Income Tax Appellate Tribunal - Bilaspur
Dy. C.I.T.2(1), Raipur (Cg) vs Santosh Jain, Raipur (Cg) on 11 May, 2017
ITA 177/RPR 2014 1
INCOME TAX APPELLATE TRIBUNAL
RAIPUR BENCH RAIPUR
BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND
SHRI GEORGE GEORGE K., JUDICIAL MEMBER
ITA No.:- 177/RPR/2014
Assessment Year 2011-12
DCIT-2(1), Vs Shri Santosh Jain,
Raipur (C.G.) Prop: Arihant Mining Company,
Kusum Complex, Shankar Nagar,
Raipur (C.G.)
PAN ACMPJ 5971 B
(Appellant) (Respondent)
Revenue by Shri Ajit Kumar Laskar, D.R.
Assessee by Shri R.B. Doshi, AR
Date of hearing 09/05/2017
Date of pronouncement 11/05/2017
ORDER
PER: GEORGE GEORGE K., J.M.:
1. This appeal at the instance of the Revenue is directed against the order of the CIT(A), Raipur dated 19.06.2014. The relevant assessment year is 2011-
12.
2. The three effective grounds raised by the Revenue in its memorandum of appeal read as follows:
"i. Whether in law and on facts & circumstances of the case, the Learned CIT(A) has erred in deleting the addition of Rs. 33,35,974/- made by the AO on account of disallowance of interest paid to NBFCs and finance charges as per provision of section 40(a)(ia) of the I.T. Act?"
2. Whether in law and on facts & circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs.1,44,666/- made by the A.O. out of Car running & maintenance expenses, ITA 177/RPR 2014 2 Office telephone and traveling expenses respectively as personal use cannot be ruled out ?
3. Whether in law and on facts & circumstances of the case, the CIT (A) has erred in deleting the disallowance amounting to Rs. 50,000/- made by the A.O. out of mess expenses which were not supported by proper vouchers ?"
3. We shall adjudicate the issues ground wise as under:
Ground No.1
4 Ground No.1 is directed against the disallowance of Rs.33,35,974/- by invoking the provisions of section 40(a)(ia) of the Act. The Assessing Officer while completing the assessment under section 143(3) of the Act, disallowed a sum of Rs.33,35,974/- by invoking the provisions of section 40(a)(ia) of the Act in respect of finance charges paid to Non-banking financial companies.
4.1 Aggrieved, the assessee preferred an appeal before the first appellate authority. Elaborate written submissions were filed before the first appellate authority. The first appellate authority accepted the contention raised by the assessee and deleted the addition made by the Assessing Officer.
4.2 Aggrieved by the said order of the first appellate authority, the assessee is in appeal before us raising the above ground. Ld D.R. relied on the assessment order passed by the Assessing Officer. Ld A.R. on the other hand submitted that in view of the amendment made by Finance Act, 2012 to Section 201(1) and 40(a)(ia), the matter may be restored to the file of the Assessing Officer for the limited purpose of verification as to whether the payee had included the interest income in its computation of business income and offered the same to tax.
4.3 We have heard the rival submissions and perused the material on record. The Finance Act, 2012 had inserted the first proviso in section 201(1) which provides that an assessee shall not be deemed to be an assessee in default in respect of failure to deduct tax at source, if the payee :
i) Has furnished his return of income u/s 139.
ii) Has taken into account such sum for computing income in such return of income.ITA 177/RPR 2014 3
iii) Has paid tax due on the income declared by him in such return and the person furnishes a certificate to this effect from a Chartered Accountant in Form no. 26A.
4.3.1 Simultaneously, second proviso was inserted in sec. 40(a)(ia) by Finance Act 2012 w.e.f. 01.04.2012 to the effect that where an assessee fails to deduct tax but he is not deemed to be an assessee in default under the first proviso to sec. 201 (1) then, it shall be deemed that the assessee has deducted and paid the tax on the date of furnishing return of income by the resident payee.
4.3.2 In the following cases, it has been held that the provisos so inserted are retrospective:-
i) Gujarat Pipavav Port Ltd. (2014) 149 ITD 23 (Rajkot) - held that first proviso inserted in sec. 201(1) w.e.f. 01.07.2012 is applicable retrospectively.
ii) Rajeev Kumar Agarwal vs Addl. CIT (2014) 149 ITD 363 (Agra), Brijgopal Madhusudan Bhattad vs. ITO (2015) 155 ITD 90 (Nag.) and CIT vs Ansal Land Mark Township (P) Ltd. (2015) 377 ITR 635 (Del.)
- it was held that second proviso to section 40(a)(ia) is retrospective.
4.3.3 In view of above decisions, the Raipur Bench of ITAT, in R.K.P. Company Vs. ITO - (2016) 140 DTR 201 (Raipur)(Trib) held that in the case of non deduction of tax, it is proper to remit the matter to the file of AO for limited verification as to whether recipient of payment has included the same in his computation of business income offered to tax, and if found to be so, delete the disallowance in question.
4.3.4 In the light of above order of Raipur Bench of the Tribunal in the case of R.K.P. Company (supra), we restore this issue back to the file of the Assessing Officer with a limited direction to examine whether the payee 'NBFCs' have included the interest paid by the assessee in its return of income and paid the tax on the same. The assessee is at liberty to submit certificate in Form No.26.
