SHRI ASHOK PODDAR,SURAT vs. THE INCOME TAX OFFICER, WARD-1(2)(1), SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT Before Shri C.M.GARG, Judicial Member, and Shri O.P. MEENA, Accountant Member ITA No.1739 /AHD/ 2016/SRT Assessment Year: 2012-13 Shri Ashok Poddar, Prop of M/s Shreepati Textiles, J 3060 Surat Textiles Market, Ring Road, Surat. (Appellant) PAN AIZPPO 125E ITO , WARD 1(2)(1) , T Surat Vs Respondent Assessee by Shri Vinod Goyal CA Revenue by Shri 0 P.Meena, Sr. DR Final Date of Hearing: 24/01/2018 Date of Order: 06/02/2018 H48 L ORDER Per_Shri C M_Garg_JM: This appeal filed by the assessee against the order of the learned CIT (Appeals) II , Surat, dated 13.04.2016 passed under section 143(3) of the Income Tax Act, 1961 for the assessment year 2012-13_ 2. In this appeal the assessee has raised the following arguments/ contentions/ grounds of appeal:- Disallowance ofRs_L4L.494L-of Interest Expenses The Learned Assessing Officer has erred in law and on facts in making in making disallowance of Rs. 2 Shri Ashok Poddar ITA No.1739/A/2016 1,41,494/ - claimed as interest expense in spite the payment is made for borrowed funds exclusively for the business purpose: (ii) Disallowance_for_Rs: 1,86,.541/5 ULs_4Qa)ia) of_the Act The Learned Assessing Officer has erred in law and on facts in making in making disallowance of Rs: 1,86,541/ U/ s 4O(a)ia) in spite of assessee is not deemed to be in default u/ s 201(1) of the Act: (iii) Disallowance for Rs; 33,873/- ULs_4Qalia) of_ the Act_ The Learned Assessing Officer has erred in law and on facts in making in making disallowance of Rs. 33,873/_ U/ s 4O(a)ia) in spite of submitting Form No. 15G or 15H Ground No_(i 3 Aprpose ground no. (i) the Ld. Assessee's Representative (AR) submitted that it is not disputed by the Assessing Office as well as CIT (A) that the borrowed funds were used for business purposes hence, the interest of Rs_ 1,41,494 / - is allowable u/s 36(1)(iii) of the Act. The Ld_ AR also contended that merely because the assessee has claimed the interest u/s 57 of the Act the disallowance cannot be made by taking a hyper technical approach- The Ld. AR has placed reliance on the following: (i) CBDT's Circular No. 14(XL-35) dated 11/04/1995 (ii) Choksi Metal Refinery Vs. CIT (1977) 107 ITR 63(GUJ) (iii) Smt raj Rani Gulati Vs CIT (2012) 346 ITR (Allahbad) (iv) ACIT Vs Smt Asha Ashok Boob (2015) 59 taxmann.com 173 (Pune Trib.) 3 Shri Ashok Poddar ITA No . 1739/4/2016 4 The Ld. AR submitted that disallowance of Rs. 1,41,494 / - was made out of interest paid by the assessee despite the fact the Assessing Officer has not disputed that borrowed funds were exclusively used for business purpose hence, the same are allowable u/s 36(1)(iii) of the Act. The Ld_ AR further submitted that merely because the assessee has claimed interest expenditure u/s 57 of the Act wrongly the valid claim of assessee cannot be dismissed. 5 Replying to the above, the Ld. Departmental Representative (DR) strongly supported the orders of the authorities below and submitted that the interest expenses do not enjoy the benefits of section 57 of the Act and hence, the same was not allowable under the income from other sources The Ld_ DR also submitted that the assessee had not made any claim of these interest expenses under the head income from business Or profession hence, the same was not allowable u/ s 37 of the Act. The Ld_ DR further submitted that the unsecured loans corresponding to the interest expenses were not reflecting in the business balance sheet of proprietary business concern therefore, the same was not allowable_ 6 Placing rejoinder to the above, the Ld AR submitted that the assessee has earned income from interest which was declared under the head income from other sources and the assessee also earned income from proprietorship business concern and income there from was shown as income from 4 Shri Ashok Poddar ITA No . 1739/4/2016 The Ld. AR further pointed out that business or profession_ before the Assessing Officer the assessee vide order sheet en try inform that the funds were used for dated 11/02/2015 the same is allowable as business business hence , claim of assessee may kindly be allowed expenditure, thus, of the Act in view of the CBDT Circular dated u/s 36(1)(iii) 11/04/1955 (Supra) as the revenue must not take advantage assessee as to his rights. The Ld AR also of ignorance of the per decision of ITAT, Pune in the case of submitted that as ACIT Vs Smt Asha Ashok (Supra) where assessee made claim of deduction wrongly under other provision the same could not to deny benefit of deduction under the relevant be a ground applicable head careful consideration of above submissions 7 On we observe that the main thirst and ground for rejection of claim of assessee taken by the authorities below is that the assessee has claimed the interest expenditure u/s 57 of the Act and the unsecured loan corresponding to the above interest expenses are not reflecting in the business balance sheet: However , we point out that the authorities below have not brought any may the record that the funds on which allegation or fact on paid was not used for the purpose of interest has been and this fact was brought to the business of the assessee notice of Assessing Officer by the assessee through its AR on that the funds on which interest has been paid 11/02/2015 In this situation, we are was used for the business purpose_ inclined to hold that as per letters and sprit of CBDT Circular 5 Shri Ashok Poddar ITA No. 1739/A/2016 dated 11/04/1955 (Supra) the Revenue Authorities cannot take advantage of ignorance of the assessee pertaining to the relevant provisions wherein assessee's claim is allowable_ The Hon ble Allahabad High Court in the case of Smt Rajrani Gulati Vs CIT (Supra) has held that the CBDT Circular safeguards the rights of the assessee and even under the bonafide belief, the assessee has made lesser claim then it is expected from the Assessing Officer to treat the claim under right and latest amended provisions. 