IS OF THE PERSON WHO IS TAX ABLE. A BARE READIN G OF SECTION 201(1) SHOWS THAT INTEREST UNDER SECTION 201 ( 1A) READ WITH SECTION 201(1) CAN ONLY BE LEVIED WHEN A PERSON IS DECLARED AS AN ASSESSEE - IN - DEFAULT . FOR COMPUTATION OF INTEREST U NDER SECTION 20I(1 A), THERE ARE THREE ELEMENTS. O NE IS THE QUANTUM ON WHICH INTEREST HAS TO BE LEVIED. SECOND IS THE RATE AT WHICH INTEREST HAS TO BE CHARGED. THIRD IS THE PERIOD FOR WHICH INTEREST HAS TO BE CHARGED. THE RATE OF INTEREST IS PROVIDED IN THE 1961 ACT. THE QUANTUM ON WHICH INTEREST HAS TO BE PAID IS INDICATED BY SECTION 201(1A) ITSELF. SUB SECTION (1A) SPECIFIES 'ON THE AMOUNT OF SUCH TAX' WH ICH IS MENTIONED IN SUB - SECTION (1) WHEREIN , IT IS THE AMOUNT OF TAX IN RESPECT OF WHICH THE I.T.A. NO.68 /COCH/2018 17 ASSESSEE HAS BEEN DECLARED IN DEFAULT. THE OBJECT UNDERLYIN G SECTION 201(1) IS TO RECOVER THE TAX. IN THE CASE OF SHORT DEDUCTION, THE OBJECT IS TO RECOVER THE SHORTFALL. AS FAR AS THE PERIOD OF DEFAULT IS CONCERNED, THE PERIOD STARTS FROM THE DATE OF DEDUCTIBILITY TILL THE DATE OF ACTUAL PAYMENT OF TAX. THEREFORE , THE LEVY OF INTEREST HAS TO BE RESTRICTED FOR THE ABOVE STATED PERIOD ONLY. IT MAY BE CLARIFIED THAT THE DATE OF PAYMENT BY THE CONCERNED EMPLOYEE CAN BE TREATED AS THE DATE OF ACTUAL PAYMENT. . 5.9 THE LD. AR RELIED ON THE JUDGMENT OF THE ALLAHABAD HIGH C OURT IN THE CASE OF PRAKASH JAGRAN (345 ITR 288) WHERE IT WAS HELD THAT TAX CAN BE DEMANDED FROM THE DEDUCTOR ONLY WHEN THE SAME CANNOT BE RECOVERED FROM THE DEDUCTEE. THUS , IT WAS SUBMITTED THAT IN THIS CASE THE AO MADE NO ATTEMPT TO RECOVER THE T AX FROM THE DEDUCTEE S, I . E . THE 3 FIRMS THOUGH ALL THE 3 FIRMS ARE ASSESSES WITH THE DEPARTMENT. IT WAS SUBMITTED THAT TH E DEPARTMENT DID NOT CHALLENGE THE DECISION BEFORE THE S UPREME C OURT AND HENCE IT BECAME FAIT ACCOMPLI AND FINAL. ACCORDING TO THE LD. AR, T HIS DECISION IS BINDING ON THE DEPARTMENT AND THE TRIBUNAL IN THE ABSENCE OF ANY OTHER CONTRARY DECISIONS. 5.9.1 THE LD. AR RELIED ON THE INSTRUCTION NO. 20/2015 DT . 29 - 12 - 2015 ISSUED BY THE CBDT WHERE IN IN PARA 4 IT IS VERY CLEARLY MANDATED THAT A SHOW CAUSE NOTICE IS REQUIRED TO BE ISSUED BEFORE MAKING ADDITIONS/ DISALLOWANCES ALONG WITH REASONS FORMING BASIS FOR THE DISALLOWANCES/ADDITIONS IN THE ASSESSMENT SO THAT THE ASSESSEE CAN FILE HIS SUBMISSIONS AGAINST THE PROPOSAL. THE CIRCULAR FURTHER DIRECTS THE AO TO CONSIDER THE SUBMISSIONS BEFORE PASSING FINAL ORDER. IT WAS SUBMITTED THAT IN THIS CASE, THE AO DID NOT ISSUE ANY SUCH SHOW CAUSE NOTICE EVEN THOUGH THE DISALLOWANCE IS A VERY HUGE SUM OF RS 67,30,90, 917 / - . THE I.T.A. NO.68 /COCH/2018 18 CBDT C IRCULAR IS BINDING O N THE AO AND ANY ASSESSMENT DONE IN VIOLATION OF THE C IRCULAR CANNOT BE SUSTAINED. 5.9.2 IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAD RELIED ON THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT VS. CIT IN ITA NO. 278/2014 DA TED 3.7.2015. IT WAS SUBMITTED THAT ON THE FOLLOWING POINTS, THE MUTHOOTS CASE IS NOT APPLICABLE TO THE ASSESSEES CASE: (I) THE ASSESSMENT YEAR IN MUTHOOT'S CASE RELATES TO 2006 - 07 AND 2008 - 09 WHEREAS IN ASSESSEES CASE IT IS 2014 - 15. A VERY IMPORTANT AMENDMENT BY WAY OF INSERTION OF PROVISO TO SECTION 40(A)(IA) WAS EFFECTED W.E.F. 1.4.2013. THUS THE SCOPE OF THE SECTION HAS UNDERGONE A SEA CHANGE AND HENCE THE DECISION IS TOTALLY INAPPLICABLE. (II) IN THE CASE OF MUTHOOT, INTEREST WAS PAID ON OVERD RAWING WHEREAS IN THE ASSESSEES CASE INTEREST WAS PAID FOR LOAN TAKEN FROM THE FIRMS. (III) . IN THE CASE OF MUTHOOT, THERE IS A SPECIFIC FINDING BY THE HIGH COURT THAT THE ASSESSEE IS LIABLE FOR AUDIT UNDER SECTION 44AB. BUT IN THE ASSESSEES CASE, THERE IS NO FINDING BY ANY OF THE AUTHORITIES . S ECTION 44AB IS APPLICABLE BECAUSE THE TURNOVER OR GROSS RECEIPTS OF THE PRECEDING PREVIOUS YEAR HAD EXCEEDED THE LIMITS. THUS, THE MUTHOOT'S CASE DO ES NOT HAVE ANY APPLICATION IN THE ASSESSEES CASE. 5.9.3 IT WAS SUBMITTED THAT THE CIT(A) FAILED TO CONSIDER THE ARGUMENT PUT FORWARD BY THE ASSESSEE IN PARA 3/6 OF THE GROUND OF APPEAL FILED BEFORE THE CIT(A). BUT HE REPRODUCED THE SAME IN HIS ORDER. BUT THESE GROUNDS WERE NOT CONSIDERED. I.T.A. NO.68 /COCH/2018 19 5.9.4 IT IS ALSO S UBMITTED THAT THE IMPUGNED ORDER IS ILLEGAL AND UNSUSTAINABLE SINCE THERE IS NO SHOW CAUSE NOTICE OR PROPOSAL BY THE ASSESSING OFFICER IN WRITING AS PER INSTRUCTION NO. 20/2015 DATED 29/12/2015 WHICH IS BINDING ON THE ASSESSING OFFICER. THE VIOLATION OF MA NDATORY CIRCULAR VITIATES THE ORDER. THE SHOW CAUSE NOTICE WOULD HAVE GIVEN THE ASSESSEE THE CHANCE TO REALIZE AND UNDERSTAND THE ISSUES AND GET LEGAL ADVICE FROM EXPERTS IN THE FIELD RATHER THAN THE JUNIOR CA WHO REPRESENTED THE ASSESSEE. THUS, IT WAS S UBMITTED THAT THE ADDITION MAY BE DELETED. 6 . ON THE OTHER HAND, T HE LD. DR SUBMITTED THAT THE INTEREST INCOME EARNED BY THE ASSESSEE FOR THE F.Y. 2012 - 13 SHOW ED THE INTEREST ON BORROWINGS AND THE TOTAL OF INTEREST EARNED AND EXPENDED COMES TO RS.42,6 0,28,469/ - WHICH CLEARLY SHOW ED THAT THE GROSS TURNOVER OF THE ASSESSEE IS ABOVE ONE CRORE FOR F.Y. 2012 - 13, WHICH IS THE IMMEDIATELY PRECEDING THE PREVIOUS YEAR. AS SUCH, IT WAS SUBMITTED THAT THE ASSESSEE WA S LIABLE FOR TAX AUDIT U/S. 44AB. PROVIDED THAT AN INDIVIDUAL OR AN HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44 AB DURING THE FINANCIAL YEAR IN WHICH SUCH INTEREST IS CREDITED OR PAID, SHALL BE LIABLE TO DEDUCT INCOME TAX UNDER THIS SECTION. 6 .1 IT WAS SUBMITTED THAT IT IS CLEAR THAT AN INDIVIDUAL WHOSE TOTAL SALES OR GROSS RECEIPTS OR TURNOVER FROM BUSINESS EXCEEDS THE MONETARY LIMIT SPEC IFIED, THEN HE LIABLE FOR TAX AUDIT. HERE , ACCORDING TO THE LD. DR, THE ASSESSEE IS AN INDIVIDUAL I.T.A. NO.68 /COCH/2018 20 WHOSE GROSS RECEIPTS FROM BUSINESS EXCEEDED ONE C R ORE IN THE FINANCIAL YEAR 2012 - 13 , HENCE, THE ASSESSEE SQUARELY FALLS UN DER THE APPLICATION SECTION 194 A (1) . THE ONLY QUESTION REMAINING IS WHETHER THE GROSS RECEIPTS ARE FROM BUSINESS. SECTION 28 (V) IS CLEAR ABOUT THIS . IT READS AS UNDER: ANY INTEREST, SALARY, BONUS, COMMISSION OR REMUNE RATION, BY WHATEVER NAME CALLED , DUE TO, OR RECEIVED BY A PARTNER OF A FIRM FROM SUC H FIRM SHALL BE CHARGEABLE TO T AX AS INCOME FROM BUSINESS AND PROFESSION. 6.2 THE LD. DR SUBMITTED THAT THE A SSESSE'S COUNSEL HA D TRIED TO DISTINGUISH BETWEEN ' FRO M BUSINESS' AS APPEARING IN 194A AND ' IN BUSINESS' AS USED IN SECTION 44 AB . ACCORDING TO THE LD. DR, THE ASSESSEE BEING THE MANAGING PARTNER OF THE FIRM HA D DERIVED INCOME FROM THE CAPITAL AND HE HAD INVESTED , THEREFORE THE PROVISIONS OF SECTION 28 (V) IS APPLICABLE. 