Palakurthi Sridhar, Hyderabad V. Addl.CIT,, Karimnagar

ITA 763/HYD/2014

• Counselvise Citation: 76322514 RSA 2014
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 28-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A V RAGHURAM
• Keywords: Opportunity of being heard
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 763/HYD/2014 ASSESSMENT YEAR 2009-10 SRI PALAKURTHI SRIDHAR KARIMNAGAR PAN: AIKPP8040P VS. THE ADDL. CIT KARIMNAGAR RANGE KARIMNAGAR APPELLANT RESPONDENT APPELLANT BY: SRI A.V. RAGHU RAM RESPONDENT BY: SRI R. MOHAN REDDY DATE OF HEARING: 28 .0 8 .2014 DATE OF PRONOUNCEMENT: 05 .0 9 .2014 ORDER PER SAKTIJIT DEY, J.M.: THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 8.1.2014 OF CIT(A)-III, HYDERABAD PERTAINING TO ASSESSMENT YEAR 2009-10. 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IS IN RESPEC T OF DISALLOWANCE OF RS. 6,87,423 U/S. 40(A)(IA) OF T HE ACT. 3. BRIEFLY THE FACTS RELATING TO THE AFORESAID ISSUE A RE, ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS O F GRANITE QUARRYING. FOR THE ASSESSMENT YEAR UNDER CONSIDERA TION ASSESSEE FILED HIS RETURN OF INCOME ON 29.9.2009 DE CLARING TOTAL INCOME OF RS. 97,02,520. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE AO ON EXAMINING THE ACC OUNTS OF THE ASSESSEE NOTICED THAT OUT OF THE EXPENSES OF RS. 2 ITA NO. 763/HYD/2014 SRI PALAKURTHI SRIDHAR ================== 48,16,222 CLAIMED TOWARDS FINANCIAL CHARGES, AN AMO UNT OF RS. 6,87,423 REPRESENTS INTEREST PAYMENT ON UNSECUR ED LOANS TO THE FOLLOWING: (I) BAJAJ FINANCE LTD. (II) BARCLAYS BANK PLC (III) CHOLAMANDALAM DBS FINANCE LTD. (IV) CITIFINANCIAL CONSUMER FINANCE INDIA LTD. 4. THE AO WAS OF THE VIEW THAT AFORESAID ENTITIES NOT BEING COVERED BY BANKING REGULATION ACT, TDS PROVIS IONS OF SECTION 194A ARE APPLICABLE TO THE INTERESTS PAID T O THEM. AS THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE ON INTERESTS PAID, AO DISALLOWED THE AMOUNT OF RS. 6,87,423 U/S. 40(A)(IA) AND ADDED IT TO THE INCOME OF THE ASSESSE E. 5. ASSESSEE CHALLENGED THE DISALLOWANCE MADE IN APPEAL BEFORE THE CIT(A). HOWEVER, CIT(A) ALSO CON FIRMED THE ADDITION MADE BY AO OBSERVING AS UNDER: '5.2. I HAVE SEEN CAREFULLY THE FACTS AND EVIDENCE. THE APPELLANT HAS NOT PROVIDED ANY EVIDENCE TO SHOW THAT THE PAYMENTS IN QUESTION ARE NOT INTEREST PAYMENTS. IN FACT, IN ITS OWN ACCOUNTS THE APPELLANT HAS CLEARLY SHOWN THESE AS INTEREST PAYMENTS AND DETAILS OF THE LOANS OBTAINED FROM THE AFOREMENTIONED COMPANIES HAS ALSO BEEN MENTIONED. MOREOVER, THE SUPPOSITION THAT THE COMPANIES IN QUESTION ARE REPUTED AND MUST HAVE PAID TAXES HAS NO RELEVANCE TO SECTION 194A OR SECTION 40(A)(IA). THERE IS NO DISPUTE ABOUT THE FACT THAT THE APPELLANT WAS LEGALLY BOUND TO DEDUCT TAXES WHICH WAS NOT DONE. THEREFORE, I HOLD THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE SAID PAYMENT IS U/S. 40(A)(IA) OF THE INCOME TAX ACT. THIS GROUND IS DECIDED IN FAVOUR OF THE REVENUE.' 