Mukesh Govindlal Agrawal, Jalna V. Commissioner of Income-tax ,

ITA 791/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2634 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 21-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T VIJAY BHASKAR REDDY
• Assessee Lawyers: SANJEEV K KABRA
• Keywords: Non-deduction of tax
• Section: 143(3); 194C; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 791/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2009-10 SHRI MUKESH GOVINDLAL AGRAWAL, BANSILAL KABRA ADVOCATE 20, 1 ST FLOOR, AMBIKA MARKET, JALNA 431203 PAN : AAJPA1862H ....... / APPELLANT ' / V/S. COMMISSIONER OF INCOME TAX, AURANGABAD / RESPONDENT ASSESSEE BY : SHRI SANJEEV K. KABRA REVENUE BY : SHRI T. VIJAY BHASKAR REDDY / DATE OF HEARING : 28-12-2015 / DATE OF PRONOUNCEMENT : 01-03-2016 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX, AURANGABAD DATED 13-01-2014 PASSED U/S. 263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2009-10. 2 ITA NO. 791/PN/2014, A.Y. 2009-10 2. THE APPEAL HAS BEEN FILED WITH A DELAY OF 20 DAYS. THE ASSESSEE HAS FILED AN APPLICATION FOR CONDONATION OF DELAY. A PERUSAL O F THE APPLICATION SHOWS THAT THE DELAY IN FILING OF THE APPEAL IS CA USED DUE TO MEDICAL EXIGENCIES. AFTER PERUSAL OF SAME, WE ARE SATISFIED TH AT THE DELAY IN FILING OF APPEAL IS NOT INTENTIONAL OR DELIBERATE. THE DELAY OF 20 DAYS IN FILING OF THE APPEAL IS CONDONED AND THE APPEAL IS ADMITTED TO BE HEARD ON MERITS. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM THE RE CORDS ARE: THE ASSESSEE IS A DEALER IN SEEDS AND FERTILIZERS. THE ASSESSE E FILED HIS RETURN OF INCOME ON 28-09-2009 DECLARING TOTAL INCOME OF ` 5,84,260/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER MADE ADDITION OF ` 74,030/- BY DISALLOWING CERTAIN EXPENSES AND ASSESSED THE TOTAL INCOME OF ASSESSEE AS ` 6,58,290/- VIDE ORDER DATED 17-11-2011. THEREAFTER, ON 01-10-2013 THE COMMISSIONER OF INCOME TAX ISSUED NOTICE TO THE ASSESSEE U/S. 263 OF THE ACT. ACCORDING TO THE COMMISSIONER OF INCOME TAX, THE ASSESSMENT ORDER IS ERRO NEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE AS THE ASSE SSING OFFICER HAS FAILED TO CONSIDER THE FOLLOWING FACTS: I. THE ASSESSEE HAS UTILIZED INTEREST BEARING FUNDS FOR ACQUIRING NON-BUSINESS ASSETS I. PERSONAL ASSETS (HOUSE CONSTRUCTION AND PLOT) ` 26,37,870/- II. INVESTMENT ` 14,93045/- TOTAL ` 41,30,915/- THE ASSESSEE IS HAVING OWN FUNDS TO THE TUNE OF ` 22,34,212/- ONLY. THE REMAINING AMOUNT OF ` 19,16,683/- 3 ITA NO. 791/PN/2014, A.Y. 2009-10 IS DIVERTED FROM THE INTEREST