M/s Pee Cee Soap & Chemicals (P) Ltd., Agra V. Dy. C.I.T., Circle-4(1), Agra

WTA 29/AGR/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0430 (ITAT-AGRA)
• Duration Of Justice: 7 year(s) 3 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 31-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 23-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; TDS; Rule 8D
• Section: 40A(3); 14A; 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.28/AGR/2012 ASSESSMENT YEAR: 2007-08 M/S SURAJ BHAN AGENCIES (P) LTD. VS. DY. COMMISSION ER OF INCOME TAX, 19/9, KHATENA ROAD, CIRCLE 4(1), AGRA. LOHAMANDI, AGRA. (PAN: AABCS 9058 E) ITA NO.29/AGR/2012 ASSESSMENT YEAR: 2007-08 M/S PEE CEE SOAP & VS. DY. COMMISSIONER OF INCOM E TAX, CHEMICALS (P) LTD., CIRCLE 4(1), AGRA. G-10/8, PADAMDEEP TOWER, SANJAY PLACE, AGRA. (PAN: AAACP 7281 M) (APPELLANTS) (RESPONDENT) APPELLANTS BY : SHRI PANKAJ GARGH, ADVOCATE RESPONDENT BY : SHRI WASEEM ARSHAD, SR. D.R. DATE OF HEARING : 31.07.2012 DATE OF PRONOUNCEMENT OF ORDER : 31.08.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THESE ARE APPEALS FILED BY TWO DIFFERENT ASSESSEES AGAINST TWO DIFFERENT ORDERS DATED 04.10.2011 AND 02.09.2011 PASSED BY T HE LD. CIT(A)-II, AGRA FOR THE A.Y. 2007-08 RESPECTIVELY. ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 2 2. THE ASSESSEES HAS RAISED THE FOLLOWING GROUNDS I N ITA NO.28/AGR/2012 IN THE CASE OF M/S. SURAJ BHAN AGENCIES (P) LTD. :- 1. BECAUSE THE LD. CIT(A) HAS WRONGLY, ILLEGALLY A ND ARBITRARILY CONFIRMED THE ADDITION OF RS.16,73,022/- AND RS.18, 34,474/- MADE BY THE ASSESSING OFFICER BY APPLYING THE PROVISION OF SECTION 40(A)(IA) OF THE ACT. THE LD. CIT(A) HAS ERRED IN REJECTING THE APPELLANTS SUBMISSION AND IN IGNORING THE FACTS OF THE CASE AN D THE LEGAL POSITION. 2. BECAUSE CONSIDERING THE FACTS OF THE CASE AND T HE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW THE PROVISIONS OF TDS ARE NOT APPLICABLE ON THE PAYMENT OF RS.16,73,022/- AND RS. 18,34,474/- AND HENCE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE AS SESSING OFFICERS OBSERVATION IN INVOKING THE PROVISIONS OF SECTION 4 0(A)(IA) OF THE ACT. 3. BECAUSE THE LD. CIT(A) WHILE CONFIRMING THE ADDI TION OF RS.16,73,022/- AND RS.18,34,474/- HAS ERRED IN IGNO RING THE LEGAL POSITION THAT SECTION 40(A)(IA) OF THE ACT IS APPLI CABLE ONLY IN THE CASE WHERE THE AMOUNT IS PAYABLE ON THE LAST DAY OF PREV IOUS YEAR. ALL THE PAYMENTS AS REIMBURSEMENT OF EXPENSES HAS BEEN MADE TIME TO TIME DURING THE YEAR AND NO AMOUNT IS PAYABLE ON THE LAS T DAY OF PREVIOUS YEAR. THE ADDITION ON THIS GROUND IS TOTALLY UNWAR RANTED AND DESERVES TO BE DELETED. 4. BECAUSE CONSIDERING THE FACTS OF THE CASE AND TH E LEGAL POSITION THE ADDITION, AS OBJECTED IN THE GROUNDS OF APPEAL MENTIONED ABOVE, MADE IS WRONG, BAD IN LAW AND DESERVES TO BE DELETE D. 5. BECAUSE THE LD. CIT(A) HAS ERRED IN NOT GIVING A NY SPECIFIC FINDING ON GROUND NO.6 TAKEN BEFORE HIM. 3. THE ASSESSEES HAS RAISED THE FOLLOWING GROUNDS I N ITA NO.29/AGR/2012 IN THE CASE OF M/S. PEE CEE SOAP & CHEMICALS (P) LTD. :- ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 3 1. BECAUSE THE LD. CIT(A) HAS WRONGLY, ILLEGALLY A ND ARBITRARILY CONFIRMED THE ADDITION OF RS.16,23,726/- MADE BY TH E ASSESSING OFFICER BY APPLYING THE PROVISION OF SECTION 40(A)( IA) OF THE ACT. THE LD. CIT(A) HAS ERRED IN REJECTING THE APPELLANTS S UBMISSION AND IN IGNORING THE FACTS OF THE CASE AND