6. 3 THE LD. DR SUBMITTED THAT THE ARGUMENT PUT FORTH BY TH E ASSESSEE THAT SINCE THE ASSESSEE IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT' U NDER THE FIRST PROVISO TO SUB.SECTION (1) OF SECTION 201, THEN THE MISCHIEF OF SECTION 40 (A) (IA) IS NOT APPLICABLE TO IT , IS NOT ACCEPTABLE . SHE QUOTED THE AMENDED PORTION OF SECTION 40 (A) (IA). ' S ECTION 40(A) (IA) : THIRTY PER CENT OF ANY SUM PAYABLE TO A RESIDENT ON WHICH TAX IS DEDUCTIBLE 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 SPE CIFIED IN S UB S ECTION (1) OF 139 OF THE ACT. I.T.A. NO.68 /COCH/2018 21 PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII - B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO I N THE SAID PROVISO . THEN FOR THE PURPOSE OF THIS SUB SECTION, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. 6.4 THUS I T WAS SUBMITTED THAT THE UNDER THE SAID PROVISO, A N ASSESSEE CAN BE TREATED AS NOT TO BE DEFAULTER IF ONLY THE PAYEE HAS FURNISHED THE RETURN OF INCOME. THE LD. DR REFERRED TO THE PR OVISO TO SECTION 201 (1) WHICH SPECIFIES THAT; ' PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO B E AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT: - I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139. II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME AND III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME. IV) A ND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. THIS PROVISO IS APPLICABLE FROM A.Y. 2013 - 14 ONWARDS . 6.5 THE LD. D R SUBMITTED THAT THE RESIDENT P AYEE , M/S POPULAR TRADERS AND M/S. POPULAR DEALERS HAVE FILED THEIR RETURN OF INCOME FOR THE A.Y. 2014 - 15 , BUT M/S. POPULAR PRINTERS HA D NOT FURNISHED THEIR RETURN OF INCOME FOR A.Y, 2014 - 15 AND THE RETURN FILED BY M/S . POPULAR TR ADERS AND POPULAR DEALERS WERE BEYOND THE T IME I.T.A. NO.68 /COCH/2018 22 LIMIT FOR FILING RETURN U/S 139, (139 (4 ),139 (5) AND U NDER SECTION 139 (1) THE DUE DATE FOR FILING RETURN IS 30/09/2014. IT WAS SUBMITTED THAT THE RETURN OF INCOME IN THE CASE OF M/S. POPULAR TRADERS WAS FILED ON 11/2/2016 IN THE CASE OF M/S. POPULAR DEALERS AND THE RETURN OF INCOME WAS FILED ON L7 / 2/2016. SINCE THIS IS BEYOND THE TIME LIMIT STIPULATED EVEN FOR FILING A REVISED RETURN , IT WAS SUBMITTED THAT IT CANNOT BE SAID THAT PAYEE FILED ITS RETURN OF INCOME U/S 139 AND INCLUDED IT AS INCOME IN THE RETURN OF INCOME. ON PERUSAL OF THE P & L ACCOUNT OF M/S. POPULAR PRINTERS & M/S. POPULAR DEALERS , THE LD. DR FOUND THAT THE AMOUNT OF RS. 49,96,53,294/ - ( POPULAR TRADERS) ,RS. 7,15,53,547/ - (POPULAR PRINTERS) AND RS. 10,10,24,076/ - ( POPULAR DEALERS) WER E CREDITED. IT WAS SUBMITTED THAT T HESE P & L ACCOUNTS WER E NOT AUDITED P & L ACCOUNTS. THE LD. DR NOTICED THAT AS AGAINST THE INCOME DECLARED AS INTEREST ON MANAGING PARTNER'S LOAN, DEBITS WER E ALSO CLAIMED AS INTEREST ON LOAN AS UN DER: INTEREST ON MANAGING PARTNERS LOAN INTEREST ON MPL DEBITED NET LOSS AS PER P&L ACCOUNT POPULAR DEALERS 10,18,84,076/ - 10,32,56,352/ - 9,95,793/ - POPULAR PRINTERS 7 ,15,53,547/ - 7,26,77,180/ - 3,71,146/ - POPULAR TRADERS 49,96,53,294/ - 50,78,94,4 86/ - 44,57,455/ - 6 .6 THUS, IT WAS SUBMITTED THAT THE ASSESSEE WA S CREDITING THE INTEREST AMOUNT FROM THE MANAGING PARTNER AND DEBITING THE INTEREST ON LOAN TAKEN BY THE MANAGING PARTNER AND A LMOST SIMILAR AMOUNTS ARE CREDITED AND DEBITED . IT WAS SUBM ITTED THAT AL L THE FIRMS WERE REPORTING NET LOSS. THEREFORE, IT WAS SUBMITTED THAT THE ASSESSEE FAILED THE TEST OF TAKING I NTO ACCOUNT SUCH SUM FOR COMPUTING I.T.A. NO.68 /COCH/2018 23 INCOME IN SUCH RETURN OF INCOME. IT WAS ALSO SUBMITTED THAT N ONE OF THE FIRMS HA D PAID TAX AND ALL THE FIRMS WERE RETURNING NET LOSS AS PER THE P & L ACCOUNT. IT WAS SUBMITTED THAT NO CERTIFICATE WAS FURNISHED FROM AN ACCOUNTANT . 6.7 THE LD. DR SUBMITTED THAT FAILURE TO DEDUCT TAX DEDUCTED AT SOURCE THE FACT THAT THE RECIPIENT HA D SUBSEQUENTLY PAID TAX, WILL NOT ABSOLVE THE PAYEE FROM THE C ONSEQUENCES OF DISALLOWANCES'. SHE RELIED IN THE CASE OF SHRI THOMAS GEORGE MUTHOOT IN ITA NO 278/2014 DATED 3/7/2015 FOR A.Y. 2005 - 06 TO 2007 - 08 WHEREIN IT WAS HELD THAT TH E PROVISO INSERTED IN SEC. 40(A) (IA) IS FROM A.Y. 2014 - 15 AND THE SECOND PROVISO TO SEC. 40(A)(IA) IS PROSPECTIVE IN OPERATION. 6 .8 THE LD. DR SUMMARIZED THE POINTS RAISED BY THE DEPARTMENT AS FOLLOWS: - 1) EVEN THOUGH PROVISO TO SEC, 40(A) (IA) WAS INTRODUCED IN THE FINANCE ACT W.E.F. 1/4 /2013, ASSESSEE CANNOT CLAIM THE BENEFIT OF THAT BECAUSE, IT IS DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE 1ST PROVISO TO SUB SECTION (1) OF SECTION 201. SINCE THE ASSESSEE HAS FAILED TO DEDUCT TDS ON INTEREST PAYMENTS MADE BY HIM A S MANAGING PARTNER OF THE THREE FIRMS , DI SALLOWANCE IS CALLED FOR U/S 40(A) (IA). 2) ASSESSEE'S CASE IS SQUARELY COVERED BY THE DECISION OF HIGH COURT OF KERALA IN THE CASE OF SHRI THOMAS GEORGE MUTHOOT IN ITA NO 278/2014 DATED 3/7/2015 WHEREIN IT WAS HELD THAT THE SECOND PROV ISO INSERTED BY THE FINANCE ACT 2012 CANNOT BE TREATED AS RETROSPECTIVE IN OPERATION. THE FACT THAT PAYEES HAVE ALREADY PAID TAX ON THE AMOUNTS PAID DOES NOT MEAN THAT DISALLOWANCE FOR FAILURE TO DEDUCT TDS CANNOT BE MADE. SEC. 40(A)(IA) CANNOT BE INTERPR ETED TO MEAN THAT IT APPLIES ONLY TO AMOUNTS 'PAID' AND NO T TO THOSE 'PAYABLE', 3) THE SECOND PROVISO TO SEC. 40(A) (IA) THOUGH BENEFICIAL TO THE TAX PAYERS, CAN BE CLAIMED ONLY IF THE CONDITION UNDER PROVISO TO S EC. 201(1) IS NOT MET. SINCE THE ASESSEE F ALLS THIS TEST, THIS BENEFIT TO THE TAX PAYER CANNOT BE AVAILED BY THE ASSESSEE. I.T.A. NO.68 /COCH/2018 24 6.9 THE LD. DR RELIED ON THE JUDGMENT OF THE DELHI HIGH COURT IN ITA NOS. 160&161/2015 DATED 26/08/2015 WHEREIN IT WAS HELD THAT THE ABOVE REASONING OF THE AGRA BENCH OF T HE ITAT AS REGARDS THE RATIONALE BEHIND THE INSERTION OF THE 2 ND PROVISO TO SEC. 40(A)(IA) OF THE ACT AND ITS CONCLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2005, MERITS ACCEPTANCE. SHE ALSO RELIED ON THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF THOMAS GEORGE MUTHOOT ( 287 CTR 101 ). 