MAZDA DECORATORS, MUMBAI V. ASST CIT 19(2), MUMBAI

ITA 8018/MUM/2011

• Counselvise Citation: 801819914 RSA 2011
• Duration Of Justice: 3 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J K GARG
• Assessee Lawyers: RAJESH S SHAHAR
• Keywords: Salary income
• Section: 131

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.8018/MUM/2011 ASSESSMENT YEAR: 2008-09 MAZDA DECORATORS, 3 RD FLOOR, 301-GREEN PARK SOCIETY, S.V. ROAD, SANTACRUZ (W) MUMBAI-400054 / VS. ACIT 19(2) PIRAMAL CHAMBER, S. LALBAUG MUMBAI-400013 ( '#$ /ASSESSEE) ( / REVENUE) P.A. NO.AAMFM8393C ITA NO.63/MUM/2011 ASSESSMENT YEAR: 2008-09 ACIT 19(2) PIRAMAL CHAMBER, S. LALBAUG MUMBAI-400013 / VS. MAZDA DECORATORS, 3 RD FLOOR, 301-GREEN PARK SOCIETY, S.V. ROAD, SANTACRUZ (W) MUMBAI-400054 ( / REVENUE) ( '#$ /ASSESSEE) '#$ / ASSESSEE BY SHRI RAJESH S. SHAH(AR) / REVENUE BY SHRI J.K. GARG CIT-DR % & ' ( / DATE OF HEARING : 24/08/2015 ! ' ( / DATE OF ORDER: 09/09/2015 MAZDA DECORATORS . 2 ! / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THESE ARE CROSS APPEALS FILED BY THE REVENUE AND AS SESSEE AGAINST THE ORDER OF LD. CIT(A) DATED 25.10.2011 FO R THE ASSESSMENT YEAR 2008-09. FIRST WE TAKE UP ASSESSEES APPEAL. THE ASSESSEE HA S RAISED FOLLOWING GROUNDS: 1.THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING DISALLOWANCE OF RS.1,95,854/- ON ACCOUNT OF AD-HOC DISALLOWANCE @20% ON LABOUR, LODGING & SITE EXPENSE S. 2. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING DISALLOWANCE OF RS.4,28,014/- ON ACCOUNT OF INTEREST PAID ON ACCOUNT OF DELAYED SERVICE TAX AND M VAT PAID WHICH ARE OF COMPENSATORY NATURE AND NOT OF PE NAL NATURE. 3. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING DISALLOWANCE OF RS.4,29,514/- ON ACCOUNT OF MOTOR CAR EXPENSES THOUGH THE MOTOR CARS WERE USED FOR PU RPOSE OF BUSINESS. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY , SUBSTITUTE AND/OR CANCEL ANY OF THE GROUNDS OF APPE AL. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL AP PEARING ON BEHALF OF THE ASSESSEE MADE ARGUMENTS AND DREW O UR ATTENTION TO FEW PAGES OF THE PAPER BOOKS IN SUPPO RT OF HIS ARGUMENTS. ON THE OTHER HAND, LD. DR ALSO MADE THE SUBMISSIONS RELYING UPON THE ORDER OF LD. CIT(A) AN D AO. AFTER HEARING BOTH THE SIDES AND GOING THROUGH THE MATERI AL PLACED BEFORE US, THE APPEAL IS DECIDED GROUND WISE AS UND ER: MAZDA DECORATORS . 3 3. GROUND NO.1: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED ACTION OF LD. CIT(A) IN CONFIRMING THE D ISALLOWANCE OF RS.1,95,854/- MADE BY AO ON ACCOUNT OF AD-HOC DISALLOWANCE @ 20% ON THE GROUND THAT NON BUSINESS PURPOSE OF THE EXPENSES COULD NOT BE RULED OUT BY THE ASSES SEE. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED AS UN DER: THE APPELLANT HAS WORK OUTSIDE MUMBAI AND THE LABOU RERS ARE REQUIRED TO STAY OUTSIDE THE MUMBAI AT DIFFEREN T SITES. THE APPELLANT HAD GIVEN THE LIST OF THE CLIENTS FOR WHO M THE WORK WAS CARRIED OUT DURING THE YEAR. FROM THE LIST, ONE CAN SEE THAT THE WORKERS HAVE CARRIED OUT THE WORK AT FAR OF PLA CES. THE LABOURERS ARE PAID EXPENSES FOR STAYING AT SIT ES AND THESE ARE THE EXPENSES WHICH ARE DEBITED UNDER THE HEAD LODGING & SITE EXPENSES'. THE EXPENSES ARE IN THE NATURE OF F OOD EXPENSES SUCH AS VEGETABLE, GRAINS, GAS ETC., STAY EXPENSES IN THE ROOMS TAKEN ON RENT. THESE EXPENSES ARE INCURRE D FOR THE WORKERS WHO ARE STAYING AT SITE. THE APPELLANT HAD PRODUCED BOOKS OF ACCOUNTS ALONG WITH ALL THE VOUCHERS AND S HOWED TO THE ASSESSING OFFICER. THE EXPENSES ARE INCURRED FO R THE PURPOSE OF BUSINESS AND THE SAME IS INCURRED ON THE LABOURERS WHO ARE PART OF THE LABOUR FORCE. THE FEW VOUCHERS OF THE LODGING BOARDING AND SITE EXPENSES ARE ATTACHED HER EWITH FOR YOUR READY REFERENCE. THE A. O. CANNOT MAKE AN ADDITION ON AD-HOC BASIS W ITHOUT ANY BASIS AND PURELY ON SURMISE AND CONJECTURE. THE REFORE THE APPELLANT REQUEST YOUR HONOUR TO DELETE THE ADDITIO N. 4. THE LD. CIT(A) WAS NOT SATISFIED WITH THE SUBMIS SIONS OF THE ASSESSEE AND THE DISALLOWANCE WAS CONFIRMED O N THE GROUND THAT ENTIRE EXPENSES HAVE BEEN INCURRED IN C ASH AND NO DETAILS IN RESPECT OF THE HOTELS, RESTAURANTS, B ILLS, VOUCHERS, IDENTITY OF THE PERSON, SITE IN RESPECT OF WHICH TH E EXPENSES IS CLAIMED, ETC. HAVE BEEN FURNISHED TO SUBSTANTIATE T HESE EXPENSES. MAZDA DECORATORS . 4 5. BEFORE US, LD. COUNSEL ARGUED THAT COMPLETE DETA ILS HAVE BEEN FILED AND BOTH OF THE AUTHORITIES WERE WRONG I N MAKING DISALLOWANCE. AS AN ALTERNATIVE PRAYER, LD. COUNSEL REQUESTED FOR REDUCTION IN THE AMOUNT OF DISALLOWANCE, IN VI EW OF FACTS AND CIRCUMSTANCES OF THE CASE, IN CASE FULL RELIEF WAS NOT POSSIBLE. ON THE OTHER HAND, LD DR REQUESTED FOR CO NFIRMING THE DISALLOWANCE MADE BY AO. 6. WE HAVE GONE THROUGH THE SUBMISSIONS MADE ON BE HALF OF THE ASSESSEE WAS WELL AS RELEVANT PAGES OF THE P APER BOOK. IT IS OBSERVED BY US THAT ALTHOUGH VOUCHERS AND DETAIL S HAVE BEEN PROVIDED BY THE ASSESSEE BUT SOME OF THESE DET AILS AND EVIDENCES ARE NOT FOUND TO BE FULLY AUTHENTIC AND T HERE WAS NO SUPPORT OF THIRD PARTY EVIDENCES IN SOME OF THE CAS ES. THIS FACT HAS NOT BEEN DENIED BY LD. COUNSEL THAT EXPENSES WE RE INCURRED IN CASH. KEEPING IN VIEW, TOTALITY OF THE FACTS OF THE CASE, WE FEEL THAT ENDS OF JUSTICE WILL BE MET IF T HE DISALLOWANCE IS REDUCED TO 10%. WE THEREFORE, DIRECT THE AO TO R EDUCE THE DISALLOWANCE TO 10% OF RS.9,79,271/- .THE ASSESSEE GETS RELIEF PARTLY. THUS, GROUND NO.1 IS PARTLY ALLOWED. 