DCIT, Hassan V. M/s Sujatha Narayan & Associates, Hassan

ITA 71/BANG/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8663 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-10-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 25-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SHANKAR
• Assessee Lawyers: G R REDDY
• Keywords: Reopening of assessment; Non-deduction of tax; Commercial expediency; Revised return; Reason to believe; Reassessment proceedings
• Section: 40A(3); 234B; 139(5); 201(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ITA NOS.51 TO 53/BANG/2011 ASSESSMENT YEARS : 2005-06 TO 2007-08 M/S. SUJATHA NARAYAN & ASSOCIATES, GANGADHARESWARA NILAYA, NO.65/14, POST BOX NO.32, B.M. ROAD, HASSAN 573 201. PAN: ABBFS 1226J VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, HASSAN RANGE, HASSAN. APPELLANT RESPONDENT ITA NOS.71 TO 73/BANG/2011 ASSESSMENT YEARS : 2005-06 TO 2007- 08 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, HASSAN. VS. M/S. SUJATHA NARAYAN & ASSOCIATES, HASSAN 573 201. PAN: ABBFS 1226J APPELLANT RESPONDENT APPELLANT BY : SHRI A. SHANKAR, ADVOCATE RESPONDENT BY : SHRI G.R. REDDY, CIT(DR)(ITAT)-1 DATE OF HEARING : 27.10.2016 DATE OF PRONOUNCEMENT : 06.01.2017 ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 2 OF 26 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THESE APPEALS ARE PREFERRED BY THE ASSESSEE AS WELL AS REVENUE AGAINST THE RESPECTIVE ORDERS OF THE CITA. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. WE, HOWEVER, PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. ITA NOS. 51 & 71/BANG/2011 2. THESE APPEALS ARE PREFERRED BY THE ASSESSEE AS W ELL AS THE REVENUE AGAINST THE ORDER OF CITA FOR THE AY 2005-06 ON VAR IOUS GROUNDS WHICH ARE REPRODUCED HEREUNDER:- GROUNDS OF APPEAL IN ASSESSEES APPEAL (ITA 51/B/2 011) 1. THE ORDER OF THE LEARNED AUTHORITIES BELOW IN SO FAR AS IT IS AGAINST THE APPELLANT IS OPPOSED TO LAW, WEIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE APPEL LANT'S CASE. 2. THE ASSESSMENT IS BAD IN LAW AS THE MANDATORY CON DITIONS TO ASSUME JURISDICTION UNDER SECTION 148 DOES NOT EXIST AND CONSEQUENTLY THE ASSESSMENT MADE IS BAD IN LAW. 3. THE ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT DURING THE PENDENCY OF A VALID SUBSISTING RETURN IS BAD IN LAW . 4. THE ASSESSING OFFICER BY ISSUING NOTICE UNDER SEC TION 148 OF THE ACT HAS SOUGHT TO EXTEND THE PROCEEDINGS WHICH IS NOT PERMISSIBLE IN LAW. 5. THE ORDER OF ASSESSMENT IS BAD IN LAW IN SO FAR A S THE ISSUES FOR WHICH THE ASSESSING OFFICER HAS NOT GIVEN THE D ETAILS ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 3 OF 26 COLLECTED BY HIM WITHOUT PUTTING TO THE APPELLANT A S THE SAME ARE IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTI CE. 6. THE APPELLANT DENIES ITSELF TO LIABLE TO BE ASSES SED ON THE TOTAL INCOME DETERMINED BY THE AUTHORITIES BELOW AS AGAINST AN INCOME OF RS.2,26,38,594/- RETURNED BY THE APPEL LANT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT T HE CASH PAYMENTS TO THE TUNE OF RS. 1,11,56,360/- IS FOR TH E PURCHASE OF ARRACK SUBSTANTIALLY FROM A GOVERNMENT COMPANY A ND THE DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT IS BAD IN LAW UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT T HE EXEMPTION PROVIDED UNDER RULE 6DD IS APPLICABLE TO THE APPELL ANT AND HENCE OUGHT NOT TO HAVE ADDED THE SAME IN THE ASSES SMENT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN DISALL OWING VENDOR COMMISSION U/S 40(A)(IA) OF RS.96,31,415/- ON THE F ACTS AND CIRCUMSTANCES OF THE CASE. 10. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT T HE TRANSACTION BETWEEN SUCH VENDORS AND THE APPELLANT IS THAT OF P URCHASE AND SALE AND WHAT WAS GIVEN TO THE VENDORS WAS TRADE DI SCOUNT AND CONSEQUENTLY THE PROVISIONS WOULD NOT APPLY AT ALL TO THE CASE OF THE APPELLANT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 11. THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT T HE SAID TRANSACTION OF SALES OF ARRACK TO THE VENDOR DO NOT FALL WITHIN THE AMBIT OF CHAPTER XVII B OF THE ACT AND CONSEQUENTLY NO DISALLOWANCE IS WARRANTED ON THE FACTS AND CIRCUMST ANCES OF THE CASE. THE ASSESSING OFFICER ALSO FAILED TO APPRECIA TE THAT THE AUTHORITIES GOVERNING THE PROVISIONS OF CHAPTER XVI I B HAVE NOT PASSED ANY ORDER IN THIS REGARD. 12. THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FA CT THAT DISALLOWANCE UNDER SECTION 40(A)(IA) IS PERMISSIBLE ONLY IF THE DEDUCTION IS CLAIMED UNDER SECTION 30 TO 38 OF THE INCOME-TAX ACT, 1961 UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 13. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN DISALL OWING INTEREST ON ACCOUNT OF DIVERSION OF FUNDS ON THE FACTS AND CIRC UMSTANCES OF ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 4 OF 26 THE CASE. THE AUTHORITIES BELOW FAILED TO APPRECIAT E THAT THERE WAS HUGE CREDIT BALANCE OF THE PARTNERS AS A WHOLE AND NO INTEREST WAS CHARGED BY THE FIRM TO ANY OF THE PART NERS FOR EITHER DEBIT OR CREDIT BALANCE AND THE AUTHORITIES BELOW W ERE NOT CORRECT IN SITTING IN JUDGMENT OVER THE COMMERCIAL EXPEDIENCY OF THE BUSINESS MAN UNDER THE FACTS AND CIRCUMSTANC ES OF THE CASE. 14. THE APPELLANT DENIES ITSELF LIABLE TO BE CHARGED TO INTEREST UNDER SECTION 234B AND 234C OF THE INCOME TAX ACT AND REQ UIRES TO BE CANCELLED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. FURTHER THE LEVY IS ALSO BAD IN LAW AS THE PERIOD, RATE AND QUANTUM ON WHICH LEVIED ARE ALL NOT DISCERNABLE AND ARE WRONG ON THE FACTS OF THE CASE. 15. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, SUBSTIT UTE AND DELETE ANY OR ALL OF THE GROUNDS OF APPEAL URGED ABOVE. 16. FOR THE ABOVE AND OTHER GROUNDS TO BE URGED DURIN G THE HEARING OF THE APPEAL THE APPELLANT PRAYS THAT THE APPEAL B E ALLOWED IN THE INTEREST OF EQUITY AND JUSTICE. GROUNDS OF APPEAL IN REVENUES APPEAL (ITA 71/B/201 1) 1. THE ORDER OF THE LD CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE LD CITJA HAS NOT APPRECIATED THE FACT THAT DISALLOWANCE MADE U/S 40(A)(IA) WAS RIGHTLY DONE, AS THE ASSESSE E FAILED TO DEDUCT TAX IN VIEW OF THE PROVISIONS OF SEC 194H. 3. THE LD CIT(A) HAS NOT APPRECIATED THE FACT THAT EXCEPTION CLAUSES PROVIDED AS PER SEC 194A(3) HAS NOT BEEN PR OVIDED TO SEC 194H OF THE IT ACT, VIS-A-VIS TO THE DEDUCTION OF TAXES AT SOURCE AND THAT THE DISALLOWANCE U/S 40(A)(IA) HAS BEEN PROPERLY DONE WHILE CONCLUDING THE ASSESSMENT PROCEEDINGS. 4. THE LD CIT(A) HAS NOT APPRECIATED THE FACT THAT , WHILE MAKING DISALLOWANCE U/S 40(3)(IA), THE DEFINITION FOR 'COM MISSION & BROKERAGE' AS PROVIDED IN EXPLANATION TO SEC 194H O F THE IT ACT, HAS BEEN RIGHTLY FOLLOWED IN LETTER AND SPIRIT AS FAR AS PAYMENT MADE TO CANARA BANK TOWARD S BANK GUARANTEE COMMISSION. ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 5 OF 26 5. THE LD CIT(A) HAS NOT APPRECIATED THE FACT THA T THE ASSESSEE HAD DIVERTED THE FUNDS AVAILED FROM OD FACILITIES TO BE UTILIZED FOR PURPOSES OTHER THAN BUSINESS AND THAT THE DISALLOWA NCE OF INTEREST HAS BEEN RIGHTLY DONE. 6. THE CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT THE DISALLOWANCE OF INTEREST ON DEBIT BALANCES HAS BEEN RIGHTLY DONE AND ERRED IN DIRECTING THE AO TO DELETE THE PORTION OF INTEREST ON OPENING BALANCES WHILE WORKING OUT THE DISALLOWANCE . FOR THESE REASONS AND THAT THE GROUNDS OF APPEAL WH ICH MAY BE URGED AT THE TIME OF HEARING OF APPEAL BY THE HON'BLE ITA T, THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSI NG OFFICER RESTORED. 3. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS INVITED OUR ATTENTION THAT THROUGH THE ASSESSEE'S A PPEAL, VALIDITY OF THE REOPENING OF THE ASSESSMENT IS CHALLENGED AND ONCE IT IS HELD THAT REOPENING IS BAD IN LAW, NO PURPOSE WOULD BE SERVED TO DEAL WITH THE ISSUES ON MERIT. 4. WITH REGARD TO THE VALIDITY OF THE REOPENING, T HE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE FACT THAT THE ORIGINAL RETURN U/S. 139(1) WAS FILED ON 31.10.2005 WHICH WAS PROCESSED U/S. 143(1) BY ISSUING AN ORDER DATED 09.01.2006. HOWEVER, TIME LIMIT FOR ISSUANCE OF NOTICE U/S. 143(2) OF THE ACT WAS UPTO 31.10.2006. AND TIME LIM IT FOR COMPLETING REGULAR ASSESSMENT AS PER SECTION 153(1) OF THE ACT WAS 31. 10.2007. THE DUE DATE FOR FILING THE REVISED RETURN WAS 31.3.2007 AN D THE REVISED RETURN WAS FILED ON 30.11.2006 WHICH WAS PROCESSED U/S. 143(1) VIDE ITS ORDER DATED 12.01.2007. SINCE THE REVISED RETURN WAS FILED IN TIME, THE TIME LIMIT FOR ISSUANCE OF NOTICE U/S. 143(2) WITH RESPECT TO REVI SED RETURN WAS AVAILABLE ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 6 OF 26 UPTO 31.3.2008, BUT THE AO ISSUED A NOTICE U/S. 148 ON 16.05.2007. THE TIME LIMIT FOR ISSUANCE OF NOTICE U/S. 143(2) OF TH E ACT WITH RESPECT TO REVISED RETURN WAS UPTO 30.11.2007 AND FOR COMPLETI NG THE REGULAR ASSESSMENT AS PER SECTION 153(1) WAS UPTO 31.12.200 7, BUT THE AO ISSUED NOTICE U/S. 148 OF THE ACT FOR REOPENING THE ASSESS MENT ON 16.05.2007. 5. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTEN DED THAT SINCE NOTICE U/S. 148 WAS NOT ISSUED BEFORE THE EXPIRY OF THE PE RIOD FOR ISSUANCE OF NOTICE U/S. 143(2) OF THE ACT, NOTICE ISSUED U/S. 1 48 DATED 16.5.2007 IS BAD IN LAW AND IS LIABLE TO BE QUASHED. IN SUPPORT OF HIS CONTENTIONS, HE PLACED RELIANCE ON THE FOLLOWING JUDGMENTS:- (1) TRUSTEES OF HEH THE NIZAMS SUPPLEMENTARY FAMILY TR UST V. CIT, 242 ITR 381 (SC) (2) CIT V. SAMBHUDAYAL DWARKADAS, 218 ITR 123 (MP) (3) JHUNJHUNWALA VANASPATI LTD. V. ACIT, 266 ITR 664 (A LL) (4) CIT V. K.M. PACHAYAPPAN, 304 ITR 264 (MAD) (5) CIT V. QATALYS SOFTWARE TECHNOLOGIES LTD., 308 ITR 249 (MAD) (6) RENUKA INDUSTRIES V. ITO IN ITA NO.187 OF 2003, ORD ER DATED 28.11.2007 (KARNATAKA HIGH COURT) (7) SUPER SPINNING MILLS LTD. V. ACIT, 3 ITR [TRIB] 258 (CHENNAI) (8) L.T. KARLE & CO. IN ITA NO.364/BANG/2010, ORDER DAT ED 11.02.2011. (9) CIT V. ABAD FISHERIES, 65 DTR 370 (KERALA HC) (10) CIT V. ANAJANA SABHARWAL, 71 DTR 313 (ALLAHABAD HC) ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 7 OF 26 6. THE LD. COUNSEL FOR THE ASSESSEE FURTHER INVITED OUR ATTENTION TO THE REASONS RECORDED BY THE AO FOR REOPENING THE ASSESS MENT WITH THE SUBMISSION THAT IN THE REASONS RECORDED, THE AO MAD E A REFERENCE TO THE ORIGINAL AND REVISED RETURN FILED BY THE ASSESSEE. THOUGH HE HAS TRIED TO STATE THAT REOPENING WAS DONE TO REGULARISE THE REV ISED RETURN, BUT IN FACT THE REVISED RETURN WAS ACKNOWLEDGED BY THE AO AS IT WAS PROCESSED U/S. 143(1) VIDE ORDER DATED 12.01.2007. THEREFORE, THE RE IS NO VALID REASON FOR REOPENING THE ASSESSMENT. 