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Brijgopal Madhusudan Bhattad Versus Income-tax Officer, Khamgaon

2015 (6) TMI 1045 - ITAT NAGPUR

Disallowance of interest u/s 40a(ia) - claim of the appellant that the interest has to be allowed U/s 36(1)(iii) - Held that:- Section 36(1)(iii) and section 37(1) so far as the allowance of interest is concerned, run parallel to each other. But these two sections do differ and it can be discerned that under section 36(1)(iii) the borrowed amount may be utilized even for procuring a capital asset related to the business. However, on the other hand, under section 37(1) the debt incurred must not .....

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est under section 36(1)(iii) of the IT. Act. Accordingly this part of the action of the Assessing Officer is hereby reversed. - The insertion of Second Proviso appears to be on the ground of equity and natural justice because the income-tax cannot be levied two times on the same income. Further, according to us, there should be one more reasons that the provisions of section 40(a)(ia) are otherwise harsh in nature because an expenditure which is otherwise allowable under section 37 or under .....

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the tax. Therefore, to overcome this hardship, specially when the deductee has paid the tax on the said amount, the respected legislature, in our humble view, seems to be justified in inserting this new Proviso, Therefore, we are also of the opinion, as expressed by the respected coordinate Bench Agra, that the amendment has brought into the statute was mainly to mitigate the rigour of harsh provisions of disallowance of expenditure under section 40(a)(ia), therefore, intended to be applied ret .....

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e statute. The assessee is side by side directed to furnish the requisite details to the Assessing Officer and fully cooperate with the proceedings - the ground raised by the assessee being restored back for readjudication, hence may be treated as allowed for statistical purposes. - ITA No. 52/Nag./2013 - Dated:- 5-6-2015 - MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHAMIM YAHYA, ACCOUNTANT MEMBER For the Appellant: Mr. C.J. Thakar and Mr. S.C. Thakar For the Respondent Mr. D. Ravi Kumar ORDER Mukul .....

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3(3) dated 23-10-2010 were that the assessee in individual capacity is a proprietor of Shriram Oil Industries and derives income from crushing of oil seeds and trading in products like cotton seed, oil and cotton seed cake etc. In respect of the impugned ground, the observation of the Assessing Officer was that the assessee had debited an interest of ₹ 6,86,739/- in the profit & loss account. The bifurcation of the same was as under : " During the examination of books of account, .....

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fully and is not acceptable. The assessee has not proved how the interest paid is incidental to the business along with the evidence. The capital borrowed on interest and its utilization in business have to be proved then only interest claim can be allowed u/s 36(1)(iii) of the IT. Act 1961. Mere, saying that the personal books as well as the Oil Mill books are interlinked financially does not serve the purpose for claiming deduction u/s 36(1)(m)of the IT. Act. Hence the interest debited at S .....

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ied the provision of the TDS as laid down in Chapter XVII-B of the I.T. Act,1961 disallowing u/s 40(a)(ia) of the I.T. Act is to be made. The say of the assessee that no tax can be recovered from the deductor if the deductee has already paid the tax on the amounts received from the deductor is not relevant for the purpose of disallowance of interest u/s 40(a)(ia) of the I.T. Act, 1961. Thus the amount of ₹ 6,86,739/- shall not be deducted in computing the income of the assessee on account .....

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hough the decision of Hindustan Coca Cola Beverage (P.) Ltd. v. CIT [2007] 293 ITR 226 was cited before him. For ready reference the finding of learned CIT(Appeals) are reproduced below: " I have carefully considered the issues before me. The decision relied upon by the appellant reported in 293 ITR 226 is not relevant to the facts of the case and the issue of disallowance under section 40a(ia). The said decision is only concerned with the provision of the sec. 201 which deal with the failu .....

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ITAT Mumbai, it has been held that payment of tax due by payee would exonerate the assessee from being treated as "assessee in default" u/s 201 but would not obliterate the other statutory consequence for non-deduction of tax at source including this allowance u/s 40a(ia). It has been clearly held that the provision of section 40a(ia) are attracted when the assessee fails to deduct tax at source or pay such tax to the exchequer within the stipulated period. Considering the facts and t .....

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ts were inter linked and connected with the business activity of the assessee He has also pleaded that the learned CIT(Appeals) has called for a remand report but there was no adverse comment on this issue by the Assessing Officer. The learned A.R. further mentioned that although the interest was paid from the personal set of books of account but that too was connected with the business activity of the assessee. 5.1 Moreover, he has also informed that the interest to the tune of ₹ 6,70,279 .....

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v Kumar Agrawal (ITA no.337/Agra)/2013. His main argument was that the proviso annexed to section 40(a)(ia) was applicable for the year under consideration as well being retrospective in nature as held by the respected Agra Bench. 6. On the other hand, from the side of the Revenue, learned D.R. Mr. D. Ravi Kumar has contested that in a situation when the admitted factual position is that the assessee had not deducted tax on the impugned amount of interest then the provisions of section 40(a)(ia) .....

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the sides at some length. We have perused the orders of the authorities below in the light of the case laws cited and the provisions of the Act referred. As far as the allowability of interest payment vis-a-vis the provisions of section 36(1)(iiia) is concerned,, we are not in agreement with the action taken by the Assessing Officer because the facts of the case have revealed that the personal accounts as well as the account of the proprietorship concern were inter linked. Therefore, the funds u .....

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R.N. Bhattad was not disclosed by him in his personal return. 7.1 Moreover section 37(1) which is a residuary general provision, may have application to any expenditure, including interest expenditure, which is not of the nature described in sections 30 to 36 of I.T. Act. To an extent, section 36(1)(iii) and section 37(1) so far as the allowance of interest is concerned, run parallel to each other. But these two sections do differ and it can be discerned that under section 36(1)(iii) the borrow .....

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he facts and circumstances of the case, we are of the considered opinion that, there was no logical basis by the Assessing Officer to disallow the claim of interest under section 36(1)(iii) of the IT. Act. Accordingly this part of the action of the Assessing Officer is hereby reversed. 7.2 Next is the legal issue about the applicability of Proviso to section 40(a)(ia) of the Act that too for the year under consideration. The admitted factual position was that the assessee has not deducted the TD .....

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duct the TDS when the admitted factual position was that the deductee/recipient has paid the income-tax on the said amount of interest by filing the return. The argument of the assessee is that in a situation when the deductee has paid the tax on the impugned interest amount then there was no loss to the Revenue Department as far as the tax on the said interest amount was concerned. This argument has other legal proposition as well, that on the same amount of interest there shall not be incidenc .....

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o is reproduced below : "Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the .....

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ction 40(a)(ia), as well, shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of the return of income by the payee referred to in the said proviso. 8. To understand the intention of this legislature, we have also perused the provisions of section 201(1) of Chapter XVII of I.T. Act. As per this section, where any person who is required to deduct any sum in accordance with the provisions of this Act does not deduct tax, then shall be deemed to be a .....

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ue on the income declared by him in the return of income. There is a procedural requirement that a certificate to that effect is required to be furnished in the prescribed Form. So the consequence of the insertion of second proviso to section 40(a)(ia) is that the default under section 40(a)(ia) is not to be examined in isolation but now it is required to be examined along with the applicability of /the provisions as enumerated in section 201(1) of I.T. Act. In other words, henceforth, after the .....

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re, hence effective retrospectively from 1st April, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by Finance (no.2) Act, 2004. The insertion of Second Proviso appears to be on the ground of equity and natural justice because the income-tax cannot be levied two times on the same income. Further, according to us, there should be one more reasons that the provisions of section 40(a)(ia) are otherwise harsh in nature because an expenditure which is otherwise allowable .....

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