BEARING FUNDS TO ACQUIRE NON - BUSINESS ASSETS. THE COMMISSIONER OF INCOME TAX COMPUTED INTEREST ON THE AFORESAID AMOUNT @12% I.E. ` 2,30,002/- AND DISALLOWED THE SAME U/S. 36(1)(III) OF THE ACT. II. THE COMMISSIONER OF INCOME TAX FURTHER HELD THAT THE ASSESSEE HAS DEBITED ` 37,650/- IN THE P & L ACCOUNT UNDER THE HEAD NEWSPAPER & ADVERTISING. OUT OF THE SAID AMOUNT THE ASSESSEE HAS PAID ` 29,390/- TO MRS. SHOBHA INDANI ON ACCOUNT OF ADVERTISING. THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE ON SUCH PAYMENT U/S. 194 C. SINCE, NO TAX HAS BEEN DEDUCTED ON THE AFORESAID PAYMEN T, THE SAME IS LIABLE TO BE DISALLOWED U/S. 40(A)(IA) R.W.S. 194C OF THE ACT. III. THE COMMISSIONER OF INCOME TAX FURTHER OBSERVED TH AT OPENING CREDIT BALANCE OF SHRI GOVINDLAL AGRAWAL IN THE BOOKS OF ASSESSEE AS ON 01-04-2008 WAS ` 3,78,159/-. AS PER AUDIT REPORT THE ASSESSEE HAS ACCEPTED AN AMOUNT OF ` 2,95,000/- FROM THE SAID CREDITOR DURING THE YEAR. HOWEVER, THE RECORD DOES NOT SHOW ANY DETAILS REGARDING ACCEPTANCE OF SAID LOAN. DURING THE YEAR THE ASSESSEE H AS PAID AN AMOUNT OF ` 81,569/- TOWARDS THE INTEREST ON UNSECURED LOAN. THE INTEREST ON THE OPENING BALANCE I.E. ` 3,78,159/- COMES TO ` 45,379/- @ 12%, WHEREAS, THE ASSESSEE HAS CREDITED INTEREST OF ` 81,569/-. THE COMMISSIONER OF INCOME TAX DISALLOWED THE EXCESS INTEREST 4 ITA NO. 791/PN/2014, A.Y. 2009-10 PAID I.E. ` 81,569/- - ` 45,379/- = ` 36,190/- ON UNSECURED LOAN. 4. SHRI SANJEEV K. KABRA APPEARING ON BEHALF OF THE ASSES SEE SUBMITTED THAT THE ASSESSEE HAD PURCHASED THE PLOT IN THE YEAR 2002 AND CONSTRUCTION OF THE HOUSE WAS COMPLETED IN THE FINAN CIAL YEAR 2005-06. THE ASSESSEE IS RECEIVING RENTAL INCOME OF ` 60,000/- PER ANNUM FROM THE SAID HOUSE. THE ASSESSEE IS PAYING INTE REST ON HOUSING LOAN FROM RENTAL INCOME. IN SUPPORT OF HIS SUBMISSIO NS, THE ASSESSEE REFERRED TO SALE DEED OF PLOT AND LEDGER EXTRA CT TO SHOW THAT HOUSE WAS CONSTRUCTED IN FINANCIAL YEAR 2005-06. THE ASS ESSEE IN HIS RETURN OF INCOME HAD OFFERED RENTAL INCOME UNDER THE HEA D INCOME FROM HOUSE PROPERTY. THE LD. AR CONTENDED THAT THE INT EREST INCOME MAY BE ALLOWED AS DEDUCTION U/S. 24(B) OF THE ACT. AS REG ARDS INVESTMENTS, THE SAME ARE TOWARDS LIFE INSURANCE, NSC AND PPF. THESE INVESTMENTS ARE MADE TO COVER HEALTH RISK AND DAY TO D AY RISKS. THE INVESTMENTS ENSURE SMOOTH RUNNING OF BUSINESS. THEREFORE , THE ACTION OF COMMISSIONER OF INCOME TAX IN DISALLOWING INTEREST U/S. 36 (1)(III) IS UNCALLED FOR. WITH RESPECT TO PAYMENT MADE TO MRS. SHOBHA INDANI, THE LD. AR SUBMITTED THAT THE MRS. SHOBHA