ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 6,, PUNE vs. SILVER JUBILEE MOTORES LTD,, PUNE

आदेश / ORDER PER R.S. SYAL, VP : This appeal by the Revenue arises out of the order dated 01-03-2017 passed by the CIT(A)-4, Pune in relation to the assessment year 2013-14. 2. Revised grounds have been filed, which have not been objected to on behalf of the assessee. 3. The first issue raised through Ground Nos.2, 6 and 7 is against deleting the disallowance of Rs.4,12,59,525/- made by the Assessing Officer by invoking the provisions of section 40(a)(ia) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’).

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deduction of interest amounting to Rs.11,56,59,011/-. During the

course of assessment proceedings, the AO observed that a sum of

Rs.4,12,59,525/- was paid by the assessee to non-banking

financial companies without deduction of tax at source. On being

called upon to explain the reasons for non-deduction of tax at

source, the assessee tendered certain explanation. After

considering the same, the AO disallowed Rs.4.12 crore

u/s.40(a)(ia) of the Act. The ld. CIT(A) deleted the disallowance.

perused the relevant material on record. It is an admitted position

that the assessee did not deduct tax at source from interest paid to

the tune of Rs.4,12,59,525/-, detailed as under :

Sr.No. Particulars Amt (Rs.) 1 Interest paid to Cholamangalam Inv. 28,22,737 & Fin. 2 Interest paid to Aditya Birla Finance 17,47,396 3 Interest paid to Reliance (1) 37,71,538 4 Interest paid to Reliance (2) 37,91,399 5 ABN Amro Bank 55,05,280 6 Interest paid to Mahindra & 2,30,01,080 Mahindra 7 Interest paid to India Bulls 97,054 8 Interest paid to Magma Finance 5,23,041 Total 4,12,59,525

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the case was covered by the first proviso to section 201(1) read

with second proviso to section 40(a)(ia) of the Act. Section

201(1) provides that where an assessee fails to deduct tax at

source, or after deducting, fails to pay, he will be treated as an

assessee in default. First proviso to this sub-section provides that

where a person who is otherwise liable to deduct, fails to deduct

tax partly or wholly, shall not be deemed to be an assessee in

default, if the payee (i) has furnished its return of income u/s.139;

(ii) has taken into account such sum for computing income in his

return of income; and (iii) has paid the tax due on the income

declared by him in the return of income and furnishes a certificate

to this effect from a Chartered Accountant in the prescribed form.

Such a certificate has to be issued in Form No. 26A by a

Chartered Accountant. Thus, it is manifest that in order to be

covered by the proviso, not only the above referred three

conditions should be simultaneously fulfilled, but a certificate in

the requisite form issued by a Chartered Accountant also needs to

be furnished. It is only on fulfillment of the above conditions

cumulatively that an assessee who has otherwise failed to deduct

tax at source wholly or partly gets immunity from being treated as

4 ITA No. 1757/PUN/2017

an assessee in default. Now turning to the language of section

40(a)(ia) of the Act at the material time, it provides for making

disallowance of the expenditure on which the assessee failed to

deduct tax or pay after deduction of tax at source before the

stipulated date. Second proviso to section 40(a)(ia) states that

where an assessee fails to deduct the whole or any part of the tax

at source, but is not deemed to be an assessee in default under the

first proviso to section 201(1), then for the purposes of this

provision, it shall be deemed that he has deducted and paid the tax

on such sum, thereby not attracting the disallowance. On a

conjoint reading of the second proviso to section 40(a)(ia) and the

first proviso to section 201(1), it clearly emerges that on failure to

deduct tax at source or payment after deduction, the disallowance

which is otherwise required to be made, shall not be made, if the

payee has furnished his return taking into account such sum in his

total income and paid tax due thereon along with furnishing a

certificate in the prescribed form in this regard. Ergo, in order to

be covered within the second proviso to section 40(a)(ia),

furnishing of a certificate in the prescribed form proving the

existence of the three conditions stated in the first proviso to

section 201(1) of the Act, is sine qua non.

5 ITA No. 1757/PUN/2017

assessee paid Rs.4.12 crore as interest without deduction of tax at

source. Though certificates from some of the payees in non-

prescribed form were furnished, but the assessee did not furnish

the relevant certificate in the prescribed form from all the payees

so as to qualify for the benefit conferred by the second proviso to

section 40(a)(ia). Despite that, the ld. CIT(A) deleted the

disallowance by taking into account the certificates received from

two or three parties confirming that the interest was offered to tax.

Not only the certificates from all the payees were not furnished

but such certificates were also not in the prescribed form or issued

by a Chartered Accountant in terms of the first proviso to section

201(1). This being a case of violation of a procedural provision,

we are of the considered opinion that it would be in the fitness of

the things if the impugned order on this score is set-aside and the

matter is restored to the file of AO for deciding it afresh as per

law. Needless to say, the assessee will be allowed an adequate

opportunity of hearing and to put forth necessary documents in

this regard.

Rs.2,86,89,546/-. The facts apropos this issue are that the

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assessee had shown addition to capital work-in-progress on

account of property at Bhosari to the tune of Rs.14,43,42,327/-

and Hadapsar Rs.50,32,519/-. The amount of capital work-in-

progress at the end of the year stood at Rs.23,90,79,554/-. The

AO observed that the assessee had taken loan from ICICI bank

and from various other parties. Since the capital work-in-progress

was not put to use during the year, the AO opined that the amount

of interest to that extent was not allowable u/s.36(1)(iii) of the

Act. On being show-caused, the assessee submitted that it took

loan from ICICI bank for purchase and development of Bhosari

showroom project and interest on the said loan was approximately

Rs.72.00 lakh, which, by mistake was debited to the Profit and

loss account instead of capitalizing the same. The AO observed

that the assessee did not submit the completion certificate of the

said projects. As the assessee failed to submit the exact amount

and offered approximately Rs.72.00 lakh for disallowance by

means of capitalization, the AO held that interest on entire closing

balance of capital work-in-progress at Rs.23.90 crore was liable to

be capitalized. Applying interest rate @12%, he made

disallowance of interest at Rs.2,86,89,546/-. The ld. CIT(A)

deleted the addition by directing the AO to restrict such

7 ITA No. 1757/PUN/2017

disallowance to Rs.72.00 lakh after verification, being, the

amount suo motu offered by the assessee during the course of

assessment proceedings towards loan of Rs.6.25 crore taken from

ICICI bank for this project.

material on record, it is seen that the assessee has work-in-

progress in respect of property at Bhosari and property at

Hadapsar with closing balance at Rs.23.90 crore. Admittedly,

these two properties were not put to use during the year. Proviso

to section 36(1)(iii) states that any amount of interest paid in

respect of capital borrowed for acquisition of an asset shall not be

allowed as deduction for any period beginning from the date on

which capital was borrowed for acquisition till the date on which

such asset is first put to use. Since the assessee did not put to use

the two projects under consideration, the interest thereon was

required to be capitalized, which was not eligible for deduction

u/s. 36(1)(iii). The assessee also admitted this fact before the AO

and offered disallowance at Rs.72.00 lakh. However, no detail

was filed either before the AO or before the ld. CIT(A) to show

which of the total borrowings were utilized in respect of these two

projects. The ld. AR accentuated on the availability of sufficient

8 ITA No. 1757/PUN/2017

shareholder’ funds for canvassing a view that no interference in

the impugned order on this score was called for. In our

considered opinion, the argument of the availability of

shareholders’ fund does not apply on loans specifically taken for

the purposes of acquisition of an asset which has still not been put

to use during the year. In other words, if a specific loan has been

taken for purchasing an asset, notwithstanding the fact that the

assessee has sufficient interest-free funds, interest on such loan

has to be disallowed within the ambit of proviso to section

36(1)(iii). It is only after exhausting the specific loans taken for

the purpose of acquisition of an asset that the proposition of

availability of shareholders’ fund can be invoked for the balance

amount of investment. The ld. CIT(A) was swayed by the

assessee’s submission that only a sum of Rs.6.25 crore was taken

as loan from ICICI bank for these two projects without actually

examining the details and purpose of other loans. In view of these

facts, we are unable to sustain the finding returned by the ld.

CIT(A) in deleting the addition. The impugned order is, ergo, set-

aside and the matter is remitted to the file of the AO for

considering this issue afresh in terms of our discussion made

9 ITA No. 1757/PUN/2017

above. Needless to say, the assessee will be allowed reasonable

opportunity of hearing.

the disallowance made u/s.14A of the Act to Rs.2,48,167/- as

against Rs.67,74,102/- made by the AO. Succinctly, the facts of

this issue are that the assessee received exempt dividend of

Rs.2,48,176/-. In the absence of the assessee having offered any

disallowance u/s.14A of the Act, the AO computed such

disallowance at Rs.67,74,102/-. The ld. CIT(A) restricted the

disallowance to the extent of exempt income, against which the

Revenue has approached the Tribunal.

relevant material on record, we find that the Hon'ble Delhi High

Court in Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del) has

held that if there is no exempt income, there can be no question of

making any disallowance u/s 14A of the Act. Similar view has

been taken by the Hon'ble Delhi High Court in CIT vs. Holcim

India P. Ltd. (2014) 90CCH 081-Del-HC. More recently the

Hon’ble jurisdictional High Court in Pr. CIT VS. Kohinoor

Projects Pvt. Ltd. (2020) 425 ITR 700 (Bom) has also held that in

the absence of any exempt income, there cannot be any

10 ITA No. 1757/PUN/2017

disallowance of expenses u/s 14A of the Act. Since the assessee

in the instant case earned exempt dividend income of

Rs.2,48,167/- and the ld. CIT(A) restricted the disallowance

u/s.14A to that extent, we uphold the same.

of addition of Rs.61,372/- on account of mismatch in TDS. The

AO observed from Form No.26AS that a sum of Rs.61,372/- was

not offered to tax and the same was not reconciled by the

assessee. He, therefore, made an addition for such sum. The ld.

CIT(A), after perusing the details of the income and the amount

of tax deducted at source, accepted the assessee’s claim.

material on record, it is seen that the assessee furnished details of

the amounts received and TDS thereon. Some amount of TDS in

Form No.26AS was not claimed by the assessee, which fact was

also brought to the notice of the AO. Anent to the five parties

listed on page 17 of the impugned order, though the income was

declared but no TDS claim was made. The ld. DR was fair

enough to accept the reconciliation taken note of by the ld.

CIT(A). We, therefore, countenance the action of the ld. first

appellate authority on this count.

11 ITA No. 1757/PUN/2017

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 28th January, 2022 Satish

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The CIT(A)-4, Pune 4. The Pr.CIT-3, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “B” / 5. DR ‘B’, ITAT, Pune गाड� फाईल / Guard file 6.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

12 ITA No. 1757/PUN/2017

Date 1. Draft dictated on 27-01-2022 Sr.PS 2. Draft placed before author 28-01-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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