THE LEGAL POSITI ON. 2. BECAUSE CONSIDERING THE FACTS OF THE CASE AND T HE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW THE PROVISIONS OF TDS ARE NOT APPLICABLE ON THE PAYMENT OF RS.16,23,726/- AND HEN CE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ASSESSING OFFICERS OBS ERVATION IN INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 3. BECAUSE THE LD. CIT(A) WHILE CONFIRMING THE ADDI TION OF RS.16,23,726/- HAS ERRED IN IGNORING THE LEGAL POSI TION THAT SECTION 40(A)(IA) OF THE ACT IS APPLICABLE ONLY IN THE CASE WHERE THE AMOUNT IS PAYABLE ON THE LAST DAY OF PREVIOUS YEAR. ALL THE PAYMENTS AS REIMBURSEMENT OF EXPENSES HAS BEEN MADE TIME TO TIM E DURING THE YEAR AND NO AMOUNT IS PAYABLE ON THE LAST DAY OF PR EVIOUS YEAR. THE ADDITION ON THIS GROUND IS TOTALLY UNWARRANTED AND DESERVES TO BE DELETED. 4. BECAUSE CONSIDERING THE FACTS OF THE CASE AND TH E LEGAL POSITION THE ADDITION, AS OBJECTED IN THE GROUNDS OF APPEAL MENTIONED ABOVE, MADE IS WRONG, BAD IN LAW AND DESERVES TO BE DELETE D. 5. BECAUSE THE LD. CIT(A) HAS ERRED IN NOT GIVING A NY SPECIFIC FINDING ON GROUND NO.5 TAKEN BEFORE HIM. 6. BECAUSE THE LD. CIT(A) HAS ERRED IN CONFIRMING T HE ADDITION OF RS.79,124/- MADE BY THE ASSESSING OFFICER BY INVOKI NG THE PROVISION OF SECTION 40A(3) OF THE ACT IGNORING/REJECTING THE APPELLANTS SUBMISSION AND THE FACTS OF THE CASE. 7. BECAUSE THE LD. CIT(A) HAS WRONGLY, ILLEGALLY AN D ARBITRARILY CONFIRMED THE DISALLOWANCE AT RS.10,00,000/- OUT OF DISALLOWANCE OF RS.14,79,431/- MADE BY THE ASSESSING OFFICER U/S 14 A OF THE INCOME TAX ACT. 8. BECAUSE WHILE CONFIRMING THE DISALLOWANCE AT RS. 10,00,000/- U/S 14A OF THE ACT THE LD. CIT(A) HAS ERRED IN IGNO RING THE SPECIFIC ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 4 SUBMISSION MADE BY THE ASSESSEE COMPANY THAT SECTIO N 14A OF THE ACT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE, CONSIDERING THE APPELLANTS RESERVE & SURPLUS, LOAN GIVEN/TAKEN AND INTEREST PAID/RECEIVED, ETC. 9. BECAUSE THE LD. CIT(A) HAS ERRED IN IGNORING THE SPECIFIC SUBMISSION AND THE LEGAL POSITION THAT INTEREST REC EIVED IS MUCH MORE THAN THE INTEREST PAID AND HENCE NO DISALLOWANCE OU T OF INTEREST PAID U/S 14A OF THE ACT CAN BE SUSTAINED. 4. AT THE TIME OF HEARING BEFORE US, THE LD. REPRES ENTATIVES OF THE PARTIES SUBMITTED THAT THE GROUNDS RAISED IN BOTH THESE APP EALS ARE BASED ON IDENTICAL SET OF FACTS, THEREFORE, FOR THE SAKE OF CONVENIENCE, BOTH THE APPEALS ARE DECIDED BY THIS COMMON ORDER. 5. AS THE GROUNDS ARE BASED ON IDENTICAL SET OF FAC TS, WE, THEREFORE, CONSIDER THE FACTS OF THE CASE OF M/S. PEE CEE SOAP & CHEMICALS (P) LTD. IN ITA NO.29/AGR/2012 WHICH ARE AS UNDER :- 6. THE BRIEF FACTS RELATING TO GROUND NOS.1 TO 5, W HICH RAISE COMMON ISSUE, ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E A.O. NOTICED THAT THE ASSESSEE MADE PAYMENT OF COMMISSION OF RS.6,89,999/- & RS.9, 33,727/- TOTALING TO RS.16,23,726/- TO ITS CONSIGNEE AGENTS M/S. DEEPALI MARKETING, AHMEDABAD AND M/S. DARSHAN AGENCIES, AHMEDABAD RESPECTIVELY. HOW EVER, THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE FROM THE PAYMENT SO MADE TO TH E ABOVE CONSIGNEE AGENTS. ON ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 5 BEING ASKED AS TO WHY THE AMOUNT OF RS.16,23,726/- MAY NOT BE DISALLOWED UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER), THE ASSESSEE REPLIED THAT BOTH THE AFORESAID PARTIES ARE ITS SEL LING