I.T.O., WARD-35(3), KOLKATA, KOLKATA vs. SHRI KAMAL KISHORE TOSHNIWAL, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “D”, BENCH KOLKATA BEFORE SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.1841/Kol/2016 (िनधा�रणवष� / Assessment Year: 2012-13 I.T.O, Ward – 35(3), Kolkata Vs. Shri Kamal Kishore Toshniwal 35(3), Aayakar Bhawan, Poorva, 110, 35, Ezra Street, 4 t h Floor, Kolkata – Shantipally, 8th Floor, Kolkata – 700 107. 700 001. �थायीलेखासं./जीआइआरसं./PAN/GIR No. : ABTPT 2712 Q (Revenue/Department) .. (Assessee) Assessee by :Shri V. N. Purohit, FCA Revenue/Department by :Shri Sallong Yaden,ACIT सुनवाईकीतारीख/ Date of Hearing : 01/09/2017 घोषणाकीतारीख/Date of Pronouncement : 29/11/2017 आदेश / O R D E R Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the Revenue, pertaining to Assessment year 2012-13, is directed against an order passed by the Commissioner of Income Tax (Appeals)-10, Kolkata in Appeal No147/CIT(A)-10/W-35(3)/15-16/Kol, dated 21.07.2016, which in turn arises out of an order passed by the Assessing Officer u/s 143(3) of the Income Tax Act,1961(hereinafter referred to as the ‘Act’), dated 25.03.2015. 2. The Revenue has raised the following grounds of appeal: “1.That on the fact and circumstances of the case ld Commissioner of Income Tax(Appeal) had erred in law in deleting the addition of Rs.23,86,002/- that was made as per provision of section 36(1)(iii) of the I T Act on account of diversion of interest bearing loan into interest free advances. 2.That on the fact and circumstances of the case ld Commissioner of Income Tax(Appeal) had erred in law in deleting the disallowances of Rs.11,97,624/- that was made as per provision of section 40(a)(ia) of the I.T. Act on the ground of non-deduction of tax at source by the assessee to the individuals against payment of interest. 3.That on the fact and circumstances of the case ld Commissioner of Income Tax(Appeal) had erred in law in deleting the disallowances of

ITA No.1841/Kol/2016 Shri Kamal Kishore Toshniwal Assessment Year: 2012-13 Rs.1,15,200/- that was made as per provision of section 40(a)(ia) of the IT Act on the ground of non- deduction of tax at source by the assessee to the parties against payment on account of repairs and maintenances. 3.Ground No.1 raised by the revenue relates to addition of Rs.23,86,002/- u/s36(1)(iii) of the IT Act on account of diversion of interest bearing loan into interest free advances. 3.1The brief facts qua the issue are that assessee filed his return of income on 29.09.2012 disclosing total income at Rs.2,82,640/-. The assessee’s return was processed u/s143(1)on 25.03.2014. Later, the assessee’s case was selected for scrutiny u/s 143(2) of the Income Tax Act, 1961 and the AO has completed the assessment by making various additions. During the assessment proceedings, AO observed that interest paid/payable of Rs.23,86,002/- by the assessee on unsecured loan of Rs. 2,17,15,000/- is not an allowable business expenditure under the provision of section 36(1)(iii) of the Income Tax Act, 1961, because in assessee`s case the fund was advanced to its sister concerns without charging any interest. During the course of assessment proceedings, the assessee failed to bring any material on record to show that he has derived any business benefit by providing the interest free advance to its sister concerns. It was evidenced from record, that the assessee borrowed interest bearing funds and provided interest free advances to its sister concerns. During the course of hearing, copy of audited balance-sheet and profit and loss account for the year ended 31.03.2012 of one of its sister concerns M/s Nandlal Kamal Kishore Vyapaar Pvt. Ltd was obtained from the assessee and on perusal of the same it was noticed that the said concern is paying interest of Rs.22,07,956/- on unsecured loan from various parties and at the same time it was receiving interest income of Rs.30,42,538/- by providing loans to the parties. But AO noted that the assessee has not charged any interest from this concern. The AO noted that the assessee has not got any business benefit by providing interest free advance to its sister concern. Under the circumstances it cannot be said that the assessee has provided interest free advance to its sister concern for its business purpose. The assessee, although, borrowed funds and paid interest but could not adduce any evidence that the funds were advanced to its sister concerns for the purpose of business, therefore, the AO observed that one of the conditions mentioned in section 36(1)(iii) of the I.T. Act, 1961 had not been fulfilled. Therefore, the contention of the assessee that Page | 2

