PANKAJ KHIMJIBHAI KATHARANI,,RAIGAD vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-PANVEL,, PANVEL

आदेश / ORDER

PER ANIL CHATURVEDI, AM :

These two appeals filed by the assessee are emanating out of 1. separate orders of Commissioner of Income Tax – (Appeals) – 2, Pune dated 06.02.2018 for A.Y. 2012-13 and Commissioner of Income Tax (Appeals) - 2, Thane dated 23.03.2018 for A.Y. 2014-15.

2.1. The relevant facts as culled out from the material on record are as under :-

Assessee is an individual and stated to be engaged in the business

of dealing in medicines under the name and style of “Tirupati

Distributors”. Assessee filed his return of income for A.Y.2012-13 on

26.09.2012 declaring total income of Rs.42,34,000/-. The case was

selected for scrutiny and thereafter assessment was framed u/s 143(3)

of the Act vide order dated 05.03.2015 and the total income was

determined at Rs.45,16,700/-. Aggrieved by the order of AO, assessee

carried the matter before Ld.CIT(A), who after considering the

submissions of the assessee granted partial relief to the assessee vide

order dt.06.02.2018 (in appeal No.PN/CIT(A)-2/DCIT Cir/PVL/

206/2017-18). Aggrieved by the order of Ld.CIT(A), assessee is now in

appeal before us and has raised the following effective ground :

“I. DISALLOWANCE OF COMMISSION PAID TO SALESMEN Rs. 2,36,752/-.

1.1 On the facts and in the circumstances of the case the learned Commissioner of Income Tax - (Appeals) [(CIT - (A)] erred in confirming the disallowance of Interest paid Rs. 4,92,016/ - by the learned Assessing Officer on the ground that no Tax at Source (TDS) has been deducted and paid on or before the due date of filing the Return of Income. 1.2 It is submitted that the app has made all the payments through account payee cheques or RTGS and has deducted Tax at Source, as applicable and paid the same on or before the date of filing of return of income

In view of the above, the app prays that the additions made may kindly be deleted as the same is unwarranted and unjustified.”

whereby the assessee was asked to remove the defects in the appeal as

pointed in the defect memo. It is seen that the defects were not removed

till the date of hearing of appeal. It was further seen that the notice of

hearing was sent to the assessee at the address mentioned in Form No-

36 but the same was returned “undelivered” with the remark “left”.

Before us, assessee has not furnished any change of address, if any. We

therefore proceed to dispose of the appeal ex-parte qua the assessee

based on the material available on record and after hearing the Ld.D.R.

assessee had claimed expenses on account of refreshment, salesman

commission, travelling at Rs.18,84,632/-. The assessee was asked to

substantiate the expenses with documentary evidence. Assessee

produced various bills and vouchers to support the expenses. AO on

perusing the same found that some vouchers were made through cash

and accounted through self-made vouchers. He also noted that in some

of the vouchers there were no signatures of the recipients. He therefore

concluded that the exact expenses incurred cannot be ascertained. He

thereafter on adhoc basis disallowed the amount of Rs.2,82,695/-.

Aggrieved by the order of AO, assessee carried the matter before

Ld.CIT(A), who concluded that expenses under the head of refreshment

and travelling were reasonable considering the turnover of the assessee,

which was around Rs.20 crores. However with respect to the

commission payments, Ld.CIT(A) noted that no TDS was deducted on

the commission payments and none of the recipients were having any

income above the taxable limit. According to him, the commission

payments were either been inflated or claimed for tax avoidance. He

therefore upheld the disallowance of 15% on such commission payment

of Rs.2,36,752/-. Aggrieved by the order of Ld.CIT(A), assessee is now

in appeal before us.

record. The issue in the present ground is with respect to disallowance

of commission. We find that Ld.CIT(A) while upholding the order of AO

has noted that perusal of tax audit report reiterated that no TDS was

deducted on the commission payments and none of the other recipients

were having income above the taxable limits. Before us, no material has

been placed by the assessee to controvert the findings of Ld.CIT(A). In

such a situation, we find no reason to interfere with the order of

Ld.CIT(A) and thus, the ground of the is dismissed.

for A.Y. 2012-13 is dismissed.

A.Y. 2014-15.

8.1. Assessee filed his return of income for A.Y. 2014-15 on

26.09.2014 declaring total income of Rs.36,06,860/-. The case was

selected for scrutiny and thereafter assessment was framed u/s 143(3)

of the Act vide order dated 14.12.2016 and the total income was

determined at Rs.47,62,506/-. Aggrieved by the order of AO, assessee

carried the matter before Ld.CIT(A), who vide order dt.23.03.2018

granted partial relief to the assessee. Aggrieved by the order of

Ld.CIT(A), assessee is now in appeal before us and has raised the

following grounds :

“I. DISALLOWANCE OF VARIOUS EXPENSES Rs.4,21,334/: 1.1 On the facts and in the circumstances of the case the learned Commissioner of Income Tax - (Appeals) [(CIT -(A)] erred in confirming disallowance of various expenses aggregating to Rs. 4,21,334/ -. made by the learned Assessing Officer on the ground that they were not wholly and exclusively related to the business of the appellant.