COMMISSION AGENTS WHO RENDER THEIR SERVICES FOR CONDUCTING SALES OF THE ASSESSEE S PRODUCTS. FOR THIS, THE COMMISSION @ 4% IS PAID TO THEM IN ADDITION TO REIM BURSEMENT OF SELLING AND REDISTRIBUTION EXPENSES INCURRED BY THEM ON ASSESSE ES SALES. THE ASSESSEE HAS DEDUCTED TAX AT SOURCE ON THE PAYMENT OF COMMISSION AND SINCE THE PAYMENT OF RS.6,89,999/- AND RS.9,33,727/- (RS.16,23,726) MADE TO AFORESAID CONSIGNEE AGENTS WAS TOWARDS REIMBURSEMENT OF EXPENSES INCURRED BY T HEM ON ASSESSEES BEHALF, THE TAX AT SOURCE WAS NOT DEDUCTIBLE UNDER THE PROVISIO NS OF THE ACT. IT WAS ALSO CONTENDED THAT THE CONSIGNEE AGENTS MAINTAINED DAY TODAY DETAILS OF SUCH EXPENSES WHICH ARE DULY DEBITED BY THEM IN THEIR ACCOUNTS AN D AT THE MONTH END THEY HAVE CREDITED THE REIMBURSED AMOUNTS IN THE SAID ACCOUNT . BOTH THE CONSIGNEE AGENCIES WERE PRODUCED BEFORE THE A.O. WHO STATED THAT THEY HAVE RECEIVED THE REIMBURSEMENT OF DELIVERY, DISTRIBUTION AND SELLING EXPENSES BY FILING COPY OF LEDGER ACCOUNT BEFORE THE A.O. THE A.O. WAS NOT S ATISFIED WITH THE EXPLANATION OF THE ASSESSEE ON THE FOLLOWING REASONS :- I) THE EXPENSES INCURRED HAVE BEEN ALLOWED AT THE F IXED RATE OF RS.11/- PER CARTON IN LIEU OF SERVICES RENDERED BY THE AGENTS FOR EFFECTING THE SALES IRRESPECTIVE OF ACTUAL AMOUNT SPENT BY THE CONSIGNE E. THIS LED THE A.O. TO ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 6 OBSERVE THAT IT WAS A FIXED COMMISSION ALLOWED TO T HE DEALERS IN THE GARB OF REDISTRIBUTION EXPENSES. II) NO CREDIT ENTRY TO THE EFFECT OF REIMBURSEMENT OF EXPENSES IS AVAILABLE IN THE ACCOUNTS OF THE CONSIGNEE AGENTS. III) IN VIEW OF C.B.D.T. CIRCULAR NO.715 DATED 08.0 8.1995, THERE IS NO IMMUNITY IN THE ACT TO THE ASSESSEE FOR NOT DEDUCTING THE TA X EVEN ON THE AMOUNT OF EXPENSES REIMBURSED TO THE CONSIGNEE AGENTS. IV) THE PAYMENT MADE BY EMPLOYER TO ITS EMPLOYEE/SE RVANT/AGENT WILL BE EITHER OF SALARY OR COMMISSION AND SINCE THE SAID PARTIES ARE NOT THE SALARIED EMPLOYEES OF THE ASSESSEE, THE PAYMENT SO MADE TO T HEM SHALL BE TREATED AS COMMISSION AND, AS SUCH, THE ASSESSEE WAS LEGALLY O BLIGED TO DEDUCT TAX AT SOURCE ON THE PAYMENT OF RS.16,23,726/- MADE TO THE CONSIGNEE AGENTS. 7. BEFORE THE CIT(A), REITERATING THE SUBMISSIONS M ADE BEFORE THE A.O., THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. HAS RECORD ED INCORRECT FINDING REGARDING PAYMENT OF COMMISSION @ RS/11/- PER CARTON TO ITS C ONSIGNEE AGENTS. AS A MATTER OF FACT, COMMISSION WAS PAID @ 4% WHEREAS, THE PAYM ENT MADE AT RS.11/- PER ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 7 CARTON WAS TOWARDS REDISTRIBUTION AND SELLING EXPEN SES FOR WHICH THE SAID AGENCIES HAVE MAINTAINED PROPER DETAILS IN THEIR ACCOUNTS. THE CONSIGNEE AGENTS IN THEIR STATEMENTS NOWHERE STATED THAT RECEIPT OF RS.11/- P ER CARTON REPRESENTS THE COMMISSION. IT WAS ALSO SUBMITTED THAT EXPENSES A RE INCURRED BY THE CONSIGNEE AGENTS FROM THE SALE AMOUNT COLLECTED BY THEM AND T HERE ALWAYS REMAINED OUTSTANDING BALANCES. IT WAS ALSO SUBMITTED THAT T HE A.O. HAS RECORDED INCORRECT FINDING OF FACT THAT NO CREDIT ENTRY TO THE EFFECT OF REIMBURSEMENT OF EXPENSES IS AVAILABLE IN THEIR ACCOUNTS. THE COPIES OF ACCOUN TS OF CONSIGNEE AGENTS FILED BEFORE THE A.O. WERE FURTHER SUBMITTED BEFORE THE C IT(A) WHEREIN THE AMOUNTS AS MENTIONED IN THE ASSESSMENT ORDER ARE DULY CREDITED TO THE ACCOUNTS OF THE CONSIGNEE AGENTS. LASTLY, IT WAS CONTENDED THAT SI NCE THE REIMBURSEMENT OF EXPENSES INCURRED BY CONSIGNEE AGENTS HAS BEEN LESS THAN THE ACTUAL EXPENSES, THERE IS NO ELEMENT OF INCOME IN THE HANDS OF CONSIGNEE A GENT AND, THEREFORE, THE ASSESSEE IS NOT REQUIRED TO DEDUCT TAX AT SOURCE. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS :- I) HMS REAL ESTATE P. LTD., 325 ITR 71 (AAR). II) ITAT, DELHI BENCH IN THE CASE OF ACIT VS. GRAND PRIX FAB LTD., 128 TTJ 60. III) ITAT, DELHI BENCH IN THE CASE OF ITO VS. DR. W ILLMAR SCHWABE INDIA (P) LTD., 3 SOT 71. (IV) ITAT, JAIPUR BENCH IN THE CASE OF JAIPUR VIDYU T VITRAN NIGAM LTD. VS. DCIT, 123 TTJ 888. ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 8 (V) ITAT, HYDERABAD BENCH IN THE CASE OF K. SRINIVA S NAIDU VS. ACIT, 131 TTJ (UO) 17. 8. THE CIT(A) CONFIRMED THE ACTION OF THE A.O. ON T HE GROUND THAT THE PAYMENT OF RS.11/- PER CARTON IS NOT LINKED TO THE ACTUAL E XPENSES INCURRED BY THE CONSIGNEE AGENTS. HE OBSERVED THAT THE CONTENTION OF THE ASS ESSEE THAT THE EXPENDITURE INCURRED BY THE AGENTS IS MORE THAN THE AMOUNT PAID TO THEM IS SELF DEFEATING AND IN THAT EVENTUALITY IT IS NOT EXPLAINED AS TO WHY THE AGENTS WOULD HAVE ACCEPTED LESSER AMOUNT THAN THAT ACTUALLY INCURRED BY THEM. HE, TH EREFORE, CONCLUDED THAT THE PAYMENTS MADE TO THE CONSIGNEE AGENTS IN THE GARB O F REIMBURSEMENT OF EXPENSES WAS NOTHING BUT COMMISSION ON WHICH THE ASSESSEE WA S LEGALLY OBLIGED TO DEDUCT TAX AT SOURCE WHICH HE FAILED TO DO SO. 9. AT THE OUTSET, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ISSUE IS COVERED BY THE ORDER OF I.T.A.T. AGRA BENCH IN ITA NO.434/AGR/2011 IN THE CASE OF M/S. PEE CEE COSMA SOPE LIMITED VIDE ORDER DATED 11.05.2012. THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION ON THE RELEVANT GROUNDS OF APPEAL OF M/S. PEE CEE COSMA SOPE LIMITED WHICH ARE REPRODUCE D AS UNDER FOR READY REFERENCE:- 1. BECAUSE THE LD. CIT(A) HAS WRONGLY, ILLEGALLY A ND ARBITRARILY CONFIRMED THE ADDITION OF RS.14,93,965/- MADE BY TH E ASSESSING OFFICER BY APPLYING THE PROVISION OF SECTION 40(A) (IA) OF THE ACT. THE ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 9 LD. CIT(A) HAS ERRED IN REJECTING THE APPELLANTS S UBMISSION AND IN IGNORING THE FACTS OF THE CASE. 2. BECAUSE THE LD. CIT(A) WHILE CONFIRMING THE ADDI TION OF RS.14,93,965/- HAS ERRED IN IGNORING THE LEGAL POSI TION THAT SECTION 40(A)(IA) IS APPLICABLE ONLY IN THE CASE WHERE THE AMOUNT IS PAYABLE ON THE LAST DAY OF PREVIOUS YEAR. ALL THE PAYMENTS AS REIMBURSEMENT OF EXPENSES HAS BEEN MADE TIME TO TIME DURING THE Y EAR AND N AMOUNT IS PAYABLE ON THE LAST DAY OF PREVIOUS YEAR. THE A DDITION ON THIS GROUND IS TOTALLY UNWARRANTED AND DESERVES TO BE DE LETED. 3. BECAUSE THE LD. CIT(A) HAS ERRED IN NOT ADJUDICA TING GROUND NO.5 TAKEN BEFORE HIM. 10. THE FINDING OF I.T.A.T., AGRA BENCH IN THE SAID CASE POINTED OUT BY THE LD. AUTHORISED REPRESENTATIVE FROM THE SAID ORDER AT PA RAGRAPH NOS.5, 6 & 7 WHICH ARE REPRODUCED AS UNDER :- 5. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE EFFECTIVE GROUND RAISED IN TH E APPEAL RELATE TO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT, TH EREFORE, ALL SUPPORTING GROUNDS OF APPEAL ARE DECIDED TOGETHER. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF I.T.A.T., SPECIAL BENCH VISAKHAPATNAM W HEREIN IT HAS BEEN HELD THAT SECTION 40A(IA) OF THE ACT IS APPLIC ABLE IN RESPECT OF AMOUNT REMAINED PAYABLE. THERE IS NO DISALLOWANCE UNDER SECTION 40A(IA) OF THE ACT WITH RESPECT TO PAYMENT WHICH WE RE ACTUALLY PAID DURING THE FINANCIAL YEAR. IN RESPECT OF GROUND NO .2, THE LD. AUTHORISED REPRESENTATIVE HAS EMPHASIZED THAT THERE WAS NO AMOUNT PAYABLE AT THE END OF PREVIOUS YEAR. IN GROUND NO. 3, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESS EE RAISED THE ISSUE BEFORE THE CIT(A) WHICH HAS NOT BEEN ADJUDICATED. THE GROUND NO.5 TAKEN BEFORE THE CIT(A) WHICH READS AS UNDER :- ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 10 5. BECAUSE WITHOUT PREJUDICE TO THE GROUNDS AS MENTIONED ABOVE SECTION 40A(IA) IS APPLICABLE ONLY IN THE CASES WHERE THE AMOUNT IS PAYABLE ON THE LAST DAY O F PREVIOUS YEAR. ALL THE PAYMENTS AS REIMBURSEMENT O F EXPENSES HAS BEEN MADE TIME TO TIME DURING THE YEAR AND NO AMOUNT IS PAYABLE ON THE LAST DAY OF PREVIOUS YE AR. ON THIS GROUND ALSO THE ADDITION IS WRONG, ILLEGAL AND DESERVES TO BE DELETED. 6. THE ABOVE GROUND NO.5 RAISED BEFORE THE CIT(A) I S IDENTICAL TO THE GROUND NO.2 RAISED BEFORE US. 7. IN THE LIGHT OF ABOVE DISCUSSION AND AFTER CONSI DERING TOTALITY OF THE FACTS OF THE CASE, WE FIND THAT FACTUAL VERIFIC ATION IS REQUIRED IN THE LIGHT OF DECISION OF I.T.A.T. CITED SUPRA. WE, THE REFORE, THINK IT PROPER TO SEND THIS ISSUE BACK TO THE FILE OF THE ASSESSIN G OFFICER WITH THE DIRECTION TO VERIFY THE FACTS OF THE CASE AND DECID E THE ISSUE IN ACCORDANCE WITH THE DECISION OF I.T.A.T., SPECIAL B ENCH VISAKHAPATNAM AFTER PROVIDING OPPORTUNITY OF HEARIN G TO THE ASSESSEE. 11. THE LD. DEPARTMENTAL REPRESENTATIVE DID NOT DIS PUTE REGARDING THE FACTS OF THE CASES UNDER CONSIDERATION AND THE FACTS OF THE CASE IN THE CASE OF M/S. PEE CEE COSMA SOPE LIMITED. 12. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. WE NOTICE THAT ON IDENTICAL SET OF FACTS, THE ISSUE HAS ALREADY BEEN DECIDED BY I.T.A.T., AGRA BENCH IN THE CASE OF M/S. PEE CEE CO SMA SOPE LIMITED IN ITA NO.434/AGR/2011 ORDER DATED 11.05.2012. SINCE THE FACTS ARE IDENTICAL, THEREFORE, TO MAINTAIN CONSISTENCY, WE FOLLOW THE ABOVE ORDER DATED 11.05.2012 OF I.T.A.T. ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 11 AGRA BENCH IN THE CASE OF M/S. PEE CEE COSMA SOPE L IMITED IN ITA NO.434/AGRA/2011. IN THE LIGHT OF THAT, THE ISSUE RAISED IN GROUND NOS.1 TO 5 IN ITA NO.29/AGR/2009 IN THE CASE M/S. PEE CEE SOAP & CHEM ICALS (P) LIMITED AND GROUND NOS.1 TO 5 IN ITA NO.28/AGR/2009 IN THE CASE OF M/S. SURAJ BHAN AGENCIES (P) LIMITED ARE DECIDED ACCORDINGLY WITH IDENTICAL DIRECTIONS. THE A.O. IS DIRECTED ACCORDINGLY. 13. NOW WE COME TO GROUND NO.6 IN ITA NO.29/AGR/200 9 IN THE CASE M/S. PEE CEE SOAP & CHEMICALS (P) LIMITED. THE BRIEF FACTS RELATING TO THIS GROUND ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD MADE PAYMENTS TO VARIOUS TRANSPORTERS AND ISSUED TDS CERTIFICATES TO THEM, T HE DETAILS OF WHICH IS MENTIONED AT PAGE 6 OF THE ASSESSMENT ORDER. AS PER AO THE AS SESSEE HAD MADE PAYMENTS IN EXCESS OF RS.20,000/- TO SOME OF THE TRANSPORTERS I N CASH. THE CONTENTION OF THE ASSESSEE WAS THAT EVERY PAYMENT IS LESS THAN RS.20, 000/-. HAVING EXAMINED THE RECORD, THE AO DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE STATING THAT THE ASSESSEE HAS MADE PAYMENT EXCEEDING RS.20,000/- AT A TIME AND THE PAYMENTS HAVE BEEN SHOWN IN FRACTIONS IN ORDER TO MISLEAD THE REV ENUE AUTHORITIES. INSTANCES OF SUCH PAYMENTS HAVE BEEN GIVEN AT PAGE 7 & 8 OF THE ASSESSMENT ORDER. HE, THEREFORE, OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW AS TO WHY THE PAYMENTS WERE MADE IN INSTALLMENTS BY SPLITTING THE SAME ON A SINGLE DAY ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 12 PARTICULARLY WHEN THE ASSESSEE HAD SUFFICIENT CASH BALANCE AVAILABLE WITH HIM ON THE RELEVANT DATES OF PAYMENTS. CONSIDERING ALL TH ESE FACTS AND RELYING UPON VARIOUS DECISIONS OF HONBLE M.P. HIGH COURT, ALLAH ABAD HIGH COURT AND I.T.A.T., AGRA BENCH IN THE FOLLOWING CASES, CONCLUDED THAT T HE ASSESSEE HAS SPLIT THE PAYMENTS MADE IN CASH EXCEEDING TO RS.20,000/- TO C IRCUMVENT THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND THEREFORE, DISALLOWED RS.79,124/- BY INVOKING THE PROVISIONS OF SECTION 40A(3) :- I) SHRI RADHIKA PRAKASHAN (RAIPUR) PVT. LTD. VS. CI T, 257 ITR 675 (MP) II) ENGINEERS & AGENTS, 5 ITD 606 (ALLAHABAD) III) ITA NO.465/AGR/2004 ORDER DATED 28.07.2007 IN THE CASE OF SHRI LAXMAN SINGH PROP. BSA SALES CORPORATION, AGRA. 14. THE CIT(A) CONFIRMED THE ADDITION OBSERVING THA T THE PAYMENTS MADE TOWARDS A SINGLE G.R. HAS BEEN SPLIT IN A SINGLE DA Y TO BRING IT BELOW RS.20,000/- AND IF THE PAYMENT EXCEEDING TO RS.20,000/- WAS MAD E TO SAME PARTY IN A SINGLE DAY, THE AMOUNT SHOULD HAVE BEEN PAID BY ACCOUNT PA YEE CHEQUE/DRAFT. HE, THEREFORE, CONCLUDED THAT THE AO HAS RIGHTLY MADE D ISALLOWANCE U/S. 40A(3) OF THE ACT. ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 13 15. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. WE FIND SUBSTANCE IN THE SUBMISSION OF THE LD. AUTH ORISED REPRESENTATIVE THAT WHEN THE PAYMENT IS MADE IN CASH BELOW RS.20,000/- FOR SEPARATE BILLS, THE DISALLOWANCE IS NOT WARRANTED UNDER SECTION 40A(3) OF THE ACT. THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION AT PAGE NO.52 OF THE ASSESSEES PAPER BOOK AND SUBMITTED THAT OUT OF THE GRAND TOTAL RS.3,95,630/- ON WHICH THE A.O. HAS DISALLOWED 20% OUT OF WHICH SUCH SEPARATE BILLS BEL OW RS.20,000/- ARE RS.1,77,538/- ROUGHLY. THEREFORE, THE ASSESSEE IS ENTITLED FOR THE RELIEF ON THAT AMOUNT ON ACCOUNT OF DISALLOWANCE UNDER SECTION 40A (3) OF THE ACT. WHEN THE CASH PAYMENT IS BELOW RS.20,000/-, WE ARE OF THE CO NSIDERED VIEW THAT NO DISALLOWANCE IS WARRANTED ON SUCH PAYMENTS. HOWEVE R, THE CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE AND THE DETAILS POINTED O UT FROM PAGE NO.52 OF THE PAPER BOOK IS SUBJECT TO VERIFICATION. WE, THEREFORE, DI RECT THE A.O. TO VERIFY THE FACT THAT WHETHER THERE ARE SEPARATE BILLS BELOW RS.20,000/- AND RECALCULATE THE DISALLOWANCE AFTER ALLOWING BENEFIT OF SEPARATE BILLS OF BELOW R S.20,000/-, AFTER PROVIDING OPPORTUNITY OF HEARING TO THE ASSESSEE. 16. NOW WE COME TO GROUND NOS.7 TO 9 IN ITA NO.29/A GR/2009 IN THE CASE M/S. PEE CEE SOAP & CHEMICALS (P) LIMITED WHICH IS IN RE SPECT OF DISALLOWANCE OF RS.10,00,000/- UNDER SECTION 14A OF THE ACT. ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 14 17. THE BRIEF FACTS OF THE ISSUE ARE THAT DURING TH E ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE HAS MADE INVESTMENT TO M/S. PEE CEE HOUSING & CONSTRUCTION LIMITED AND M/S. PEE CEE COSMA SOPE LI MITED TO THE EXTENT OF RS.5,07,07,200/- AND RS.24,33,582/- TO EARN EXEMPT INCOME. THE A.O. INVOKED SECTION 14A OF THE ACT READ WITH RULE 8D AND MADE D ISALLOWANCE OF RS.14,79,431/-. THE CIT(A) SUSTAINED THE DISALLOWAN CE TO THE EXTENT OF RS.10,00,000/- BY REJECTING THE ASSESSEES CONTENTI ON THAT NO INTEREST BEARING FUNDS HAVE BEEN INVESTED TO EARN EXEMPT INCOME. HOWEVER, THE CIT(A) IN