ITA No.1841/Kol/2016 Shri Kamal Kishore Toshniwal Assessment Year: 2012-13 interest bearing fund was given to its sister concerns as part of business requirement of the assessee or as matter of commercial expediency was not established and hence AO did not accept it and therefore made addition based on proportionate interest amounting to Rs.23,86,002/- claimed by the assessee in his profit and loss account. 3.2Aggrieved by the addition made by the AO, the assessee filed an appeal before the CIT(A) who has deleted the addition made by AO.The ld. CIT(A) observed that there was no dispute that a part of the borrowed funds of the assessee have been lent to sister concerns in an interest free manner. The amount of such interest worked out by the assessee (equal to the interest rate paid for borrowing monies) works out to Rs.23,86,002/-. There was also no dispute that the assessee- individual is a stake holder in both the concerns to which the money has been lent by the assessee at interest free rates, and that he is a Director in the Company M/s Nandlal Kamal Kishore Vyapaar Pvt Ltd, which has been given an amount of Rs.2,08,15,000/- as also that the assessee-individual is a member of the HUF, M/s Kamal Kishore Rajesh Kumar, to whom an amount of Rs.9,00,000/- has been lent. The total amount therefore adds up to Rs.2,17,15,000/-. The ld CIT(A) observed that before looking at the business of the sister concerns/subsidiary company, one has to carefully analyze the business of the assessee itself, and whether any benefits flowed to it, while offering the loan interest-free to a sister concern. The ld CIT(A) noted that the contentions of the assessee that in the F.Y 2011-12, the interest free loan was given to the sister concern in which the assessee was also a director namely M/s Nandlal Kamal Kishore vyapaar Pvt. Ltd, and that around Rs.2 crore which was used to construct a building (G+4) in a land, which was loan owned by the company M/s Nandlal Kamal Kishore Vyapaar Pvt. Ltd is to be looked at and analyzed. It had been brought on record by the assessee that currently, he was generating income against such advances made earlier, and that from the F.Y 2014-15, the assessee was receiving rent-free office accommodation at 1A, Akrur Dutta Lane, 4th Floor, Kolkata – 700012. This address is the same address of the office of the assessee currently. It had also been contended that the assessee had received the maintenance contract of the first floor of the building from SBI from which it was generating income of around Rs.14 lacs of income per year. This was clear from the copies of the 26AS for FY 14-15 & 15-16 filed by the assessee during appeal. From these it is seen that the assessee is receiving rent from M/s SBI and TDS Page | 3

ITA No.1841/Kol/2016 Shri Kamal Kishore Toshniwal Assessment Year: 2012-13 under section 194IB and section 194IA has been deducted. Accordingly, the CIT(A) noted that certain benefits were accrued to the assessee-individual by making the interest-free loans earlier, which have yielded certain incomes in the succeeding years. Based on these facts the CIT(A) relied on the ratio emanating from the case of Hon’ble Supreme Court in the case of S.A Builders Ltd, 288ITR 1 (SC), which was applicable to the facts and circumstances of the assessee’s case, and therefore deleted the addition. 3.3 Not being satisfied with the order of CIT(A) the revenue is in appeal before us. The ld. DR for the revenue has submitted before us that a part of borrowed funds of the assessee have been lent to sister concerns in an interest free manner. There is no commercial expediency proved by the assessee. The ld CIT(A) noted the commercial expediency as follows without giving an opportunity to the Assessing officer to examine the documents/ evidences in respect of commercial expediency: “The contentions of the assessee that in the F.Y 2011-12, the interest free loan was given to the sister concern in which the assessee was also a director namely M/s Nandlal Kamal Kishore vyapaar Pvt Ltd, and that around Rs.2 crore which was used to construct a building (G+4) in a land, which was loan owned by the company M/s Nandlal Kamal Kishore Vyapaar Pvt Ltd is to be looked at and analyzed. It had been brought on record by the assessee that currently, he was generating income against such advances made earlier, and that from the F.Y 2014-15, the assessee was receiving rent-free office accommodation at 1A, Akrur Dutta Lane, 4th Floor, Kolkata – 700012. This address is the same address of the office of the assessee currently. It had also been contended that the assessee had received the maintenance contract of the first floor of the building from SBI from which it was generating income of around Rs.14 lacs of income per year. Therefore, the ld. DR pointed out that the above mentioned documents, contracts and agreements in respect of receiving rent-free office accommodation had not been examined by the AO because the CIT(A) did not ask the remand report. The assessee was in receipt of maintenance contract of the first floor of the building from SBI Bank. The maintenance contract has neither been examined by CIT(A) nor by AO. The CIT(A) did not ask the remand report from the AO to verify the maintenance contract. The Maintenance contract and ‘receiving rent-free office accommodation as per agreement’ were additional evidences before the CIT(A) which were not examined by the AO. Therefore, there was no commercial expediency proved by the assessee for giving this loan. The ld DR for the revenue Page | 4