1.2 It is submitted by the appellant that the expenses have been incurred wholly and exclusively for the business of the appellant.

1.3 The lower authorities erred in resorting to ad-hoc disallowances. In view of the above, the appellant prays that the disallowance made ay kindly be deleted as the same is unwarranted and unjustified. DISALLOWANCE OF INTEREST PAID Rs.4,92,016/-: II.

2.1 On the facts and in the circumstances of the case the learned Commissioner of Income Tax - (Appeals) [(CIT - (A)] erred in confirming the disallowance of Interest paid Rs. 4,92,016/ - by the learned Assessing Officer on the ground that no Tax at Source (TDS) has been deducted and paid on or before the due date of filing the Return of Income.

2.2 It is submitted that the appellant has not deducted tax TDS) as Form No 15H/15G from the payee were received and the same was brought to the notice of the Assessing Officer. It may also be noted that the respective payees have properly included the Interest Income in their Return of Income.

III. DISALLOWANCE OF DEPRECIATION Rs.1,01,852/-:

3.1 On the facts and in the circumstances of the case the learned Commissioner of Income Tax - (Appeals) [(CIT - (A)] erred in confirming the disallowance of depreciation Rs. 1,01,852/ - by the learned Assessing Officer on the ground that the asset was used for personal purpose by the appellant and therefore the entire depreciation cannot be considered as wholly and exclusively for business of the appellant. The appellant prays that the disallowance of depreciation may kindly be deleted as the same is unwarranted and unjustified.”

amounting to Rs.4,21,334/-.

9.1. During the course of assessment proceedings, AO on perusing the

Profit and Loss account noticed that assessee has claimed various

expenses aggregating to Rs.28,08,892/- (the details of which were given

at Para 3 and page 2 of the assessment order). AO noticed that since

the expenses have been incurred in cash and payments were made

though self-made vouchers and were not supported by third party bills,

the excess claim cannot be ruled out. He therefore out of the aggregate

expenses of Rs.28,08,892/- disallowed 20% of such expenses and made

disallowance of Rs.5,61,778/-. Aggrieved by the order of AO, assessee

carried the matter before Ld.CIT(A), who granted partial relief to the

assessee by observing as under :

“6.1 The perusal of ledger accounts, in respect of above various expenses, filed during the course of appellate proceedings, reveals that majority of the expenses had been incurred in cash, which are not open for verification. The appellant, however, squarely failed to produce these vouchers for verification, therefore, the genuineness of same could not be ascertained. Considering the nature of expenses, coupled with self made vouchers maintained against these expenditures, the possibility of excess / unverifiable / unrelated-non business expenses cannot be ruled out. On the other hand, the AO has also not brought any material on record or given any justification to prove that these expenses were not incurred for business before making ad-hoc disallowance @ 20%. Considering the facts in entirety, the disallowance @ 15% will be reasonable to meet end of justice. Accordingly the disallowance to the extent of Rs. 4,21,334/-, against various expenses as above, is sustained and balance amount of Rs. 1,40,444/- is deleted. This ground of appeal is partly allowed.”

Aggrieved by the order of Ld.CIT(A), assessee is now in appeal

before us.

expenses have been wholly and exclusively for the purpose of business

and the lower authorities erred in resorting to adhoc disallowance.

Before us, Ld.D.R. supported the order of lower authorities.

We find that Ld.CIT(A) after considering the facts has noted that

assessee has failed to submit all the vouchers for verification and

therefore genuineness of the same could not be ascertained. He also

held that AO has not brought any material on record to prove that the

expenses were not incurred for the purpose of business. He accordingly

upheld the disallowance to the extent of 15%. We find that in the case

of assessee for A.Y. 2012-13, the adhoc disallowance made by AO at

15% of refreshment, salesman and travelling expenses were disallowed

by Ld.CIT(A). In the present case, we find that refreshment and repairs

and maintenance expenses are to the extent of Rs.2,82,305/-. Before

us, Revenue has not pointed out any distinguishing features in the facts

of the case for the year under consideration and that of assessee for A.Y.

2012-13. In such a situation, we are of the view that when the expenses

on the same head were disallowed by Ld.CIT(A) in A.Y. 2012-13 and

where there was no change in material facts for A.Y. 2012-13 and A.Y.

2014-15, no disallowance on that account can be made for the year

under consideration. As far as the disallowance of various other

balance expenses of Rs.25,26,387/- is concerned, we are of the view

that the disallowance to the extent of 10% would meet the ends of

justice. We therefore direct accordingly. Thus, the ground of the

assessee is partly allowed.

of Rs.4,92,016/-.