7. WE HAVE HEARD THE RI VAL SUBMISSIONS AND PERUSED THE RECORD. ON AN EARLIER OCCASION, A SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CA SE OF THOMAS GEORGE MUTHOOT VS. ACIT (57 SOT 270) (COCHIN); 41 CCH 633 WHEREIN THE TRIBUNAL HELD AS UNDER : 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY ALL THE ASSESSEES ARE ASSE SSED AS INDIVIDUALS IN THEIR INDIVIDUAL CAPACITY. ALL THE ASSESSEES ARE PARTNERS IN THE RESPECTIVE FIRMS. ALL THE ASSESSEES PAID INTEREST TO THE RESPECTIVE PARTNERSHIP FIRMS ON THE LOANS BORROWED. THE QUESTION ARISES FOR CONSIDERATION IS WHEN THE INDIVIDUA L PARTNERS PAID INTEREST TO THE PARTNERSHIP FIRMS WHETHER THEY ARE LIABLE TO DEDUCT TAX U/S 194A OF THE ACT. FOR THE PURPOSE OF CONVENIENCE WE ARE REPRODUCING SECTION 194A OF THE ACT BELOW: 194A. (1) ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVID ED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF INTEREST OTHER THAN INCOME BY WAY OF INTEREST ON SECURITIES, SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE 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 INCOME - TAX THEREON AT THE RATES IN FORCE: PROVIDED THAT AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM I.T.A. NO.68 /COCH/2018 25 EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF S ECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH INTEREST IS CREDITED OR PAID, SHALL BE LIABLE TO DEDUCT INCOME - TAX UNDER THIS SECTION. EXPLANATION. - FOR THE PURPOSES OF THIS SECTION, WHERE ANY INCOME BY WAY OF INTEREST AS AFORESAID IS CREDITED TO ANY ACCOUNT, WHETHER CALLED INTEREST PAYABLE ACCOUNT OR SUSPENSE ACCOUNT OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF TH E PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. 5. A BARE READING OF ABOVE PROVISIONS OF SECTION 194A CLEARLY SHOWS THA T INDIVIDUALS AND HUFS ARE EXEMPT FROM THE PROVISIONS OF 40(A)(IA) OF THE ACT IN RESPECT OF ANY INTEREST PAID TO PARTNERSHIP FIRMS OR ANY PERSON. HOWEVER, PROVISO TO SECTION 40(A)(IA) MAKES AN EXEMPTION TO THE MAIN SECTION. IN THIS CASE, THE BUSINESS INCOM E OF THE ASSESSEE EXCEEDED THE LIMIT PRESCRIBED U/S 44AB OF THE ACT, THEREFORE, THE ASSESSEE, EVEN THOUGH INDIVIDUAL IS LIABLE TO DEDUCT TAX WHILE PAYING INTEREST TO THE FIRM U/S . 194A(1) OF THE I.T. ACT. 6. NOW COMING TO THE CONTENTION OF THE ASSESSEE THAT THE RECIPIENT FIRM HAS ALREADY PAID THE TAX, THIS TRIBUNAL FINDS NO MERIT IN SUCH CONTENTION. THE APEX COURT, IN HINDUSTAN COCO COLA BEVERAGES (P) LTD (SUPRA), AFTER REFERRING TO THE CIRCULAR ISSUED BY THE CBDT IN C IRCULAR NO.275/201/95 - IT(B)DATED 29 - 01 - 1997 FOUND THAT WHEN THE DEDUCTEE - ASSESSEE PAID THE TAX, NO DEMAND VISUALIZED U/S 201(1) OF THE ACT SHALL BE ENFORCED AGAINST THE DEFAULTER - ASSESSEE. IN THE CASE BEFORE US, THE DISALLOWANCE WAS MADE U/S . 40(A)(IA) OF THE ACT. THE OBJECT OF SECTION 40(A) (IA) IS TO COMPEL THE ASSESSEE TO DEDUCT TAX AT SOURCE. IN OTHER WORDS, AS A PRECONDITION FOR CLAIMING THE EXPENDITURE OTHERWISE ALLOWABLE, THE ASSESSEE HAS TO DEDUCT TAX AS REQUIRED UNDER THE RELEVANT PROVISIONS OF THE ACT. ON THE CONTRARY, THE OBJECT OF SECTION 201 IS ONLY TO COMPENSATE THE GOVERNMENT FOR FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. SECTION 201 ENABLES THE GOVERNMENT TO RECOVER THE TAX FROM THE ASSESSEE WHO DEFAULTS IN MAKING THE DEDUCTION AT THE TIME OF PAYMENT. THEREFORE, THE PROVIS IONS OF SECTION 40(A)(IA) AND 201 OPERATE IN TWO DIFFERENT FIE LDS. SECTION 40(A)(IA) WILL NOT OVERRIDE THE PROVISIONS OF SECTION 201 OF THE INCOME - TAX ACT. THEREFORE,THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDGMENT OF THE APEXCOURT IN HINDUSTAN COCO COLA BEVERAGES (P) LTD (SUPRA) RENDERED IN THE CONTEXT OF SECTION 201 MAY NOT BE APPLICABLE IN THE CONTEXT OF APPLICATION OF SECTION 40(A)(IA) OF THE ACT. I.T.A. NO.68 /COCH/2018 26 7. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE PARLIAME NT BY FINANCE ACT, 2012 INCORPORATED SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT WITH EFFECT FROM 01 - 04 - 2013. FOR THE PURPOSE OF CONVENIENCE, WE ARE REPRODUCING SECOND PROVISO AS IT IS INSERTED BY FINANCE ACT, 2012 BELOW: PROVIDED FURTHER THAT WHERE A N ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII - B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB - SECTION(1) OF SECTION 201, THEN, FOR THE PURPOSE O F THIS SUB - CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. 8. IN VIEW OF THIS SECOND PROVISO WHICH CAME TO BE INSE RTED IN THE STATUTE BOOK WITH EFFECT FROM 01 - 04 - 2013, WHEREVER THE ASSESSEE FAILS TO DEDUCT TAX ON ANY SUM, BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT U/S 201(1) THEN, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID TAX ON THE SAID SUM ON TH E DATE OF FURNISHING OF THE RETURN OF INCOME. 9. THE NEXT QUESTION ARISES FOR CONSIDERATION IS WHETHER THE SECOND PROVISO TO SECTION 40(A)(IA) AS INCORPORATED BY FINANCE ACT, 2012 IS RETROSPECTIVE IN OPERATION OR PROSPECTIVE IN OPERATION. WE ARE CONSCIOUS THAT SOME OF THE BENCHES OF THIS TRIBUNAL IN THE COUNTRY HAS TAKEN THE VIEW THAT THE SECOND PROVISO TO SECTION 40(A)(IA) IS RETROSPECTIVE IN OPERATION, THEREFORE, APPLICABLE TO EARLIER PERIOD ALSO. HOWEVER, THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRU DENTIAL LOGISTICS & TRANSPORTS IN ITA NO. 01 OF 2014 JUDGMENT DATED 13TH JANUARY, 2014, COPY OF WHICH HAS BEEN FILED BY THE LD. DR, FOUND THAT THE SECOND PROVISO IS NOT APPLICABLE FOR EARLIER ASSESSMENT YEARS. IN FACT, THE KERALA HIGH COURT HAS OBSERVED AS FOLLOWS: 5. READING OF SECTION 40A(IA) ALONG WITH 2ND PROVISO AND SECTION 201(1) ALONG WITH PROVISO, IT WOULD MEAN THAT THE MANDATE OR REQUIREMENT ON THE PART OF THE PAYER TO DEDUCT TAX AT SOURCE IS NOT SO STRICT IF THEY ARE ABLE TO SHOW THAT THE PAYEE OR THE RECIPIENT OF THE AMOUNTS HAS PAID TAX IN ACCORDANCE WITH THE PROVISIONS OF SECTION 201(1) AND THE PROVISO. 6. THIS WAS NOT THE CLAIM MADE BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. THE CLAIM WAS ON A DIFFERENT STAND, INITIALLY REFLECTING THE AMO UNTS AS LOAN IN THE ACCOUNT BOOKS THOUGH SHOWN AS FREIGHT CHARGES IN THE RETURNS AND LATER EXPLAINED THAT IT WAS NOT THE LOAN AMOUNT BUT FREIGHT CHARGES. IT WAS NEVER THE CASE OF THE ASSESSEE THAT THERE WAS NO MANDATE SUBSEQUENT TO AMENDMENT, TO DEDUCT TAX AS TDS IN THE LIGHT OF ABOVE PROVISIONS. THE I.T.A. NO.68 /COCH/2018 27 ASSESSMENT YEAR IN QUESTION IS 2007 - 08 AND THE AMENDMENT GIVING BREATHING SPACE TO PAYER OF AMOUNTS IS WITH EFFECT FROM 01/04/2013. THEREFORE, THE SAID BENEFIT IS NOT APPLICABLE TO THE ASSESSEE. EVEN OTHERWISE, ON FACTUAL SITUATION, THE VERY FACT THAT THESE AMOUNTS WERE CLAIMED AS LOAN INITIALLY, TILL THE SCRUTINY CAME UP FOR CONSIDERATION BEFORE ASSESSING AUTHORITY WOULD ONLY INDICATE THE REAL INTENTION OF THE ASSESSEE FIRM I.E NOT TO DISCLOSE THIS AMOUNT AS FR EIGHT CHARGES BUT SOMETHING ELSE AS REPAYMENT OF LOAN. 10 . IN VIEW OF THE ABOVE JUDGMENT OF THE JURISDICTIONAL HIGH