8 So far as non reflection of creditors in the firm balance sheet is concerned, for income tax purposes individual assessee and his proprietorship firm comes within the same umbrella and hence no separate PAN is allotted to the proprietorship firm_ In this situation when the funds have been used for the business purpose and the income from business has been offered for tax then the interest expenditure SO incurred by the assessee is allowable u/s 36(1)(iii) of the Act. Merely because the assessee made a claim under wrong head and provision the genuine claim of the assessee cannot be dismissed on hyper technical grounds. Our conclusion also gets support from the preposition laid down by ITAT Pune in the case of ACIT Vs Smt Asha Ashok (Supra)_ Accordingly ground no. 1 of the assessee is allowed and the Assessing Officer is directed to allow the interest expenditure under head of income from business or profession to the assessee. 6 Shri Ashok Poddar ITA No. 1739 /A/2016 Ground No_(ii) & (iii) AR submitted that the Assessing Officer has 9 The Ld. erred on the facts making disallowance of Rs. 1,86,541/- u/s 4O(a)(ia) in spite of assessee is not deemed to be in default u/s Act. The Ld_ AR further submitted that the Ld_ 201(1) of the Assessing Officer has erred in law and on facts in making of Rs_ 33,873 / - u/s 40(a)(ia) in spite of disallowance No. 15G or 15H. The Ld_ AR also submitted submitting Form in ground no. i is covered by the decision of that the issue Delhi High Court in the case of CIT Vs Ansal Hon ble Landmark Township reported as 279 CTR (Del) 384 as the second proviso to section 4Oa)(ia) is declaratory and curative and it has retrospective effect from 1-4-2005. Since payee had return and offered sum received from assessee to tax, filed impugned disallowance made under section 4Ola)(ia) deserved deleted_ The Ld_ AR also submitted that in the present to be no : iii is also covered by the decision of case, the ground Court in the case of CIT Vs Valibhai Hon ble Gujarat High Mankad (2012) 28 taxmann.com 119 (Gujarat) as Khanbhai where assessee has fulfilled requirement of second proviso to disallowance of payment for sub- the section 194C(3) contractor cannot be made on ground that assessee had not furnished form no 15 J before 30/06/2006 as required under rule 29D of the Income Tax Rules 1962_ 10_ Replying to the above, the DR supported the orders of the authorities below. 7 Shri Ashok Poddar ITA No.1739/A/2016 11_ On careful consideration of above rival submissions we are of the view that the Assessing Officer has made disallowance on failure of the assessee to make TDS but when the payee has shown the income and has paid tax thereon then the assessee cannot be deemed to be in default u/s 201(1) of the Act. The Hon ble Delhi High Court in the case of Ansal Land Mark (Supra) held that the second proviso to section 40(a)(ia) of the Act is retrospective therefore respectfully following the same we hold that when the payee has shown the receipt as his income and has also paid tax thereon then no disallowance can be made in the hands of payer. Therefore, the addition is directed to be deleted. However , we also make it clear that since the Assessing Officer had no opportunity to verify the factum of declaration and payment of tax by the assessee on the impugned receipts therefore the ground is restored to the file of Assessing Officer for limited purpose of verification that if the payee has shown the income in his return and has paid tax thereon then the benefit of second proviso be given to the assessee. Accordingly, k ground no. ii is allowed for statistical purposes for limited verification as directed above. 12_ In the present case the assessee submitted Form No_ 15G and 15H on 10/04/2012 due to continues public holidays from Sth April to 8th April and this fact has not been disputed by the Assessing Officer therefore, in view of ratio of the decision of Hon le Jurisdictional High Court in the case of Balibhai Khanbhai (supra) the Assessing Officer is directed to 8 Shri Ashok Poddar ITA No . 1739/4/2016 made on account of delay filing of delete the disallowance Forms. Accordingly, ground no. iii is allowed. is allowed (partly for statistical 13_ In the result, appeal purposes) in the manner as indicated above. Order pronounced in the open court on 06/02/2018 - (O.P Meena) (C.M. Garg) JUDICIAL MEMBER ACCOUNTANT MEMBER 87iv /Dated O6th February, 2018 Nhanu/LDC Copy to: Assessee/A0/Pr: CIT/ CIT (AJ/ITAT (DR) / Guard file: By order Sr. Private Secretary, Surat afre flt wfed 314EF 27 ?_877 33f5770 77 0,77 | '