Income Tax Appellate Tribunal - Indore
Rajendra Kumar Sodani, Indore vs Jcit Range-5, Indore on 9 November, 2016
आयकर अपील य अ धकरण, इ दौर यायपीठ, इ दौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE ी डी.ट .गरा सया, या यक सद य तथा ी ओ.पी.मीना, लेखा सद य के सम% BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER आ.अ.सं./ I.T.A. No. 101/Ind/2015 #नधा%रण वष% /Assessment Year: 2011-12 Shri Rajendra Kumar Jt. CIT, Sodani, Vs. Range 5, Indore.
Prop. M/s. Sodani Diagnostic Clinic, LG-1, Morya Centre, 16/1 Race Course Road, Indore.
था.ले.सं./PAN: AERPS1461E अपीलाथ /Appellant यथ /Respondent अपीलाथ क ओर से/Appellant by Shri S.N.Agrawal and Shri Atik Bansal, CAs यथ क ओर से/Respondent by Shri Mohd. Javed, Sr. DR सुनवाई क तार ख 05.10.2016 Date of hearing उ घोषणा क तार ख 09.11.2016 Date of pronouncement I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 2 of 32 आदे श /O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR.
This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)-II, Indore [hereinafter referred to as the CIT(A)] dated 28.11.2014 and pertains to assessment year 2011-12 as against appeal decided in assessment order passed u/s 143(3) of the Act dated 13.03.2014 of JCIT, Range 5, Indore, [hereinafter referred to as the AO].
2. Ground no. 1 relates to disallowance of Rs. 8,16,479/- u/s 14A of the Income-tax Act, 1961.
3. The above ground of appeal relates to disallowance under section 14A Read with Rule 8D of Income Tax Rules, 1962.
4. Succinctly, facts of the case are that the assessee is a proprietor of the Sodani Diagnostic Clinic and he is Director in Company named M/s. Sodani Hospital and Diagnostic Private Limited. The assessee is also partner in M/s. S.J.Healthcare. The assessee filed return of income on 29.09.2011 declaring I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 3 of 32 total income at Rs. 80,25,820/-. It was noticed that the assessee has shown investment of Rs. 86,15,565/- in instruments such as Mutual funds in form of SLIC, investment in share capital of associated company, investment in partnership firm which are expected to generate exempt income. The Assessing Officer has disallowance of Rs. 8,16,479/- u/s 14A read with Rule 8D. The ld. CIT(A) has also confirmed the addition of the Assessing Officer.
5. Being aggrieved, the assessee filed the appeal before us. The ld. Authorized Representative submitted that the assessee was having the opening capital balance of Rs. 1,19,94,709/- as on 31st March, 2010, out of which he had invested in investment funds (personal investment) to the tune of Rs. 86,15,566/- as on 31st March, 2011, and balance amount of personal capital of Rs. 33,79,144/- invested for the purpose of profession. Interest free loan were also there amounting to Rs. 10,60,203/-. If the assessee has submitted only balance sheet pertaining to his profession then question of disallowance u/s 14A should not have arisen. The I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 4 of 32 Assessing Officer has not established a nexus between the interest expenditure and the investment made and also it is evident from the law that the Assessing Officer has to give basis for working out such expenditure related to the exempted income and such disallowance cannot be made merely on estimation or conjectures. The Assessing Officer has considered the whole amount of interest paid, rather than the interest, which is not directly attributable to a particular receipt of said exempted income. Intention behind inserting provision of 14A clearly emerges that expenditure incurred which results in or which will result in exempt income in future might not intent to be allowed as deduction. It was claimed that no expenditure incurred for earning exempt income , hence no disallowance u/s.14A could be made.