PRINCIPLE AGREED WITH THE JUDGMENT OF BOMBAY HIGH COURT IN TH E CASE OF GODREJ AND BOYCE MANUFACTURING CO. VS. DCIT, 328 ITR 71 (BOMBAY) THA T RULE 8D HAS TO BE APPLIED PROSPECTIVELY AND IS APPLICABLE W.E.F. A.Y. 2008-09 BUT IT DOES NOT MEAN THAT NO DISALLOWANCE IS CALLED FOR. 18. AT THE OUTSET, THE LD. AUTHORISED REPRESENTATIV E SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF I.T.A.T, AGRA BENC H IN THE CASE OF M/S. PEE CEE SOAPS & CHEMICALS (P) LTD. I.E. THE ASSESSEES OWN CASE IN ITA NO.236/AGR/2011 FOR A.Y. 2006-07, ORDER DATED 20.04.2012. THE RELE VANT FINDING OF I.T.A.T. IN THE SAID ORDER IS REPRODUCED FROM PARAGRAPH NOS.6, 7 & 8 AS UNDER OF WHICH COPY IS PLACED AT PAGE NOS. 62 TO 69 OF THE ASSESSEES PAPE R BOOK :- ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 15 6. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE ASSESSING OFFICER MADE OUT TH E CASE THAT SECTION 14A OF THE ACT READ WITH RULE 8D OF WHICH THE EFFEC T IS RETROSPECTIVE AND APPLICABLE TO ASSESSMENT YEAR 2006-07, THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER DISALLOWED TH E AMOUNT CALCULATED UNDER RULE 8D OF IT RULES. THE CIT(A) D ID NOT AGREE WITH THE VIEW THAT SECTION 14A READ WITH RULE 8D IS APPL ICABLE IN THE YEAR UNDER CONSIDERATION FOLLOWING A JUDGEMENT OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., 234 CTR ( BOMBAY) 1 WHEREIN IT HAS BEEN HELD THAT RULE 8D READ WITH SEC TION 14A IS APPLICABLE W.E.F. ASSESSMENT YEAR 2007-08. 7. THE LD. REPRESENTATIVES OF PARTIES ADMITTED THAT THE REVENUE DID NOT FILE ANY APPEAL AGAINST THIS FINDING OF THE CIT(A). THUS, THE CONTROVERSY RELATING TO WHETHER SECTION 14A OF THE ACT READ WITH RULE 8D IS APPLICABLE IN THE YEAR UNDER CONSIDERATION, A SSESSMENT YEAR 2006-07, OR NOT BECAME FINAL AS REVENUE DID NOT FIL E ANY APPEAL AGAINST THE ORDER OF CIT(A) WHEREIN IT HAS BEEN HEL D THAT SECTION 14A READ WITH RULE 8D IS APPLICABLE W.E.F. 2007-08. HO WEVER, THE PRESUMPTION OF THE CIT(A) WAS THAT SOME BORROWED FU NDS HAVE BEEN DIVERTED TO INVESTMENT IN SHARES OF WHICH INCOME IS EXEMPT. THE LD. AUTHORISED REPRESENTATIVE POINTED OUT THE POSITION OF SHARE CAPITAL, RESERVE & SURPLUS, UNSECURED LOAN ETC. AND LOAN GIV EN AND INVESTMENT IN SHARES. THE DETAILS WHICH IS POINTED OUT FROM O RDER OF THE CIT(A) AT PAGE NO.2 READS AS UNDER :- SHARE CAPITAL RS.44,50,000/- RESERVE AND SURPLUS RS.12,59,74,541/- UNSECURED LOAN NIL SECURED LOAN:- O.D. LIMIT RS.2,52,72,561/- VEHICLE LOAN RS.15,50,588/- RS.2,68,23,149/- LOAN GIVEN RS.5,15,88,194/- INTEREST RECEIVED RS.60,36,620/- INTEREST PAID RS.34,81,490/- INVESTMENT IN SHARES RS.5,28,01,422/- ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 16 8. AFTER CONSIDERING THE TOTALITY OF THE FACTS OF T HE CASE, THE LIMITED ISSUE TO BE DECIDED BEFORE US IS WHETHER THE INTERE ST CLAIM OF THE ASSESSEE IS DISALLOWABLE ON THE GROUND THAT THE ASS ESSEE HAS USED THE INTEREST BEARING BORROWED FUNDS IN THE INVESTMENT O F SHARES. THE CLAIM OF INTEREST ON BORROWED FUND IS ALLOWABLE UND ER SECTION 36(1)(III) OF THE ACT. ACCORDING TO THE SAID SECTI ON 36(1)(III) THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORRO WED FOR THE PURPOSE OF BUSINESS OR PROFESSION IS ALLOWABLE EXPENSES SO LONG AS THE AMOUNT BORROWED IS USED IN THE BUSINESS. THE INTEREST PAI D ON SUCH BORROWING IS AN EXPENDITURE WHICH IS REQUIRED TO BE DEDUCTED IN THE COMPUTATION OF THE INCOME FROM BUSINESS. TO EXAMIN E THE PROBLEM IN