ITA 177/RPR 2014 44.3.5 Further in the case of Ramakrishna Vedanta Math vs ITO (2012) 33 CCH 0598 (2013) 55 SOT 04 17. Kolkata Bench of the Tribunal observed as under
vide para no. 6 to 8: as under:
6. Learned counsel's vehement reliance is on Hon'ble Allahabad High Court's judgment in the case of Jagran Prakashan Ltd Vs DC IT [ (2012) 21 taxmann.com 489 All] wherein Their Lordships have, inter alia, observed as follows;
it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax..
7. It is thus argued that the onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Learned counsel contends that once all the details of the persons to whom payments have been made, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. It is learned counsel's submission that as a result of Hon'ble Allahabad High Court's judgment in the case ofJagaran Prakashan (supra), this paradigm shift in the interpretation of Section 201(1) has been brought about.
8. The plea is indeed well taken. Learned counsel is quite right in his submission that, as a result of the judgment of Hon'ble Allahabad High Court in Jagran Prakashan's case (supra) and in the absence of anything contrary thereto from Hon'ble jurisdictional High Court, there is a paradigm shift in the manner in which recovery provisions under section 201(1) can be invoked. As observed by Their Lordships, the provisions of Section 201(1) cannot be invoked and the "tax deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly". Once this finding about the non payment of taxes by the recipient is held to a condition precedent to invoking Section 201(1), the onus is on the Assessing Officer to demonstrate that the condition is satisfied. No doubt the assessee has to submit all such information about ITA 177/RPR 2014 5 the recipient as he is obliged to maintain under the law, once this information is submitted, it is for the Assessing Officer to ascertain whether or not the taxes have been paid by the recipient of income. This approach, in our humble understanding, is in consonance with the law laid down by Hon'ble Allahabad High Court."
4.3.6 In view of the order of the Tribunal, the Assessing Officer is directed to verify the above mentioned facts of inclusion of interest income in the return of income filed by payee NBFC's. It is ordered accordingly. Thus, this ground of appeal of the assessee is allowed for statistical purposes.
Grounds No. 2 and 35. The above grounds of appeal relates to disallowance of Rs.1,44,666/- and Rs.50,000/-. The Assessing Officer while disallowing Rs.1,44,666/- made the following observation:
"On perusal of the Trading and Profit & Loss Account, it was found that the assessee has debited expenses on account of Jeep, Car running & maintenance expenses at Rs.10,15,328/-, Office expenses at Rs.1,52,344/-, Telephone expenses at Rs.2,00,162/-and travelling expenses at Rs.78,822/-. The assessee has submitted ledger account and relevant bills and vouchers. On verification of these expenses with reference to the books of accounts it was found that expenses are not completely verifiable on account of the fact that some of the expenses were made in cash. Most of the vouchers are self drawn and not supported by bills etc. vouchers are also not properly maintained. Some of the vouchers were also not made available for verification. It was also found that identity of recipient of payments in most of the cases is also not ascertainable and therefore genuineness of some of the expenses are not established. Personal use of telephone also cannot be ruled out in absence of log book and necessary details in this regard. In view of these facts, expenses are not completely verifiable and therefore, 1/10th of these expenses totaling to Rs.14,46,656/- which comes to Rs.1,44,666/- and is being disallowed and added back to the total income of the assessee to cover up all possible leakages of Revenue."
5.1 The Assessing Officer while making the adhoc disallowance of Rs.50,000/- being mess expenses had given the following findings:
"Further, on perusal of Trading and Profit & Loss Account, it was found that the assessee has debited expenses on account of Rs.21,49,054/-.ITA 177/RPR 2014 6
On verification of these expenses, it was found that expenses are not completely verifiable on account of the fact that some of the expenses were made in cash. Most of the vouchers are self drawn and not supported by bills etc. Vouchers are also not properly maintained. Some of the vouchers were also not made available for verification. In view of these facts, a lumpsum amount of Rs.50,000/- is being disallowed and added back to the Total Income of the assesses to cover up all possible leakages of Revenue on this account."
5.2 Aggrieved by the assessment order in making these two disallowances, assessee preferred appeal to the first appellate authority. Elaborate written submissions were filed before the first appellate authority, which are reproduced at para 9 of the impugned order of the CIT(A). The CIT(A) deleted the disallowance of Rs.1,44,666/- and Rs.50,000/-.
5.3 The Revenue being aggrieved is in appeal before the Tribunal. The Ld. DR supported the order of the Assessing Officer. On the other hand, Ld. AR relied on the finding of the CIT(A).
5.4. We have heard the rival submissions and perused the material on record. The CIT(A) after considering the preceding years gross receipt and expenditure held that adhoc disallowances is not warranted for the relevant assessment year. The gross profit of the current assessment year is more than the G.P. of the previous assessment year. The book result of the assessee was accepted and no specific defects were pointed out. The gross receipt for the current assessment year had increased to Rs.14.86 crores from Rs.12.26 crores in the previous assessment year. The expenditure claimed under the various heads (under dispute) are less in the current assessment year compared to the expenditure allowed in previous assessment year. Therefore, no adhoc disallowance of Rs.1,44,666/- and Rs.50,000/- are warranted in the facts and circumstances of the case. Hence, the Grounds No. 2 and 3 raised by the Revenue are dismissed.
6. In the result, appeal of the Revenue is partly allowed for statistical purposes.
Sd/- Sd/-
(N.S. SAINI) (GEORGE GEORGE K.)
Accountant Member Judicial Member
ITA 177/RPR 2014 7
Aks/-
Dated: 11/05/2017
Copy of the order forwarded to :
1. Copy forwarded to: Appellant :
2. Respondent :
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
Sr. P.S.