INDANI HAS WRITTEN A BOOK ON RECEPIES AND THE ASSESSEE HAD GIVEN AN ADVERTISEMENT IN THE SAID BOOK. MRS. SHOBHA INDANI IS NOT AN ADVERTISING CONTRACTOR AND ADVERTISING IS NOT A WORK, HENCE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS ON THE PAYMENT MADE TO HER. THEREFORE, DISALLOWANCE U/S. 40(A)(IA) ON THE PAYMENTS MADE BY THE ASSESSEE TO MRS. SHOBHA INDANI IS NOT CALLED FOR. IN RESPECT OF PAYMENT OF INTEREST TO SHRI GOVINDLAL AGRAWA L THE LD. AR 5 ITA NO. 791/PN/2014, A.Y. 2009-10 SUBMITTED THAT THE INTEREST WAS PAID @ 18% P.A. IN SUP PORT OF HIS CLAIM, THE ASSESSEE FILED A CONFIRMATION LETTER FROM THE SAID CREDITOR. 5. ON THE OTHER HAND SHRI T. VIJAY BHASKAR REDDY REPR ESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE ORDER OF COMMISSIONE R OF INCOME TAX PASSED U/S. 263 OF THE ACT. THE LD. DR SUBMITTED THA T A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER H AS FAILED TO EXAMINE THE ASPECTS WHICH HAVE BEEN HIGHLIGHTED BY THE C OMMISSIONER OF INCOME TAX IN PROCEEDINGS U/S. 263 OF THE ACT. THUS, T HE ORDER PASSED BY THE ASSESSING OFFICER WAS CLEARLY ERRONEOUS AN D IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. THE LD. DR PRAYE D FOR DISMISSING THE APPEAL OF ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE COMMISSIONER OF INCOME TAX HAS INVOKED HIS REVISIONAL JURISD ICTIONAL U/S. 263 IN RESPECT OF ASSESSMENT ORDER DATED 17-11-20 11 PASSED U/S. 143(3) OF THE ACT FOR ASSESSMENT YEAR 2009-10. THE COMM ISSIONER OF INCOME TAX HAS MADE ADDITION/DISALLOWANCE ON THREE COUNTS. 6.1 THE DIVERSION OF INTEREST BEARING FUNDS FOR ACQUIRING NO N- BUSINESS ASSETS. THE COMMISSIONER OF INCOME TAX HAS POINT ED THAT THE ASSESSEE HAS INVESTED INTEREST BEARING FUNDS TO THE TUN E OF ` 41,30,915/- FOR CONSTRUCTION OF HOUSE AND IN OTHER INVESTM ENTS, WHEREAS, THE ASSESSEE IS HAVING CAPITAL OF ` 22,34,212/- ONLY. THE CONTENTION OF THE ASSESSEE IS THAT THE HOUSE WAS COMPLE TED IN THE FINANCIAL YEAR 2005-06 AND THE ASSESSEE IS RECEIVING RENTA L INCOME OF 6 ITA NO. 791/PN/2014, A.Y. 2009-10 ` 60,000/- PER ANNUM FOR THE LAST 4 YEARS. A PERUSAL OF T HE SALE DEED AT PAGES 1 TO 10 OF THE PAPER BOOK SHOWS THAT THE PLOT P URCHASED BY ASSESSEE WAS REGISTERED WITH THE OFFICE OF REGISTRAR ON 1 1-11-2002. THE CONSTRUCTION COMMENCEMENT CERTIFICATE WAS ISSUED TO THE ASSESSEE BY THE MUNICIPAL COUNCIL, PARBHANI ON 14-07-2003 (PAGE 14 OF T HE PAPER BOOK). THE ASSESSEE HAD TAKEN LOAN FOR THE CONSTRUCTION OF HOUSE. A COPY OF HOUSING LOAN LEDGER IS AT PAGE 19 OF THE PAPER BO OK. THE DOCUMENTS ON RECORD CLEARLY INDICATE THAT THE PLOT WAS ACQUIRED BY ASSESSEE IN 2002 AND FOR CONSTRUCTION OF HOUSE THE ASS ESSEE HAD TAKEN LOAN. THUS, WE FIND MERIT IN THE SUBMISSIONS OF THE LD. AR OF THE ASSESSEE. AS REGARDS INVESTMENTS OF ` 14,93,045/-, THE COMMISSIONER OF INCOME TAX HAS OBSERVED THAT THE ASSESSEE IS HAVING O WN FUNDS TO THE TUNE OF ` 22,34,212/-. THE COMMISSIONER OF INCOME TAX HAS NOT DRAW N ANY NEXUS TO SHOW THAT BORROWED FUNDS WERE UTILIZED FOR MAKING SUCH INVESTMENTS. THE ASSESSEE IS HAVING SUFFICIENT OWN INTEREST FREE FUNDS TO MAKE THE INVESTMENTS. THUS, IN THE FACTS OF THE CASE AND DOCUMENTS ON RECORD, WE DO NOT CONCUR WITH THE ADDITION OF ` 2,30,002/- MADE BY THE COMMISSIONER OF INCOME TAX. ACCORDINGLY, THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. THE SECOND GROUND FOR INVOKING REVISIONAL JURISDICTION U/ S. 263 OF THE ACT IS WITH REGARD TO PAYMENTS MADE TO MRS. SHOBHA INDANI WITH OUT DEDUCTION OF TAX AT SOURCE. AS PER THE PROVISIONS OF SEC TION 194C ANY PERSON RESPONSIBLE FOR MAKING PAYMENT TO ANY RESIDENT FOR CARRYING OUT 7 ITA NO. 791/PN/2014, A.Y. 2009-10 ANY WORK INCLUDING SUPPLY OF LABOUR IN PURSUANCE OF A CONT RACT BETWEEN THE CONTRACTOR AND A SPECIFIED PERSON SHALL, AT T HE TIME OF PAYMENT IS LIABLE TO DEDUCT TAX AT SOURCE AT THE SPECIFIED RATES. IN THE PRESENT CASE, THE ASSESSEE HAS ALLEGEDLY MADE PAYMENT TO MRS. SHOBHA INDANI FOR GIVING ADVERTISEMENT IN HER BOOK. THE CONTENTIO N OF THE ASSESSEE IS THAT ADVERTISEMENT DOES NOT FALL WITHIN THE D EFINITION OF WORK SO AS TO ATTRACT THE PROVISION OF SECTION 194C OF T HE ACT. THE WORD WORK HAS BEEN DEFINED IN EXPLANATION-(IV) TO SECTION 194C OF THE ACT, THE SAME IS REPRODUCED HERE-IN-BELOW: (IV) WORK SHALL INCLUDE (A) ADVERTISING; (B) BROADCASTING AND TELECASTING INCLUDING PRODUCTI ON OF PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING; (C) CARRIAGE OF GOODS OR PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS; (D) CATERING; (E) MANUFACTURING OR SUPPLYING A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCH ASED FROM SUCH CUSTOMER, BUT DOES NOT INCLUDE MANUFACTURING OR SUPPLYING A P RODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY U SING MATERIAL PURCHASED FROM A PERSON, OTHER THAN SUCH CUSTOMER. THUS, FROM THE PERUSAL OF THE DEFINITION OF WORK AS GIVEN IN EXPLANATION-(IV) TO SECTION 194C IT IS AMPLY CLEAR THAT WORK INCLUDES ADVERTISING. THEREFORE, WE DO NOT FIND ANY ERROR IN THE O RDER OF COMMISSIONER OF INCOME TAX FOR MAKING DISALLOWANCE U/S. 40(A)(IA ) FOR NON-DEDUCTION OF TAX ON THE PAYMENTS MADE TO MRS. SHO BHA INDANI. ACCORDINGLY, GROUND NO. 2 OF THE APPEAL BY ASSESSEE IS DISMISSED. 8 ITA NO. 791/PN/2014, A.Y. 2009-10 8. THE LAST GROUND RAISED IN THE APPEAL IS WITH REGARD TO DISALLOWANCE OF INTEREST PAID TO SHRI GOVINDLAL AGRAWAL. THE A SSESSEE HAS ASSAILED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX ON THE GROUND THAT THE ASSESSEE HAS PAID INTEREST TO SHRI GOV INDLAL AGRAWAL @ 18% PER ANNUM. IN SUPPORT OF HIS SUBMISSIONS A CONFIRMATIO N LETTER FROM THE CREDITOR WAS ALSO FILED. THE COMMISSIONER OF INCOME TAX ON VERIFICATION NOTICED THAT THE OPENING CREDIT BALANCE AS ON 01-04-2008 OF THE SAID CREDITOR IN THE BOOKS OF THE ASSESSEE WAS ` 3,78,160/-. ON 02- 01-2009 THE ASSESSEE HAD FURTHER RECEIVED AN AMOUNT O F ` 2,95,000/- FROM SHRI GOVINDLAL AGRAWAL. THE ASSESSEE HAS CREDITED AN INTEREST OF ` 81,569/- ON 31-03-2009 AND DEBITED ` 8,402/- ON ACCOUNT OF TDS AND THE CLOSING BALANCE AS ON 31-03-2009 WAS SHOWN AS ` 7,46,326/-. THE CALCULATION OF INTEREST ON THE TOTAL AMOUNT RECEIVED FROM GOVINDLAL AGRAWAL SHOWS THAT THE INTEREST HAS BEEN CHARGED @ 12 .12%. THE COMMISSIONER OF INCOME TAX HAS TABULATED THE ENTIRE WORK ING OF INTEREST @ 12%. AS PER THE CALCULATION OF THE COMMISSIONER OF INCOME TAX THE TOTAL INTEREST PAID BY THE ASSESSEE SHOULD BE ` 53,732/- WHEREAS, THE ASSESSEE HAS CLAIMED PAYMENT OF INTEREST ` 81,569/- @ 18%. THE INTEREST CALCULATIONS BY COMMISSIONER OF INCOME TAX ARE AS UNDER. SR. NO. PERIOD AMOUNT OF CREDIT BALANCE RATE OF INTEREST NO . OF MONTHS AMOUNT OF INTEREST 01 01.04.2008 TO 01.01.2009 RS.3,78,160/ - 12% 9 MONTHS RS.34,035/ - 02 02.01.2009 TO 31.03.2009 RS.6,73,160 12% 2 MONTHS 30 DAYS (89 DAYS) RS.19,697/ - TOTAL RS.53,732/ - 9 ITA NO. 791/PN/2014, A.Y. 2009-10 WE DO NOT CONCUR WITH THE WORKING OF INTEREST MADE BY T HE COMMISSIONER OF INCOME TAX. THE COMMISSIONER OF INCOME TA X HAS NOT STATED, AS FROM WHERE HE HAS GATHERED 12% INTEREST RATES. INTEREST RATE OF 18% CLAIMED BY THE ASSESSEE IS SUPPORTED BY CON FIRMATION LETTER FROM THE CREDITOR. FURTHER, ON THE CREDIT BALANCE SHOWN IN THE TABLE IF INTEREST @ 18% IS APPLIED, THE INTEREST AMOUNT PAYABLE WOU LD BE THE SAME AS CLAIMED BY THE ASSESSEE. THEREFORE, WE ACCEPT THE CONTENTIONS OF THE ASSESSEE IN SUPPORT OF GROUND NO. 3 RAISED IN THE APPEAL. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON TUESDAY, THE 01 ST DAY OF MARCH, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 01 ST MARCH, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT, AURANGABAD 4. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 5. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE