Shri Ravindra Khemka, Kanpur V. Principal Commissioner of Income Tax (Central Circle- II), Kanpur

ITSSA 619/LKW/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5444 (ITAT-LUCKNOW)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 22-08-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 05-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Condonation of delay; TDS; Set aside
• Section: 142(1); 40(a)(ia); 263

Judgement Text

I.T.(SS)A. NO.390/LKW/2017 I.T.(SS)A. NO.619/LKW/2018 ASSESSMENT YEAR:2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER I.T.(SS)A.NO.390/LKW/2017 ASSESSMENT YEAR:2012-13 SHRI RAVINDRA KHEMKA, E-13, PANKI INDUSTRIAL ESTATE, SITE-1, KANPUR. PAN:ACGPK 0745 C VS. PR. COMMISSIONER OF INCOME TAX (CENTRAL), KANPUR. (APPELLANT) (RESPONDENT) I.T.(SS)A.NO.619/LKW/2018 ASSESSMENT YEAR:2012-13 SHRI RAVINDRA KHEMKA, E-13, PANKI INDUSTRIAL ESTATE, SITE-1, KANPUR. PAN:ACGPK 0745 C VS. DY.C.I.T., CENTRAL CIRCLE-II, KANPUR. (APPELLANT) (RESPONDENT) O R D E R PER T. S. KAPOOR, A.M. THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF LEARNED CIT DATED 22/03/2017 PASSED U/S 263 OF T HE ACT AND THE ORDER OF LEARNED CIT(A) DATED 26/06/2018. 2. THE APPEAL IN I.T.A. NO.619 IS AGAINST THE ORDER OF LEARNED CIT(A) WHO HAS CONFIRMED THE ADDITION MADE BY THE ASSESSIN G OFFICER IN APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY S HRI A. K. BAR, CIT (D.R.) DATE OF HEARING 25 / 07 /201 9 DATE OF PRONOUNCEMENT 22/08/2019 I.T.(SS)A. NO.390/LKW/2017 I.T.(SS)A. NO.619/LKW/2018 ASSESSMENT YEAR:2012-13 2 CONSEQUENTIAL ORDER PASSED IN VIEW OF THE ORDER PAS SED BY LEARNED CIT U/S 263 OF THE ACT. 3. AT THE OUTSET, LEARNED A. R. INVITED OUR ATTENTI ON TO APPEAL IN I.T.A. NO.390/LKW/2017 AND SUBMITTED THAT THERE IS A DELAY OF 19 DAYS IN FILING THE APPEAL AND IT WAS SUBMITTED THAT THE ASSESSEE HAS F ILED APPLICATION FOR CONDONATION OF DELAY AND THE REASON FOR DELAY IN FI LING THE APPEAL BEFORE HON'BLE TRIBUNAL HAS BEEN EXPLAINED IN THE CONDONAT ION APPLICATION. IT WAS SUBMITTED THAT IN THE INTEREST OF SUBSTANTIAL JUSTI CE THE DELAY MAY BE CONDONED. 4. LEARNED D. R. HAD NO OBJECTION TO THE CONDONATIO N OF DELAY. KEEPING IN VIEW THE SUBSTANTIAL JUSTICE AND BEING CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE IN THE CONDONATION APPLICATIO N, THE DELAY WAS CONDONED. 5. LEARNED A. R., AT THE OUTSET, SUBMITTED THAT THE ONLY OBJECTION OF PR. CIT IS THAT THE ASSESSEE HAD PAID INTEREST ON THE L OAN BORROWED BUT HAD NOT DEDUCTED TDS HENCE AS PER THE PROVISIONS OF SECTION 40(A)(IA), THE DEDUCTION CLAIMED ON ACCOUNT OF INTEREST WAS NOT AL LOWABLE AND SINCE THE ASSESSING OFFICER HAD ALLOWED THE SAME, AND THEREFO RE, THE ORDER PASSED BY ASSESSING OFFICER WAS BOTH ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE. IN