COURT, IT IS BINDING ON THIS TRIBUNAL THAT SECOND PROVISO WHICH WAS INTRODUCED BY FINANCE ACT, 2012 IS NOT APPLICABLE FOR THE ASSESSMENT Y EARS UNDER CONSIDERATION. HENCE, THE CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 11. THE NEXT CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS ALREADY PAID THE AMOUNT, PROVISIONS OF SECTION 40(A)(IA) IS APPLICABLE ONLY IN R ESPECT OF THE AMOUNT WHICH REMAINS TO BE PAYABLE ON THE LAST DAY OF THE FINANCIAL YEAR. THE LD. REPRESENTATIVE PLACED HIS RELIANCE ON THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN MERILYN SHIPPING & TRANSPORTS VS ADDL . CIT (2012) 70 DTR 81 AND ALSO THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN CIT VS M/S VECTOR SHIPPING SERVICES (P) LTD I.T.A NO.122 OF 2013 JUDGMENT DATED 09 - 07 - 2013 AND SUBMITTED THAT THE SLP FILED BY THE REVENUE IN THE APEX COURT AGAINST THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN M/ S VECTOR SHIPPING SERVICES (P) LTD (SUPRA) IS DISMISSED BY THE APEX COURT. IT IS WELL SETTLED PRINCIPLES OF LAW THAT THE LAW LAID DOWN BY THE APEX COURT IS BINDING ON ALL COURTS AND AUTHORITIES INCLUDING THIS TRIBUNAL UNDER ARTICLE 141 OF THE CONSTITUTION OF INDIA. IT IS ALSO EQUALLY SETTLED PRINCIPLE THAT A DISMISSAL OF SLP WITHOUT ANY DISCUSSION IS NOT THE LAW DECLARED BY THE APEX COURT. THE APEX COURT THOUGHT IT FIT THAT IT WAS NOT A FIT CASE TO BE ADMITTED FOR CONSIDERATION. THEREFORE, WHILE DISMISSING THE SLP, THE APEX COURT DID NOT DECLARE ANY LAW. HENCE, WE CANNOT SAY THAT THE APEX COURT HAS DECLARED THE LAW DECLARING THAT SECTION 40(A)(IA) IS APPLICABLE ONLY IN RESPECT OF THE AMOUNTS REMAINS TO BE PAYABLE AT THE LAST DAY OF THE FINANCIAL YEAR. 12. W E HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN CIT VS M/S VECTOR SHIPPING SERVICES (P) LTD (SUPRA), COPY OF WHICH IS FILED BY THE ASSESSEE. THE ALLAHABAD HIGH COURT, AFTER REPRODUCING THE RELEVANT PARAGRAPH FROM THE ORDER OF CIT(A) AND REFERRING TO THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN MERILY N SHIPPING & TRANSPORTS (SUPRA) FOUND THAT THE TRIBUNAL HAS NOT COMMITTED AN ERROR. IT IS OBVIOUS THAT THERE IS NO DISCUSSION ABOUT THE CORRECTNESS OR OTHERWISE OF THE DEC ISION RENDERED BY THE SPECIAL BENCH OF THIS TRIBUNAL IN MERILYN SHIPPING & TRANSPORTS (SUPRA). HOWEVER, WE FIND THAT THE GUJARAT HIGH COURT IN THE CASE OF CIT VS SIKANDARKHAN N TUNVAR ITA NOS 905 OF 2012, 709 & 710 OF 2012, 333 OF 2013, I.T.A. NO.68 /COCH/2018 28 832 OF 2012, 857 OF 2012, 894 OF 2012, 928 OF 2012, 12 OF 2013, 51 OF 2013, 58 OF 2013 AND 218 OF 2013 JUDGMENT DATED 02 - 05 - 2013 CONSIDERED THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN MERILYN SHIPPING & TRANSPORTS (SUPRA) AND SPECIFICALLY DISAGREED WITH THE PRINCIP LES LAID DOWN BY THE SPECIAL OF THIS TRIBUNAL IN MERILYN SHIPPING & TRANSPORTS (SUPRA). THE CALCUTTA HIGH COURT ALSO IN THE CASE OF CRESCENT EXPORTS SYNDICATE & ANOTHER IN ITAT 20 OF 2013 AND GA 190 OF 2013 JUDGMENT DATED 03 - 04 - 2013 CONSIDERED ELABORATELY THE JUDGMENT OF THE SPECIAL BENCH OF THIS TRIBUNAL IN MERILYN SHIPPING & TRANSPORTS (SUPRA) AND FOUND THAT THE DECISION RENDERED BY THE SPECIAL BENCH OF THIS TRIBUNAL IS NOT THE CORRECT LAW. IT IS WELL SETTLED PRINCIPLES OF LAW THAT WHEN DIFFERENT HIGH COU RTS EXPRESSED DIFFERENT OPINIONS ON A POINT OF LAW, THEN, NORMALLY, THE BENEFIT OF DOUBT UNDER THE TAXATION LAW WOULD GO TO THE ASSESSEE. IT IS ALSO EQUALLY SETTLED PRINCIPLES OF LAW THAT THE JUDGMENT WHICH DISCUSSES THE POINT IN ISSUE ELABORATELY AND GIVE S AN ELABORATE REASONING HAS TO BE PREFERRED WHEN COMPARED TO THE JUDGMENT WHICH HAS NO REASONING AND DISCUSSION. ADMITTEDLY, THE CALCUTTA HIGH COURT AND GUJARAT HIGH COURT HAVE DISCUSSED THE ISSUE ELABORATELY AND THE SPECIFIC REASONING HAS ALSO BEEN RECOR DED AS TO WHY THE SPECIAL BENCH IS NOT CORRECT. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDGMENTS OF THE CALCUTTA HIGH COURT CRESCENT EXPORTS SYNDICATE & ANOTHER (SUPRA) AND GUJARAT HIGH COURT IN SIKANDARKHAN N TUNVAR (SUPRA) HAVE TO BE PREFERRED WHEN COMPARED TO THE ALLAHABAD HIGH COURT IN M/S VECTOR SHIPPING SERVICES (P) LTD (SUPRA). 13. FOR THE PURPOSE OF CONVENIENCE WE REPRODUCING BELOW THE OBSERVATIONS MADE BY THE CALCUTTA HIGH COURT IN CRESCENT EXPORTS SYNDICATE & ANOTHER (SUP RA) AND GUJARAT HIGH COURT IN SIKANDARKHAN N TUNVAR (SUPRA): CALCUTTA HIGH COURT IN CRESCENT EXPORTS SYNDICATE & ANOTHER (SUPRA) BEFORE DEALING WITH THE SUBMISSIONS OF THE LEARNED COUNSEL APPEARING FOR THE ASSESSEES IN BOTH THE APPEALS WE HAVE TO EXAMIN E THE CORRECTNESS OF THE MAJORITY VIEWS IN THE CASE OF MERILYN SHIPPING. WE ALREADY HAVE QUOTED EXTENSIVELY BOTH THE MAJORITY AND THE MINORITY VIEWS EXPRESSED IN THE AFORESAID CASE. THE MAIN THRUST OF THE MAJORITY VIEW IS BASED ON THE FACT THAT THE LEGISL ATURE HAS REPLACED THE EXPRESSION AMOUNTS CREDITED OR PAID WITH THE EXPRESSION PAYABLE IN THE FINAL ENACTMENT. COMPARISON BETWEEN THE PRE - AMENDMENT AND POST AMENDMENT LAW IS PERMISSIBLE FOR THE PURPOSE OF ASCERTAINING THE MISCHIEF SOUGHT TO BE REMEDIED OR THE OBJECT SOUGHT TO BE ACHIEVED BY AN AMENDMENT. THIS IS PRECISELY WHAT WAS DONE BY THE APEX COURT IN THE CASE OF CIT VS. KELVINATOR REPORTED IN 2010(2) SCC 723. BUT THE SAME COMPARISON BETWEEN THE DRAFT AND THE ENACTED LAW IS NOT PERMISSIBLE. NOR CAN THE DRAFT OR THE BILL BE USED FOR THE PURPOSE OF REGULATING THE MEANING AND PURPORT OF THE ENACTED LAW. IT IS THE FINALLY ENACTED LAW WHICH IS THE WILL OF THE LEGISLATURE. THE LEARNED TRIBUNAL FELL INTO AN ERROR IN NOT REALIZING THIS ASPECT OF THE MATTER. THE LEARNED I.T.A. NO.68 /COCH/2018 29 TRIBUNAL HELD THAT WHERE LANGUAGE IS CLEAR THE INTENTION OF THE LEGISLATURE IS TO BE GATHERED FROM THE LANGUAGE USED. HAVING HELD SO, IT WAS NOT OPEN TO SEEK TO INTERPRET THE SECTION ON THE BASIS OF ANY COMPARISON BETWEEN THE DRAFT AND THE S ECTION ACTUALLY ENACTED NOR WAS IT OPEN TO SPECULATE AS TO THE EFFECT OF THE SO - CALLED REPRESENTATIONS MADE BY THE PROFESSIONAL BODIES. THE LEARNED TRIBUNAL HELD THAT SECTION 40(A)(IA) OF THE ACT CREATES A LEGAL FICTION BY VIRTUE OF WHICH EVEN THE GENUINE AND ADMISSIBLE EXPENSES CLAIMED BY AN ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION: IF THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES ARE DISALLOWED. HAVING HELD SO WAS IT OPEN TO THE TRIBUNAL TO SEEK TO JUSTIFY THAT THIS FICTION CAN NOT BE EXTENDED ANY FURTHER AND, THEREFORE, CANNOT BE INVOKED BY ASSESSING OFFICER TO DISALLOW THE GENUINE AND REASONABLE EXPENDITURE ON THE AMOUNTS OF EXPENDITURE ALREADY PAID? DOES