7. GROUND NO.2: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN CONFIRMING T HE DISALLOWANCE OF RS.4,28,014/- ON ACCOUNT OF INTERES T PAID ON ACCOUNT OF DELAYED SERVICE TAX AND M-VAT PAID. THE BRIEF FACTS ARE THAT THE LD. AO HAS MADE THE DISALLOWANCE BY MA KING DISCUSSION IN PARA 6 OF THE ASSESSMENT ORDER, ON TH E GROUND THAT INTEREST PAID ON DELAYED PAYMENT OF SERVICES T AX AND M- MAZDA DECORATORS . 5 VAT IS PENAL IN NATURE AND THEREFORE, THE SAME WAS DISALLOWED. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED AS UN DER: DURING THE YEAR, THE APPELLANT DUE TO CONFUSION IN RESPECT OF APPLICABILITY OF SERVICE TAX AND VAT COULD NOT PAY THE TAXES IN TIME. ON ACCOUNT OF THIS, THE APPELLANT HAD PAID IN TEREST FOR THE DELAYED PAYMENT OF THE SERVICE TAX AND M-VAT. IT IS WELL SETTLED LAW THAT THE PENALTY PAID IF ANY, IS NOT AL LOWABLE UNDER THE INCOME TAX BUT THE INTEREST BEING OF COMPENSATO RY NATURE IS FULLY ALLOWABLE. THEREFORE, DISALLOWANCE OF RS.4 ,28,0141- IS TOTALLY INCORRECT. UNDER THE SERVICE TAX RULES, A SIMPLE INTEREST OF 1 3% P.A. IS PAYABLE FOR DELAY IN PAYMENT OF SERVICE TAX AND PEN ALTY IS PAYABLE ON DELAY IN FILING OF THE RETURN. THE APPEL LANT HAD DURING THE YEAR PAID A PENALTY OF RS.5700/- AND WHI CH HAS ALREADY BEEN DISALLOWED IN THE RETURN OF INCOME. SI MILARLY UNDER THE SALES TAX RULES, INTEREST IS PAYABLE @12% P.A. FOR DELAY IN PAYMENT OF SALES TAX. IT MAY BE STATED THA T THE WHOLE AMOUNT OF RS.4, 28, 014/- IS IN THE NATURE OF INTER EST FOR DELAYED PAYMENT OF SERVICE TAX AND/ OR M VAT. THE INTEREST ON ARREARS OR OUTSTANDING BALANCES OF SALES TAX IS COMPENSATORY NATURE AND WOULD BE ALLOWABLE AS A DED UCTION IN COMPUTING PROFIT OF A BUSINESS. - LACHMANDAS MOT HURADAS V CIT - 254 ITR 799 (SC). THE LD. CIT(A) DID NOT ACCEPT THE SUBMISSIONS OF TH E ASSESSEE AND CONFIRMED THE DISALLOWANCE ON THE GROUND THAT A FORESAID AMOUNT OF INTEREST IS NOT ALLOWABLE. NO REASONING H AS BEEN GIVEN BY LD. CIT(A) FOR NOT ALLOWING THE EXPENSES. 8. BEFORE US, DURING THE COURSE OF HEARING, LD. CO UNSEL HAS RELIED UPON THE FOLLOWING JUDGMENTS IN SUPPORT OF P ROPOSITION THAT AMOUNT OF INTEREST PAID ON DELAYED PAYMENT OF SERVICE TAX OR ANY OTHER GOVERNMENT FEE OF SIMILAR NATURE W OULD BE COMPENSATORY IN NATURE AND NOT PENAL IN NATURE AND THEREFORE, WOULD NOT BE HIT BY EXPLANATION TO SECTI ON 37(1): MAZDA DECORATORS . 6 (I) LACHMANDAS MATHURADAS VS. CIT 254 ITR 799 (SC) (II) CIT VS. MESSEE DUSSELDORF INDIA (P) LTD. (2010) 129 TTJ 81 (DEL.) (III) CHANDER K. RAICHANDANI VS. ACIT, ITA NO.799/MUM/2012 ON THE OTHER HAND, THE LD. DR HAS SUPPORTED THE ORD ERS OF AO AND CIT(A). 9. WE HAVE HEARD BOTH THE SIDES. IT IS NOTED BY US THAT THERE ARE PROVISIONS FOR LATE PAYMENT IN THE RESPECTIVE L EGISLATIONS PERTAINING TO SERVICE TAX AND M-VAT, ALLOWING THE T AXPAYERS FOR DELAYED PAYMENT OF THE DUES IF INTEREST IS PAID. TH US, THE INTEREST IS PAID BY THE TAXPAYERS WITHIN FRAMEWORK OF PROVISIONS OF LAW. THESE PAYMENTS CANNOT SAID TO BE ARISING OUT INFRINGEMENT OF LAW. THESE PAYMENTS CANNOT SAID TO BE INCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS O FFENCE OR WHICH IS PROHIBITED BY LAW. UNDER THESE CIRCUMSTANC ES THIS EXPENDITURE CAN BE SAID TO BE COMPENSATORY IN NATUR E. WE CAN ALSO TAKE SUPPORT FROM VARIOUS JUDGMENTS AVAILABLE ON THIS ISSUE. HONBLE SUPREME COURT IN THE CASE OF MAHALAK SHMI SUGAR MILLS CO. VS. CIT, 123 ITR 429(SC) HAS HELD T HAT INTEREST FOR DELAYED PAYMENT OF STATUTORY DUES IS AN ALLOWAB LE DEDUCTION U/S.37(1) OF THE ACT. SAME VIEW HAS ALSO BEEN TAKEN BY HONBLE SUPREME COURT IN THE CASE OF LACHMANDAS MATHURADAS VS CIT, 254 ITR 799(SC). WE ALSO FIND T HAT HONBLE ALLAHABAD HIGH COURT IN THE CASE OF COMMISS IONER OF INCOME-TAX VS ISHWARI KHETAN SUGAR MILLS (PVT.) LTD ., 272 ITR 224(ALL) HAS HELD THAT INTEREST ON DELAYED PAYMENT OF MAZDA DECORATORS . 7 PROVIDENT FUND IS AN ALLOWABLE DEDUCTION U/S37(1) O F THE ACT. HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONE R OF INCOME-TAX VS DELHI AUTOMOBILES,272 ITR 381 (DEL) H AS HELD THAT INTEREST PAYMENTS ON DELAYED SALES TAX IS AN A LLOWABLE DEDUCTION U/S.37(1) OF THE ACT. SIMILAR VIEW HAS BE EN TAKEN BY MUMBAI BENCH OF ITAT IN THE CASE OF CHANDER K. RAIC HANDANI (SUPRA) AND BY DELHI BENCH IN THE CASE OF M/S. REMF RY & SAGAR CONSULTANTS PVT. LTD. (ORDER DATED 20.07.12I N ITA NO.5887/DEL/2011). FURTHER, DELHI BENCH OF ITAT IN THE CASE OF CIT V. MESSEE DUSSELDORF INDIA (P) LTD. 129 TTJ 81(DEL) HAS HELD THAT INTEREST PAID FOR DELAYED PAYMENT OF SERV ICE TAX IS COMPENSATORY IN NATURE AND PARTAKES SAME CHARACTER AS THAT OF SERVICE TAX AND THEREFORE, IT IS ALLOWABLE AS A DEDUCTION. IN VIEW OF ABOVE AND RESPECTFULLY FOLLOWING THE JUDICI AL PRONOUNCEMENTS (SUPRA), WE ARE OF THE VIEW THAT INT EREST ON LATE PAYMENT OF SERVICE TAX AND M-VAT TO THE EXTENT OF RS.4,28,014/- IS AN ALLOWABLE DEDUCTION U/S.37(1). THUS, WE DELETE THE DISALLOWANCE MADE BY THE AO, ON THE GROU ND THAT THE IMPUGNED EXPENDITURE IS COMPENSATORY IN NATURE. THUS GROUND NO.2 OF APPEAL OF ASSESSEE IS ALLOWED. 10. GROUND NO. 3 OF THE ASSESSEE IS NOT PRESSED AND IS DISMISSED 11. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. WE SHALL NOW TAKE UP THE APPEAL OF THE REVENUE: 12. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APP EAL: MAZDA DECORATORS . 8 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.49,47,023/- MADE ON ACCOUNT OF LA BOUR CHARGES WITHOUT APPRECIATING THE FACT THAT THE ASSE SSEE HAS FAILED TO SUBSTANTIATE THE CLAIM OF LABOUR CHAR GES PAID IN CASH BY SUBMITTING THE SUPPORTING DOCUMENTARY EVIDENCES DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.2,48,866/- ON ACCOUNT OF INTEREST PAID ON SECURED LOANS IGNORING THAT THE ASSESSEE HAS PAI D INTEREST ON UNSECURED LOANS DESPITE THE FACT THAT T HE ASSESSEE WAS HAVING FUND AND GIVEN ADVANCES WITHOUT CHARGING INTEREST. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE REST ORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 13. IN GROUND NO.1 , THE REVENUE HAS CHALLENGED ACTION OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.49,47 ,023/- MADE ON ACCOUNT OF LABOUR CHARGES. BRIEF FACTS ARE THAT THE AO IN PARA 5 OF THE ASSESSMENT ORDER HAS OBSERVED THAT TH E ASSESSEE HAS CLAIMED LABOUR CHARGES OF RS.5,79,70,509/- AND FROM THE BREAKUP OF THE EXPENSES SUBMITTED BY THE ASSESSEE, THE AO OBSERVED THAT OUT OF THIS AMOUNT A SUM OF RS.4,94,7 0,229/- HAS BEEN SPENT BY THE ASSESSEE DIRECTLY AND CLAIMED AS LABOUR SALARY. IT WAS FURTHER OBSERVED BY THE AO THAT EXPE NSES WERE INCURRED IN CASH AND THERE WERE NO DOCUMENTARY EVID ENCES IN FORM OF JOB UNDERTAKEN ETC. IT WAS FURTHER OBSERVED BY AO THAT PERSONS TO WHOM THE PAYMENTS ARE MADE WERE NOT IDEN TIFIABLE. IN VIEW OF THESE REASONS, THE AO MADE AD HOC DISALL OWANCE OF MAZDA DECORATORS . 9 10% OF THE EXPENSES CLAIMED IN RESPECT OF LABOUR SA LARY. THIS AD HOC DISALLOWANCE WAS DELETED BY THE CIT(A). 14. WE HAVE CONSIDERED THE ORDERS OF AO AS WELL AS LD. CIT(A) AND THE SUBMISSIONS MADE BY BOTH THE SIDES. BEFORE US, LD. DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED TH AT EXPENSES WERE INCURRED IN CASH AND THEREFORE IT WAS RIGHTLY DISALLOWED BY THE AO. ON THE OTHER HAND, LD. COUNSE L HEAVILY RELIED UPON THE ORDER OF LD.CIT(A) AND SUBMITTED TH AT ONCE COMPLETE EVIDENCES WERE FURNISHED TO THE AO IN THE FORM OF SALARY REGISTER, RETURN OF PF AND ESI AND HAVING E XAMINED THE SAME, THE AO WAS SATISFIED AND NOTHING WRONG WA S SPECIFICALLY FOUND BY THE AO. THERE WAS NO JUSTIFIC ATION TO MAKE ADHOC DISALLOWANCE AND THAT HAS BEEN RIGHTLY D ELETED BY THE LD. CIT(A). 15. IT IS NOTED BY US THAT BEFORE THE LD. CIT(A), ASSESSEE HAD MADE DETAILED SUBMISSIONS AND THESE ARE REPRODUCED BELOW FOR READY REFERENCE: THE ASSESSING OFFICER HAS DISALLOWED THE PART OF T HE (10%) LABOUR CHARGES ON THE BASIS THAT THE EXPENSES WERE INCURRED IN CASH FOR WHICH NO SUPPORTING DOCUMENTARY EVIDENC ES WERE AVAILABLE. NO PAN OR ANY OTHER PROOF IN RESPECT OF THE PAYMENTS TO WHOM THE PAYMENT IS MADE COULD BE PRODUCED IN SP ITE OF OPPORTUNITY GIVEN. THE APPELLANT HAS BIG WORK FORCE TO CARRY OUT THE W ORK AT DIFFERENT PLACES. IT IS NATURAL THAT THE PAYMENTS T O THE WORKERS HAVE TO BE MADE ONLY IN CASH. IN FACT NO QUESTIONS WERE ASKED DURING THE ASSESSME NT PROCEEDINGS IN RESPECT OF LABOUR EXPENSES EXCEPT TH E REGISTERS OF THE PAYMENT WERE REQUIRED TO BE PRODUCED. APPELL ANT HAD PRODUCED LABOUR REGISTERS WITH FULL DETAILS FOR THE WHOLE YEAR DURING THE ASSESSMENT PROCEEDING. IN FACT ONE OF TH E REGISTER MAZDA DECORATORS . 10 FOR THE MONTH OF JANUARY, 2008 WAS IMPOUNDED ON 26. 11.2010 AND A COPY OF THE ORDER U/S.131 (3) OF THE INCOME T AX ACT DATED 26.11. 2010 IS ATTACHED HEREWITH FOR YOUR REA DY REFERENCE. THE SAID REGISTER WAS SUBSEQUENTLY RELEA SED AFTER DUE VERIFICATION. THE APPELLANT HAD DEDUCTED AND PAID THE EMPLOYEES S TATE INSURANCE CONTRIBUTIONS AND PROVIDENT FUND WHEREVER APPLICABLE ON THE LABOUR CHARGES (SALARIES). THE CO PIES OF THE ESIC AND PF CHALLANS WERE FILED. THE APPELLANT HAD ALSO FILED THE ADDRESSES OF THE SOME OF THE EMPLOYEES IN WHOSE CASE THE PF WERE DEDUCTED. DURING THE YEAR THE APPELLANT HAS PAID ESIC OF RS.2,22,312/-. THE WAGES OF THE LABOURERS WERE BELOW THE MINIMUM (THRESHOLD) AMOUNT TAXABLE UNDER THE INCOME TAX ACT . THE ASSESSING OFFICER HAD VERIFIED THIS FACT. HE BEING A PERSON HAVING THROUGH KNOWLEDGE OF INCOME TAX ACT, SATISFI ED HIMSELF THAT NO LABOURER WAS HAVING INCOME ABOVE THE MINIMU M TAXABLE LIMIT AND HENCE THERE WAS NO QUESTION OF HA VING ANY PAN. HE THEREFORE, RELEASED THE REGISTER IMPOUNDED U/S. 131 (3) OF THE ACT AFTER DUE VERIFICATION. A COPY OF TH E SAID REGISTER IS BEING PRODUCED FOR YOUR VERIFICATION. SINCE THE LABOURERS WERE HAVING SALARY INCOME BELOW THE TAXABLE LIMIT, THERE WAS NO QUESTION OF HAVING PAN NUMBERS OF THE LABOURERS. THE ASSESSING OFFICER HAS ALSO VERIFIED THE BOOKS O F ACCOUNTS WHICH WERE PRODUCED DURING THE ASSESSMENT PROCEEDIN GS. IN FACT MOST OF THE BOOKS OF ACCOUNTS ARE STILL/LYING WITH THE INCOME TAX DEPARTMENT IN THE RECORDS OF THE ASSESSM ENT. THE ASSESSING OFFICER HAS NOT CONFORTED THE APPELLA NT IN RESPECT OF LABOUR CHARGES EXCEPT ASKING THE APPELLA NT TO PRODUCE THE LABOUR REGISTERS. THEREFORE, WITHOUT ANY BASIS AND PURELY ON SURMISE AND CONJECTURE THE DISALLOWANCE HAS BEEN MADE. IT HAS B EEN WELL SETTLED LAW THAT NO DISALLOWANCE COULD BE MADE ON A D-HOC BASIS. THE APPELLANT THEREFORE, REQUEST YOUR HONOUR TO DELETE THE ADDITIONS MADE IN RESPECT OF LABOUR CHARGES. 16. IT IS FURTHER SEEN BY US THAT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LD. CIT(A) DELETED DI SALLOWANCE ON THE GROUND THAT DURING THE ASSESSMENT PROCEEDING S, THE MAZDA DECORATORS . 11 ASSESSEE HAD PRODUCED LABOUR REGISTERS ALONG WITH F ULL DETAILS FOR THE WHOLE YEAR. IT WAS FURTHER NOTED BY LD. CIT (A) THAT ONE OF THESE REGISTERS WAS IMPOUNDED BY THE AO AND IT W AS RELEASED AFTER DUE VERIFICATION. LD. CIT(A), HIMSE LF EXAMINED THIS REGISTER IN THE APPELLATE PROCEEDINGS AND FOUN D THAT PROVIDENT FUND, ESI, PROFESSIONAL TAX ETC. WERE DED UCTED FROM THE SALARIES OF THE WORKERS AND THIS REGISTER GAVE COMPLETE INFORMATION. IT WAS FURTHER FOUND BY LD. CIT(A) TH AT THE SALARY PAID TO EACH WORKER WAS NOT MORE THAN RS.10,000/- A ND THATS WHY MOST OF THE SALARIED WORKERS WERE HAVING INCOME BELOW TAXABLE LIMIT. IT WAS FURTHER FOUND BY LD. CI T(A) THAT SALARY REGISTER CONTAINED SIGNATURES OF ALL THE LAB OURERS AND IT WAS VERY MUCH BEFORE THE AO WHEN HE HAD IMPOUNDED O NE OF THE REGISTERS. IT WAS FINALLY CONCLUDED BY THE LD. CIT(A) THAT NOTHING ADVERSE COULD BE POINTED OUT BY THE AO AND ACCORDINGLY DISALLOWANCE WAS DELETED. WE HAVE FURTH ER NOTICED THAT LD. CIT(A) HAS PASSED VERY REASONED ORDER AFTE R PERSONALLY EXAMINING ALL THE FACTS WHICH WERE FURNI SHED BEFORE THE AO BY ASSESSEE. THE REASONS AND FINDINGS GIVEN BY THE LD. CIT(A) ARE BASED UPON THE EVIDENCES AND DECISION TA KEN BY THE LD. CIT(A) IS IN ACCORDANCE WITH FACTS AND CIRCUMST ANCES OF THE CASE. WE DO NOT FIND ANY REASON OR JUSTIFICATIO N TO INTERFERE IN THE FINDINGS OF THE LD. CIT(A) AND ACCORDINGLY T HESE ARE CONFIRMED. CONSEQUENTLY GROUND NO.1 OF REVENUES AP PEAL IS DISMISSED. 17. IN GROUND NO.2, THE REVENUE HAS CHALLENGED ACTION OF LD. CIT(A) IN DELETING DISALLOWANCE OF RS.2,48,866 /- MADE BY AO ON ACCOUNT OF INTEREST PAID ON SECURED LOANS. MAZDA DECORATORS . 12 18. THE BRIEF FACTS ARE THAT THE AO MADE DISALLOWAN CE OUT OF THE INTEREST EXPENSES ON THE GROUND THAT ASSESSEE H AS ADVANCED INTEREST FREE LOANS AMOUNTING TO RS.3.50 L AKHS. THE AO OBSERVED THAT THE ASSESSEE HAS GIVEN INTEREST FR EE LOANS AND THEREFORE, INTEREST ON UNSECURED LOANS AMOUNTIN G TO RS.2,48,866/- WAS DISALLOWED. THE ASSESSEE CARRIED THE MATTER IN APPEAL TO THE CIT(A) AND MADE DETAILED SUBMISSIO NS IN APPEAL BEFORE CIT(A). AFTER CONSIDERING THE SUBMISS IONS AND EVIDENCES OF THE ASSESSEE, LD CIT(A) DELETED THE DI SALLOWANCE MADE BY THE AO. BEING AGGRIEVED, THE REVENUE IS BEF ORE US. 19. BEFORE US, THE LD. DR HAS RELIED UPON THE ORDE R OF THE AO. ON THE OTHER HAND LD COUNSEL OF THE ASSESSEE HA S HEAVILY RELIED UPON THE ORDER OF THE LD. CIT(A). 20. WE HAVE HEARD BOTH THE PARTIES AND HAVE EXAMIN ED THE EVIDENCES SHOWN TO US IN THIS REGARD. LD CIT(A) HAS DELETED THE DISALLOWANCE BY CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. LD COUNSEL OF ASSESSEE HAS REITERATED THE SE SUBMISSIONS BEFORE US. BEFORE THE LD. CIT(A), THE A SSESSEE HAD SUBMITTED AS UNDER: THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND TO THE FACTS OF THE CASE. THE APPELLANT HAD THE FOLLOWING THREE LOA NS IN THE BOOKS OF ACCOUNTS. (A) LAND MARK CONSTRUCTION CO. OPENING BALANCE RS.3,50,000/- (BELONGED TO MR. MUBASHIRUL SHAIKH ON E OF THE PARTNER) MAZDA DECORATORS . 