6. WE HAVE HEARD THE PARTIES. SUBMISSIONS OF THE LEARNED AR BEFORE US IS TWO FOLD. FIRST CONTENTION OF THE 3 ITA NO. 763/HYD/2014 SRI PALAKURTHI SRIDHAR ================== LEARNED AR IS, AS PER SECOND PROVISO TO SEC. 40(A)( IA) UNLESS AN ASSESSEE IS DEEMED TO BE AN ASSESSEE IN D EFAULT U/S. 201(1), NO DISALLOWANCE CAN BE MADE U/S. 40(A) (IA). FURTHER, HE SUBMITTED THOUGH SECOND PROVISO TO SEC. 40(A)(IA) WAS INTRODUCED BY FINANCE ACT, 2012 W.E.F . 1.4.2013 BUT THE SAID PROVISO BEING CLARIFICATORY I N NATURE WILL APPLY RETROSPECTIVELY. FOR THIS PROPOSITION, LEARNED AR RELIED UPON A DECISION OF ITAT, HYDERABAD BENCH IN CASE OF ACIT VS. M/S. PLR PROJECTS PVT. LTD., IN IT A NO. 1079/HYD/2013 DATED 12.3.2014. THE SECOND CONTENTI ON OF THE LEARNED AR IS, PAYMENT MADE BY ASSESSEE TO T HOSE ENTITIES WERE TOWARDS EMI UNDER HIRE PURCHASE AGREEMENTS. AS THEY ARE NOT IN THE NATURE OF LOAN TRANSACTION, PAYMENTS MADE BY ASSESSEE CANNOT BE TERMED AS INTEREST PAYMENT SO AS TO ATTRACT THE PRO VISIONS CONTAINED U/S. 194A OF THE ACT. IN SUPPORT OF SUCH CONTENTION, LEARNED AR RELIED UPON A JUDGEMENT DATE D 5.12.2013 OF HONBLE ANDHRA PRADESH HIGH COURT IN I TA NOS. 43, 44, 45, 50 OF 2007 AND 761 OF 2006 IN CASE OF CIT VS. M/S. MG. BROTHERS FINANCE LTD. LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A). 7. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIES, I N THE CONTEXT OF THE MATERIALS ON RECORD AND CAREFULL Y APPLYING OUR MIND TO THE DECISIONS RELIED UPON BY L EARNED AR, WE RECORD OUR FINDING AS UNDER. SO FAR AS APPLICABILITY OF SECOND PROVISO TO SEC. 40(A)(IA) I S CONCERNED, AS IT APPEARS, ASSESSEE DID NOT RAISE TH IS ISSUE BEFORE THE AO. THOUGH, ASSESSEE HAS RAISED THIS IS SUE BEFORE THE LEARNED CIT(A), WITHOUT CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LEARNED CIT(A) HAS CONFIRMED THE ADDITION, WHICH, IN OUR VIEW IS NOT P ROPER. 4 ITA NO. 763/HYD/2014 SRI PALAKURTHI SRIDHAR ================== AS THE ISSUE OF APPLICABILITY OF SECOND PROVISO TO SEC. 40(A)(IA) HAS NOT BEEN CONSIDERED EITHER BY THE AO OR BY LEARNED CIT(A), WE ARE OF THE CONSIDERED VIEW, SAME REQUIRES EXAMINATION BY THE AO. SECOND CONTENTION OF THE ASSESSEE IS PAYMENTS MADE BY ASSESSEE ARE UNDER HIRE PURCHASE AGREEMENTS, HENCE, THEY CANNOT BE CONSIDERED AS INTEREST PAYMENTS, UNDER A LOAN