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Lakozy Motors Pvt Ltd And Others Versus Income Tax Officer And Others

2015 (5) TMI 611 - ITAT MUMBAI

Disallowance of commission expenses - non-deposit of tax deducted at source (TDS) within the stipulated time period u/s. 40(a)(ia) - Held that:- Amendment by Finance Act, 2010 (w.e.f 01.04.2010), providing time for deposit of TDS up to the due date of filing of the return of income, which in the instant case is 30.09.2009, lest the expense be allowed in computing the income for the year of payment of TDS, as retrospective, so that it would apply for the current year as well. We are however unabl .....

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t, 2010 as retrospective. Accordingly, the assessee succeeds. As a corollary, we may though add, where the assessee has claimed or otherwise been allowed, as the Revenue was obliged to, deduction in respect of the impugned sum for A.Y. 2010-11, i.e., following the Revenue's stand of the amendment afore-stated being not retrospective, a modification to the assessment for that year shall, in consequence, follow - Decided in favour of assesse.

Disallowance u/s.14A - Held that:- Assessee .....

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ower could validly draw or avail in terms of the relevant loan agreement), the presumption, both on facts and in law, would only be of the entire sum as having been utilized toward the intended business purpose/s, financing of inventory of stock-in-trade for example. The term loans are, in any case, towards specific/defined capital assets, so that, where purchased, the borrowings can only be considered as having been applied toward the same. The matter is, accordingly, restored back for necessar .....

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Held that:- amount/s under reference may have been brought to tax for the following (another) year/s. However, it is only the assessee who is responsible for the same, i.e., by disclosing it as its income for that year/s. It is only where the assessee concedes to the income being subject to tax for the current year that the Revenue could be faulted for, despite the assessee having returned it as so, i.e., for the following year/s, assessing it as income for that year/s, and which is not the case .....

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tax for the following year/s and, where so, delete the same. The A.O. shall undertake the examination, and toward which the assessee shall extend all necessary and reasonable cooperation, while passing appeal effect giving order - Decided in favour of assesse by way of remand.

Disallowance of bank interest - interest on cash credit account with it's bank, Bank of India - Held that:- It is only where the bank balance exceeds the DP of ₹ 750/-, that the excess can be construed as .....

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he drawing power for the future dates may also be relevant in this regard. Surely, the DP should be on the basis of normative balances and not contrived, i.e., which is brought down only to exhibit a below par balance for a brief period, before assuming its' normal, higher balance. The matter is, accordingly, restored to the file of the A.O. for necessary verification and toward which the assessee shall extend cooperation to enable proper determination of the matter by the former, i.e., in accor .....

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ncome Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2009-10 vide order dated 26.09.2012 by the Commissioner of Income Tax (Appeals)-20, Mumbai ('CIT(A)' for short) vide his order dated 29.12.2011. Assessee's Appeal (in ITA No. 6982/Mum/2012) 2. The appeal raises two grounds, which we shall take up in seriatim. The first concerns the disallowance of commission expenses in the sum of ₹ 21,34,840/- on account of non-deposit of tax deducted at source .....

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Revenue's case, so that, aggrieved, the assessee is in second appeal, raising the following ground: '1. On the facts and circumstances of the case and law the learned Commissioner of Income Tax - Appeal erred in confirming the disallowance of payment of Commission of ₹ 21,34,840/- u/s. 40(a)(ia) of the Income Tax Act, 1961 without considering decision of ITAT and High Court.' 3. We have heard the parties, and perused the material on record. The only decision cited by the asses .....

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. We are however unable to find any infirmity on that score in-as-much as the tribunal per its decision in Bharati Shipyard Ltd. vs. Dy. CIT [2011] 11 ITR(Trib) 599 (Mum) (SB), relied upon by the Assessing Officer (A.O.), held the amendment as not retrospective. So, however, the decisions by the Hon'ble High Courts, as in the case of CIT vs. Virgin Creations (in ITA no. 302 of 2011 [G.A. No.3200 of 2011, dated 23.11.2011]) and CIT vs. Naresh Kumar [2014] 362 ITR 256 (Del) have since been del .....

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gly. 4. Ground No. 2 relates to the deduction u/s.14A, at ₹ 5,83,310/-. The assessee was observed to have made an investment in shares at ₹ 1,07,41,401/-, income from which does not form part of the total income. Indirect expenditure, by way of interest and administrative expenditure, had, however, been incurred, so that a disallowance in its respect, to the proportionate extent, would arise, and was accordingly made in terms of rule 8D(2)(ii) (at ₹ 5,29,603/-) and rule 8D(2)(i .....

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t for ₹ 102.50 lacs is in shares of companies for diverse business reasons, not yielding any dividend income, which also explains the low level of dividend income at ₹ 2367. The claim was found, in the words of the ld. CIT(A), as vague, unverifiable and unsubstantiated, so that irrespective of the volume of dividend, disallowance of corresponding expenditure shall arise. Apart from un-substantiation of its claims, the same would be of no assistance. This is as, admittedly, the purpos .....

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red in any proportion to income, which may be paltry, or perhaps even negative, considering that income for the purposes of the Act is only one which corresponds with the common understanding of the said term, i.e., net of expenses, so that the same would only be after deducting expenses attributable thereto. As regards the non-receipt of income there-against, it is the income from the shares, i.e., as a class of investment, that has to be considered, and not qua each share/individual investment .....

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by the tribunal in the case of AFL P. Ltd. vs. Asst. CIT [2013] 28 ITR (Trib) 263 (Mum), stating that where the entire borrowing by way of cash credit (account) stands absorbed in the relevant class of assets, i.e., those intended to be financed thereby, no disallowance u/s. 14A shall ensue. We find merit in the said argument. Where the borrowing under the cash credit account is within the drawing power (i.e., the amount that the assessee-borrower could validly draw or avail in terms of the rel .....

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extend all assistance and cooperation, only for its own benefit. The A.O. shall adjudicate, issuing definite findings of fact, so that where the borrowings are shown to have been utilized in terms of the agreement, as indicated above, the assessee could only be said to have complied with the terms of section 14A(2). We decide accordingly. 6. The third and final ground of the assessee's appeal is in respect of sums, aggregating to ₹ 1,07,75,254/-, being ostensibly advances, treated as i .....

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following year, the same were not accompanied by either delivery of goods or rendering of services, so that the same was, again, without basis, and with a view to neutralize a non-existing liability. This defines the Revenue's case, which stands agitated by the assessee, raising the following ground: '3. On the facts and circumstances of the case and law the learned Commissioner of Income Tax - Appeal erred in confirming the treatment of Advance received from Customers as unexplained Ad .....

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i.e., against servicing of vehicles - the assessee being in the business of sales and services of automobiles. It is only for the assessee to, therefore, exhibit that the amount/s, though received, did not represent income, as contractual obligation/s in its respect had not been performed as at the yearend, so that no income had in fact accrued, so as to be appropriated in accounts to the income account for the year. Where and to the extent the assessee has in fact been able to do so, the A.O. h .....

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as 'income' for a future year would not by itself establish the assessee's case of income having not accrued for the current year. And which would decidedly be the case where no taxable event has occurred during the year for which income stands offered to tax, being the following year in most cases. Accounting entry, it needs to be appreciated, does not create income, but only recognizes it, where it has inured. The whole premise of accounts is the true and fair statement of the asse .....

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e, however, stood adduced before the Revenue, and which position continues before us. The receipt was, accordingly, treated as realized on account of sale/income. The assessee before us has produced challans for payments of sales tax (MVAT) on 26.04.2010 (Rs.3,25,508/-) and 21.03.2010 (Rs.63,259/-), placed at pgs. 72 and 73 respectively of the assessee's paper book (APB). We are, even assuming the said tax to be in respect of the relevant transaction, unable to see as to how the same support .....

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ay have been brought to tax for the following (another) year/s. However, it is only the assessee who is responsible for the same, i.e., by disclosing it as its income for that year/s. It is only where the assessee concedes to the income being subject to tax for the current year that the Revenue could be faulted for, despite the assessee having returned it as so, i.e., for the following year/s, assessing it as income for that year/s, and which is not the case. Be that as it may, there is no denyi .....

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and, where so, delete the same. The A.O. shall undertake the examination, and toward which the assessee shall extend all necessary and reasonable cooperation, while passing appeal effect giving order. We decide accordingly. Revenue's Appeal (in ITA No. 7146/Mum/2012) 8.1 Vide its two grounds, the Revenue impugns the deletion of disallowance of bank interest in the sum of ₹ 32,73,421/-, representing the interest on cash credit account with it's bank, Bank of India. The basis of the .....

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ment, i.e., by actual discharge of liability. Even its conversion to loan/liability account shall not, as clarified by Explanation 3D thereto, amount to its payments. The deletion by the ld. CIT(A) is on the basis that the A.O., who had been furnished with the copy of the cash credit account, had, however, considered the same as a term loan, and which was not the case; the two accounts being distinct. How would that, we wonder, alter the Revenue's case, i.e., even assuming that the A.O. has .....

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s enumerated above. 8.2 We may, next, discuss the issue on merits. The provision reads as under: 'Certain deductions to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) ………… (b) ………… (e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions .....

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a current account, with all the receipts and payments of the assessee borrower being channelized through it. The bank, accordingly, also debits its interest to this account, increasing its balance immediately to that extent, and which thus becomes part of the loan/advance amount, i.e., borrowed capital, and on which therefore it is entitled to, and charges, interest. The non reflection of liability toward bank interest by the assessee in its account is, thus, not an incorrect representation of .....

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eived and made through credits and debits in the bank accounts of the payee and the payer. Where the bank borrowings at the enhanced amount, i.e., inclusive of the charge of interest, is within the drawing power, the bank is deemed to have extended advances (i.e., on principal account) to the assessee to that extent. As such, it is not a case of conversion of interest into bank borrowing but of the same being actually paid out of borrowed funds advanced by the bank. The drawing power is drawn by .....

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