7. THE LD. DR, ON THE OTHER HAND, HAS CONTENDED TH AT THE ORIGINAL RETURN WAS PROCESSED U/S. 143(1) OF THE ACT BY THE AO ON 09.01.2006 AND DEMAND NOTICE OF RS.2,29,965 WAS SERVED ON THE ASSE SSEE. NO NOTICE U/S. 143(2) WAS ISSUED TO THE APPELLANT TILL 31.10.2006 AND NO REVISED RETURN HAS BEEN FILED U/S. 139(5) OF THE ACT BY THE ASSESSEE T ILL THIS DATE. THUS, AS FAR AS ORIGINAL RETURN IS CONCERNED, THE ASSESSMENT STO OD COMPLETED U/S. 143(1) OF THE ACT. HE FURTHER CONTENDED THAT IF TH E AO HAD ISSUED ANY NOTICE WITH REFERENCE TO REVISED RETURN FLED SUBSEQ UENT TO THE COMPLETION OF ASSESSMENT, THE APPELLANT WOULD HAVE AGAIN CHALLENG ED THE PROCEEDINGS BY ARGUING THAT REVISED RETURN WAS NOT A VALID RETU RN. THEREFORE THE AO HAS MENTIONED CORRECTLY IN THE REASONS RECORDED THAT RE VISED RETURN FILED ALSO NEEDS TO BE REGULARISED. THUS, THERE WAS NO ASSESS MENT PROCEEDING PENDING IN THE APPELLANT'S CASE AT THE TIME OF ISSU ING NOTICE U/S. 148 OF THE ACT. ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 8 OF 26 8. IN REBUTTAL, THE LD. COUNSEL FOR THE ASSESSEE H AS CONTENDED THAT THE REVISED RETURN FILED BY THE ASSESSEE BEFORE THE COM PLETION OF REGULAR ASSESSMENT WAS ACKNOWLEDGED BY THE AO AS IT WAS ALS O ASSESSED U/S. 143(1) VIDE ORDER DATED 12.01.2007. THEREFORE, IT CANNOT BE SAID THAT IN ORDER TO REGULARISE THE REVISED RETURN, ASSESSMENT WAS REOPENED. ONCE THE REVISED RETURN FILED BY THE ASSESSEE WAS DULY R ECOGNISED BY THE AO AND WAS PROCESSED U/S. 143(1), THE TIME LIMIT FOR ISSUI NG NOTICE U/S. 143(2) WOULD BE UPTO 30.11.2007, BUT THE AO ISSUED A NOTIC E U/S. 148 BEFORE EXPIRY OF TIME LIMIT FOR ISSUANCE OF NOTICE U/S. 14 3(2) OF THE ACT. 9. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHORI TIES BELOW IN THE LIGHT OF RIVAL SUBMISSIONS AND THE JUDGMENTS REFERR ED TO BY THE PARTIES, WE FIND THAT UNDISPUTEDLY ORIGINAL RETURN WAS FLED ON 31.10.2005 WHICH WAS PROCESSED U/S. 143(1) ON 09.01.2006. BEFORE EXPIRY OF TIME LIMIT FOR COMPLETING THE ASSESSMENT U/S. 143(3), THE ASSESSEE HAS FILED THE REVISED RETURN ON 30.11.2006. THIS REVISED RETURN WAS NEVE R TREATED AS NON EST IN LAW BY THE AO AS IT WAS PROCESSED U/S. 143(1) BY TH E AO VIDE ORDER DATED 12.01.2007. COPY OF THE REVISED RETURN IS AVAILABL E AT PAGE 53 OF THE COMPILATION AND THE ORDER U/S. 143(1) DATED 12.01.2 007 IS PLACED AT PAGE 55 OF THE COMPILATION OF THE ASSESSEE. IN THE LIGH T OF PROCESSING OF REVISED RETURN U/S. 143(1), IT CANNOT BE SAID THAT REVISED RETURN FILED BY THE ASSESSEE WAS NON EST IN LAW AND IT REQUIRES A PROPER REGULARISATION BY ISSUING NOTICE U/S. 148 OF THE ACT. ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 9 OF 26 10. AFTER PROCESSING THE RETURN, THE AO HAS FORMED A BELIEF THAT AS PER INFORMATION FROM ADIT(INV), THE ASSESSEE HAS NOT DI SCLOSED CERTAIN AMOUNT IN ITS RETURN ORIGINALLY FILED, BUT BEFORE THE AO C OULD RECORD THE REASONS, ASSESSEE HAD ALREADY FILED THE REVISED RETURN DECLA RING ADDITIONAL INCOME. ONCE THE ASSESSEE HAS ALREADY DECLARED THE ADDITION AL INCOME BY FILING A REVISED RETURN WHICH WAS PROCESSED U/S. 143(1) OF T HE ACT, WE FIND NO MERIT IN THE REASONS RECORDED BY THE AO THAT CERTAIN INCO ME HAS ESCAPED ASSESSMENT. MOREOVER, THE NOTICE U/S. 148 WAS ISSU ED BEFORE EXPIRY OF TIME AVAILABLE FOR ISSUANCE OF NOTICE U/S. 143(2) O F THE ACT WITH RESPECT TO THE REVISED RETURN. 11. WE HAVE ALSO EXAMINED THE JUDGMENT OF THE HON'B LE APEX COURT IN THE CASE OF TRUST OF TRUSTEES OF HEH THE NIZAMS SUPPLEMENTARY FAMILY TRUST V. CIT, 242 ITR 381 (SC ) IN WHICH IT HAS BEEN CATEGORICALLY HELD THAT IT IS SETTLED LAW THAT UNLESS THE RETURN OF INCOME ALREADY FLED IS DISPOSED OF, NOTICE FOR REASSESSMENT U/S. 148 OF THE I.T. ACT CA NNOT BE ISSUED, I.E., NO REASSESSMENT PROCEEDINGS CAN BE INITIATED SO LONG A S ASSESSMENT PROCEEDINGS PENDING ON THE BASIS OF RETURN ALREADY FILED ARE NOT TERMINATED. SIMILAR VIEW WAS EXPRESSED BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF JHUNJHUNWALA VANASPATI LTD. V. ACIT, 266 ITR 664 (A LL) AND IN THE CASE OF KLM ROYAL DUTCH AIRLINES V. ADIT, 292 ITR 49 (DEL) . THEIR LORDSHIPS OF THE HON'BLE DELHI HIGH COURT HAVE AGAI N REITERATED THAT SINCE RETURNS OF INCOME HAD BEEN FILED AND NO ORDER FOR A SSESSMENT HAS BEEN FINALISED BY THE AO, THERE WAS NO SCOPE FOR INVOKIN G SECTION 147 OF THE ACT. ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 10 OF 26 THEREFORE INITIATION OF ASSESSMENT PROCEEDINGS U/S. 147 WAS IRREGULAR AND ILLEGAL. THIS VIEW WAS FURTHER REITERATED IN OTHER JUDGMENTS REFERRED TO BY THE ASSESSEE. 12. TURNING TO THE FACTS OF THE PRESENT CASE, WE FI ND THAT ORIGINAL RETURN WAS FILED BY THE ASSESSEE ON 31.10.2005 WHICH WAS P ROCESSED U/S. 143(1) ON 9.1.2006. LATER ON, REVISED RETURN WAS FILED WH ICH WAS ALSO PROCESSED U/S. 143(1) OF THE ACT VIDE ORDER DATED 12.01.2007 . THEREFORE, RETURNS FILED BY THE ASSESSEE WERE PROCESSED U/S. 143(1) AND NO P ROCEEDING OF ASSESSMENT WAS PENDING. 13. NOTICE U/S. 148 WAS ISSUED ON 16.5.2007 AFTER THE PROCESSING OF THE RETURN U/S. 143(1) OF THE ACT. IN THE AFORESAID JU DGMENTS, IT HAS BEEN REPEATEDLY HELD THAT DURING THE PENDENCY OF ASSESSM ENT PROCEEDINGS, NOTICE U/S. 147 CANNOT BE ISSUED AS THE AO HAS AN O PPORTUNITY TO EXAMINE ALL SORTS OF QUERIES WHATEVER COMES IN HIS MIND WIT H REGARD TO ANY SORT OF ESCAPEMENT OR UNDISCLOSED INCOME. BUT IN THE INSTA NT CASE, WHEN THE ASSESSMENT WAS COMPLETED U/S. 143(1), NO ASSESSMENT PROCEEDING WAS PENDING, THEREFORE, WE ARE OF THE VIEW THAT NOTICE U/S. 148 WAS VALIDLY ISSUED. 14. NOW THE QUESTION ARISES WHETHER THE REASONS RE CORDED BY THE AO FOR REOPENING THE ASSESSMENT ARE VALID. IN THIS RE GARD, WE HAVE CAREFULLY EXAMINED THE REASONS RECORDED BY THE AO AND FOR THE SAKE OF REFERENCE, WE EXTRACT THE SAME AS UNDER:- ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 11 OF 26 AS PER INFM RECD FROM ADIT(INV) MYSORE IN LTR DT 1 3/02/07, THE ASSESSEE HAD MADE DEPOSITS IN UTI BANK TO THE TUNE OF RS.6943000/-. THE DEPOSITS HAD EARNED INTEREST OF RS.241170/-. H OWEVER THESE DEPOSITS AND ACCRUED INTEREST HAVE NOT BEEN DECLARE D IN THE R.I. FILED BY THE ASSESSEE ON 31.10.05. THOUGH THE ASSESSEE H AS FILED A REVISED RT. ON 30/11/06 TO INCLUDE THE ABOVE, THE ADDL INCO ME NOW OFFERED, AFTER ENQUIRIES MADE BY THE DEPT, REQUIRES TO BE VE RIFIED. THE RI ALSO HAS TO BE REGULARISED. I HAVE REASON TO BELIEVE TH AT INCOME TO THE EXTENT OF DEPOSITS MADE OF RS. 6943000/- AND ACCRUE D INTEREST OF RS.241,170/- HAVE ESCAPED ASSESSMENT AS PER PROVIS IONS OF SEC. 147. ISSUE NOTICE U/S. 148. 15. FROM A CAREFUL PERUSAL OF REASONS RECORDED, IT APPEARS THAT ON THE BASIS OF THE REPORT OF ADIT(INV), THE AO HAS FORMED A BELIEF THAT DEPOSITS IN THE UTI BANK OF RS.69,43,000 AND THE INTEREST EARNE D THEREON WERE NOT DISCLOSED BY THE ASSESSEE, THEREFORE INCOME ESCAPED ASSESSMENT. THESE REASONS WERE RECORDED NOT ONLY AFTER THE FILING OF REVISED RETURN, BUT AFTER THE REVISED RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. IN THE STATEMENT OF INCOME FILED ALONG WITH THE REVISED RETURN, THE ASS ESSEE HAS ALREADY OFFERED THE CASH REMITTANCE TO UTI BANK OF RS.69,43 ,000 AND INTEREST OF RS.2,41,170. ACCORDINGLY TAXABLE INCOME WAS WORKED OUT TO RS.2,26,38,594. THIS MUCH OF INCOME WAS NOT ONLY O FFERED BY FILING A REVISED RETURN (COPY OF REVISED RETURN IS AVAILABLE AT PAGE 53 OF THE COMPILATION), BUT ALSO THE REVISED RETURN WAS PROCE SSED BY THE AO U/S. 143(1) OF THE ACT AND AO HAS TAKEN THE SAME AMOUNT AS RETURNED INCOME OF THE ASSESSEE. ONCE THE ADDITIONAL INCOME DECLAR ED BY THE ASSESSEE WAS PROCESSED U/S. 143(1), WE ARE UNABLE TO UNDERST AND ON WHAT BASIS THE AO FORMED A BELIEF THAT ADDITIONAL INCOME HAS ESCAP ED ASSESSMENT. WE ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 12 OF 26 ARE THEREFORE OF THE VIEW THAT THERE WAS NO SUBSTAN TIVE MATERIAL BEFORE THE AO TO FORM A BELIEF THAT INCOME HAS ESCAPED ASSESSM ENT. UNDER THESE FACTS, WE ARE OF THE CONSIDERED VIEW THAT REOPENING WAS NOT BASED ON REQUISITE COGENT MATERIAL. ACCORDINGLY WE HOLD TH E REOPENING TO BE BAD IN LAW. SINCE REOPENING OF ASSESSMENT IS HELD TO BE B AD, THE ASSESSMENT FRAMED CONSEQUENT THERETO DESERVES TO BE QUASHED AN D WE ACCORDINGLY QUASH THE ASSESSMENT FRAMED CONSEQUENT TO BAD REOPE NING. 16. SINCE WE HAVE QUASHED THE ASSESSMENT ON ACCOUN T OF BAD REOPENING, WE FIND NO JUSTIFICATION TO DEAL WITH TH E APPEAL OF THE ASSESSEE AS WELL AS REVENUE ON MERITS. ACCORDINGLY THE APPE AL OF ASSESSEE IS ALLOWED AND THAT OF REVENUE IS DISMISSED. ITA NOS.52 & 72/BANG/2011 17. THESE CROSS APPEALS ARE PREFERRED BY THE ASSESS EE AND THE REVENUE AGAINST THE ORDER OF CIT(APPEALS) FOR AY 2006-07 IN WHICH THE ORDER OF CIT(APPEALS) IS ASSAILED ON THE FOLLOWING GROUNDS:- GROUNDS OF APPEAL IN ITA NO.52/BANG/2011 (ASSESSEE S APPEAL) 1. THE ORDER OF THE LEARNED AUTHORITIES BELOW IN SO FAR AS IT IS AGAINST THE APPELLANT IS OPPOSED TO LAW, WEIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE APPEL LANT'S CASE. 2. THE APPELLANT DENIES ITSELF TO BE LIABLE TO BE ASSESSED ON THE TOTAL INCOME DETERMINED BY THE AUTHORITIES BELOW AS AGAIN ST AN INCOME OF RS.1,02,61,515/- RETURNED BY THE APPELLANT UNDER TH E FACTS AND CIRCUMSTANCES OF THE CASE. ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 13 OF 26 3. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN DISA LLOWING VENDOR COMMISSION U/S. 40(A)(IA) OF RS.32,69,190/- ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE AUTHORITIES BELOW FAILED TO APPRECIATE THA T THE TRANSACTION BETWEEN SUCH VENDORS AND THE APPELLANT IS THAT OF P URCHASE AND SALE AND WHAT WAS GIVEN TO THE VENDORS WAS TRADE DISCOUN T AND CONSEQUENTLY THE PROVISIONS WOULD NOT APPLY AT ALL TO THE CASE OF THE APPELLANT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT T HE SAID TRANSACTION OF SALES OF ARRACK TO THE VENDOR DO NOT FALL WITHIN THE AMBIT OF CHAPTER XVII B OF THE ACT AND CONSEQUENTLY NO DISALLOWANCE IS WARRANTED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESS ING OFFICER ALSO FAILED TO APPRECIATE THAT THE AUTHORITIES GOVERNING THE PROVISIONS OF CHAPTER XVII B HAVE NOT PASSED ANY ORDER IN THIS RE GARD. 6. THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FA CT THAT DISALLOWANCE UNDER SECTION 40(A)(IA) IS PERMISSIBLE ONLY IF THE DEDUCTION IS CLAIMED UNDER SECTION 30 TO 38 OF THE INCOME-TAX ACT, 1961 UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN DISAL LOWING INTEREST ON ACCOUNT OF DIVERSION OF FUNDS ON THE FACTS AND CIRC UMSTANCES OF THE CASE. THE AUTHORITIES BELOW FAILED TO APPRECIATE TH AT THERE WAS HUGE CREDIT BALANCE OF THE PARTNERS AS A WHOLE AND NO IN TEREST WAS CHARGED BY THE FIRM TO ANY OF THE PARTNERS FOR EITHER DEBIT OR CREDIT BALANCE AND THE AUTHORITIES BELOW WERE NOT CORRECT IN SITTING I N JUDGMENT OVER THE COMMERCIAL EXPEDIENCY OF THE BUSINESS MAN UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. THE APPELLANT DENIES ITSELF LIABLE TO BE CHARGED TO INTEREST UNDER SECTION 234B AND 234D OF THE INCOME TAX ACT AND REQ UIRES TO BE CANCELLED ON THE FACTS AND CIRCUMSTANCES OF THE CAS E. FURTHER THE LEVY IS ALSO BAD IN LAW AS THE PERIOD, RATE AND QUANTUM ON WHICH LEVIED ARE ALL NOT DISERNABLE AND ARE WRONG O N THE FACTS OF THE CASE. 9. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, SUBSTIT UTE AND DELETE ANY OR ALL OF THE GROUNDS OF APPEAL URGED ABOVE. ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 14 OF 26 10. FOR THE ABOVE AND OTHER GROUNDS TO BE URGED DURIN G THE HEARING OF THE APPEAL THE APPELLANT PRAYS THAT THE APPEAL BE A LLOWED IN THE INTEREST OF EQUITY AND JUSTICE. GROUNDS OF APPEAL IN ITA NO.72/BANG/2011 (REVENUES APPEAL) 1) THE ORDER OF THE LD CIT(A) IS OPPOSED TO LAW AN D FACTS OF THE CASE. 2) THE LD CIT(A) HAS NOT APPRECIATED THE FACT THA T THE DISALLOWANCE MADE U/S 40(A)(IA) WAS RIGHTLY DONE, AS THE ASSESSE E FAILED TO DEDUCT TAX IN VIEW OF THE PROVISIONS OF SEC 194H. 3) THE LD. CIT(A) HAS NOT APPRECIATED THE FACT THA T EXCEPTION CLAUSES PROVIDED AS PER SEC 194A(3) HAS NOT BEEN PR OVIDED TO SEC 194H OF THE IT ACT, VIS-A-VIS TO THE DEDUCTION OF T AXES AT SOURCE AND THAT THE DISALLOWANCE U/S 40(A)(IA) HAS BEEN PROPER LY DONE WHILE CONCLUDING THE ASSESSMENT PROCEEDINGS. 4) THE LD. CIT(A) HAS NOT APPRECIATED THE FACT TH AT, WHILE MAKING DISALLOWANCE U/S 40(A)(IA), THE DEFINITION FOR 'COM MISSION & BROKERAGE' AS PROVIDED IN EXPLANATION TO SEC 194H O F THE IT ACT, HAS BEEN RIGHTLY FOLLOWED IN LETTER AND SPIRIT AS FAR A S PAYMENT MADE TO CANARA BANK TOWARDS BANK GUARANTEE COMMISSION. 5) THE LD CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE HAD DIVERTED THE FUNDS AVAILED FROM OD FACILITIES TO BE UTILIZED FOR PURPOSES OTHER THAN BUSINESS AND THAT THE DISALLOWA NCE OF INTEREST HAS BEEN RIGHTLY DONE. 6) THE CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT THE DISALLOWANCE OF INTEREST ON DEBIT BALANCES HAS BEEN RIGHTLY DONE AND ERRED IN DIRECTING THE AO TO DELETE THE PORTION OF INTEREST ON OPENING BALANCES WHILE WORKING OUT THE DISALLOWANCE. FOR THESE REASONS AND THAT THE GROUNDS OF APPEAL WH ICH MAY BE URGED AT THE TIME OF HEARING OF APPEAL BY THE HON'BLE ITA T, THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSI NG OFFICER RESTORED.' ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 15 OF 26 ITA 52/BANG/2011 18. IN ASSESSEE'S APPEAL, GROUND NOS.1 & 2 ARE GENE RAL IN NATURE AND NEEDS NO ADJUDICATION, WHEREAS GROUND NOS. 3 TO 6 R ELATE TO THE DISALLOWANCE OF VENDORS COMMISSION OF RS.32,69,190 U/S. 40(A)(IA) OF THE ACT. THE ISSUE WAS EXAMINED IN DETAIL BY THE CIT(A PPEALS) WHILE PASSING THE ORDER FOR AY 2005-06 AND FOLLOWING THE SAID ORD ER, THE CIT(A) HAS CONFIRMED DISALLOWANCE IN THE INSTANT CASE. 19. IN ORDER TO UNDERSTAND THE FACTS OF THE CASE, W E HAVE TO LOOK INTO THE ORDER OF THE CIT(A) FOR AY 2005-06 WHEREFROM THE FA CTS ARE THAT THE ASSESSEE HAD DEBITED A SUM OF RS.32,69,190 IN THE N ATURE OF DISCOUNT AND WAS CLAIMED TO BE VENDORS COMMISSION. THE AO HAD DISALLOWED THE PAYMENT HAVING INVOKED SECTION 194H OF THE ACT R.W. SEC. 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE. 20. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(APPEALS) AND CONTENDED THAT IN THE NORMAL PRACT ICE IN THE LINE OF BUSINESS, THE CONTRACTOR HAS TO SUPPLY ARRACK TO VA RIOUS VENDING POINTS OR LOCATIONS IN THE RESPECTIVE OPERATIONAL AREAS AS PE RMITTED BY GOVT. OF KARNATAKA. THE VENDOR WHO SELLS THE ARRACK WOULD R ETAIN CERTAIN PORTION OF THE SALE PROCEEDS AND RETURN THE BALANCE AMOUNT TO THE SUPPLIER I.E., APPELLANT. IN THE CASE OF THE APPELLANT, THE ARRAC K WAS SUPPLIED TO VENDOR AT DIFFERENT POINTS AT RS.13 PER ARRACK PACKET AND THE VENDOR SOLD THE ARRACK PACKET AT RS.12.50 DEDUCTING A SUM OF RS.0.5 0 AS THEIR CHARGES. ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 16 OF 26 THE DIFFERENCE AMOUNT OF RS.0.50 WAS A TRADE DISCOU NT THAT WAS GIVEN TO THE VENDOR. THOUGH AMOUNT OF SALE PRICE IS RS.13 I N THE BOOKS OF ACCOUNT, THE APPELLANT'S ACTUALLY REMITTANCE WILL BE ONLY RS .12.50 PER PKT., HENCE NO ACTUAL AMOUNT WAS PAID TO THE VENDORS, INSTEAD A TR ADE DISCOUNT WAS GIVEN. IT WAS FURTHER CONTENDED THAT SINCE NO AMOUNT IS BE ING PAID TO THE VENDOR, THE PROVISIONS OF TDS DOES NOT APPLY. 21. IT WAS FURTHER CONTENDED THAT PROVISIONS OF SEC TION 194H OF THE ACT BEING TAX DEDUCTION AT SOURCE ON COMMISSION OR BROK ERAGE WILL NOT APPLY, SINCE THE APPELLANT MAKES DIRECT SALES TO THE VENDO R AND APPELLANT RECEIVES NET SALES FROM THE VENDORS AT VARIOUS VENDING POINT S. IN THE INSTANT CASE, THE APPELLANT SUPPLIES ARRACK TO THE SHOPS AT VARIO US POINTS AND COLLECTS THE SALE PROCEEDS AND THEREAFTER THE VENDOR SELLS THE S AME AT THE PRICE AT WHICH THE GOVERNMENT AUTHORITIES APPROVED. THE DIF FERENCE BETWEEN SALE PROCEEDS RECEIVED AND THE ACTUAL AMOUNT OF SALE SHO WN IN THE BOOKS IS COMMISSION, BUT THE ACTUAL ASPECT OF PAYMENT IS IN THE NATURE OF TRADE DISCOUNT. IT WAS FURTHER CONTENDED THAT THE APPELL ANT OUGHT TO HAVE REDUCED THE SAID DIFFERENCE AMOUNT FROM THE SALES I N THE PROFIT & LOSS ACCOUNT, BUT BY MISTAKE HE DID NOT DO IT. IT WAS HO WEVER CONTENDED THAT THE REAL TRANSACTION SHOULD BE SEEN AND ONE SHOULD NOT GO WITH ENTRIES IN THE BOOKS OF ACCOUNT. RELIANCE WAS ALSO PLACED UPON TH E JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF PRAKASH COTTON MILLS PVT. LTD. REPORTED IN 201 ITR 684 (SC). ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 17 OF 26 22. THE CIT(A) RE-EXAMINED THE CLAIM OF THE ASSESSE E AND HAS AGREED TO THE PROPOSITION THAT NOMENCLATURE GIVEN BY THE A SSESSEE TO A PARTICULAR TRANSACTION IS NOT CONCLUSIVE PROOF OF TRUE NATURE OF THE TRANSACTION. THE ONLY ISSUE IS TRUE NATURE OF TRANSACTION BETWEEN TH E APPELLANT AND THE VENDORS. THE CIT(A), HOWEVER, DID NOT AGREE WITH THE OTHER CONTENTIONS OF THE ASSESSEE THAT VENDORS WERE DEALING WITH THE APP ELLANT ON PRINCIPAL TO PRINCIPAL BASIS AND THEY WERE ALSO DULY AUTHORISED TO TRANSACT ANY SALE/PURCHASE OF ARRACK, THEREFORE, IT IS NOT PROPE R TO SAY THAT THEY WERE NOT AUTHORISED BY THE GOVERNMENT TO EFFECT SALES OF ARR ACK. SINCE THE ASSESSEE HAS NOT PAID ANY PAYMENT OF COMMISSION TO THE VENDORS, IT WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE AS PER THE PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT. THEREFORE DISALLOWANCE MADE BY THE REVENUE AUTHORITIES ARE NOT PROPER. 23. ON THE OTHER HAND, THE LD. DR HAS PLACED RELIAN CE UPON THE ORDER OF CIT(A). 24. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT THERE IS NO DISP UTE WITH REGARD TO LEGAL POSITION THAT NOMENCLATURE GIVEN BY THE ASSESSEE TO A PARTICULAR TRANSACTION IS NOT CONCLUSIVE PROOF OF TRUE NATURE OF THE TRANS ACTION. THE NATURE OF TRANSACTION HAS TO BE LOOKED INTO BY THE RELEVANT E VIDENCE AVAILABLE. THERE IS NO DISPUTE THAT ASSESSEE HAD BEEN SUPPLYING ARRA CK TO DIFFERENT VENDORS AT DIFFERENT VENDING POINTS. NOW THE QUESTION ARIS ES WHETHER THE ASSESSEE HAS MADE THE SALES TO DIFFERENT VENDORS ON A PRINCI PAL TO PRINCIPAL BASIS, OR ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 18 OF 26 WHETHER DIFFERENT VENDORS WERE ACTING AS AGENTS OF ASSESSEE. THE ASSESSEE HAS CATEGORICALLY STATED THAT VENDING POIN TS ARE THE LOCATIONS IN THE RESPECTIVE OPERATIONAL AREA WHICH WERE ALSO PER MITTED BY GOVT. OF KARNATAKA TO SELL ARRACK AT THE RATE PRESCRIBED BY GOVT. IT WAS ALSO STATED THAT ALL STOCKS WERE APPROVED AND LICENSED BY GOVT. OF KARNATAKA AND THESE FACTS WERE NOT CONTROVERTED BY THE CIT(APPEAL S) IN HIS ORDER. HE HAS SIMPLY CONCLUDED THAT VENDORS WERE NOT HAVING LICEN CE, THEREFORE, THEY WERE NOT COMPETENT TO SELL ARRACK AND WERE ACTING O N BEHALF OF ASSESSEE AS COMMISSION AGENTS. SINCE THE ASSESSEE HAS A TAKEN A CATEGORICAL STAND THAT IT IS SUPPLYING ARRACK TO DIFFERENT VENDORS AT DIFFERENT POINTS OR LOCATIONS IN THE RESPECTIVE OPERATIONAL AREAS AS PERMITTED BY GOVT. OF KARNATAKA AND THE SHOPS OF VENDORS ARE DULY AUTHORISED BY GOVT. O F KARNATAKA, IT IS ALL THE MORE NECESSARY TO EXAMINE THE FACTS WHETHER THE ASS ESSEE HAS SOLD ARRACK ON PRINCIPAL TO PRINCIPAL BASIS TO THESE VENDORS, O R VENDORS WERE ACTING AS COMMISSION AGENTS OF THE ASSESSEE. IF IT IS ESTABL ISHED THAT ASSESSEE HAS ISSUED INVOICES IN THE NAME OF VENDORS AND SUPPLIED ARRACK TO THEM, THE TRANSACTION WOULD BE ON PRINCIPAL TO PRINCIPAL BASI S AND THE VENDORS CANNOT BE HELD TO BE COMMISSION AGENTS OF THE ASSESSEE. N OMENCLATURE TO THE DIFFERENCE IN RECEIPT OF SALE PROCEEDS AND SALE CON SIDERATION IS IRRELEVANT. BUT THESE ASPECTS WERE NOT EXAMINED BY THE LOWER AU THORITIES. SINCE THE ASSESSEE HAS TAKEN A CATEGORICAL STAND BEFORE THE C IT(APPEALS) THAT THE VENDORS WERE DULY AUTHORISED AND APPROVED BY THE GO VT. OF KARNATAKA TO TRANSACT IN ARRACK, THE CIT(A) SHOULD HAVE EXAMINED AS TO HOW SALE OF ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 19 OF 26 ARRACK WAS EFFECTED AND IN WHOSE FAVOUR INVOICE WAS RAISED. THEREFORE, WE ARE OF THE OPINION THAT THIS ISSUE REQUIRES FRESH A DJUDICATION BY THE AO. ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(APPEA LS) IN THIS REGARD AND RESTORE THE MATTER BACK TO THE ASSESSING OFFICER FO R FRESH ADJUDICATION. 25. GROUND NO.7 RELATE TO DISALLOWANCE OF INTEREST AND IN THIS REGARD, IT IS NOTICED THAT AO HAS MADE INTEREST DISALLOWANCE OF R S.6,61,782 WITH RESPECT TO DIVERSION OF FUNDS. THIS ISSUE WAS ALSO EXAMINED IN AY 2005-06 AND FOLLOWING THE ORDER OF CIT(A) FOR AY 2005-06, T HE CIT(A) HAS RESTORED THE MATTER TO THE AO TO RECOMPUTE THE DISALLOWANCE OF INTEREST AS PER OPENING DEBIT BALANCES IN THE PARTNERS ACCOUNT. 26. WE HAVE CAREFULLY EXAMINED THE ORDER OF CIT(A) FOR AY 2005-06 WHERE THE ISSUE WAS EXAMINED IN DETAIL AND WE FIND THAT THE CIT(A) HAS DIRECTED THE AO TO RECOMPUTE THE INTEREST DISALLOWA NCE AS PER OPENING DEBIT BALANCES IN THE PARTNERS CAPITAL ACCOUNT. WE DO NOT FIND ANY INFIRMITY IN THE DIRECTIONS OF THE CIT(A). ACCORDINGLY, WE C ONFIRM THE ORDER OF CIT(A) AS RECOMPUTATION IS TO BE DONE BY THE AO. ACCORDIN GLY, THIS GROUND OF ASSESSEE IS DISMISSED. 27. SO FAR AS GROUND NO.8 IS CONCERNED, IT IS CONSE QUENTIAL IN NATURE AND NEEDS NO INDEPENDENT ADJUDICATION. ITA 72/BANG/2011 28. IN THE REVENUE'S APPEAL, GROUND NOS.1 TO 4 RELA TE TO DISALLOWANCE OF COMMISSION & BROKERAGE FOR NON-DEDUCTION OF TAX AT SOURCE. THE ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 20 OF 26 CIT(APPEALS) HAS ALSO FOLLOWED THE EARLIER ORDER FO R AY 2005-06 WHEREIN THE ISSUE WAS DISCUSSED AT LENGTH. 29. THE LD. DR PLACED RELIANCE ON THE ORDER OF AO I N THIS REGARD AND WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTEN DED THAT THE ISSUE WAS EXAMINED IN DETAIL BY THE CIT(A), THEREFORE NO INTE RFERENCE IS CALLED FOR. 30. FROM A CAREFUL PERUSAL OF THE RECORD, WE FIND T HAT THE AO HAD MADE THE DISALLOWANCE OF RS.90,08,515 TOWARDS BANK GUARA NTEE COMMISSION. THE ASSESSEE WAS ASKED TO EXPLAIN THE NATURE OF EXP ENSES AND IN RESPONSE THERETO IT WAS STATED THAT WHEN GUARANTEE COMMISSION WAS PAID TO CANARA BANK FOR BANK GUARANTEE OBTAINED IN RESPE CT OF LICENSE GRANTED BY GOVT. OF KARNATAKA. THE ASSESSEE HAS GOT BANK G UARANTEE FROM CANARA BANK OF RS. 45 CRORES DURING THE FY 2005-06 RELEVAN T TO AY 2006-07. FURTHER, AS PER THE TERMS OF AGREEMENT, THE ASSESSE E HAS PAID BANK GUARANTEE COMMISSION @ 2% OF THE TOTAL GUARANTEE AM OUNT. SINCE THE ASSESSEE HAS NOT DEDUCTED TDS WHILE MAKING BANK GUA RANTEE COMMISSION TO CANARA BANK AS REQUIRED UNDER THE PROVISIONS OF SECTION 194H, THE AO HAS MADE DISALLOWANCE HAVING INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, AGAINST WHICH AN APPEAL WAS FILED, AND THE CIT(A) HELD THAT BANK GUARANTEE COMMISSION IS BASICALLY IN THE NATURE OF INTEREST FOR A CREDIT FACILITY WHICH MAY OR MAY NOT BE UTILISED AND IT DO ES NOT CREATE ANY TYPE OF PRINCIPAL-AGENT RELATIONSHIP SO AS TO ATTRACT THE P ROVISIONS OF SECTION 194H OF THE ACT. IT WAS FURTHER CONTENDED THAT PAYMENT TOWARDS BANK GUARANTEE ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 21 OF 26 COMMISSION HAS BEEN MADE BY THE ASSESSEE DURING THE YEAR AND THERE IS NO PROVISION AS ON 31.3.2005 AND HENCE PROVISIONS O F SECTION 40(A)(IA) OF THE ACT IS NOT APPLICABLE SINCE NO AMOUNTS ARE DUE AND PAYABLE AS ON 31.3.2005. IT WAS FURTHER CONTENDED THAT SINCE ASS ESSEE HAS NOT MADE ANY PAYMENT OF COMMISSION TO THE BANKERS AND COMMISSION IS DEDUCTED BY THE BANKERS FROM THE ACCOUNT OF THE ASSESSEE, THE PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT CANNOT BE INVOKED. 31. THE LD. DR PLACED RELIANCE UPON THE ORDER OF TH E AO. 32. WE HAVE CAREFULLY EXAMINED THE RIVAL SUBMISSION S AND WE FIND THAT THE CIT(APPEALS) IS RIGHT IN HOLDING THAT BANK GUAR ANTEE COMMISSION IS BASICALLY IN THE NATURE OF INTEREST FOR A CREDIT FA CILITY WHICH MAY OR MAY NOT BE UTILISED AND IT DOES NOT CREATE ANY TYPE OF PRIN CIPAL-AGENT RELATIONSHIP SO AS TO ATTRACT THE PROVISIONS OF SECTION 194H OF THE ACT. SINCE THE CIT(A) HAS PROPERLY ADJUDICATED THE ISSUE, WE FIND NO INFI RMITY IN HIS ORDER AND WE ACCORDINGLY CONFIRM THE SAME. 33. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMI SSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ITA NOS.53 & 73/BANG/2011 34. THESE CROSS APPEALS ARE PREFERRED BY THE ASSES SEE AS WELL AS THE REVENUE AGAINST THE ORDER OF CIT(APPEALS) PERTAININ G TO AY 2007-08 INTER ALIA ON THE FOLLOWING GROUNDS:- ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 22 OF 26 ITA NO.53/BANG/2011 (ASSESSEES APPEAL) 1. THE ORDER OF THE LEARNED AUTHORITIES BELOW I N SO FAR AS IT IS AGAINST THE APPELLANT IS OPPOSED TO LAW, WEIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE APPEL LANT'S CASE. 2. THE APPELLANT DENIES ITSELF TO BE LIABLE TO B E ASSESSED ON THE TOTAL INCOME DETERMINED BY THE AUTHORITIES BELO W AS AGAINST AN INCOME OF RS.2,19,48,618/- RETURNED BY THE APPELLAN T UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN DIS ALLOWING THE PROFESSIONAL CHARGES PAID OF RS. 2,70,000/- U/S 40( A)(IA) OF THE ACT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FACT THAT DISALLOWANCE UNDER SECTION 40(A)(IA) IS PERMISSIBLE ONLY IF THE DEDUCTION IS CLAIMED UNDER SECTION 30 TO 38 OF THE INCOME-TAX ACT, 1961 UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN LA W IN DISALLOWING A SUM OF RS. 1,44,216/- BEING 20% OF TH E TOTAL TELEPHONE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT UND ER THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FACT THAT CONSENT CANNOT CONFER JURISDICTION AND HENCE THE AD MISSION MADE BY THE AUTHORISED REPRESENTATIVE IS NOT BINDING UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. THE APPELLANT DENIES ITSELF LIABLE TO BE CHARG ED TO INTEREST UNDER SECTION 234B AND 234D OF THE INCOME TAX ACT A ND REQUIRES TO BE CANCELLED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. FURTHER THE LEVY IS ALSO BAD IN LAW AS THE PERIOD, RATE AND QUANTUM ON WHICH LEVIED ARE ALL NOT DISERNABLE AND ARE WRONG O N THE FACTS OF THE CASE. 8. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, SUBSTI TUTE AND DELETE ANY OR ALL OF THE GROUNDS OF APPEAL URGED AB OVE. ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 23 OF 26 9. FOR THE ABOVE AND OTHER GROUNDS TO BE URGED DURI NG THE HEARING OF THE APPEAL THE APPELLANT PRAYS THAT THE APPEAL BE ALLOWED IN THE INTEREST OF EQUITY AND JUSTICE. ITA NO.73/BANG/2011 (REVENUES APPEAL) 1) THE ORDER OF THE LD CIT(A) IS OPPOSED TO LAW AN D FACTS OF THE CASE. 2) THE LD CIT(A) HAS NOT APPRECIATED THE FACT THAT THE DISALLOWANCE MADE U/S 40(A)(IA) WAS RIGHTLY DONE, AS THE ASSESSE E FAILED TO DEDUCT TAX IN VIEW OF THE PROVISIONS OF SEC 194H. 3) THE LD. CIT(A) HAS NOT APPRECIATED THE FACT THA T EXCEPTION CLAUSES PROVIDED AS PER SEC 194A(3) HAS NOT BEEN PR OVIDED TO SECTION 194H OF THE IT ACT, VIS-A-VIS TO THE DEDUCTION OF T AXES AT SOURCE AND THAT THE DISALLOWANCE U/S 40(A)(IA) HAS BEEN PROPER LY DONE WHILE CONCLUDING THE ASSESSMENT PROCEEDINGS. 4) THE LD. CIT(A) HAS NOT APPRECIATED THE FACT TH AT, WHILE MAKING DISALLOWANCE U/S 40(A)(IA), THE DEFINITION FOR 'COM MISSION & BROKERAGE' AS PROVIDED IN EXPLANATION TO SEC 194H O F THE IT ACT, HAS BEEN RIGHTLY FOLLOWED IN LETTER AND SPIRIT AS FAR A S PAYMENT MADE TO CANARA BANK TOWARDS BANK GUARANTEE COMMISSION. FOR THESE REASONS AND THAT THE GROUNDS OF APPEAL WH ICH MAY BE URGED AT THE TIME OF HEARING OF APPEAL BY THE HON'BLE ITA T, THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSI NG OFFICER RESTORED. ITA 53/BANG/2011 35. IN THE ASSESSEES APPEAL, GROUND NOS.1 & 2 ARE GENERAL IN NATURE, WHEREAS GROUND NOS.3 & 4 RELATE TO THE DISALLOWANCE OF PROFESSIONAL CHARGES PAID OF RS.2,70,000 U/S. 40(A)(IA) OF THE A CT. ON PERUSAL OF THE RECORD, WE FIND THAT THE AO HAS DISALLOWED PAYMENT OF RS.2,70,000 MADE TO THREE PROFESSIONALS VIZ., SHRI VITTAL, SHRI K.R. PRASAD AND SHRI N. ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 24 OF 26 SHIVAKUMAR. SINCE TDS WAS NOT DEDUCTED, THE AO HAS DISALLOWED THE PAYMENTS. THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS), BUT DID NOT FIND FAVOUR WITH HIM. 36. NOW THE ASSESSEE IS IN APPEAL WITH THE SUBMISSI ON THAT THE RECIPIENTS HAVE SHOWN THE RECEIPT IN THEIR BOOKS OF ACCOUNT AND HAVE ALSO OFFERED THE SAME TO TAX IN RESPECT OF PROFESSIONAL CHARGES. THEREFORE, THE ASSESSEE CANNOT BE HELD TO BE IN DEFAULT AND THE PR OVISIONS OF SECTION 40(A)(IA) CANNOT BE INVOKED IN VIEW OF SECOND PROVI SO TO SECTION 40(A)(IA) OF THE ACT. 37. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTEN DED THAT WHEN THE RECIPIENTS HAVE PAID THE TAXES, THE ASSESSEE CANNOT BE HELD TO BE IN DEFAULT AND DISALLOWANCE U/S. 40(A)(IA) CANNOT BE MADE. 38. THE LD. DR PLACED RELIANCE UPON THE ORDER OF CI T(APPEALS). 39. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT NOW THE PROVISIO NS OF SECTION 201(1) AND SECTION 40(A)(IA) HAS BEEN TONED DOWN BY SUBSEQUENT AMENDMENTS AND AS PER SECOND PROVISIO TO SECTION 40(A)(IA), WHEN THE ASSESSEE IS NOT IN DEFAULT, IT IS TO BE PRESUMED THAT ASSESSEE HAS DED UCTED AND PAID THE TAXES. THIS ASPECT WAS NOT EXAMINED BY THE CIT(A). THEREFORE, WE ARE OF THE VIEW THAT LET THIS ISSUE BE EXAMINED IN THE LIG HT OF THE AMENDED ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 25 OF 26 PROVISIONS OF SECTION 40(A)(IA) OF THE ACT BY THE A SSESSING OFFICER. ACCORDINGLY, THIS ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. 40. GROUND NO.5 RELATES TO THE DISALLOWANCE OF TELE PHONE EXPENSES. IN THIS REGARD, WE FIND THAT THE AO HAS DISALLOWED 20% OF THE TOTAL CLAIM TOWARDS TELEPHONE EXPENSES ON ACCOUNT OF PERSONAL U SE. SINCE THE POSSIBILITY OF PERSONAL USE OF TELEPHONE CANNOT BE RULED OUT, SOME DISALLOWANCE HAS TO BE MADE. HOWEVER, THE DISALLOW ANCE MADE BY THE AO IS ON THE HIGHER SIDE AND WE RESTRICT THE SAME TO 1 0% OF THE TOTAL CLAIM OF EXPENSES. 41. GROUND NO.6 IS GENERAL IN NATURE AND NEEDS NO I NDEPENDENT ADJUDICATION. SIMILAR IS THE POSITION WITH REGARD TO GROUND NOS.8 & 9. 42. ACCORDINGLY, THIS APPEAL OF THE ASSESSEE IS DIS POSED OF. ITA NO.73/BANG/2011 43. IN THE REVENUES APPEAL, THE REVENUE HAS ASSAIL ED THE ORDER OF CIT(APPEALS) IN DELETING THE DISALLOWANCE MADE ON A CCOUNT OF COMMISSION & BROKERAGE. THIS ASPECT WAS EXAMINED BY US IN THE FOREGOING APPEALS. WE, THEREFORE, FOLLOWING THE SAME, DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NOS. 51 TO 53/BANG/2011 & 71 TO 73/BANG/2011 PAGE 26 OF 26 44. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THAT OF THE REVENUE ARE DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 06 TH DAY OF JANUARY, 2017. SD/- SD/- ( S. JAYARAMAN ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 06 TH JANUARY, 2017. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.