TRANSACTION. HOWEVER, WHETHER TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH THESE ENTITIES ARE IN THE NATU RE OF LOAN OR HIRE PURCHASE CAN BE DETERMINED ONLY AFTER GOING THROUGH THE TERMS OF THE AGREEMENT. ON A PERUSAL O F THE ASSESSMENT ORDER AND FIRST APPELLATE ORDER, WE DO N OT FIND ANY DISCUSSION IN THIS REGARD. WE ARE ALSO NOT IN A POSITION TO RECORD ANY CONCLUSIVE FINDING IN ABSENC E OF RELEVANT AGREEMENTS ON RECORD. IN VIEW OF THE AFOR ESAID, WE DEEM IT PROPER TO REMIT THIS ISSUE TO THE FILE O F AO FOR DECIDING AFRESH. THE AO MUST DECIDE THE ISSUE AFTE R PROPERLY CONSIDERING THE SUBMISSIONS OF THE ASSESSE E AND EXAMINING ALL MATERIALS ON RECORD. THE AO SHOULD A LSO EXAMINE APPLICABILITY OF RATIO LAID DOWN IN DECISIO NS WHICH THE ASSESSEE MAY RELY UPON. NEEDLESS TO MENTION, A O MUST AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. THE ONLY OTHER ISSUE IS IN RESPECT OF ADDITION OF A N AMOUNT OF RS. 49,91,071 U/S. 40A(3) OF THE ACT. 9. BRIEFLY STATED, DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD CLAIMED EXPENSES TOWAR DS LABOUR CHARGES OF RS. 50,95,861. FURTHER, ON EXAMI NING LEDGER EXTRACT, SUPPORTING BILLS/VOUCHERS, AO NOTIC ED, PAYMENTS WERE MADE IN CASH IN EXCESS OF RS. 20,000 IN 5 ITA NO. 763/HYD/2014 SRI PALAKURTHI SRIDHAR ================== CLEAR VIOLATION OF SEC. 40A(3). THOUGH, ASSESSEE E XPLAINED THAT PAYMENTS WERE MEANT FOR SEVERAL LABOURERS AND ULTIMATELY DISTRIBUTED TO ALL OF THEM, BUT AO WAS N OT CONVINCED WITH THE SAME. HE OPINED THAT RELATIONSH IP OF PAYER AND PAYEE WITH REGARD TO ASSESSEE AS PAYER EX IST ONLY WITH THE PERSON TO WHOM CASH WAS DELIVERED. T HUS, LIABILITY OF ASSESSEE AS A PAYER GETS DISCHARGED TO THAT EXTENT AND THE PERSON TO WHOM PAYMENTS WERE MADE WI LL IN TURN GET THE WORK DONE WITH SEVERAL WORKERS WHIC H IS COVERED BY A SEPARATE PAYER AND PAYEE RELATIONSHIP. AO HAS HELD THAT AS PAYMENT VOUCHERS REVEALED THAT PAY MENT WAS MADE TO AN INDIVIDUAL AND RECEIPT WAS ACKNOWLED GED BY A SINGLE INDIVIDUAL THERE IS VIOLATION OF SEC. 4 0A(3). ACCORDINGLY, HE ADDED AN AMOUNT OF RS. 49,91,071. CIT(A) ALSO CONFIRMED THE ADDITION BY HOLDING THAT ASSESSEE HAS NOT PAID TO INDIVIDUAL LABOURERS BUT T O A CONTRACTOR. 10. THE LEARNED AR SUBMITTED BEFORE US THAT BOTH AO AS WELL AS CIT(A) WITHOUT PROPERLY CONSIDERING THE FACTS AND MATERIAL ON RECORD HAVE ARBITRARILY CONCLUDED T HAT PAYMENTS WERE MADE TO A CONTRACTOR. IT WAS SUBMITT ED, THE PERSON THROUGH WHOM PAYMENT WAS MADE BY ASSESSE E TO LABOURERS IS AN EMPLOYEE OF THE ASSESSEE. IT WA S SUBMITTED THAT IT WAS DIFFICULT TO MAKE PAYMENT TO ALL THE LABOURERS INDIVIDUALLY WHO ARE WORKING IN SITES. T HE LABOURERS SELECT A PERSON AMONGST THEM TO RECEIVE T HE PAYMENT ON THEIR BEHALF, WHO IN TURN DISTRIBUTES TH E PAYMENTS TO THEM. IT WAS SUBMITTED THAT NONE OF TH E INDIVIDUAL PAYMENT MADE BY ASSESSEE EXCEEDS RS. 20, 000. IN THIS CONTEXT LEARNED AR DREW OUR ATTENTION TO LE DGER EXTRACT COPY OF LABOUR CHARGES, DEBIT VOUCHERS, STA TEMENT 6 ITA NO. 763/HYD/2014 SRI PALAKURTHI SRIDHAR ================== OF LABOUR CHARGES ETC., PLACED AT PAGES 4 TO 29 OF THE PAPER BOOK. LEARNED AR SUBMITTED, AS THE EVIDENCES PRODUCED BY THE ASSESSEE HAVE NOT AT ALL BEEN CONSI DERED EITHER BY AO OR CIT(A) LET IT BE VERIFIED AGAIN. 11. THE LEARNED DR THOUGH, SUPPORTED THE ORDER OF CIT(A) BUT SUBMITTED THAT ASSESSEE'S CLAIM CAN BE V ERIFIED AGAIN BY AO. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ONLY REASON FO R WHICH DISALLOWANCE U/S. 40A(3) WAS MADE BY THE AO A ND CONFIRMED BY THE CIT(A) IS, PAYMENT VOUCHERS INDICA TE PAYMENT TO A SINGLE INDIVIDUAL. HOWEVER, ON EXAMIN ING THE LEDGER EXTRACT OF LABOUR CHARGES ALONG WITH LAB OUR PAYMENT LIST, PRIMA FACIE IT APPEARS PAYMENTS IN QU ESTION ARE MEANT FOR INDIVIDUAL LABOURERS. FURTHER ON GOI NG THROUGH THE LABOUR CHARGES SHEET MAINTAINED BY THE ASSESSEE FOR THE PERIOD APRIL 2008 TO MARCH 2009, I T APPEARS, PAYMENT MADE BY THE ASSESSEE TO INDIVIDUAL LABOURERS IS BELOW RS. 20,000. FURTHER, NEITHER TH E AO NOR THE CIT(A) HAVE BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THAT THE PERSON TO WHOM PAYMENT WAS MADE IS A CONTRACTOR MORE SO WHEN THE ASSESSEE CLAIMS THAT TH E SAID PERSON IS HIS EMPLOYEE. IN THE AFORESAID CIRCUMSTA NCES, WE ARE OF THE VIEW, PROVISIONS OF SECTION 40A(3) CA NNOT BE MADE APPLICABLE TO THE PAYMENTS WITHOUT PROPERLY CONSIDERING ASSESSEE'S CLAIM IN LIGHT OF MATERIALS AND EVIDENCES BROUGHT ON RECORD. WE, THEREFORE, CONSID ER IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF THE AO FOR CONSIDERING AFRESH AFTER EXAMINING ALL FACTS AN D 7 ITA NO. 763/HYD/2014 SRI PALAKURTHI SRIDHAR ================== MATERIALS BROUGHT ON RECORD AND ONLY AFTER AFFORDIN G DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. IN THE RESULT, ASSESSEE'S APPEAL IS CONSIDERED TO B E ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 5 TH SEPTEMBER, 2014 SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 5 TH SEPTEMBER, 2014 TPRAO COPY TO: 1. SRI PALAKURTHI SRIDHAR, C/O. K. VASANTKUMAR & A.V. RAGHU RAM, ADVOCATES, 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD-500 001. 2. THE ADDL. CIT, KARIMNAGAR RANGE, KARIMNAGAR. 3. THE CIT(A) - I II , HYDERABAD. 4. THE CIT - II , HYDERABAD. 5. THE DR, B - BENCH, ITAT, HYDERABAD.