12.1. AO noticed that during the year assessee has paid interest

aggregating to Rs.4,92,016/- to various parties, the details of which

were given at Para 4 of the assessment order. He noticed that no TDS

was deducted before making the payment. He accordingly, by invoking

the provisions of Sec.40(a)(ia) of the Act, disallowed the entire interest

expenses at Rs.4,92,016/-. Aggrieved by the order of AO, assessee

carried the matter before Ld.CIT(A). Before Ld.CIT(A) in his written

submissions assessee inter-alia submitted that he has obtained Form

15H/15G from the parties to whom the interest was paid. It was

further submitted that the parties had reflected the interest income in

their respective returns and therefore, no disallowance is called for in

the present case. Ld.CIT(A) however did not accept the contentions of

assessee and upheld the order of AO by observing as under :

“9. I have carefully considered the facts of the case, the findings of the AO, the submissions of the Ld. AR of the appellant and material placed on record. From the facts of the case it is noticed that the AO had disallowed interest expenses of Rs.4,92,016/ u/s.40(a)(ia) of the Act, for non deduction of tax at source. During the appellant proceedings, the Ld. AR claimed that the appellant had obtained 15G/15H forms from the respective creditors and that lending parties had filed their respective returns of income and offered interest income for tax. It is pertinent to mention here that the Ld. AR has not filed details/proof of Form No.15G/15H filed with the concerned competent authorities, therefore, the same is not tenable. As regards the claim of filing of return of income by the above parties is concerned it is noticed that the appellant had failed to furnish the certificates from the accountant regarding inclusion of above income in the return of income filed and payment of tax against the said income, therefore, the same is not tenable, accordingly rejected. In view of these facts, the disallowance of Rs.4,92,016/-, 40(a)(ia) of the Act, for non deduction of tax, is hereby sustained and this ground of appeal is dismissed.”

Aggrieved by the order of Ld.CIT(A), assessee is now in appeal

before us.

The issue in the present ground is with respect to disallowance u/s

40(a)(ia) of the Act. We find that before Ld.CIT(A), assessee submitted

that the parties had reflected the interest income in their respective

returns. We find that Hon’ble Delhi High Court in the case of CIT Vs.

Ansal Land Mark Township Pvt. Ltd., reported in (2015) 377 ITR 635,

has held that insertion of second proviso to Sec.40(a)(ia) of the Act is

declaratory and curative in nature and has retrospective effect from

01.04.2005. It has further held that as long as payee or resident has

filed its return of income disclosing the payment received by and in

which the income earned by it is embedded and has also paid taxes on

such income, then no disallowance can be made u/s 40(a)(ia) of the Act.

Before us, Revenue has not pointed out any contrary binding decision in

its support. In view of submission of assessee before Ld.CIT(A) that the

payees have reflected the amount received by them from the assessee as

their income and in the light of the aforesaid decision of Hon’ble Delhi

High Court, we restore the issue back to the file of AO to decide the

issue afresh after giving due opportunity of hearing to the assessee and

thus, the ground of the assessee is allowed for statistical purposes.

Rs.1,01,852/-.

15.1. AO noticed that assessee has debited Rs.2,03,740/- on account of

depreciation on motor car. AO was of the view that since assessee was

having only one vehicle, he disallowed 50% of such depreciation i.e., of

Rs.1,01,852/-. Aggrieved by the order of AO, assessee carried the

matter before Ld.CIT(A), who after considering the submissions of the

assessee granted partial relief to the assessee by observing as under :

“12. I have carefully considered the facts of the case, the findings of the AO, the submissions of the Ld. AR of the appellant and material placed on record. From the facts of the case it is noticed that the AO had disallowed Rs. 1,01,852/-, i.e. 50% of depreciation claimed on motor vehicle, with the plea that personal element cannot be ruled out. During the appellate proceedings, the Ld. AR claimed that since the appellant is distributor of medicines for Raigad district, he has to travel continuously for his business that is to medicine companies as well as to the customers for settlement of their dues/complaints. It is claimed that the vehicle is wholly and exclusively used for business. %. Considering the facts in entirety, in my considered view, the disallowance of 25% will be reasonable to meet end of justice. Accordingly the disallowance to the extent of Rs 50,926/-, for personal use of innova car, is sustained and balance amount of Rs. 50,926/- is deleted. This ground of appeal is partly allowed.”

Aggrieved by the order of Ld.CIT(A), assessee is now before us.

We find that Ld.CIT(A) while granting partial relief to the assessee, has

noted that for the purpose of business assessee has to travel to various

places. He considering the totality of the facts held that 25% of

depreciation to be reasonable and accordingly disallowed depreciation to

the extent of Rs.50,926/-. Before us, no material has been placed by

the assessee to controvert the findings of Ld.CIT(A). We therefore find

no reason to interfere with the order of Ld.CIT(A). Thus, the ground of

the assessee is dismissed.

A.Y. 2014-15 is partly allowed.

dismissed and the appeal of assessee in ITA No.980/PUN/2018 is

partly allowed.

Order pronounced on 22nd day of March, 2019.

Sd/- Sd/- (VIKAS AWASTHY) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 22nd March, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A) –2, Pune & CIT(A)-2, Thane. 4 Pr.CIT-2, Thane. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक सद�य” / 5. DR, ITAT, “SMC” Pune; 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.