6. The Ld. Senior (DR) relied on the orders of lower authorities.
7. We have heard the rival submissions and have gone through the orders of the lower authorities, and perused the material available on record. The expenditure incurred in I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 5 of 32 relation to earning such exempt income is not quantified during the course of assessment proceedings. We find that the claim of the assessee that no expenditure has been claimed has not been examined by the AO as he had made disallowance by applying rule 8D of Income Tax Rules, 1962 . Our attention was drawn in the case of ACB India (2005) 374 ITR 108 [Del.] wherein the Hon'ble High Court has laid down certain principle and procedure to be followed while calculating the disallowance u/s.14A of the Act. The relevant extract of said decision is reproduced as under:
"6. The question of law urged on behalf of the assessee is whether the decision of the Income-tax Appellate Tribunal as to the disallowance under section 14A of the Income-tax Act, 1961, is in error of law in the circumstances of the case. For the assessment year 2008-09, the assessee-- which is mainly engaged in the business of coal preparation, i.e., benefication of coal, transportation, loading of coal and related activities had reported a tax exempt income to the tune of Rs. 18,26,360 amongst other heads of income. The Assessing Officer added back Rs. 19,96,242 under section 14A. While doing so, the Assessing Officer applied rule 8D by taking into I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 6 of 32 consideration the total quantum of interest other than that invested under section 14A in terms of rule 8D and arrived at the said figure after multiplying it with the result of the average value of investments and over average value of assets derived by him. He thus determined the disallowance of Rs. 19,96,242. The Commissioner of Income-tax (Appeals) went into the record and found that the amount of investment attributable to dividend as on March 31, 2008, was Rs. 3,53,26,800, which constituted less than 1 per cent. of the total scheduled funds. He, however, accepted the basis of calculation applied by the Assessing Officer and directed a disallowance of .05 per cent. of the amount determined to be average investment. The Income- tax Appellate Tribunal to which the Revenue appealed, restored the Assessing Officer's determination holding it to be a true calculation in terms of rule 8D. It is argued by the assessee that since the Commissioner of Income-tax (Appeals) correctly noted the facts as to the value of the investment in tax exempt investment and at the same time noticed that the ultimate result on an application of .05 per cent. disallowance would be the same. Counsel for the Revenue, on the other hand, submitted that given the determination of average value of investment, the Assessing Officer had no choice but to apply rule 8D(2) in view of the mandate of section 14A which required him to apply the prescribed method of I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 7 of 32 determining disallowance. The facts, as disclosed by the Assessing Officer, who expressed his opinion that the claim of the assessee for no disallowance was warranted since no expenditure was incurred had to be rejected. Therefore, the first condition for application of section 14A in this case was fulfilled. In such eventuality the Assessing Officer is required by the mandate of rule 8D to follow rule 8D(2). Clauses (1), (2) and (3) detail the methodology to be adopted. Clauses are of importance, they read as follows :
"8D. Method for determining amount of expenditure in relation to income not includible in total income.-(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with-
(a) the correctness of the claim of expenditure made by the assessee ; or
(b) the claim made by the assessee that no expenditure has been incurred,in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).
I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 8 of 32 (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :-
(i) the amount of expenditure directly relating to income which does not form part of total income ;
(ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :-
A x B
__
C
Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ;
B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ;
I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 9 of 32 C = the average of total assets as appearing in the balance- sheet of the assessee, on the first day and the last day of the previous year ;
(iii) an amount equal to one-half per cent. of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance- sheet of the assessee, on the first day and the last day of the previous year.
(3) For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance-sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets."
8. The Assessing Officer, instead of adopting the average value of investment of which income is not part of the total income, i.e., the value of tax exempt investment, chose to factor in the total investment itself. Even though the Commissioner of Income-tax (Appeals) noticed the exact value of the investment which yielded taxable income he did not correct the error but chose to apply his own equity. Given the record that had to be done so to substitute the figure of Rs. 38,61,09,287 with the figure of Rs. 3,53,26,800 and, thereafter, arrive at the exact disallowance of .05 per cent.
9. In view of the above reasoning, the findings of the Income- tax Appellate Tribunal and the lower authorities are hereby I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 10 of 32 set aside. The appeal is allowed and the matter is remitted to work out the tax effect to the Assessing Officer who shall do so after giving due notice to the party."
8. We find that the AO has not examined and quantified the expenditure incurred in relation to exempt income, therefore, following the ratio of above decision , we remit back this issue to the file of the A.O. to find out whether any expenditure in relation to exempt income has been claimed in return of income and also work out investment relating to exempt income and rework the disallowance under section 14A Read with Rule 8D if any in accordance with law in the light of above decision.
9. This ground of appeal is allowed for statistical purposes.
10. Ground no.2 relates to disallowance of Rs. 30,01,267/- made by the AO on account of interest.
11. The AO has made disallowance of interest expenditure amounting to Rs. 30,01,267/- on interest free loans to relatives and others. The AO has discussed this issue in detail I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 11 of 32 at page no.12 to 15 and observed that the assessee has incurred an expenditure of Rs. 54,84,315/- on various borrowings from financial institutions. It was also noticed that the assessee had paid interest@ 12 to 18%, whereas the assessee has advanced interest free loans to family members and other parties amounting to crores of rupees. A chart of such advance had been drawn at page no.1`3 of assessment order, which is reproduced as under :-
S.No. Name Amount Amount
(Opening (Closing
Balance Rs.) balance Rs.)
1. Dr.Sadhna 1,20,50,000/- 1,20,50,000/-
Sodani full amount
taken as
op.balance as
most of the
loans were
advanced in
April and May
2010 only.
2. Sodani 15,72,440/- 82,93,452/-
Hospital &
Diagnostic
P.Ltd. (
Assessee and
his wife are
director in the
Co.)
3. Anurag Sodani 1,72,313/- 1,72,313/-
(son of
assessee)
4. Juhi Sodani 8,96,900/- 9,21,900/-
(daughter of
assessee)
5. Gitesh Kumar 2,21,000/- 2,21,000/-
Soni
I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 12 of 32
6. Rajendra 1,00,000/- 1,00,000/-
Dubey
7. Sukhdev 26,12,500/- 25,00,000/-
Singh Ghuman
8. Prafulla 50,000/-
Saklecha interest free
for six months
9. Emersion 50,000/-
Labs.
10. Indore 15,00,000/- Interest
Property charged only
Limited @9.84 %
12. Thus, it was noticed that the assessee has given mainly advances to associated persons, family members or relatives and no interest has been charged and only in one case interest @ 9.84 % had been charged. After considering the explanation of the assessee, the AO disallowed interest of Rs. 30,01,267/- calculated @ 14% out of the total interest expenditure of Rs. 54,84,315/-.
13. Before the ld. CIT(A), the same submissions were reiterated. It was contended that the balance of business loans as on 31.03.2011 was Rs. 4.26 crores as against Rs. 3.62 crores as on 31.03.2010 and it was contended that all the loans were for business purposes. The ld. CIT(A) further noted that number of case laws have been cited which are not found applicable in the facts and circumstances of the present case I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 13 of 32 Accordingly, the action of the AO was upheld. Being not satisfied, the assessee has filed this appeal before the Tribunal.
14. The ld. Authorized Representative of the assessee submitted that a correct loan chart indicating the average balance alongwith proper remarks as under :-
S.No. Name of the Opening Closing Average Interest Party (Rs.) (Rs.) (Rs.) (Rs.)