CASES WHERE FUNDS ARE PUMPED OUT OF THE BUSINESS WH ICH ARE COMPRISED OF BOTH TYPE OF FUNDS I.E. BORROWED AS WE LL AS OWN FUNDS, FOR NON-BUSINESS PURPOSE. IN ALL SUCH CASES WHERE MIXED FUNDS ARE USED FOR BUSINESS AND OTHER THAN BUSINESS PURPOSES IN SUCH CIRCUMSTANCES THE I.T.A.T., MUMBAI BENCH IN THE CAS E OF ACIT VS. H.P. SHAH & CO. ITA NO.3694/M/2006 ORDER DATED 15.0 1.2009 HELD THAT THERE IS NO PRESUMPTIONS THAT MONEY USED FOR O THER PURPOSES CAME OUT OF BORROWED FUNDS. IT CAN BE SAID THAT IN TEREST FREE FUNDS GIVEN ON INVESTMENT IF ARE OUT OF OWN FUNDS, I.E. O WN CAPITAL AND RESERVES IS SUFFICIENT TO COVER SUCH INTEREST FREE INVESTMENT. IN THAT CIRCUMSTANCES, IT IS PRESUMED THAT THE INVESTMENT I N INTEREST FREE FUNDS WERE OUT OF OWN CAPITAL AND RESERVES AND UNDER SUCH CIRCUMSTANCES, THE REVENUE CANNOT DISALLOW INTEREST CLAIM OF THE A SSESSEE UNDER SECTION 36(1)(III) OF THE ACT. THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. PREM HEAVY ENGINEERING WORKS PVT. LTD., 285 ITR 554 (ALLD.) WHEREIN IT HAS BEEN HELD THAT IF THE ASSESSEE HAD A DEQUATE INTEREST FREE FUNDS BY WAY OF PROPRIETARY CAPITAL OR BY WAY OF IN TEREST FREE DEPOSITS FROM CUSTOMERS, THERE IS INFERENCE THAT BORROWED FU NDS ARE NOT DIVERTED FOR NON-BUSINESS PURPOSES. THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT(A) 298 ITR 298 WHE REIN LAW LAID DOWN THAT INTEREST FREE FUNDS TO SISTER CONCERN OUT OF OWN FUNDS, THE DISALLOWANCE CANNOT BE MADE UNDER SECTION 36(1)(III ) OF THE ACT. THE LD. AUTHORISED REPRESENTATIVE RELIED UPON VARIOUS D ECISIONS OF WHICH GIST HAS BEEN FILED BUT THESE DECISIONS RELATED TO THE INVOCATION OF SECTION 14A OF THE ACT. THESE CASES HAVE BEEN DECI DED BY THE COURT/BENCH CONSIDERING THE FACTS OF RESPECTIVE CAS ES. IN THE LIGHT OF ABOVE DISCUSSIONS AND JUDICIAL PRONOUNCEMENTS NOTED ABOVE, IF WE CONSIDER THE FACTS, WE FIND THAT THE ASSESSEE WAS H AVING SHARE CAPITAL OF RS.44,50,000/- AND RESERVE AND SURPLUS OF RS.12, 59,74,541/- OUT OF ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 17 WHICH THE INVESTMENT IN SHARES WAS RS.5,28,01,422/- . THUS, WE FIND THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS I N THE FORM OF SHARE CAPITAL AND RESERVES TO MAKE INVESTMENT IN SHARES. UNDER THE CIRCUMSTANCES, NO DISALLOWANCE IS REQUIRED UNDER SE CTION 36(1)(III) OF THE ACT. IN THE LIGHT OF THE FACT, WE DO NOT AGREE WITH THE FINDING THE CIT(A) WHICH IS ON PRESUMPTION BASIS THAT BORROWED FUNDS HAS BEEN DIVERTED TO INVESTMENT IN SHARES AND THAT PART OF T HE ORDER OF CIT(A) IS SET SIDE AND DELETE THE ADDITION OF RS.8,00,000/- S USTAINED BY HIM. 19. THE LD. DEPARTMENTAL REPRESENTATIVE DID NOT DIS PUTE AS REGARDS TO THE FACTS OF THE CASE UNDER CONSIDERATION AND THE FACTS OF TH E CASE IN EARLIER YEAR I.E. 2006-07. SINCE THE FACTS ARE IDENTICAL, THEREFORE, WE FOLLOW THE ABOVE ORDER OF I.T.A.T. IN ASSESSEES OWN CASE FOR A.Y. 2006-07. THE A.O. IS DIRECTED TO CALCULATE THE DISALLOWANCE, IF ANY, IN ACCORDANCE WITH THE ABOVE ORDER OF THE I.T.A.T., KEEPING IN MIND THAT THE ASSESSEE WAS HAVING SHARE CAPITAL OF RS.44,50,000/- AND RESERVE AND SURPLUS OF RS.12,76,48,308/- AS INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE. THE A.O. IS DIRECTED ACCORDINGLY. 20. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE S ARE ALLOWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* ITA NO.28 & 29/AGR/2012 A.Y. 2007-08. 18 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY