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2016 (9) TMI 950 - ITAT KOLKATA

2016 (9) TMI 950 - ITAT KOLKATA - TMI - Addition on account of interest on loan attributable to the investments in securities - CIT(A) deleted the addition - Held that:- From the foregoing discussions we find that the AO has presumed that the shares held as stock in trade were converted into investments on dated 01.04.2004 and accordingly interest expenses pertaining to the investment were disallowed. However, the ld. CIT(A) has granted relief to the assessee by holding that the shares were conv .....

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DR failed to bring anything contrary to the findings of the ld. CIT(A). In view of the above we do not find any reason to interfere in the order of the ld. CIT(A). Hence this ground of appeal of the revenue is dismissed. - ITA Nos. 46&47/Kol/2014, ITA No. 50/Kol/2014 - Dated:- 16-9-2016 - Shri Waseem Ahmed, Accountant Member And Shri K. Narasimha Chary, Judicial Member Assessee Shri Ravi Tulsiyan, FCA Department Shri R.P.Nag, Addl.CIT(DR) ORDER Per Waseem Ahmed, Accountant Member ITA Nos.46& .....

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the CIT(A) is unwarranted, arbitrary, without proper reasons, invalid and bad in law, to the extent to which it is prejudicial to the interests of the appellant assessee. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that levy of interest u/s 201(lA) of the income-tax Act, 1961, is mandatory and in that view in confirming levy of interest u/s 201(lA) of the Act to the extent of ₹ 3,61,761/- (Rs.46,604/- for A.Y.2009-2010). 3. Without any prejudi .....

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ared on behalf of Revenue. 2. Since the issues involved in both the assessment years are same, therefore we deem it fit to dispose both the appeals by a consolidated order for the sake of convenience. Therefore we decided to treat ITA no. 46/Kol/2014 as lead case. ITA 46/Kol/2014 3. The assessee had taken loan from M/s MKJ Enterprises Ltd. on which Interest @ 9% was payable to it. The assessee for the year ended on 31/03/2008, credited Interest to the tune of ₹ 2,56,94,4411- to the account .....

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Rs.10,04,893/-. The assessee in the course of TDS assessment proceedings explained that the recipient of interest, namely, MKJ Enterprises Ltd. had already included the impugned interest in its Total Income and paid the requisite tax on it. Thereby, there was no occasion for raising demand for collection of the impugned amount from the assessee or for treating the appellant as 'assessee in default'. However the AO disregarded the submission of the assessee and has charged interest U/S 20 .....

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U/S 201(1A) is compensatory in nature, i.e., the Government is entitled to interest for the period during which the tax, which is the money belonging to the Government, was withheld by the assessee. This logic/ratio is true if the deductee -payee is liable to pay income tax. However, in the present case the deductee-payee i.e. MKJ Enterprises Ltd. had already included the impugned interest in its Total Income and paid the requisite tax on it. Further, as evident from the Income Tax Return filed .....

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On the other hand the ld. DR vehemently supported the order of the lower authorities. 7. We have heard the contentions of rival parties and perused the material available on record. From the foregoing discussion we find that the assessee has deducted TDS at a lower rate and accordingly the AO has charged the interest on the short deduction of TDS amount which was subsequently confirmed by the ld. CIT(A). Now the question before us arises so as to whether the interest is chargeable under the afo .....

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sion stage in the case of Commissioner of Income-tax v. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. [2006] 287 ITR 354 (Raj) "Deduction of tax at source-Failure to deduct-Levy of interest-Finding that recipient had claimed refund due to tax deducted at source-Interest could not be levied-Income-tax Act, 1961, s. 201(lA). "The following question is proposed for admission of the appeal: "Whether, on the facts and circumstances of the case, the Tribunal was justified in law in upholdi .....

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this case the learned Commissioner of Income-tax (Appeals) had held that tax at source was to be deducted on the composite contract including on supply of material. The Revenue's appeals are directed only against the direction of the learned Commissioner of Income-tax (Appeals) for deletion of interest charged under section 201 (lA) of the Act for both the years after due verification of the facts that the recipient had already deducted tax at source in full. The provision of section 201 pro .....

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Rathi Gum Industries [1995) 213 ITR 98 that the interest is to compensate the Revenue for the loss, which it had suffered on account of late receipt of the tax. The provisions of interest are mandatory and automatic and interest has to be paid from the date on which the tax was deductible till the date on which the tax is actually paid. We may also refer to the decision in CITv. Dhanalakshmy Weaving Works [2000} 245 ITR 13 (Ker). In this case, it was held that the purpose of the levy is to claim .....

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e subject, we are of the opinion that learned CIT(A) had rightly held that interest under s. 201(1A) of the Act was to be deleted after due verification by the AO from the enclosures with supporting documents. In all the cases, the recipient of the income had claimed refund, which had arisen due to TDS. Therefore, we find no infirmity in the order of the learned CIT(A) and the same is hereby sustained. 3. When the assessee has paid more tax than the tax payable and refund is due, even TDS is cou .....

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assessment-Interest cannot be levied under section 201(1A)-Income-taxAct, 1961, ss. 4, 190, 194C, 199, 201(lA). If one looks at the provisions of the Act which pertain to imposition of tax, it is very clear that as per the provisions of section 4 of the Income-tax Act, 1961, which is the charging section, the tax is to be paid on the income of the assessee and as per the provisions of the Act, the said tax can also be deducted at source. According to the provisions of section 190 of the Act, in .....

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be deducted at source had paid such taxes and that too at the time when it had become due, it would not be proper on the part of the Revenue to levy any interest under section 201 (lA). The assessee was a co-operative society which had entered into two contracts with RB for construction of its building. From the amount which was to be paid by the assessee-society to the contractor, the assessee did not deduct any amount of tax which it was required to deduct as per the provisions of section 194C .....

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Act, on the tax which was deductible by the assessee-society from the amount which was paid to the contractor. It was the case of the assessee that though no tax was deducted from the amount payable to the contractor, the contractor had already paid tax and, therefore, interest under the provisions of section 201 (lA) could not have been levied by the Revenue on the assessee but the said argument of the assessee did not find favour with the Assessing Officer. The assessee filed an appeal to the .....

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the conclusion that as advance tax was not paid by RB and as the Revenue had not received the amount of tax on the due date, the action of the Assessing Officer with regard to levy of interest for the said years was justified. Thus, the appeal was partly allowed by the Appellate Assistant Commissioner. The order of the Appellate Assistant Commissioner was upheld by the Tribunal. On a reference: Held, that for the assessment years 1974-75 and 1975-76, it was not in dispute that RB, on whose behal .....

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ection 201 (lA) for the said years and the assessee had accepted the said finding. " In the case of Thomas Muthoot vs. DCIT (2012) 34 CCH 0170 (copy enclosed at Page 1-12 of the Paper Book), the Cochin Tribunal discussed the case of the assessee in detail. In this case, the assessee failed to deduct the TDS on payments made to the deductee-assessee. It was submitted that the deductee-assessee has declared losses in the return of income filed for the year and as such failure to deduct TDS wi .....

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any failure on the part of any assessee to deduct tax at source (TDS)/remit the same at the right point of time on the income paid by him. The TDS amount to be so deducted/remitted belongs to the revenue/Government. Hence, interest u/s 201 (lA) is charged; since the assessee is considered to be enjoying the TDS amount, which belongs to the Government, till the time he deducts and remits the same to the account of the Government. It is pertinent to note that the Tax so deducted at source is give .....

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terest U/S 201 (lA) of the Act under the peculiar conditions prevailing in the instant cases, wherein the recipient of interest viz., the partnership firms have declared losses even after accounting for the interest paid by the assessees herein. Even if the assessees herein deduct and remit the TDS amount on the interest paid to the partnership firms, the same is liable to be refunded to the said partnership firms, as there is no tax liability in their respective hands. Under this situation, can .....

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ax, as he has declared loss in his return of income. Let us analyse the above said facts under two situations, viz., (a) if TDS was deducted by Mr. A and (b) if TDS was not deducted. (A) if TDS was deducted:- (a) In this situation, if Mr. A has deducted and remitted the TDS within the prescribed time, the provisions of sec. 201 of the Act shall not apply to him. However, if there is belated deduction/payment, Mr. A would be charged with interest u/s 201 (lA) of the Act, since he is considered to .....

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ent made to Mr. B, then Mr. B would not claim any refund from the revenue. In that case, the question of payment of interest u/s 244A by the revenue to Mr. B does not arise. Since Mr. B has declared loss in his return of income, he is also not liable to pay any tax. In this situation, can it be said that Mr. A has withheld/enjoyed the tax amount belonging to the Government? The answer would be yes, only if Mr. B is liable to pay tax. In this example, Mr. B is not liable to pay any tax and hence .....

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in the instant cases. On the basis of analysis made in situation B, we are of the view that the assessees herein are not liable to pay interest U/S 201 (lA) of the Act, if the recipient of interest, viz., the partnership firms, are not liable to pay tax on the impugned interest income. However, in the paper book filed before us, only copies of the returns of income filed by the partnership firms have been furnished It is not known whether the said returns of income were accepted as it is by the .....

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ot liable to pay interest U/S 201 (lA) of the Act. 25. It may be noted that the prevailing rate oJ interest chargeable/ payable U/S 201 (lA)/244A are different, i.e., the rate of interest payable u/s 244A is lesser than the interest chargeable u/s 201 (lA) of the Act. Due to this disparity, a question may arise as to the correctness of the view taken by us in the preceding paragraphs. In our view, the rate of interest is prescribed by the Government on the basis of various factors. The main prin .....

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hether or not the recipients of the interest income, viz., the partnership firms were liable to pay tax on that income and then take appropriate decision about the chargeability of interest u/s 201 (lA) of the Act in the hands of the assessees herein in accordance with the principles discussed by us in the preceding paragraphs. 27. In the result, all the appeals of the assessee are treated as allowed for statistical purposes. The facts of the case in Situation B above are squarely applicable to .....

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ge 13-20 of the Paper Book) dated 24-11-2015, it was held that : "We find that it is not in dispute that the recipient of interest income i. e. Visvesvaraya Technological University has filed its return of income and has included the interest paid by the assessee as its income in the said return of income. As per sec. 4 of the Income Tax Act, it is the recipient of interest who is liable to pay tax. The machinery of TDS provisions made in statute is to facilitate the collection of that tax .....

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is liable to pay tax thereon and in such cases, unless it can be shown that the due tax could not be recovered by the Department from the principal person, who was liable to TDS until then the payer of the income cannot be treated as "Assessee in Default". Applying the ratio of the above case decisions to the facts of the appellant s case, it is clear that since M/s. MKJ Enterprises Ltd has included the income from the appellant in the Return of Income filed for the subject assessment .....

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of judgments that in case where two views are possible on the same issue and there being no judgment on the said issue from the jurisdictional Hon'ble High Court or Hon'ble Apex Court, the view which is favourable to the assessee has to be adopted. In other words, Hon'ble non jurisdictional High Court's judgment in favour of the assessee, is to be preferred over the Hon'ble non jurisdictional High Court's judgment not favourable to the assessee. In this connection we rel .....

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vours the assessee must be adopted. This is a well-accepted rule of construction recognised by this Court in several of its decisions. " CIT vs. Kulu Valley Transport Co. P. Ltd (1970) 77ITR 518 (SC): Interpretation of statutes-Taxing statute-Two views possible-If two views are possible, the view which is favourable to the assessee must be accepted while construing the provisions of a taxing statute. Held "Even if two views are possible the view which is favourable to the assessee must .....

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in language which is not free from ambiguity and admits of two interpretations a view which is favourable to the subject should be adopted. The fact that such an interpretation is also in consonance with ordinary notions of equity and fairness would further fortify the Court in adopting such a course. Vodafone Essar Gujarat Limited vs ACIT (I.T.A. No.386/Ahd/11) (copy enclosed at page 21-36 of the Paper Book) 18. The choice of which of Hon'ble High Court to follow must, therefore, be made o .....

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xing provisions are possible, that construction which favours the assessee must be adopted" Although this principle so laid down was in the context of penalty, and Their Lordships specifically stated so in so many words, it has been consistently followed for the interpretation about the statutory provisions as well. In another Supreme Court judgment, Petron Engg. Construction (P) Ltd. & Anr. vs. CBDT & Ors. [(1989) 175 ITR 523 (SC)) the above principle of law has been reiterated by .....

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hed and there is no doubt about that.. ..... " Further held that, "There can be no dispute on the proposition that irrespective of whether or not the judgments of Hon'ble non jurisdictional High Courts are binding on us, these judgments deserve utmost respect which implies that, at the minimum, these judgments are to be considered reasonable interpretations of the related legal and factual situation. Viewed thus, when there is a reasonable interpretation of a legal and factual situ .....

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r of judicial hierarchy, that the conflicting views of Hon'ble non jurisdictional High Courts can be resolved by us in a transparent, objective and predictable manner. " Shri Mahila Sewa Sahakari vs ACIT (OSD) I.T.A. No. 62/Ahd/2014(copy enclosed at page 37-55 of the Paper Book) "5.3 The Hon'ble Coordinate Bench has noted that there is a divergent view between the Hon'ble Delhi High Court in the case of M/s. Vasisth Chay Vyapar Ltd. reported at 330 ITR 440, Delhi and the Ho .....

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rt in the case of CIT vs. Vegetable Products Ltd. reported at (1973) 88ITR 192 (SC). In the present case also, there is no judgement by the Hon'ble Jurisdictional High Court, therefore for the same reasoning, we decide this issue in favour of the assessee and the AO is hereby directed to delete the addition. Thus, ground of assessee's appeal is allowed." CIT (TDS) vs. Reliance Engineering Associates (P.) Ltd. (2012) 80 CCH 0113 Guj HC (copy enclosed at Page 56-59 of the paper book) .....

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d. Accordingly the disallowance made by the AO and sustained by the learned CIT(A) U/S 201(1A) of the Act of ₹ 3,61,761/- in AY 2008-09 is not sustainable in law. Accordingly we reverse the order of authorities below. Hence this ground of appeal of the assessee is allowed. ITA No. 47/Kol/2014 9. At the outset we find that the issue involved in this appeal is the same as of ITA 46/Kol/2014 which we have decided in favour of assessee. Following the same we also reverse the order of authoriti .....

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he fact and circumstances of the case, the I.d. CIT(A) has erred in ignoring the fact that as the assessee has shown Capital Gain when investments are sold cannot claim interest on loan attributable to such investments as business income. 2) That the increase of investments from 9.5 Cr. last year to 19.1 Cr. this year as evidenced from Schedule 14 to the P/L Account & Balance Sheet, was due to conversion of shares of ₹ 8.5 Cr. written off from stock to investment as on 01.04.2004 and, .....

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lower authorities and the documents are that the assessee in the present case is a limited company and engaged in the business of real estate development, trading in goods & merchandise and securities. The assessee for the year under consideration has filed its return of income on dated 30th October, 2005 declaring business loss of ₹ 1,32,69,170/-. Thereafter the case was processed u/s 143(1) of the Act and taken up for scrutiny. Accordingly notices u/s 143(2) and 143(1) were issued up .....

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served that the assessee has shown the investment as on 31.03.2004 for ₹ 9.6 crores and during the year it has increased by ₹ 9.5 crores. Accordingly the balance shown as investment at the end of the financial year 31.3.2005 was shown at ₹ 19.1 crore. The major reason for increased in the value of investment is due to the conversion of its securities held as stock in trade into investments for ₹ 8.5 crores as on 01.04.2004. Besides the above the AO also observed that the .....

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ments of ₹ 8.5 crores which was worked out at ₹ 96,00,000/- and added to the total income of the assessee. 12. Aggrieved, the assessee preferred an appeal before the ld. CIT(A). The assessee before the ld. CIT(A) submitted that the shares held as stock in trade for ₹ 8.5 crores were converted on dated 31.03.2005 and the AO has wrongly taken the date of conversion as on dated 01.04.2004. The assessee till 31st March, 2005 has shown stock in trade of the shares for ₹ 8.5 cr .....

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ed at Para-5 that the shares of M/s. Santosh Industries Ltd. were not sold during the year but shown in Investment as on 31 03.2005. The ledger account also established that the conversion of shares of M/s. Santosh Industries Ltd. worth ₹ 8.50Crores was with effect from 31.03.2005 and not 1.4.2004 as wrongly presumed by the A.O. I am also in agreement with the argument of the A.R. of the appellant that disallowance u/s.14A can be made only when there is a tax free income. Reference in this .....

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2005 that interest bearing loan has been utilized in the investment which were generating the income under the head capital gain . Therefore the proportionate interest amount pertaining to the investment should be disallowed while working out the business profit of the assessee. The ld. DR further submitted that the shares held as stock in trade were converted into investment on dated 01.04.2004. Therefore the interest is not allowable under the business head. The ld. DR also requested to restor .....

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