1. Dr.Sadhna 1,20,50,000 1,20,50,000 1,20,50,000 16,87,000` Sodani
2. Sodani Hospital 15,72,440 82,93,452 49,32,946 6,90,612 & Disagnostic P.Ltd.
3. Anurag Sodani 1,72,313 1,72,313 1,72,313 24,123 (Son)
4. Juhi Sodani 8,96,900 9,21,900 9,09,400 1,27,316 (Daughter)
5. Girish Ku.Soni 2,21,000 2,21,000 2,21,000 30,940
6. Rajendra Dubey 1,00,000 1,00,000 1,00,000 14,000
7. Sukhdev Singh 26,12,500 25,00,000 25,56,250 3,57,875 Ghuman
8. Prafulla Nil 50,000 25,000 3,500 Saklecha
9. Emersion Labs NIL 50,000 25,000 3,500
10. Indore Property 15,00,000 15,00,000 15,00,000 62,400 Ltd.
30,01,267
15. The ld. Sr. Departmental Representative has supported the orders of the lower authorities.
16. We have considered the facts. We find that the ld. Authorized Representative of the assessee contended that a sum of Rs. 44,39,347/- can be used towards interest free I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 14 of 32 advances as the assessee had interest free loans of Rs. 10.60 lakhs and personal capital of r. 33.79 lakhs. It is also claimed that the amount receivable from Smt. Sadhna Sodani Wife of the assessee at Rs. 96 lakhs towards the property sold to his wife for a consideration of Rs. 96 lakhs. Therefore, no interest on such amount is disallowable, as there was no borrowed fund involved. Similarly, advance given to Sodani Hospitals were claimed to be for the business purpose only and in the case of Indore Property, the loan amount of Rs. 15 lakhs was returned on 3rd August, 2010, alongwith interest to the tune of Rs. 61,500/- @ 12 % per annum whereas the AO has considered the loan outstanding for a whole year and interest credit allowed by Rs. 61,500/-. Therefore, considering these facts, we are of the considered opinion that this issue needs to be reexamined by the AO in the light of above details furnished by the assessee and claim made thereon. Accordingly, this issue is set-aside for the fresh examination to the file of the AO.
I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 15 of 32
17. Ground no.3 relates to maintaining disallowance of Rs. 12,14,827/- ( 14% of Rs. 88,77,336/- out of total disallowance of Rs. 13,12,827/- made by the AO stating that the assessee has kept his interest bearing fund in the form of cash in hand
18. The AO had discussed this issue at para 3 at page no. 16 - 17 of the assessment order. It was found by the AO that the assessee was having disproportionately huge cash in hand amounting to Rs. 93,77,336/-, which was kept idle, where the borrowed capital was utilized in the business and heavy interest was incurred. The AO after considering the reply of the assessee proceeded to make the further proportionate disallowance to Rs. 13,12,827/- calculated on cash in hand of Rs. 93.77 lakhs calculated @ 14%.
19. In appeal, the ld. CIT(A) has observed that the contention of the assessee that cash was not kept in hand. The same would have been adjusted by the Bank against the loan amount which would have been rendered the expansion of the business difficulty, the same explanation was given before the AO, which has been duly discussed in the I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 16 of 32 assessment order. Accordingly, the ld. CIT(A) observed that the assessee is not able to explain as to how depositing the cash in hand in the Bank would have undermined the business of expansion plan. It could have been profitable to get the cash in hand adjusted against the outstanding loan to avoid interest expenditure in part instead of keeping the same un-utilized. Therefore, after considering the explanation of the assessee, the ld. CIT(A) directed the AO that the amount of Rs. 5 lakhs as reasonable requirement of working cash in hand. Therefore, the AO was directed to disallow the interest only on cash in hand of Rs. 88,77,336/-.
20. Being aggrieved the assessee has filed this appeal before the Tribunal.
21. The ld. Authorized Representative of the assessee submitted that the cash was unutilized because it was deposited in the Bank account, then the bank might have adjusted the loan account with the plans available and the expansion process/running of profession would have been held up due to shortage of funds and, therefore, casually the I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 17 of 32 cash balance was kept for further business expansion. It was further submitted that the cash was excessive only in last three months and that was due to expansion opportunity available at that time. The assessee had purchased a computer radiography system on 20th March, 2011, for a consideration of Rs. 46.80 lakhs (after discount of Rs. 18.12 lakhs), whereas the invoice value was Rs. 63.21 lakhs and the loan was also not approved so in order to make the payment, the reserve cash was being kept aside. However, ultimately the loan was sanctioned in next financial year. The ld. Authorized Representative of the assessee has also drawn our attention to page no. 29 of the paper book. The ld. Authorized Representative of the assessee further submitted that the owner is the judge of the business expediency or the person who is running the business, the interest was paid mainly to the outsiders and not to the family members of the assessee to shift the income of interest is paid on regular basis, which proved genuineness of the loan. Further, the AO has considered the closing balance of cash in hand, while I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 18 of 32 calculating the interest @ 14 % per annum, whereas the average cash balance for the year was Rs. 33.89 lakhs only. The ld. Authorized Representative of the assessee also supported his submission by placing reliance in the case of Sasun J.David vs. CIT, (1979) 118 ITR 261 ( S.C.).
22. The ld.Sr. Departmental Representative relied upon the order of CIT(A).
23. We have considered the facts and find that the AO has considered the entire cash in hand amounting to Rs. 93.77 lakhs, whereas the ld. CIT(A) has allowed relief of Rs. 5 lakhs and, thus, treated the cash in hand balance at Rs. 88.77 lakhs for making disallowance of interest @ 14%. We find that the average cash balance for the year was Rs. 33.89 lakhs only. We also note that the assessee was expanding his profession and going to acquire computer radio graphic system. Therefore, the assessee has purposely kept the high cash in hand to avail the opportunity of expansion, in cash the loan is not materialized immediately. We find that the contention of the ld. Authorized Representative of the assessee has force as I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 19 of 32 it is the assessee who is the judge of his business expediency and not the Revenue has to how the affairs of business are to be managed. Further, there is force in the submission of the assessee that the cash balance is deposited in Bank, the same might be adjusted against the loan given to the assessee. Therefore, the expansion of business would be hampered due to shortage of funds as cash in hand. We further note that the average cash in hand as is only Rs. 33.89 lakhs, which reasonable considering the volume of business of the assessee. Therefore, notional disallowance made by the AO by calculating @ 14% is not justified. Accordingly, disallowance was made is deleted.
24. Ground no. 4 relates to maintaining disallowance of Rs. 8,18,176/- made u/s 40(a)(ia) of the Income-tax Act, 1961.
25. Facts in brief are that the assessee has paid Rs. 90,000/- to Shri Raju Premchandani as salary. No TDS was deducted nor Form No. 15H was filed. Therefore, the same was disallowed u/s 40(a)(ia) of the Act. Similarly,the assessee has paid interest of Rs. 4,000/- to Chandra Kumar Kasliwal, Rs. I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 20 of 32 4,550/- to Kanchan Devi Bhagnani, Rs. 6,000/ to Manju Pipada, Rs. 28,800/- to Shri Mannibhai Mohanlal Bagdi, Rs. 6750/- to Sangeeta Badjatiya, Rs. 5,000/- to Vijayu Laxmi Jain, Rs. 8,775/-to Vikas Porwal aggregating to Rs. 63,875/- on which no TDS was made. Therefore, the same was disallowed u/s 40(a)(ia) of the Act nor the copy of Form No. 15H was filed. The AO further noted that the assessee has failed to deduct TDS on multiple expenses/payments where it was liable to deduct TDS as per TDS provisions of the Income- tax Act, 1961, or has deducted the lesser TDS as required under the Act in respect of following :-
S.No. Date Description Amount
(Rs.)
1. 08.06.2010 Repairs & maint. 45,000
2. 17.08.2010 Repairs & maint. 29,759
3. 21.02.2011 Repairs & maint. 35,200
4. 07.08.2010 Repairs & 28,200
maint.Building
5. Interest paid to ABN 88,775
Amro Bank
6. 04.06.2010 Processing fee paid 2,27,700
to India Bulls
Financial Services
172724 A/c
7. 01.03.2011 Processing fees paid 80,131
to Bajaj Finance
Limited 85872 a/c
8. Foreclosure interest 21,233
paid to India Bulls
Financial Sevices
73819 a/c
I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 21 of 32
9. Foreclosure interest 89,144 paid to Bajaj Auto Finance
10. Foreclosure interest 19,159 paid to Reliance Capital 6,64,201
26. Accordingly, the said amount of Rs. 6,64,301/- was disallowed u/s 40(a)(ia) of the Act.
27. Aggrieved with the order, the assessee has filed appeal before the CIT(A). The ld. CIT(A) has also upheld the disallowance made by the AO.
28. The ld. Authorized Representative of the assessee submitted that the AO has disallowed salary payment of Rs.90,000/- to Mr. Raju Premchandani on non-deduction of TDS. However, the AO himself in his order at page 22 has stated that Shri Raju Premchandani was working as a full time employee of the assessee and, therefore, a master servant relation between the assessee and Shri Raju Premchandani was there. Hence, there was no TDS liability arose as the salary paid was only Rs. 90,000/- which was out of the purview of TDS.
I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 22 of 32
29. As regards payment amounting to Rs. 63,875/-, it was submitted that TDS provisions u/s 194A(3)(d) and 194A(1) are not applicable if the amount of interest does not exceed Rs. 5,000/-. In the case of Chandra Kumar Kasliwal, the amount was Rs. 4,000/- and in the case of Kanchan Devi Bhagnani, the amount was Rs. 4,550/-, in the case of Vijay Laxmi Jain, the amount was Rs. 5,000/-. Therefore, there was no liability of TDS in respect of this interest payment. Therefore, it was submitted that disallowance should be restricted to Rs. 50,325/- as against Rs. 63,875/- made by the AO. In respect of disallowance of Rs. 6,64,301, the ld. Authorized Representative of the assessee submitted in his synopsis in a tabular form at page 13, which reads as under :-
S.No. Amount Remarks
Disallowed
1. 45,000 Payment was made to M/s. AVS Incorporated for
"Power supply by rebuilding the construction of 6"
II power supply Cord .... " purchased, the supplier has also charged CST on the bill. Thus no TDS liability arises on material supply bill/payment. A Copy of bill attached. Please refer paper book on page no.32
2. 29,759 Payment was made to M/s. Millipore (India) Pvt.
Ltd. for Progard purchased, the supplier has also charged CST on the bill. Thus no TDS liability arises on material supply bill/payment. A Copy of bill attached. Please refer paper book on page no. I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 23 of 32 33
3. 35,200 Payment was made to M/s. Meditech Electro Services for Voltage Transformer and Switches purchased of Rs. 31,200 and also the supplier has charged service charges of Rs. 4,000 separately on the bill. Thus no TDS liability arises on material supply bill/payment. Further payment made for service charge is below TDS limit. A copy of bill is attached herewith. Please refer paper book on page no. 34
4. 28,200 Payment was made for repair and maintenance to M/s. Swarna G.Kolte and TDS was duly deducted and paid. A copy of TDS certificate is attached herewith. Please refer paper book on page no. 35
5. 88,775 TDS liability does not arise on payments made to Bank. Interest is paid to ABN Amro Bank. This exclusion is provided by section 194A (3)(iii)(a). The learned AO himself accepted that it is interest payment made to bank in his order page No. 23 (serial no. 21).
6. 2,27,700 Processing fees paid to M/s. India Bulls Financial Services Ltd., disallowed. Processing fee could not be considered as interest covered by section 194A. Even if it is at par with interest payment then assessee has deducted TDS on interest payment and therefore it is a case of short payment of TDS and therefore allowable. Disallowance under s. 40(a)(ia) has two limbs, one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government account-Assessee has deducted tax and there is no allegation that this TDS is not deposited with the Government account, thus the provisions of s. 40(a)(ia) cannot be invoked. TDS certificate enclosed in paper book on page no.36-39.
Assessee relies on the decision of DCIT vs. S.K.Tekriwal reported in 48 SOT 0515 (2011) and DE Trade Corp (India) Ltd. reported in 54 SOT 0596 (2012)
7. 80,131 Amount paid to Bajaj Finance Ltd. of Rs.80,131 as I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 24 of 32 processing fee which includes Rs. 30,000 paid towards insurance charges which is not liable for TDS and balance amount of Rs. 50,131 for which contention of the assessee is same as of Serial No. 6 above. TDS certificate enclosed please refer paper book page no. 40
6. 21,233 Amount is paid to Indiabulls, Bajaj Auto Finance Ltd. and Reliance Capital Ltd. respectively for 89,144 foreclosure charges paid. Foreclosure charges could not be considered as interest covered by 19,159 section 194A. Even if it is at par with interest payment then assessee has deducted TDS on Total 6,64,301 interest payment and therefore it is a case of short payment of TDS and therefore allowable. Same as Serial No. 6 above. TDS certificate enclosed please refer paper book page no. 41-44
30. The ld. Departmental Representative has placed reliance on the orders of the lower authorities.
31. We have considered the facts and materials available on record. We find that the payment of Rs. 90,000/- made to Shri Raju Premchandani was in the nature of salary payments, on which TDS liability is not applicable as the payment was below the prescribed limit. Therefore, the disallowance of the same is deleted.
32. With regard to disallowance of Rs. 63,875/-, it is seen that the payments made to Chandra Kumar Kasliwal, I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 25 of 32 Kanchan Devi Bhagnani, Vijay Laxmi Jain were aggregating to Rs. 13,550/- are below Rs. 5,000/-. Hence, there is no TDS liability u/s 194A(3)(d) and u/s 194A(1). Hence, disallowance of the same are deleted and balance disallowances of Rs. 50,325/- are upheld.
33. As regards disallowances of Rs. 6,64,301/- are concerned, the assessee has filed details in tabular form as reproduced above, according to which it was claimed that some of the payments pertained to supply of goods, payments to Bank and processing fee, which are prima facie not disallowable under the provisions of the TDS. However, the issue is set-aside to the file of the AO to verify the claim of the assessee and consider the disallowance in accordance with law. The ground is allowed for statistical purposes.
34. Ground no. 5 relates to maintaining disallowance out of Telephone, Travelling, Vehicle Running Exp., Vehicle Repair and Maintenance Expenses, Depreciation on vehicles and Insurance Expenditure on vehicles for personal use at 20% of I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 26 of 32 total expenses even when entire amount of expenses were incurred for the purpose of business of the assessee.
35. Briefly stated, the facts of the case are that the tax audit report stated that Auditors are unable to certify that no personal expenses have been debited to profit and loss account by the business concerned. Therefore, the AO observed that expenses debited on account of telephone, travelling, vehicle are as follows and are of personal nature :-
Rs. Disallowance % Amount disallowed Telephone Expenses 3,35,632 20 67,126.4 Travelling Expenses 1,80,296 20 36,059.2 Vehicle Running 2,30,603 80 1,84,482.4 Expenses Depreciation on 3,18,952 80 2,55,161.6 Vehicles Insurance expenditure 30,980 80 24,784.0 on vehicles Total disallowances 6,26,117.6
36. The AO also observed that the assessee is using five cars and debiting the expenses on all cars are not justified. Accordingly, expenses on one car is allowed and for four cars was disallowed u/s 40A(2)(a) of the Income-tax Act, 1961. Accordingly, total disallowance of Rs. 6,26,118/- was made. I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 27 of 32
37. The ld. CIT(A) has confirmed the disallowance @ 20% of the expenses on account of travelling and telephone. However, with regard to running of vehicles, these disallowances were restricted to 20% of the said expenditure on account of running of all the vehicles.
38. Before us, the ld. Authorized Representative of the assessee submitted that the AO made disallowance @ 20% for telephone and travelling expenses and ad hoc disallowance @ 80% on total vehicle expenses alongwith the depreciation on the pretext only on one car expenses is justified and, thus, allowed only 20%.
39. The ld. Authorized Representative of the assessee submitted that the provisions of Section 40A(2)(a) are not applicable as pertained to payments made to any person referred to in clause (b) of that Section, whereas in the present case, the expenses were incurred for the purpose of business provisions of the assessee. Further, while making disallowance, the AO has not invoked the provisions of Section I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 28 of 32 145(3) nor books of accounts were rejected. Therefore, such disallowances are not justified.
40. The ld. Departmental Representative supported the order of the AO.
41. We have considered the facts and materials available on record. We find that the ld. CIT(A) has restricted the disallowances in respect of all expenses @ 20%, whereas such disallowances have been made by the AO without pointing out any defects in the books of accounts. Therefore, in the interest of justice and fair play, we restrict the disallowance in respect of all expenses @ 10% including vehicle running and maintenance and depreciation. Accordingly, the AO is directed to recalculate the disallowances.
42. Ground no. 6 relates to maintaining disallowance of Rs. 1,33,791/- made by the AO u/s 36(1)(ii) of the Income-tax Act, 1961.
43. The AO has disallowed the expenses of Rs. 1,33,791/- on account of bonus paid for services, where such sum was I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 29 of 32 otherwise payable to him as a profit and dividend u/s 36(1)(ii) of the Act. The ld. CIT(A) has confirmed the same.
44. The ld. Authorized Representative of the assessee submitted that bonus is paid to employee as per Section 12 of the Bonus Act, 1965. The ld. Authorized Representative of the assessee submitted that it was wrongly mentioned by the Auditors u/s 36(1)(ii), which says that any sum paid to any employees as bonus or commission for services rendered where such sum would not have been payable to him as profits for dividend if it had not been paid as bonus or commission. The ld. Authorized Representative of the assessee has also filed a letter from C. A. confirming the same about the error in the audit report which is placed at page 48 of the paper book.
45. The ld. Sr. Departmental Representative relied upon the orders of the lower authorities.
46. We have considered the facts and materials available on record. We are of the view that there appears an error in report by the Tax Auditors for which a certificate has been I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 30 of 32 filed at paper book page 48. We, therefore, remit back this issue for the limited purpose to AO to verify the genuineness of the certificate and if found in order no disallowance on account of bonus payment is to be made.
47. Ground no. 7 relates to maintaining disallowance of Rs. 1,59,000/- as made by the AO by invoking the provisions of Section u/s 40A(3) of the Act.
48. The AO noted that the assessee has paid an amount of Rs. 59,000/- on 11.05.2010 and Rs. 1 lakh on 12.05.2010 on account of stamp paper purchase. Accordingly, the AO invoked the provisions of Section 40A(3) and disallowed the same. The ld. CIT(A) has also upheld the same.
49. The ld. Authorized Representative of the assessee submitted that the payment of Rs. 1,59,000/- was made for purchase of stamp paper for getting the loan registered for India Bulls Limited, which is an allowable expenditure u/s 40A(3) of the Act, as the payment has been made to the Government and such payment is specifically covered in the exclusion of the said Section read with rule 6DD(b). The ld. I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 31 of 32 Authorized Representative of the assessee also supported his view by placing reliance on some case laws as per his written submissions.
50. The ld. Sr. Departmental Representative relied upon the orders of the lower authorities.
51. We have heard the rival submissions and have perused the material available on record. We find that the payment of Rs. 1,59,000/- has been made to Government, which falls under the exclusion of Section 40A(3) read with Rule 6DD(b). Hence, disallowances confirmed by the ld. CIT(A) are deleted. This ground of appeal is allowed.
52. Ground no. 8 relates disallowance of interest on service tax of Rs. 2,599/-.
53. The ld. Authorized Representative of the assessee submitted that interest on service tax is compensatory in nature and not in the nature of penalty and disallowance cannot be made u/s 37(1). The ld. Authorized Representative of the assessee also relied on case law of Remfry & Sagar I.T.A.No. 101/Ind/2015 - A.Y.2011-12 Shri Rajendra Kumar Sondani, Indore Page 32 of 32 Consultants Pvt.Ltd. v. ACIT, (2012) 34 CCH 131 (Del) Trib. & Others.
54. We have considered the facts and materials available on record and find that the interest on service tax is compensatory in nature and not in penal nature and the same is disallowed. Hence, the disallowance made is deleted.
55. In the result, the appeal of the assessee is partly allowed for statistical purposes.
The order has been pronounced in open court on the 9th November, 2016.
Sd/- Sd/-
(डी.ट
.गरा सया) (ओ.पी.मीना)
या यक सद य लेखा सद य
(D.T.GARASIA) (O.P.MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
*दनांक /Dated : 9th November, 2016.
CPU*