THIS REGARD, IT WAS SUBMITTED THAT COM PLETE DETAILS OF THE INTEREST, CLAIMED AS DEDUCTION IN THE COMPUTATION O F INCOME, WAS FILED BEFORE THE ASSESSING OFFICER AS WELL AS LEARNED CIT AND IT IS ONLY ON THE BASIS OF DETAILS FILED BY THE ASSESSEE THAT LEARNED PR. CIT CAME TO KNOW THAT THE INTEREST HAD BEEN PAID WITHOUT DEDUCTION OF TDS . IT WAS SUBMITTED THAT THE ASSESSING OFFICER DID RAISE THE QUERY REGARDING LOANS & ADVANCES VIDE POINT NO. 6 & 7. IT WAS SUBMITTED THAT THE ASSESSI NG OFFICER HAD INQUIRED ABOUT THE INTEREST PAID ON BORROWED LOAN ACCOUNTS A ND OUR ATTENTION WAS I.T.(SS)A. NO.390/LKW/2017 I.T.(SS)A. NO.619/LKW/2018 ASSESSMENT YEAR:2012-13 3 INVITED TO PAGES 61 & 62 OF THE PAPER BOOK. THE D ETAILS HAVING BEEN FILED, THE ASSESSING OFFICER, AFTER EXAMINING THE SAME, WA S SATISFIED ABOUT ITS GENUINENESS AND CORRECTNESS AS THE FIGURES OF INTER EST WERE APPEARING IN THE LOAN ACCOUNT. LEARNED A. R. FURTHER INVITED OUR AT TENTION TO THE QUERY RAISED BY THE ASSESSING OFFICER VIDE NOTICE U/S 142(1) DAT ED 02/03/2015. OUR SPECIFIC ATTENTION WAS INVITED TO PARA 12 OF SUCH L ETTER WHERE THE ASSESSING OFFICER HAD ASKED FOR COPY OF PAN, ITR AND COPIES O F ACCOUNTS OF UNSECURED LOAN CREDITORS. OUR FURTHER ATTENTION WAS INVITED TO REPLY TO THIS NOTICE PLACED AT PAGES 35 & 36 OF THE PAPER BOOK AND OUR S PECIFIC ATTENTION WAS INVITED TO PARA 12 OF SUCH LETTER WHERE THE ASSESSE E HAD ENCLOSED AS PER ANNEXURE-6, THE COPY OF CONFIRMED ACCOUNTS OF UNSEC URED LOANS AND WE WERE FURTHER TAKEN TO PAGES 43 TO 60 OF THE PAPER B OOK WHERE THE COPIES OF LEDGER ACCOUNTS OF UNSECURED LOAN CREDITORS WERE PL ACED AND WHERE THE FACT OF INTEREST HAVING BEEN BEING CREDITED WITHOUT DEDU CTION OF TDS WAS PLACED. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, IT WAS AR GUED THAT THE ASSESSING OFFICER HAD APPLIED HIS MIND AND HAD EXAMINED THAT ASSESSEE HAD PAID INTEREST WITHOUT DEDUCTION OF TDS AS THAT THAT POIN T OF TIME THE LIABILITY TO DEDUCT TDS WAS ONLY IN RESPECT OF INTEREST PAYABLE, AS WAS HELD BY HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES. IT WAS SUBMITTED THAT IN THE PRESENT CASE THE INTEREST WAS ALREADY PAID DURING THE YEAR AS IT WAS CREDITED TO THE ACCOUNT OF UNSECURED LOAN CREDITORS DURING THE YEAR ITSELF AND THEREFORE, ASSESSING OFFICER HAD RI GHTLY NOT MADE THE DISALLOWANCE. 6. LEARNED D. R., ON THE OTHER HAND, RELIED ON THE ORDER OF LEARNED CIT. 7. IN RESPECT OF APPEAL IN I.T.A. NO.619/LKW/2018, LEARNED A. R. SUBMITTED THAT THIS APPEAL IS IN CONSEQUENCE OF ASS ESSMENT ORDER, WHICH HAS BEEN PASSED BY THE ASSESSING OFFICER IN VIEW OF PRO CEEDINGS U/S 263 OF THE ACT. LEARNED A. R. FURTHER SUBMITTED THAT IN THIS C ASE IN SET ASIDE I.T.(SS)A. NO.390/LKW/2017 I.T.(SS)A. NO.619/LKW/2018 ASSESSMENT YEAR:2012-13 4 PROCEEDINGS, THE ASSESSING OFFICER HAD MADE ADDITIO N WITHOUT ANY INCRIMINATING MATERIAL AND THEREFORE, THE ADDITION WAS NOT SUSTAINABLE AS HAS BEEN HELD BY HON'BLE DELHI HIGH COURT IN THE CASE O F CIT VS. KABUL CHAWLA [2016] 380 ITR 573 (DEL). 8. LEARNED D. R., ON THE OTHER HAND, HEAVILY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. FIRST WE TAKE UP THE APPEAL IN I .T.A. NO.390/LKW/2017, WHICH IS AGAINST THE ORDER OF LEARNED CIT PASSED U/ S 263 OF THE ACT. LEARNED CIT HAS PASSED THIS ORDER AS IN HIS VIEW TH E ASSESSEE WAS REQUIRED TO DEDUCT TAX ON INTEREST PAID BY HIM. IN THE PRES ENT CASE, WE FIND THAT THE ASSESSING OFFICER, VIDE NOTICE U/S 142(1) DATED 22/ 12/2014, PLACED AT PAGES 61 TO 65 OF THE PAPER BOOK, REQUIRED THE ASSESSEE V IDE PARA 5 THAT IF ANY EXPENDITURE ON ACCOUNT OF INTEREST ON BORROWED LOAN HAS BEEN CLAIMED THEN IT MAY BE SHOWN AS TO WHY SUCH INTEREST MAY NOT BE DISALLOWED. VIDE PARA 7, AGAIN THE ASSESSEE WAS REQUIRED TO FILE DATEWISE AND CONFIRMED COPY OF INTEREST ACCOUNT INCLUDING THE COMPLETE ADDRESS AND PAN TO WHOM THE INTEREST WAS PAID. THE ASSESSEE, VIDE LETTER DATED 13/01/2015, VIDE PARA 10, HAD SUBMITTED THE LEDGER ACCOUNTS OF UNSECURED LOANS AS PER ANNEXURE- 6, A COPY OF WHICH IS PLACED AT PAGES 43 TO 68 OF T HE PAPER BOOK. THE EXAMINATION OF THESE LEDGER ACCOUNT SHOWS THAT AS O N 31/03/2012 THE ASSESSEE HAD CREDITED INTEREST TO THE UNSECURED LOA N ACCOUNTS OF THESE PARTIES. THESE LEDGER ACCOUNTS WERE BEFORE THE ASS ESSING OFFICER AND HE CONSCIOUSLY DID NOT MAKE DISALLOWANCE U/S 40(A)(IA) OF THE ACT AS AT THAT POINT OF TIME HON'BLE ALLAHABAD HIGH COURT IN THE C ASE OF VECTOR SHIPPING SERVICES HAD HELD THAT TAX NEEDS TO BE DEDUCTED ONL Y IN THE CASE WHERE THE INTEREST REMAINS PAYABLE AS ON THE CLOSE OF THE YEA R. IN THAT JUDGMENT HON'BLE COURT HAS HELD THAT TAX IS NOT REQUIRED TO BE DEDUCTED IN A CASE I.T.(SS)A. NO.390/LKW/2017 I.T.(SS)A. NO.619/LKW/2018 ASSESSMENT YEAR:2012-13 5 WHERE THE ASSESSEE HAD PAID THE INTEREST DURING THE YEAR. THIS POSITION HAS BEEN CLARIFIED BY CBDT CIRCULAR NO. 10/DV/2013 WHER EIN VIDE THIS CIRCULAR DATED 16/12/2013, THE DEPARTMENT HAS DIRECTED THE A SSESSING OFFICERS TO MAKE THE ADDITION U/S 40(A)(IA) OF THE ACT ON BOTH THE AMOUNTS, PAID AND PAYABLE. HOWEVER, IN THE SAME CIRCULAR, IT HAS BEE N CLARIFIED THAT IN A CASE WHERE THE JURISDICTIONAL HIGH COURT HAD DECIDED THE ISSUE OTHERWISE THEN THE JUDGMENT OF JURISDICTIONAL HIGH COURT SHOULD BE FOL LOWED. THE RELEVANT PARA OF BOARD CIRCULAR IS REPRODUCED BELOW: 4. AFTER CAREFUL EXAMINATION OF THE ISSUE, THE BO ARD IS OF THE CONSIDERED VIEW THAT THE PROVISION OF SECTION 40(A) (IA) OF THE ACT WOULD COVER NOT ONLY THE AMOUNTS WHICH ARE PAYA BLE AS ON 31ST MARCH OF A PREVIOUS YEAR BUT ALSO AMOUNTS WHIC H ARE PAYABLE AT ANY TIME DURING THE YEAR. THE STATUTORY PROVISIONS ARE AMPLY CLEAR AND IN THE CONTEXT OF SECTION 40(A) (IA) OF THE ACT THE TERM 'PAYABLE' WOULD INCLUDE 'AMOUNTS WHICH ARE PAID DURING THE PREVIOUS YEAR'. 5. WHERE ANY HIGH COURT DECIDES AN ISSUE CONTRARY TO THE 'DEPARTMENTAL VIEW', THE 'DEPARTMENTAL VIEW 1 THEREON SHALL NOT BE OPERATIVE IN THE AREA FALLING IN THE JURISDICTIO N OF THE RELEVANT HIGH COURT. HOWEVER, THE CCIT CONCERNED SHOULD IMME DIATELY BRING THE JUDGMENT TO THE NOTICE OF THE CTC. THE CT C SHALL EXAMINE THE SAID JUDGMENT ON PRIORITY TO DECIDE AS TO WHETHER FILING OF SLP TO THE SUPREME COURT WILL BE ADEQUATE RESPONSE FOR THE TIME BEING OR SOME LEGISLATIVE AMENDMENT IS CALLED FOR. 6. THE ABOVE CLARIFICATION MAY BE BROUGHT TO THE N OTICE OF ALL OFFICERS. 8.1 IN THE PRESENT CASE, THE ASSESSEE IS COVERED BY JURISDICTION OF HON'BLE ALLAHABAD HIGH COURT AND IN THE CASE OF VECTOR SHIP PING SERVICES HON'BLE ALLAHABAD HIGH COURT HAD HELD THAT TAX IS REQUIRED TO BE DEDUCTED ONLY ON THE AMOUNTS PAYABLE AND ASSESSEE IS NOT REQUIRED TO DEDUCT TAX ON THE AMOUNTS PAID DURING THE YEAR. IN THE PRESENT CASE, THE ASSESSEE HAD I.T.(SS)A. NO.390/LKW/2017 I.T.(SS)A. NO.619/LKW/2018 ASSESSMENT YEAR:2012-13 6 CREDITED THE INTEREST AMOUNT TO THE CREDIT OF THE P ARTIES AND TO EXAMINE AS TO WHETHER SUCH CREDIT TO THE ACCOUNT OF A PARTY AM OUNTS TO PAYMENT OR NOT, THE DEFINITION OF WORD PAID AS PER SECTION 43(2) HAS TO BE ANALYZED. FOR THE SAKE OF COMPLETENESS, LET US EXAMINE THE WORD PAID WHICH HAS BEEN ANALYZED BY CHATURVEDI & PITHISARIA IN THEIR BOOK ON INCOME TAX LAW WHICH READS AS UNDER: SCOPE OF DEFINITION.- THE DEFINITION OF WORD PAID HAS SPECIFICALLY BEEN MADE DEPENDENT UPON THE METHOD OF ACCOUNTING UPON THE BASIS OF WHICH THE PROFITS AND GAINS OF THE ASSESSEES BUSINESS ARE TO BE COMPUTED. IN CASE THE ASSESSMENT IS ON THE BASIS OF CASH SYSTEM OF ACCOUN TING, PAID MEANS ACTUALLY PAID, I.E., THERE MUST BE A PHYSICAL TRANSFER OF THE AMOUNT OR ITS EQUIVALENT FROM THE P AYER TO THE PAYEE. ON THE OTHER THAN, IF THE ASSESSMENT IS MADE ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING, THE WORD PAID MEANS NO MORE THAN THE INCURRENT OF THE LIABILITY B Y THE ASSESSEE FOR PAYMENT. IN THE LATTER CASE, ACTUALLY PAID OR PAID IS NOT TO BE UNDERSTOOD IN A PHYSICAL SENSE, BUT IN THE SENSE THE LIABILITY FOR THE EXPENSE HAS BEEN ACTUAL LY INCURRED [PEREIRA & ROCHE V. CIT, (1966) 61 ITR 371, 373 (MA D)]. EVEN UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, A LIABIL ITY INCURRED CANNOT BE ENTERED IN THE ACCOUNTS AS AN EXPENDITURE UNLESS THE LIABILITY HAS BECOME AN ASCERTAINED SUM OF MONEY. U NTIL ASCERTAINED, THE LIABILITY NO DOUBT EXISTS, BUT PRO CEEDINGS HAVE YET TO BE TAKEN SOME WAY OR OTHER TO DETERMINE THE EXACT AMOUNT. A VAGUE LIABILITY TO MAKE A PAYMENT CANNOT BE ENTERED INTO ACCOUNTS AND, IN THAT STATE, IT CANNOT BE SAID TO HAVE BEEN INCURRED, SO AS TO COUNT AS PAID WITHIN THE MEA NING OF SECTION 43(2) [KANPUR TANNERY LTD. V CIT, (1958) 34 ITR 863 (ALL)]. ALSO SEE, ADDL. CIT V. KALE KHAN MOHAMMAD H ANIF, (1978) 114 ITR 812 (MP). IN VIEW OF THE DEFINITION OF THE EXPRESSION PAID IN SECTION 43(2), THAT EXPRESSION PAID IN SECTION 36(1)(III) SHOULD BE CONSTRUED TO MEAN PAID IN ACCORDANCE WITH THE METHO D OF ACCOUNTING FOLLOWED BY THE ASSESSEE [TAPARIA TOOLS LTD. V. JOINT CIT: CIT V. TOPARIA TOOLS LTD. (2003) 260 ITR 102, 117 (BOM.)]. IN THAT CASE, THE ASSESSEE WAS FOLLOWED ME RCANTILE I.T.(SS)A. NO.390/LKW/2017 I.T.(SS)A. NO.619/LKW/2018 ASSESSMENT YEAR:2012-13 7 SYSTEM OF ACCOUNTING, THEREFORE, THE EXPRESSION PA ID HAS BEEN HELD TO BE CONSTRUED ACCORDINGLY. 8.2 THE ABOVE DEFINITION OF AMOUNT PAID, CLEARLY DE MONSTRATES THAT IN CASE THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTE M OF ACCOUNTING, WHICH SYSTEM RECORDS REVENUES AND EXPENSES WHEN THEY ARE INCURRED, REGARDLESS OF WHEN CASH IS EXCHANGED, THEREFORE, THE AMOUNT CR EDITED TO THE PAYEE ACCOUNT WILL ALSO AMOUNT TO PAYMENT. SINCE THE ASSE SSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THE ENTRIES OF INT EREST CREDITED BY HIM TO THE PAYEES ACCOUNTS WERE ENTRIES OF ACCRUAL IN TH E ABSENCE OF CASH TRANSACTIONS, WHICH AMOUNTED TO PAYMENT AND, THEREF ORE, THE ASSESSING OFFICER HAD RIGHTLY NOT MADE THE DISALLOWANCE AS PE R THE JUDGMENT OF THE JURISDICTIONAL HON'BLE ALLAHABAD HIGH COURT AND AS PER THE BOARD CIRCULAR, WHICH WAS BINDING ON HIM. IN VIEW OF THE ABOVE, TH E ORDER PASSED BY THE ASSESSING OFFICER IS NEITHER ERRONEOUS NOR PREJUDIC IAL TO THE INTEREST OF THE REVENUE, AS THE ASSESSING OFFICER HAD RIGHTLY NOT M ADE THE DISALLOWANCE. IN VIEW OF THE ABOVE, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THE ORDER PASSED BY LEARNED CIT U/S 263 IS QUASHED. 9. NOW WE WILL DEAL WITH APPEAL IN I.T.A. NO.619/LK W/2018. THIS APPEAL IS FILED AGAINST THE CONSEQUENTIAL ORDER PASSED BY THE ASSESSING OFFICER AND CONFIRMED BY LEARNED CIT(A). SINCE WE HAVE QUASHED THE ORDER U/S 263, THE APPEAL FILED BY THE ASSESSEE HAS BECOME INFRUCT UOUS AND THEREFORE, THE SAME STANDS DISMISSED. 10. IN THE RESULT, THE APPEAL IN I.T.A. NO.390/LKW/ 2017 IS ALLOWED WHEREAS THE APPEAL IN I.T.A. NO.619/LKW/2018 IS DIS MISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 22/08/2019) SD/. SD/. ( A. D. JAIN ) ( T. S. KAPOOR ) VICE PRESIDENT ACCOUNTANT MEMBER DATED:22/08/2019 *SINGH I.T.(SS)A. NO.390/LKW/2017 I.T.(SS)A. NO.619/LKW/2018 ASSESSMENT YEAR:2012-13 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSISTANT REGISTRAR