THIS NOT AMOUNT TO DELIBERATELY READING SOMETHING IN THE LAW WHICH IS NO T THERE? WE, AS SUCH, HAVE NO DOUBT IN OUR MIND THAT THE LEARNED TRIBUNAL REALIZED THE MEANING AND PURPORT OF SECTION 40(A)(IA) CORRECTLY WHEN IT HELD THAT IN CASE OF OMISSION TO DEDUCT TAX EVEN THE GENUINE AND ADMISSIBLE EXPENSES ARE TO BE DISALLOWED. BUT THEY SOUGHT TO REMOVE THE RIGOUR OF THE LAW BY HOLDING THAT THE DISALLOWANCE SHALL BE RESTRICTED TO THE MONEY WHICH IS YET TO BE PAID. WHAT THE TRIBUNAL BY MAJORITY DID WAS TO SUPPLY THE CASUS OMISSUS WHICH WAS NOT PERMISSIBLE AND COULD ONLY HAVE BEEN DON E BY THE SUPREME COURT IN AN APPROPRIATE CASE. REFERENCE IN THIS REGARD MAY BE MADE TO THE JUDGMENT IN THE CASE OF BHUWALKA STEEL INDUSTRIES VS. BOMBAY IRON & STEEL LABOUR BOARD REPORTED IN 2010(2) SCC 273. UNPROTECTED WORKER WAS FINALLY DEFINED IN SECTION 2(11) OF THE MATHADI ACT AS FOLLOWS: - UNPROTECTED WORKER MEANS A MANUAL WORKER WHO IS ENGAGED OR TO BE ENGAGED IN ANY SCHEDULED EMPLOYMENT. THE CONTENTION RAISED WITH REFERENCE TO WHAT WAS THERE IN THE BILL WAS REJECTED BY THE SUPREME COURT B Y HOLDING AS FOLLOWS: IT MUST, AT THIS JUNCTURE, BE NOTED THAT IN SPITE OF SECTION 2(11), WHICH INCLUDED THE WORDS BUT FOR THE PROVISIONS OF THIS ACT IS NOT ADEQUATELY PROTECTED BY LEGISLATION FOR WELFARE AND BENEFITS OF THE LABOUR FORCE IN THE STATE, THESE PRECISE WORDS WERE REMOVED BY THE LEGISLATURE AND THE DEFINITION WAS MADE LIMITED AS IT HAS BEEN FINALLY LEGISLATED UPON. IT IS TO BE NOTED THAT WHEN THE BILL CAME TO BE PASSED AND RECEIVED THE ASSENT OF THE VICE - PRESIDENT ON 05 - 06 - 1969 AND WAS FIRST PUBLISHED IN THE MAHARASHTRA GOVERNMENT GAZETTE EXTRAORDINARY, PART IV ON 13 - 06 - 1969, THE AFOREMENTIONED W ORDS WERE OMITTED. I.T.A. NO.68 /COCH/2018 30 THEREFORE, T HIS WOULD BE A CLEAR POINTER TO THE LEGISLATIVE INTENT THAT THE LEGISLATURE BEING CONSCIOUS OF THE FACT AND BEING ARME D WITH ALL THE COMMITTEE REPORTS AND ALSO BEING ARMED WITH THE FACTUAL DATA, DELIBERATELY AVOIDED THOSE WORDS. WHAT THE APPELLANTS ARE ASKING WAS TO READ IN THAT DEFINITION, THESE PRECISE WORDS, WHICH WERE CONSCIOUSLY AND DELIBERATELY OMITTED FROM THE DEFI NITION. THAT WOULD AMOUNT TO SUPPLYING THE CASUS OMISSUS AND WE DO NOT THINK THAT IT IS POSSIBLE, PARTICULARLY, IN THIS CASE. THE LAW OF SUPPLYING THE CASUS OMISSUS BY THE COURTS IS EXTREMELY CLEAR AND SETTLED THAT THOUGH THIS COURT MAY SUPPLY THE CASUS OM ISSUS, IT WOULD BE IN THE RAREST OF THE RATE CASE AND THUS SUPPLYING OF THIS CASUS OMISSUS WOULD BE EXTREMELY NECESSARY DUE TO THE INADVERTENT OMISSION ON THE PART OF THE LEGISLATURE. BUT, THAT IS CERTAINLY NOT THE CASE HERE. WE SHALL NOW ENDEAVOUR TO SHO W THAT NO OTHER INTERPRETATION IS POSSIBLE. THE KEY WORDS USED IN SECTION 40(A)(IA), ACCORDING TO US, ARE ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTERXVII - B. IF THE QUESTION IS WHICH EXPENSES ARE SOUGHT TO BE DISALLOWED? THE ANSWER IS BOUND TO BE THOSE EXPENSES ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B. ONCE THIS IS REALIZED NOTHING TURNS ON THE BASIS OF THE FACT THAT THE LEGISLATURE USED THE WORD PAYABLE AND NOT PAID OR CREDITED. UNLESS ANY AMOUNT IS PAYABLE, IT CAN NEITHER B E PAID NOR CREDITED. IF N AMOUNT HAS NEITHER BEEN PAID NOR CREDITED, THERE CAN BE NO OCCASION FOR CLAIMING ANY DEDUCTION. THE LANGUAGE USED IN THE DRAFT WAS UNCLEAR AND SUSCEPTIBLE TO GIVING MORE THAN ONE MEANING. BY LOOKING AT THE DRAFT IT COULD BE SAID T HAT THE LEGISLATURE WANTED TO TREAT THE PAYMENTS MADE OR CREDITED IN FAVOUR OF A CONTRACTOR OF SUBCONTRACTOR DIFFERENTLY THAN THE PAYMENTS ON ACCOUNT OF INTEREST, COMMISSION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES BECAUS E THE WORDS MOUNTS CREDITED OR PAID WERE USED ONLY IN RELATION TO A CONTRACTOR OF SUB - CONTRACTOR. THIS DIFFERENTIAL TREATMENT WAS NOT INTENDED. THEREFORE, THE LEGISLATURE PROVIDED THAT THE AMOUNTS, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER XVII - B PAYABL E ON ACCOUNT OF INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES OR TO A CONTRACTOR OF SUB - CONTRACTOR SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME OF AN ASSESSEE IN CASE HE HAS NOT DEDUCTED, O R AFTER DEDUCTION HAS NOT PAID WITHIN THE SPECIFIED TIME. THE LANGUAGE USED BY THE LEGISLATURE IN THE FINALLY ENACTED LAW IS CLEAR AND UNAMBIGUOUS WHEREAS THE LANGUAGE USED IN THE BILL WAS AMBIGUOUS. A FEW WORDS ARE NOW NECESSARY TO DEAL WITH THE SUBMISSIO N OF MR. BAGCHI AND MS. ROYCHOWDHURI. THERE CAN BE NO DENIAL THAT THE PROVISION IN QUESTION IS HARSH. BUT THAT IS NO GROUND TO READ THE SAME IN A MANNER WHICH WAS NOT INTENDED BY THE LEGISLATURE. THIS IS OUR ANSWER TO THE SUBMISSION OF I.T.A. NO.68 /COCH/2018 31 MR. BAGCHI. THE SUBM ISSION OF M S . ROYCHOWDHURI THAT THE SECOND PROVISO SOUGHT TO BECOME EFFECTIVE FROM 1ST APRIL, 2013 SHOULD BE HELD TO HAVE ALREADY BECOME OPERATIVE PRIOR TO THE APPOINTED DATE CANNOT ALSO BE ACCEDED TO FOR THE SAME REASON INDICATED ABOVE. THE LAW WAS DELIBE RATELY MADE HARSH TO SECURE COMPLIANCE OF THE PROVISIONS REQUIRING DEDUCTIONS OF TAX AT SOURCE. IT IS NOT THE CASE OF AN INADVERTENT ERROR. FOR THE REASONS DISCUSSED ABOVE, WE ARE OF THE OPINION THAT THE MAJORITY VIEWS EXPRESSED IN THE CASE OF MERILYN SHI PPING & TRANSPORTS ARE NOT ACCEPTABLE. THE SUBMISSIONS ADVANCED BY LEARNED ADVOCATES HAVE ALREADY BEEN DEALT WITH AND REJECTED. G UJARAT HIGH COURT IN SIKANDARKHAN N TUNVAR(SUPRA) 23. DESPITE THIS NARROW INTERPRETATION OF SECTION 40(A)(IA),THE QUESTION S TILL SURVIVES IF THE TRIBUNAL IN CASE OF M/S MERILYN SHIPPING & TRANSPOR T S VS. ACIT (SUPRA) WAS ACCURATE IN ITS OPINION. IN THIS CONTEXT, WE WOULD LIKE TO EXAMINE TWO ASPECTS. FIRSTLY, WHAT WOULD BE THE CORRECT I NTERPRETATION OF THE SAID PROVISION. SECONDL Y, WHETHER OUR SUCH UNDERSTANDING OF THE LANGUAGE USED BY THE LEGISLATURE SHOULD WAVER ON THE PREMISE THAT AS PROPOUNDED BY THE TRIBUNAL, THIS WAS A CASE OF CONSCIOUS OMISSION ON THE PART OF THE PARLIAMENT. BOTH THESE ASPECTS WE WOULD ADDRESS ONE AFTER ANO THER. IF ONE LOOKS CLOSELY TO THE PROVISION, IN QUESTION, ADVERSE CONSEQUENCES OF NOT BEING ABLE TO CLAIM DEDUCTION ON CERTAIN PAYMENTS IRRESPECTIVE OF THE PROVISIONS CONTAINED IN SECTIONS 30 TO 38 OF THE ACT WOULD FLOW IF THE FOLLOWING REQUIREMENTS ARE SA TISFIED: - (A) THERE IS INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO RESIDENT OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB - CONTRACTOR BEING RESIDENT FOR CARRYING OUT ANY WORK. (B) T HESE AMOUNTS ARE SUCH ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER XVIII - B. I.T.A. NO.68 /COCH/2018 32 (C) SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID ON OR BEFORE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 39. FOR THE PURPOSE OF CURRENT DISCUSSION REFERE NCE TO THE PROVISO IS NOT NECESSARY. 24. WHAT THIS SUB - SECTION, THEREFORE, REQUIRES IS THAT THERE SHOULD BE AN AMOUNT PAYABLE IN THE NATURE DESCRIBED ABOVE, WHICH IS SUCH ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B BUT SUCH TAX HAS NOT BEEN D EDUCTED OR IF DEDUCTED NOT PAID BEFORE THE DUE DATE. THIS PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE MUST REMAIN SO PAYABLE THROUGHOUT DURING THE YEAR. TO REITERATE THE PROVISION HAS CERTAIN STRICT AND STRINGENT REQUIREMENTS BEFORE THE UNP LEASANT CONSEQUENCES ENVISAGED THEREIN CAN BE APPLIED. WE ARE PREPARED TO AND WE ARE DUTY BOUND TO INTERPRET SUCH REQUIREMENTS STRICTLY. SUCH REQUIREMENTS, HOWEVER, CANNOT BE ENLARGED BY ANY ADDITION OR SUBTRACTION OF WORDS NOT USED BY THE LEGISLATURE. THE TERM USED IS INTEREST, COMMISSION, BROKERAGE ETC. IS PAYABLE TO A RESIDENT OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB - CONTRACTOR FOR CARRYING OUT ANY WORK. THE LANGUAGE USED IS NOT THAT SUCH AMOUNT MUST CONTINUE TO REMAIN PAYABLE TILL THE END OF THE ACCOUN TING YEAR. ANY SUCH INTERPRETATION WOULD REQUIRE READING WORDS WHICH THE LEGISLATURE HAS NOT USED. NO SUCH INTERPRETATION WOULD EVEN OTHERWISE BE JUSTIFIED BECAUSE IN OUR OPINION, THE LEGISLATURE COULD NOT HAVE INTENDED TO BRING ABOUT ANY SUCH DISTINCTION NOR THE LANGUAGE USED IN THE SECTION BRINGS ABOUT ANY SUCH MEANING. IF THE INTERPRETATION S ADVANCED BY THE ASSESSEES IS ACCEPTED, IT WOULD LEAD TO A SITUATION WHERE THE ASSESSEE THOUGH WAS REQUIRED TO DEDUCT THE TAX AT SOURCE BUT NO SUCH DEDUCTION WAS MAD E OR MORE FLAGRANTLY DEDUCTION THOUGH MADE IS NOT PAID TO THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONLY BECAUSE THE AMOUNT WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOTHER ASSESSEE WHO WOULD OTHERWISE BE IN SIMILAR SITUATION BUT IN WHOSE CASE THE AMOUNT REMAINED PAYABLE TILL THE END OF THE YEAR. WE SIMPLY DO NOT SEE ANY LOGIC WHY THE LEGISLATURE WOULD HAVE DESIRED TO BRING ABOUT SUCH IRRECONCILABLE AND DIVERSE CONSEQUENCES. WE HASTEN TO ADD THAT THIS IS NOT THE PRIME BASIS ON WHIC H WE HAVE ADOPTED THE INTERPRETATION WHICH WE HAVE GIVEN. IF THE LANGUAGE USED BY THE PARLIAMENT CONVEYED SUCH A MEANING, WE WOULD NOT HAVE HESITATED IN ADOPTING SUCH AN INTERPRETATION. WE ONLY HIGHLIGHT THT WE WOULD NOT READILY ACCEPT THAT THE LEGISLATURE DESIRED TO BRING ABOUT AN INCONGRUOUS AND SEEMINGLY IRRECONCILABLE CONSEQUENCES. THE DECISION OF HE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX, GUJARAT VS. ASHOKBHAI CHIMANBHAI (SUPRA), WOULD NO6T ALTER THIS SITUATION. THE SAID DECISION, OF C OURSE, RECOGNIZES THE CONCEPT OF ASCERTAINING THE PROFIT AND LOSS I.T.A. NO.68 /COCH/2018 33 FROM THE BUSINESS OR PROFESSION WITH REFERENCE TO A CERTAIN PERIOD I.E. THE ACCOUNTING YEAR. IN THIS CONTEXT, LAST DATE OF SUCH ACCOUNTING PERIOD WOULD ASSUME CONSIDERABLE SIGNIFICANCE. HOWE VER, THIS DECISION NOWHERE INDICATES THAT THE EVENTS WHICH TAKE PLACE DURING THE ACCOUNTING PERIOD SHOULD BE IGNORED AND THE ASCERTAINMENT OF FULFILLING A CERTAIN CONDITION PROVIDED UNDER THE STATUTE MUST BE JUDGED WITH REFERENCE TO LAST DATE OF THE ACCOUN TING PERIOD. PARTICULARLY, IN THE CONTEXT OF REQUIREMENTS O F SECTION 40(A)(IA) OF THE ACT, WE SEE NO WARRANT IN THE SAID DECISION OF THE SUPREME COURT TO APPLY THE TEST OF PAYABILITY ONLY AS ON 31ST MARCH OF THE YEAR UNDER CONSIDERATION. MERELY BECAUSE, AC COUNTS ARE CLOSED ON THAT DATE AND THE COMPUTATION OF PROFIT AND LOSS IS TO BE JUDGED WITH REFERENCE TO SUCH DATE, DOES NOT MEAN THAT WHETHER AN AMOUNT IS PAYABLE OR NOT MUST BE ASCERTAINED ON THE STRENGTH OF THE POSITION EMERGING ON 31 ST MARCH. 25. THIS BRINGS US TO THE SECOND ASPECT OF THIS DISCUSSION,NAMELY, WHETHER THIS IS A CASE OF CONSCIOUS OMISSION AND THEREFORE, THE LEGISLATURE MUST BE SEEN TO HAVE DELIBERATELY BROUGHT ABOUT A CERTAIN SITUATION WHICH DOES NOT REQUIRE ANY FURTHER INTERPRETATION. TH IS IS THE FUNDAMENTAL ARGUMENT OF THE TRIBUNAL IN THE CASE OF M/S MERILYN SHIPPING & TRANSPORTS VS. ACIT (SUPRA) TO ADOPT A PARTICULAR VIEW. 26. WHILE INTERPRETING A STATUTORY PROVISION THE COURTS HAVE OFTEN APPLIED HYDENS RULE OR THE MISCHIEF RULE AND AS CERTAINED WHAT WAS THE POSITION BEFORE THE AMENDMENT, WHAT THE AMENDMENT SOUGHT TO REMEDY AND WHAT WAS THE EFFECT OF THE CHANGES. 27 TO 36.. 37. IN OUR OPINION, THE TRIBUNAL COMMITTED AN ERROR IN APPLYING THE PRINCIPLE OF CONSCIOUS OMISSION IN THE P RESENT CASE. FIRSTLY, AS ALREADY OBSERVED, WE HAVE SERIOUS DOUBT WHETHER SUCH PRINCIPLE CAN BE APPLIED BY COMPARING THE DRAFT PRESENTED IN PARLIAMENT AND ULTIMATE LEGISLATION WHICH MAY BE PASSED. SECONDLY, THE STATUTORY PROVISIONS IS AMPLY CLEAR. 38. IN T HE RESULT, W ARE OF THE OPINION THAT SECTION 40(A)(IA) WOULD COVER NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. OF COURSE, AS LONG AS THE OTHER REQUIREMENT OF THE SA ID PROVISION EXIST. IN THAT CONTEXT, IN OUR OPINION THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S MERILYN SHIPPING & TRANSPORTS VS ACIT (SUPRA), DOES NOT LAY DOWN CORRECT LAW. I.T.A. NO.68 /COCH/2018 34 14. BY FOLLOWING THE JUDGMENTS OF THE CALCUTTA HIGH CO URT IN CRESCENT EXPORT SYNDICATE (SUPRA) AND THE GUJARAT HIGH COURT IN SIKANDARKHAN N TUNVAR (SUPRA), THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF M/S MERILYN SHIPPING & TRANSPORTS (SUPRA ) AND THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN VECTOR SHIPPING SERVICES (P) LTD (SUPRA) ARE NOT APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION WHEREAS THE JUDGMENTS OF THE CALCUTTA HIGH COURT IN CRESCENT EXPORT SYNDICATE (SUPRA) AND THE GUJARAT HIGH COURT IN SIKANDARKHAN N TUNVAR (SUPRA) ARE SQUARELY APPLICABLE TO THE FACTS OF THE CASE. RESPECTFULLY FOLLOWING THE JUDGMENTS OF THE CALCUTTA HIGH COURT IN CRESCENT EXPORT SYNDICATE (SUPRA) AND THE GUJARAT HIGH COURT IN SIKANDARKHAN N TUNVAR (SUPRA), WE DO NOT SEE ANY INFIRMITY IN THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE CONFIRMED. 15. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEES ARE DISMISSED. 