ITA No.1841/Kol/2016 Shri Kamal Kishore Toshniwal Assessment Year: 2012-13 also submitted that this issue needs to be adjudicate fresh by the ld. CIT(A) after taking the proper remand report from the AO. 3.4 However, the ld. counsel for the assessee has defended the order passed by the CIT(A). 3.5 Having heard the rival submission and perused the materials available on record, we are of the view that there is merit in the submissions of ld DR for the Revenue as he explained before us that the documents, contracts and agreements in respect of receiving rent-free office accommodation had not been examined by the AO because the CIT(A) did not ask the remand report. The assessee was in receipt of maintenance contract of the first floor of the building from SBI Bank. The maintenance contract has neither examined by CIT(A) nor by AO. The CIT(A) did not ask the remand report from the AO to verify the maintenance contract. The Maintenance contract and ‘receiving rent-free office accommodation as per agreement’ were additional evidences before the CIT(A) which were not examined by the AO. We note that CIT(A) deleted the addition by relying on the judgment of SA Builders, 288 ITR 01 (SC), based on ‘Commercial expediency’, but the CIT(A) did not give an opportunity to AO to examine the documents relating to ‘Commercial expediency’, such as Maintenance contract, Agreement for receiving rent-free office accommodation, and loan documents etc, as these were additional evidences before the CIT(A), therefore, we are of the view that these documents should be examined by the AO or by CIT(A) by way of taking proper remand report from the AO. Therefore, we are of the view that this issue requires a fresh examination at the end of the ld. CIT(A). Hence, we direct the ld. CIT(A) to take proper remand report from the AO to examine the agreement of loan, Maintenance contract and ‘receiving rent-free office accommodation as per agreement to establish the commercial expediency. Therefore, in all fairness we set aside order of the ld CIT(A) and direct the ld. CIT(A) to take the proper remand report from the AO and then go through the loans documents, business contract to receive rent free office and maintenance contract to establish the commercial expediency. Therefore, we allow this ground for statistical purposes 3.6 In the result, the appeal filed by the Revenue (in Ground No.1) is allowed for statistical purposes. Page | 5

ITA No.1841/Kol/2016 Shri Kamal Kishore Toshniwal Assessment Year: 2012-13 4.Ground No.2 raised by the revenue relates to disallowance of Rs.11,97,624/- u/s 40(a)(ia) on account of non deduction of tax at source. 4.1 The brief facts qua the issue are that during the course of assessment proceedings, the AO noted that the assessee failed to produce the copies of declaration in Form no.15G/H from the parties. The AO noted that assessee could not furnish the copy of evidence of submission of copies of declaration in Form no.15G/H as claimed to have been collected from the concerned parties, before the jurisdictional Commissioner of Income Tax. Further, the assessee’s contention that the interest amount of Rs.11,97,624/- is a part of proportionate interest amount of Rs.23,86,002/-(as already disallowed under section 36(1)(iii) of the Act), is of no help to the assessee because during the course of hearing, the assessee failed to bring any material on record in support of his contention. Actually, to avoid disallowance of interest expense of Rs.11,97,624/- un/s 40(a)(ia), an after- thought story was prepared by the assessee in his submission. Hence, AO held that question of double taxation on this issue does not arise and it is an established fact that the assessee failed to deduct tax on interest payment of Rs.11,97,624/- and the same is liable to be disallowed under the provision of section 40(a)(ia) of the Act, and, accordingly, AO disallowed the same. 4.2. Aggrieved by the order of the AO, the assessee filed an appeal before the ld. CIT(A) who has deleted the addition made by the AO. The ld. CIT(A) observed that section 40(a)(ia) cannot be invoked by the ld. AO in a situation when the assessee may not have submitted the requisite Form 15G before the Authority in time, or even may not have submitted the same at all. The ld. CIT(A) observed that in the present situation from the emergent facts, it was appeared that there was no need for the assessee to deduct taxes at source from the cases, and therefore it cannot be said that there was any default on the part of the assessee. The ld CIT(A) also relied on the case of M/s Karwat Steel Traders Vs ITO (2013) 145 ITD 370/37 taxmann.com 190, wherein it was held that in a similar situation that non-filing or delayed filing of the forms cannot result in the disallowance u/s 40(a)(ia) of the Act. Therefore, the ld. CIT(A) deleted the addition Rs.11,97,624/-. 4.3.Not being satisfied with the order of the ld. CIT(A), the Revenue is in appeal before us. The ld. DR for the Revenue has primarily reiterated the stand taken by Page | 6

ITA No.1841/Kol/2016 Shri Kamal Kishore Toshniwal Assessment Year: 2012-13 the AO which we have already noted in our earlier para and is not being repeated for the sake of brevity. 4.4 On the other hand, the ld. counsel for the assessee submitted that the addition made by the AO relates to the disallowance made u/s 40(a)(ia), on the grounds that the assessee did not deduct TDS while making interest payments to the loan creditors. The AO noticed that the assessee has claimed an amount of Rs.51,42,656/- as deduction on account of interest paid. The AO noticed that the assessee had not deducted TDS in the case of 26 parities to whom an interest amount of Rs.11,97,624/- has been paid. The assessee claimed before the AO that in these cases, no TDS was deductible as the relevant Form 15G/15H had been submitted before the Appropriate Authority. During the appellate proceedings, the assessee also submitted that various parties have submitted Form15G/15H against the same, and therefore, the assessee was not required to deduct the TDS in the case of these parties. It was also claimed with proof that the assessee had submitted the Form 15G/15H to the Office of the Hon’ble CIT, Kolkata dated 11.05.2012. The assessee also stated that the same documents were also submitted before the AO but then he had overlooked the said documents. 4.5. Having heard the rival submissions and perused the materials available on record, we are of the view that assessee submitted Form No.15G/15H before the AO. The assessee also submitted Form 15G/15H before the CIT(A). Therefore, prima facie there would be no disallowance in this case. Apart from this the said issue is covered by the judgment of Coordinate Bench Hyderabad, in the case of Malineni Babulu Vs. ITO, in ITA No.1326/Hyd/2014, A.Y 2009-10, dated 07.08.2015, wherein it has been held that declaration of the payees in the prescribed form with it at the time when the interest was paid to the respective customers, in this position, the assessee cannot be held to be liable to deduct tax therefrom u/s 194A of the Act. We further hold that if the assessee bank was not liable to deduct tax at the time of payment of interest, then section 40(a)(ia) of the Act is not attracted and the assessee cannot be held liable to pay tax. Therefore, respectfully following the judgment of Coordinate Bench in the case of Malineni Bagulu (supra), on identical issues, we are of the view that section Page | 7