13 (B) MAZDA TRADING LOAN GIVEN ON 23.11.07 RS.20,OO,O OO/- (BELONGED TO FAIYAZ SHAIKH ONE OF THE PARTNER) (C) SHUBHAM DEVELOPERS LOAN GIVEN ON 15.01.08 RS.7,OO,OOO/- (BELONGED TO MR. SAKIB SHAIKH ONE OF THE PARTNER) THE PARTNERS ARE HAVING CREDIT BALANCES AS ON 31.03 .08 OF RS.1,19,27,831/-. IN FACT, THESE AMOUNTS WERE TO BE DEBITED TO THE PARTNERS CAPITAL ACCOUNTS, HOWEVER BY MISTAK E THEY WERE TAKER; TO THE LOANS AND ADVANCES ACCOUNT. CONS IDERING THE FUNDS OF THE PARTNERS LYING WITH THE FIRM, THER E WAS NO QUESTION OF FUNDS BEING USED FOR GIVING INTEREST FR EE LOANS. THE FACT IS THAT THE FUNDS WERE TRANSFERRED TO THE PARTNERS ACCOUNTS. IT MAY BE SLATED THAT THE NO INTEREST HAS BEEN PAID TO THE PARTNERS ON THEIR CAPITAL ACCOUNT. THE PARTN ERS CAPITAL ACCOUNTS ARE INTEREST FREE ACCOUNT TO THE FIRM. WITHOUT PREJUDICE TO ABOVE, THERE IS NO NEXUS OF DI VERTING THE INTEREST BEARING FUNDS. IN VIEW OF THE ABOVE, NO IN TEREST CAN BE DISALLOWED. WITHOUT PREJUDICE TO ABOVE, IT MAY BE STATED THAT T HE LOANS WERE GIVEN ON.LY FOR A PART OF THE PERIOD THEREFORE , INTEREST CANNOT BE DISALLOWED ON THE LOANS TAKEN. 21. AFTER CONSIDERING SUBMISSIONS OF THE ASSESEE, LD. CIT(A) OBSERVED THAT THE ASSESSEE FIRM WAS HAVING INTEREST FREE FUNDS OF RS.1,19,27,831/- IN THE FORM OF CREDIT BALANCE O F THE PARTNERS AS ON 31.03.2008. THE LOANS ON WHICH NO IN TEREST HAD BEEN CHARGED IS RS.30,50,000/- ONLY AND THEREFO RE, DISALLOWANCE MADE BY THE AO WAS DELETED. IT IS NOTE D BY US THAT FACTUAL FINDINGS HAVE BEEN GIVEN BY THE LD. CI T(A) THAT AMPLE AMOUNT OF FUNDS OF THE PARTNERS WERE LYING WI TH THE ASSESEE FIRM, ON WHICH NO INTEREST HAS BEEN PAID BY THE ASSESSEE FIRM TO ITS PARTNERS. THESE FACTUAL FINDIN GS HAVE NOT BEEN REBUTTED BY THE LD. DR. THE FINDINGS OF THE LD . CIT(A) ARE JUSTIFIED AND IN ACCORDANCE WITH LAW AND FACTS. TH E DISALLOWANCE MADE BY AO HAS BEEN RIGHTLY DELETED BY THE LD. MAZDA DECORATORS . 14 CIT(A) AND THEREFORE, THE ORDER OF THE LD. CIT(A) O N THIS ISSUE IS CONFIRMED. CONSEQUENTLY, GROUND NO.2 OF THE REVE NUES APPEAL IS DISMISSED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. SD/- (JOGINDER SINGH ) SD/- (ASHWANI TANEJA) ' # / JUDICIAL MEMBER $ # / ACCOUNTANT MEMBER % & MUMBAI; ) DATED : 09/09/2015 CTX? P.S/. . . ! %'&'( )(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT 2. ./ ,- / THE RESPONDENT. 3. 0 0 % 1 ( + ) / THE CIT, MUMBAI. 4. 0 0 % 1 / CIT(A)- , MUMBAI 5. 34 .' , 0 +( ' 5 , % & / DR, ITAT, MUMBAI 6. 6# 7& / GUARD FILE. ! / BY ORDER, /3+ . //TRUE COPY// +/, - (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI