M/s Orugallu Medicate Private Limited, Warangal V. Dy.CIT, Circle-1, Warangal

ITA 704/HYD/2014

• Counselvise Citation: 70422514 RSA 2014
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 17-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: K V CHALAMAIAH
• Keywords: Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.704/HYD/14 : ASSESSMENT YEAR 2005 - 06 M/S. ORUGALLU MEDICARE PVT. LTD., HANAMKONDA, WARANGAL (PAN A AACO 6048 F ) V/S. DY. COMMISSIONER OF INCOME - TAX CI R CLE 1, WARANGAL (APPELLANT) (RESPONDENT) ITA NO. 1322 /HYD/14 : ASSESSMENT YEAR 200 5 - 0 6 ASSTT . COMMISSIONER OF INCOME - TAX CIRCLE 1, WARANGAL V/S. M/S. ORUGALLU MEDICARE PVT. LTD., HANAMKONDA, WARANGAL (PAN AAACO 6048 F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.V.CHALAMAIAH RESPONDENT BY : S HRI RA JAT MITRA , DR DATE OF HEARING 24 .12.2014 DATE OF PRONOUNCEMENT 31.12.2 0 14 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : THESE TWO APPEALS ONE FIL E D BY THE ASSESSEE BEING ITA NO. 704 /HYD/2014 AND THE OTHER FILED BY THE DEPARTMENT, BEING ITA NO. 1322 /HYD/2014 - ARE CROSS APPEALS, WHICH ARE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) 18 , MUMBAI (CAMP HYDERABAD) DATED 14.3.2014 . ASSESSEES APPEAL: 2. F IRST , WE WILL TAKE UP THE APPEAL O F TH E ASSESSEE , WHICH INVOLVES A SOLITARY ISSUE RE L ATING TO DISALLOWANCE OF R S .7,01,104 I TA NO. 704 & 1322/ H YD/20 14 M/S. ORUGALLU MEDICARE PVT. LTD. HANAMKONDA, WARANGAL 2 MADE BY TH E ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ON ACC O UN T O F P R OFESSIONAL CH A R G ES FOR TH E ALLEGED FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOU R CE BY IN V OKING THE PROVISION S OF S.40(A)(IA) OF THE ACT . 3. THE ASSESSEE IN THE PR E SEN T CA S E IS A COMPANY, WHI C H IS ENG A GED IN TH E BU S IN E SS OF RUNNING A HOSPITAL. THE RETURN OF IN C OM E FOR THE YEAR UN D ER CONSIDERATION WAS FIL ED BY IT ON 30.10.2005 DECLARING A LO S S OF RS .15, 35,420. DUR I N G THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS CALLED UPON BY THE ASSESSING OFFICER TO FURNISH THE DETAILS O F P R O F ESSIONAL FEE AMOUNTING TO R S.1,1,85,957 ALONGWITH DETAIL S O F TAX DEDUCTED AT SOU R CE, WH E REVER APPLICABLE. FROM THE PERU S AL OF THE DETAILS SO FURNISHED BY TH E ASSESSEE , THE ASSESSING OFFICER WAS O F THE OPINION THAT TDS WAS NOT DEDUCTED BY TH E ASSESSEE F R OM THE PROFESSION A L FEE OF RS .7,01,104. HE THEREFORE , INVOKED THE P R O VI SION S OF S.40(A)(IA) AND MADE A DISALLO W ANCE O F PRO F ESSION A L FEE TO THAT EXTENT. 4. THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON AC C OUN T OF P R O F ESSIONAL FEE BY INVOKING THE P R O V I SI ON S OF S.40(A)(IA) WAS DISPUTED BY TH E ASSESSEE IN AN APPEAL FIL E D BEFORE THE LEARNED CIT(A). IT WAS CONTENDED ON BEHALF O F THE ASSESSEE BE FORE THE LEARNED CIT(A) THAT THERE WAS NO B A SIS FOR THE AMOUNT O F RS .7,01,104 DISALLOWED BY THE ASSESSING OFFICER ON AC C OUNT OF PROFESSIONAL FEE EITHER IN TH E ASSESSMENT ORDER OR IN THE DETAILS FUR N ISHED BY THE ASSESSEE AND IN THE ABSENCE OF SUCH BASIS, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.40(A)(IA) WAS LIABLE TO B E DELETED. IN O R DER TO VERIFY THE CONTENTION OF THE ASSESSEE, REMAND REPORT WAS CALLED FOR BY THE LEARNED CIT(A) FROM THE ASSESSING OFFICER. I N THE REM AND REPORT, THE ASSESSING OFFICER STA T ED THAT THE RELEVANT ASSESSMENT RECORD COULD NO T BE TRACED OUT I TA NO. 704 & 1322/ H YD/20 14 M/S. ORUGALLU MEDICARE PVT. LTD. HANAMKONDA, WARANGAL 3 AND THEREFORE, I T WAS NO T POSSIBLE TO GIVE THE BASIS OR EXACT DETAILS OF THE AMOUNT O F RS .7,01,104 DISALLOWED ON ACCOUNT OF PROFESSIONA L FEE UNDER S.40(A)(IA). DESPITE THIS COMMENT BY THE ASSESSING OFFICER GIVEN IN THE REMAND REPORT, THE LEARNED CIT(A) STILL CON F IRM E D THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UN D ER S.40(A)(IA) B Y OBSERVING THAT ALTHOUGH IT WAS NO T POSSIBLE FOR THE A SSESSING OFFICER TO ASCERTAIN THE EXA C T FIGURE OF T DS DE D UCTED, THE AMOUNT OF R S .7,01,104 WAS ADOPTED BY HIM FROM THE DETAILS O F PROFESSIONAL CHAR G ES SUBMITTED BY THE ASSESSEE COMPANY ITSELF. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO P ERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE RELEVANT DETAILS OF PROFESSIONAL CHARGES INCURRED DURING THE Y E AR UNDER CONSIDERATION, AGGREGATING TO RS .1,08, 15, 755 WERE FUR N I S H E D BY THE ASSESSEE BEFORE THE ASSESSING OFFICER ALONGWITH T HE PARTICULARS OF TAX DEDUCTED AT SOU R CE THER E FROM. THE SAID DETAILS AR E ALSO FURNISHED BY TH E ASSESSEE AT PAGE NO.1 OF THE P APER - BOOK AND A PERUSAL OF THE SAME SHOWS THAT TAX DEDUCT ION AT SOU R CE WAS MADE BY THE ASSESSEE F R OM THE ENTIRE AMOUNT OF PROFESS IONAL CH A RGES, EXCEPT FOR AN AMOUNT OF RS .4,10,391 ON WHICH NO TAX WAS DE DU CTED ON THE G R OUND THAT THE AMOUNTS INVOL V ED WERE BELOW THE PRESCRIBED LIMIT. FROM TH E SE DETAILS AS WELL AS THE ASSESSMENT ORDER PASSED B Y TH E ASSESSING OFFICER, I T IS NOT POSSIBLE TO ASCERTAIN THE DETAILS O F TH E AMOUNT OF RS.7,01,104 , W HICH WAS QUANTIFIED BY THE ASSESSING OFFICER FOR THE PU R PO S E OF MAKING THE DISALLOWANCE UNDER S.40(A)(IA) AND IN THE REMAND REPORT SUBMITTED TO THE LEARNED CIT(A), THE ASSESSING OFFI CER ALSO F A ILED TO GIVE SUCH BASIS OR DETAILS ON THE PRETEXT THAT THE RELEVANT ASSESSMENT RECORD WAS NO T TRACEABLE. I N TH E SE FACTS AND CIRCUMSTANCES OF THE CA S E, WE ARE O F TH E VIE W THAT THE ASSESSEE CAN N OT BE HELD GUILTY OF FAILING TO DEDUCT TAX AT SOU R CE AND IN TH E A BSENCE OF ANY SPECIFIC FAILURE ON THE PART I TA NO. 704 & 1322/ H YD/20 14 M/S. ORUGALLU MEDICARE PVT. LTD. HANAMKONDA, WARANGAL 4 OF THE ASSESSEE POINTED OUT BY THE ASSESSING OFFICER IN THIS REGARD , NO DISALLOWANCE UNDER S.40(A)(IA) CAN BE MADE. W E THER E FORE, D E LETE THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER AND CONFIRM ED BY THE LEARNED CIT(A), ON ACCOUNT OF PROFESSION A L CH A R G ES UNDER S.40(A)(IA) AND ALLO W THIS APPEAL O F THE ASSESSEE. REVENUES APPEAL: 6. IN THE SOLITARY G R OUN D RAISED IN ITS APPEAL, THE R E VENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT( A) IN DELETING THE DISALLOWANCE OF RS.12,66,085 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST PAID BY THE ASSESSEE TO APSFC. 7. DURING TH E COURSE OF ASSESSMENT PROCEE D IN G S, THE CLAIM O F TH E ASSESSEE FOR DEDUCTION ON AC C OUN T O F INTEREST AMOUNTIN G TO RS .12,66,085 WAS EXA M IN E D BY THE ASSESSING OFFICER. ON SUCH EXAMINATION, HE FOUND THAT THE RELE V ANT TERM LOAN WAS SANCTIONED BY THE APSFC IN THE PERSON A L NAMES O F THE DI R ECTORS OF THE ASSESSEE CO M PA N Y. I N T HIS REGA R D, THE EXPLANATION OFFERED BY TH E ASSESSEE THAT THE SAID LOANS SANCT I ON E D IN THE INDI V I D UAL NAMES OF TH E DIRECTORS WERE ULTIMATELY UTILIZED BY TH E ASSESSEE COMPANY FOR THE CON S TRUC T ION OF HOSPITAL BUILDING W AS NO T FOUN D ACCEPTABLE BY THE ASSESSING OFFICER AND HE DISALLOWED THE INTEREST OF R S .12,66,085 PAID TO APSFC ON THE GROUN D THAT THE CORRESPONDING LOAN WAS SANCTIONED BY THE APSFC TO THE INDIVIDUAL DIRECTORS OF THE ASSESSEE COMPANY AND NOT TO THE ASSESSEE COMPANY. 8. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTERE ST PAID TO APSFC WAS CHALLENGED BY TH E ASSESSEE IN APPEAL FIELD BY THE ASSESSEE BEFORE THE LEARNED CIT(A), AND AFTER CON S I DE RIN G THE SUBMI S SIONS MADE BY TH E ASSESSEE AS WELL AS THE I TA NO. 704 & 1322/ H YD/20 14 M/S. ORUGALLU MEDICARE PVT. LTD. HANAMKONDA, WARANGAL 5 MATERIAL AVAILABLE ON RECORD, THE LEARNED CIT(A) DELETED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE FOLLO W IN G REASONS GIVEN IN PARAGRAPH NO.5.2 OF HI S IMPU G NED ORD E R - 5.2 I HAVE CONSIDERED' THE SUBMISSIONS OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER. IT IS NOTICED THAT THE DIRECTORS OF THE COMPANY HAVE RECEIVED LOAN FROM APSFC AND THE COMPANY HAS PAID INTEREST ON THIS LOAN OF RS. 12,66,085/ - . WHEN ASKED BY THE A.O TO EXPLAIN THE SAME, IT WAS SUBMITTED THAT APSFC HAS NOT SANCTIONED LOAN IN THE NAME OF THE COMPANY BUT IT WAS SANCTIONED IN THE NAME OF THE INDIVIDUAL DOCTORS, THE DIRECTOR OF THE COMPANY. LATER ON, THIS LOAN WAS TRANSFERRED TO THE APPELLANT COMPANY AND UTILISED FOR BUSINESS PURPOSES. THEN THE COMPANY HAS TRANSFERRED THE AMOUNT TO THE ACCOUNTS OF THE DIRECTORS FOR PAYMENT O F INSTALMENTS ON THIS LOAN. B UT THE A.O HAS NOT ACCEPTED THIS THEORY AND ADDED BACK THIS AMOUNT OF INTEREST AS NOT UTILISED FOR BUSINESS PURPOSES OF THE COMPANY. ON THE OTHER HAND, THE AR OF THE APPELLANT HAS SUBMITTED THAT ON THIS ISSUE, THE CIT(A), VIJAY AWADA VIDE HIS ORDER DATED 26.11.2008 HAS DECIDED THAT THE LOAN WAS TAKEN BY THE DIRECTORS OF THE COMPANY, WHICH WAS TRANSFERRED TO THE COMPANY ACCOUNT AND UTILISED FOR BUSINESS PURPOSES, THEREFORE, THE AMOUNT REIMBURSED BY THE COMPANY TO THE ACCOUNT OF TH E DIRECTORS WAS NOT HIS INCOME BUT IT WAS AN AMOUNT FOR REIMBURSEMENT OF THE INSTALMENT OF THIS LOAN. FROM THE PERUSAL OF THE SUBMISSIONS AND FACTS OF THE CASE, IT IS CLEAR THAT THIS ISSUE HAS BEEN DECIDED BY MY PREDECESSOR IN THE CASE OF THE DIRECTOR DR. S.GOPINADH BY HOLDING THAT ALTHOUGH THE LOAN WAS TAKEN BY THE DIRECTOR OF THE COMPANY, BUT IT WAS UTILISED BY THE COMPANY ITSELF, THEREFORE, THE INTEREST PAID ON THE LOAN WAS ALLOWABLE DEDUCTION. KEEPING IN VIEW, THE FACTS AND CIRCUMSTANCES, IT IS HELD THA T THE CONTENTION OF THE APPELLANT SEEMS TO BE CORRECT THAT THE LOAN WAS TAKEN BY THE DIRECTORS AND ULTIMATELY TRANSFERRED TO THE ACCOUNT OF THE COMPANY AND UTILISED FOR ITS BUSINESS PURPOSES. THE COMPANY HAS PAID THE' INSTALMENT OF THIS LOAN THROUGH THE AC COUNTS OF THE DIRECTORS, THEREFORE, IT IS HELD THAT THE LOAN WAS UTILISED FOR BUSINESS PURPOSES AND, THE INTEREST PAID ON THIS LOAN IS AN ALLOWABLE DEDUCTION. HENCE, THE ADDITION MADE BY THE A.O IS NOT SUSTAINABLE AND THIS GROUND OF APPEAL IS TREATED AS ALLOWED. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SU B MI T TED ON I TA NO. 704 & 1322/ H YD/20 14 M/S. ORUGALLU MEDICARE PVT. LTD. HANAMKONDA, WARANGAL 6 BEHALF O F THE ASSESSEE B E FORE THE AUTHO R ITI E S AS WELL AS BEFORE US, THE LOAN SANC T ION E D BY THE APSFC IN THE IN D I V I D UAL NAMES OF THE DIRECTORS WAS TRANSFERRED TO THE ACCOUNT O F TH E ASSESSEE COMPANY, AND THE SAME WAS UTILI S ED BY THE ASSESSEE COMPANY F OR THE PU RP O S E OF CONSTR UCTI ON OF HOS P ITAL BUILDING. THE INTEREST AMOUNT IN QUESTION, THUS, WAS PAID ON THE BORROWED FUNDS WHICH WERE UTILSIED WHOLLY AND EXCLUSIVELY FOR THE PU R PO S E OF ASSESSEES BUSINESS, AND THIS BEING THE UN D I S PU T ED POSITION, WE FIND NO IN F I R MI T Y IN TH E IMP UGNE D OR DE R OF TH E LEARNED CIT(A), IN DELETING THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF INTEREST MERELY B E CAU S E THE CORRESPONDING LOAN WAS SANCTIONED IN THE NAMES O F THE DIRECTORS OF THE ASSESSEE COMP AN Y. THE IMPU G N E D ORDER OF THE LEARNED CIT(A) GIVING RELIEF TO THE ASSESSEE COMPANY ON THI S COUNT, IS ACCOR D IN G LY UPHELD, AN D THE APPEAL FIL E D BY THE REVENUE IS DISMISSED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 31 ST DECEMBER, 2014 SD/ - SD/ - ( ASHA VIJAYARAGHAVAN ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 31 ST DECEMBER, 2014 COPY FORWARDED TO: 1. M/S. ORUGALLU MEDICARE PVT. LTD., 2 - 4 - 152 RAMNAGAR, HANAMKONDA, WARANGAL 2 . DY/ASST. COMMISSIONER OF INCOME - TAX CIRCLE 1, WARANGAL I TA NO. 704 & 1322/ H YD/20 14 M/S. ORUGALLU MEDICARE PVT. LTD. HANAMKONDA, WARANGAL 7 3. COMMISSIONER OF INCOME - TAX(APPEALS) VI HYDERABAD 4. COMMISSIONER OF INCOME - TAX V, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S