7.1 LATER ON, THE ASSESSEE WENT IN APPEAL BEFOR E THE JURISDICTIONAL HIGH COURT WHEREIN IT CONFIRMED THE SAME BY HOLDING THAT AS PER THE PROVISO TO SECTION 194A(1), AN INDIVIDUAL OR HINDU UNDIVIDED FAMILY WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEEDS THE MONETARY LIMITS SPECIFIED UNDER SECTION 44AB (A) OR (B) DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH INTEREST WAS CREDITED OR PAID, SHALL BE LIABLE TO DEDUCT INCOME TAX U/S. 194A. 7.2 NOW THE CONTENTION OF THE LD . AR IS THAT THE JURISDICTIONAL HIGH COURT CAME TO THIS CONCLUSION ON THE REASON THAT THE ASSESSEE HAS NOT PLACED ANY MATERIAL WHATSOEVER ON RECORD TO CONTRADICT THE F ACTUAL FINDING RECORDED BY THE TRIBUNAL WITH REFERENCE TO THE ASSESSMENT OF THE ASSESSEE S INCOME AS BUSINESS INCOME I.T.A. NO.68 /COCH/2018 35 WHICH EXCEEDED THE LIMIT PRESCRIBED U/S. 44AB OF THE ACT. THEREFORE, TH AT ASSESSEE IS LIABLE TO DEDUCT TDS U/S. 194A OF THE ACT. HOWEVER, THE LD. AR SUBMITTED THAT THIS RATIO CANNOT BE APPLIED TO THE ASSESSEES CASE. 7. 3 A CCORDING TO THE LD. AR, IN THE PRESENT CASE, THE ASSESSEE IS NOT DOING ANY BUSINESS AND INCOME IS RECEIVED BY THE ASSESSEE FROM THE PARTNERSHIP FIRM. THEREFORE, THE INCOME OF THE ASSESSEE IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND NOT AS INCOME FRO M BUSINESS. AS SUCH, HE SUBMITTED THAT THERE IS NO QUESTION OF APPLICABILITY OF SECTION 44AB OF THE ACT SO AS TO AUDIT THE SAME. FOR THE SAKE OF CLARITY, IT WOULD BE RELEVANT TO UNDERSTAND THE HEAD OF INCOME UNDER WHICH THE SAID INTEREST RECEIPT IS TO B E ASSESSED . WHETHER INTEREST INCOME RECEIVED FROM PARTNERSHIP FIRM SHOULD BE ASSESSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' OR 'INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFES SION? THE RELEVANT PROVISIONS WITH REGARD TO ASSESSMENT OF INTEREST INCO ME ARE AS UNDER: ' F. - INCOME FROM OTHER SOURCES INCOME FROM OTHER SOURCES. 56. (1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME - TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES', IF IT IS NOT CHARGEABLE TO INCOME - TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14. ITEMS A TO E. (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GENERALITY OF THE PROVISIONS OF S UB - SECTION (1), THE FOLLOWING INCOMES, SHALL BE CHARGEABLE TO INCOME - TAX U NDER THE HEAD 'INCOME FROM OTHER SOURCES', NAMELY : - (I) DIVIDENDS ; (IA) INCOME REFERRED TO IN SUB - CLAUSE (VIII) OF CLAUSE (24) OF SEC TION 2 ; (IB) INCOME REFERRED TO IN SUB - CLAUSE (IX) OF CLAUSE (24) OF SECTION 2 ; I.T.A. NO.68 /COCH/2018 36 (IC) INCOME REFERRED TO IN SUB - CLAUSE (X) O F CLAUSE (24) OF SECTION 2, IF SUCH INCOME IS NOT CHARGEABLE TO INCOME - TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' (ID) INCOME BY WAY OF INTEREST ON SECURITIES, IF THE INCOME IS NOT CHARGEABLE TO INCOME - TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION';'[EMPHASIS SUPPLIED] CHAPTER IV OF TOTAL INCOME 14. SAVE AS OTHERWISE PROVIDED BY THIS ACT, ALL INCOME SHALL, FOR THE PURPOSES OF CHARGE OF INCOME - TAX AND COMPUTATION OF TOTAL INCOME, BE CLASSIFIED UNDER THE FOLLOWING HEAD S OF INCOME : - A. - SALARIES. 6. - ['*] C. INCOME FROM HOUSE PROPERTY. D. PROFITS AND GAINS OF BUSINESS OR PROFESSION. E. - CAPITAL GAINS. F. - INCOME FROM OTHER SOURCES. ' ' D. PROFITS AND GA INS OF BUSINESS OR PROFESSION PROFITS AND GAINS OF BUSINESS OR PROFESSION. 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME - TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', - (I) THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION WHICH WAS CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE P REVIOUS YEAR...... (IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION ; (V) ANY INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED, DUE TO, O R RECEIVED BY, A PARTNER OF A FIRM FROM SUCH FIRM : PROVIDED THAT WHERE ANY INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATEVER NAME CALLED, OR ANY PART THEREOF HAS NOT BEEN ALLOWED TO BE DEDUCTED UNDER CLAUSE (6) OF SECTION 40. T HE INCOME UN DER THIS CLAUSE SHALL BE ADJUSTED TO THE EXTENT OF THE AMOUNT NOT SO ALLOWED TO BE DEDUCTED ; ' [EMPHASIS SUPPLIED] FROM THE ABOVE RELEVANT PROVISIONS, IT IS EVIDENT THAT THE INTEREST INCOME IS ASSESSABLE UNDER SECTION 56 OF THE ACT ONLY IF SUCH INTEREST IS NOT ASSESSABLE I.T.A. NO.68 /COCH/2018 37 UNDER OTHER HEADS OF INCOME. AS PER SECTION 28(V) OF THE ACT, THE INTEREST RECEIVED BY PARTNER FROM PARTNERSHIP FIRM IS ASSESSABLE UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION'. THEREFORE, AS A COROLLARY, INTEREST INCOME RECEIVED BY 'PARTNER' FROM THE FIRMS CAN ONLY BE ASSESSED UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION'. 7 .4 IN THE LIGHT OF THE PROVISIONS DISCUSSED AND LEGAL PRINCIPLES EXPLAINED ABOVE, IT IS EVIDENT THAT THE ACTION OF THE ASSESSEE IN OFFERING THE INTERES T RECEIVED FROM THE PARTNERSHIP FIRM UNDER THE HEAD INCOME FROM OTHER SOURCES IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. FURTHER, THE INTEREST I NCOME RECEIVED FROM PARTNERSHIP FIRM IS ASSESSABLE ONLY U/S. 28(V) OF THE ACT , WHICH IS ONLY BUSINES S INCOME . 7. 5 FURTHER, THE LD. AR PLACED RELIANCE ON THE JUDGM ENT OF THE ALLAHABAD HIGH COURT IN THE CASE OF JAGR AN PRAKASHAN LTD. VS. DCIT(TDS) 21 TAXMAN.COM.489(ALL.) WHEREIN IT WAS HELD THAT IN A CASE WHERE ASSESSEE HAS NOT BEEN DEDUCTED AT SOURCE, S HORT DEDUCTED TAX CANNOT BE REALIZED FROM DEDUCTOR AND LIABILITY TO PAY SUCH TAX SHALL CONTINUE TO BE WITH PAYEE/DEDUCTEE DIRECT, WHOSE INCOME IS TO BE CHARGED AND A PERSON WHO FAILS TO DEDUCT TAX AT SOURCE, AT BEST IS LIABLE FOR INTEREST AND PENALTY ONLY. IN OUR OPINION, THIS JUDGMENT WAS DELIVERED IN THE CONTEXT OF SECTION 201(1) AND 201(1A) , THE OBJECT OF WHICH IS CONSEQUENTIAL IN NATURE AND CANNOT BE OF ASSISTANCE TO THE ASSESSEE. THIS FACT I.T.A. NO.68 /COCH/2018 38 HAS BEEN NOTICED BY THE TRIBUNAL IN THE CASE OF THOMAS GEORGE M UTHOOT CITED SUPRA WHICH WAS CONFIRMED BY THE JURISDICTIONAL HIGH COURT. HENCE, WE DO NO T FIND ANY MERIT IN THE ARGUMENT OF THE LD. AR. 7. 6 ACCORDING TO THE LD. AR SINCE THE ASSESSEE WAS NOT DECLARED AS ASSESSEE IN DEFAULT UNDER SECTION 201(1) AND 201(1A) OF THE ACT, NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT IS TO BE MADE. IN OUR OPINION, THE AMENDED PROVISIONS OF SECTION 40(A)(IA) READS AS UNDER: 'S ECTION 40(A)(IA) : THIRTY PER CENT OF ANY SUM PAYABLE TO A RESIDENT ON WHICH TAX IS DE DUCTIBLE 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 S UB S ECTION (1) OF 139 OF THE ACT. PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII - B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB CLAUSE, IT SHALL BE DEEM ED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. THEN FOR THE PURPOSE OF THIS SUB SECTION, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. 7. 7 IN OUR OPINION, PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CANNOT BE APPLIED BY THE ASSESSING OFFICER WHEN THE FOLLOWI NG CONDITIONS ARE COMPLIED WITH : I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139. II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME AND III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME. I.T.A. NO.68 /COCH/2018 39 IV) A ND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. THIS PROVISO IS APPLICABLE FROM A.Y. 2013 - 14 ONWARDS . 7. 8 IN THE PRESENT CASE, RESIDENT PAYEE, M/S POPULAR TRADERS AND M/S. POPULAR DEALERS HAVE FILED THEIR RETURN OF INCOME FOR THE A.Y. 2014 - 15, BUT M/S.POPULAR PRINTERS HAD NOT FURNISHED THEIR RETURN OF INCOME FOR A.Y, 2014 - 15 AND THE RETURN FILED BY M/S. POPULAR TRADERS AND POPULAR DEALERS WERE BEYOND THE TIME LIMIT FOR FILING RETUR N U/S 139, (139(4),139(5) AND UNDER SECTION 139 (1) THE DUE DATE FOR FILING RETURN IS 30/09/2014. THE RETURN OF INCOME IN THE CASE OF M/S. POPULAR TRADERS WAS FILED ON 11/2/2016 IN THE CASE OF M/S. POPULAR DEALERS AND THE RETURN OF INCOME WAS FILED ON 1 7/ 2/2016. SINCE THIS IS BEYOND THE TIME LIMIT STIPULATED EVEN FOR FILING A REVISED RETURN, IT CANNOT BE SAID THAT PAYEE FILED ITS RETURN OF INCOME U/S 139 AND INCLUDED IT AS INCOME IN THE RETURN OF INCOME. IT WAS ALSO BROUGHT TO OUR NOTICE THAT T HE P & L A CCOUNT S OF M/S. POPULAR PRINTERS & M/S. POPULAR DEALERS , IT WAS FOUND THAT THE AMOUNT OF RS. 49,96,53,294/ - ( POPULAR TRADERS) ,RS. 7,15,53,547/ - (POPULAR PR INTERS) AND RS. 10,10,24,076/ - ( POPULAR DEALERS) WER E CREDITED. T HESE P & L ACCOUNTS WER E NOT AUDIT ED P & L ACCOUNTS. IT WAS NOTICED THAT AS AGAINST THE INCOME DECLARED AS INTEREST ON MANAGING PARTNER'S LOAN, DEBITS WER E ALSO CLAIMED AS INTEREST ON LOAN AS UNDER: INTEREST ON MANAGING PARTNERS LOAN INTEREST ON MPL DEBITED NET LOSS AS PER P&L ACCOUNT P OPULAR DEALERS 10,18,84,076/ - 10,32,56,352/ - 9,95,793/ - POPULAR PRINTERS 7,15,53,547/ - 7,26,77,180/ - 3,71,146/ - POPULAR TRADERS 49,96,53,294/ - 50,78,94,486/ - 44,57,455/ - I.T.A. NO.68 /COCH/2018 40 THUS, THE ASSESSEE WA S CREDITING THE INTEREST AMOUNT FROM THE MANAGING PARTN ER AND DEBITING THE INTEREST ON LOAN TAKEN BY THE MANAGING PARTNER AND A LMOST SIMILAR AMOUNTS ARE CREDITED AND DEBITED . ALL THE FIRMS WERE REPORTING NET LOSS. THEREFORE, THE ASSESSEE FAILED THE TEST OF TAKING I NTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME. N ONE OF THE FIRMS HA D PAID TAX AND ALL THE FIRMS WERE RETURNING NET LOSS AS PER THE P & L ACCOUNT AND NO CERTIFICATE WAS FURNISHED FROM AN ACCOUNTANT . HENCE, THE 2 ND PROVISO TO SECTION 40(A)(IA) CANNOT BE APPLIED TO THE ASSESSEES C ASE. 8 . THE LD. AR ALSO MADE A PLEA BEFORE US THAT NO PROPER OPPORTUNITY OF HEARING WAS PROVIDED BY THE LOWER AUTHORITIES AND ALSO NO SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. THIS ARGUMENT OF THE LD. AR IS ALSO VOID OF MERIT. A NOTICE U/S. 143( 2) OF THE ACT WAS ISSUED ON 06/07/2016. NOTICE UNDER SECTION 142( 1) ASKING FOR DETAILS WAS ISSUED BY THE ASSESSING OFFICER ON 30/ 11/2016, FIXING THE HEARING ON 07/12/2016 AND THE ASSESSEE APPEARED BEFORE THE ASSESSING OFFICER ON 9/12/2016, 13/12/2016, 20/ 12/2016 AND 29/12/2016. FINALLY, THE ASSESSMENT ORDER WAS PASSED ON 30/12/2016. BEFORE THE CIT(A), THE ASSESSEE FILED THE APPEAL ON 31/01/2017 AND THE APPEAL WAS POSTED FOR HEARING ON 03/01/2018. THE ASSESSEE FILED A LETTER ON 02/01/2018 REQUESTING FOR A DJOURNMENT OF THE APPEAL. THE APPEAL WAS RE - POSTED FOR HEARING ON 22.01.2018. THE CIT(A) REQUESTED THE AUTHORIZED REPRESENTATIVE EITHER TO ATTEND IN PERSON OR FORWARD HIS SUBMISSIONS TO THE E - MAIL ID AND STATED THAT NO FURTHER ADJOURNMENT WOULD BE GRANTED IN THIS CASE. ON THE REAPPOINTED DATE I.E. 22.01.2018, THE AUTHORIZED I.T.A. NO.68 /COCH/2018 41 REPRESENTATIVE OF THE ASSESSEE, SRI SIVADAS CHETTOOR FORWARDED HIS SUBMISSIONS TO THE OFFICIAL EMAIL ID . THE CONTENTS OF THE SUBMISSIONS ARE AS UNDER: 'RESPECTED SIR, I THOUGHT OF APPE ARING BEFORE YOUR GOODSELF ON 22 - 01 - 2018 TO APPRAISE OF THE SITUATION REGARDING THE PENDENCY OF THE MATTER BEFORE THE HON SUPREME COURT BUT UNFORTUNATELY I AM LAID UP DUE TO FEVER AND BODY PAIN. I MAY APPEAR IF I FEEL ALRIGHT AND FIT TO TRAVEL IN THE MORNI NG TOMORROW. THE HON SUPREME COURT ADJOURNED THE HEARING TO 5 - 02 - 2018. THEREFORE OUR SENIOR ADVOCATE ADVISED US TO MOVE AN ADJOURNMENT TILL THEN. PLEASE NOTE THAT WE HAVE CHALLENGED NOT ONLY THE DECISION REGARDING STAY OF COLLECTION OF TAX BUT QUESTIONS OF LAW ALSO. YOUR ATTENTION IS INVITED TO QUESTION NO(C) RAISED BEFORE THE COURT WHICH IS AS FOLLOWS. ' WHETHER THE DISALLOWANCE OF INTEREST EXPENDITURE IS BAD IN LAW AND CONTRARY TO PROVISO TO SECTION 40{A)(IA)? YOUR ATTENTION IS ALSO INVITED TO QUESTION NO (D) WHICH IS ALSO A LEGAL QUESTION IN THIS APPEAL . IT IS NOW SETTLED LAW THAT UNDER ARTICLE 136 OF THE CONSTITUTION HON SUPREME COURT HAS VERY WIDE POWERS AND CAN EVEN PRONOUNCE ON MERITS IF THE COURT CONSIDERS IT NECESSARY. PLEASE NOTE OUR SLP HAS BEE N ADMITTED AND THE WHOLE MATTER IS NOW BEFORE THE HON COURT. PLEASE SEE DECISION OF THE APEX C OURT IN GANGADHARA PALO V RDO 21TAXMANN.COM 220 ( SC) AND UOI V WEST C OAST P APER M ILLS 2004 AIR SCW 838. IN THE CIRCUMSTANCES IT IS IN FAIRNESS OF THINGS THAT THE H EARING BE ADJOURNED. THIS IS THE LEGAL ADVICE I RECEIVED FROM THE LAWYERS. I AM SENDING A WRITTEN SUBMISSION ALONG WITH OF ADDITIONAL GROUND. IT MAY BE CONSIDERED ON MERITS. THIS REQUEST IS MADE BECAUSE IT WAS MENTIONED IN THE NOTICE THAT NO ADJOURNMENT S HALL BE GIVEN. WE ARE IN A DILEMMA, I REQUEST YOUR GOODSELF TO DO THE NEEDFUL. THE WRITTEN SUBMISSION IS ATTACHED WHICH MAY KINDLY BE LOOKED INTO. 8.1 ON THE BASIS OF THE WRITTEN SUBMISSION, THE CIT(A) DISPOSED OF THE APPEAL ON MERIT. SINCE THE ASSESSE E FAILED TO APPEAR BEFORE THE CIT(A) ON THE DATE OF HEARING, THE ASSESSEE CANNOT HAVE GRIEVANCE THAT HE WAS NOT GIVEN PROPER OPPORTUNITY OF BEING HEARD. HENCE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALSO REJECTED. I.T.A. NO.68 /COCH/2018 42 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH NOVEMBER , 201 8 . SD/ - SD/ - ( GEORGE GEORGE K. ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 12 TH NOVEMBER , 2018 GJ COPY TO: 1 . SHRI THOMAS DANIEL, INDICATTIL HOUSE, VAKAYAR P.O., PATHANMTHITTA. 2. THE I NCOME TAX OFFICER, WARD - 4, THIRUVALLA. 3. THE COMMISSIONER OF INCOME - TAX (AP P EALS) , KOTTAYAM. 4. THE PR. COMMISSIONER OF INCOME - TAX, KO TTAYAM. 5. D. R., I.T.A.T., COCHIN BENCH, COCHIN. 6 . GUARD FILE. BY ORDER (ASSISTANT REGIS TRAR) I.T.A.T., COCHIN