ITA No.1841/Kol/2016 Shri Kamal Kishore Toshniwal Assessment Year: 2012-13 40(a)(ia) cannot be invoked by the AO in a situation when the assessee has filed Form 15G/15H before the Appropriate Authority. Hence, considering the factual position, we confirm the order passed by the CIT(A). 4.6 In the result, the appeal filed by the Revenue (in Ground no.2), is dismissed. 5. Ground No.3 raised by the Revenue relates to disallowances of Rs.1,15,200/- on account of non deduction of tax at source by the assessee to the parties against payment on account of repairs and maintenances. 5.1 The brief facts qua the issue are that, it was seen by the AO from the Profit and Loss Account of the assessee as on 31.03.2012 that a sum of Rs.2,07,062/- has been claimed as deduction on account of repairs and maintenance. From the details filed by the assessee during the course of hearing, it was noticed that of Rs.2,07,062/-, total amount of Rs.2,05,862/- was booked against expenditure on account of repairing account in respect of following parties: Date Name of Party Amount Amount of (Rs.) TDS (Rs.) 01.08.2011 Clear point instrumentation Pvt. 43,200/- Nil Ltd 10.08.2011 Double Engineering Pvt. Ltd 90,662/- 1813 13.09.2011 TTL Technologies Pvt. Ltd 72,000/- Nil From the above it is clear that the assessee has deduct tax at source of Rs.1813/- on payment of Rs.90,662/- to Double Engineering Pvt. Ltd, but failed to deduct tax at source against payment of Rs.43,200/- and 72,000/- totaling to Rs.1,15,200/-. In this regard, AO noted that, during the course of hearing, when the assessee was confronted on this point, it was stated by his written submission dated 20.03.2015 that ‘Repair & Maintenance is charged by the customer for repairing of goods by them under warranty period. Since assessee is not directly paying the charges for repairs but reimbursing the amount borne by the customer as per contract, in this case, assessee is not liable to deduct TDS.’ The AO did not accept the contention of the assessee and held that material fact of the case clearly indicate that the assessee has already made TDS on payment of Rs.90,662/-, but failed to make TDS on payment of total amount of Rs.1,15,200/-. Hence, the amount of Rs.1,15,200/- as debited in profit and loss account of the assessee was disallowed u/s 40(a)(ia) by the AO. Page | 8

ITA No.1841/Kol/2016 Shri Kamal Kishore Toshniwal Assessment Year: 2012-13 5.2. Aggrieved by the addition made by the AO the assessee filed an appeal before the ld. CIT(A) who has deleted the addition made by AO. The assessee submitted before the CIT(A) that the head of “Repair & Maintenance” includes the component of service provided to the customers post sales under warranty of equipment. It was submitted by the assessee that normally customers get the goods purchased repaired by themselves and the assessee only reimburses the expenses to such customers. Therefore in these cases, there was no requirement for making TDS as the expense is a reimbursement and the assessee was not paying any amount directly to the vendors was merely reimbursing the expense borne by our customer in relation to repairs of defective items. It was further explained that in those cases, where the assessee was responsible for repairs for customer, TDS had been deducted as per the rate applicable. It was pointed out that the total payments made was Rs.2,05,862/- out of which TDS was not made against payment of Rs.43,200/- and Rs.72,000/- to M/s Clear Point Instrumentation Pvt. ltd and M/s TTL Technologies Pvt. Ltd, as the assessee has to merely reimburse the actual expense borne by the customers. However, in the case of M/s Doble Engineering Pvt. Ltd, the assessee has paid the repairs amount of Rs.90,662/- to the vendor on behalf of M/s Doble Engineering Pvt. Ltd, on which TDS was deducted @Rs.1813/- as the assessee has paid the amount directly and not behalf of any customer. The assessee was rendering different types of service to the customers. Firstly, it was rendering service directly and secondly he was undertaking repairs and service on behalf of the companies for whom products were sold. Based on the submissions of the assessee, the ld CIT(A) held that there can be no material gain to the assessee in not deducting TDs, more so when the payments was made on cot-to-cost basis. Therefore, ld CIT(A) deleted the addition. 5.3 Not being satisfied with the order of CIT(A), the Revenue is in appeal before us, on this particular issue. The ld. counsel for the assessee has defended the order passed by the CIT(A) whereas ld DR for the Revenue relied on the stand taken by the assessing officer. 5.4 Having heard the rival submissions and perused the materials available on record, we are of the view that assessee was rendering different types of service to the customers. Firstly, it was rendering service directly and secondly he was Page | 9

ITA No.1841/Kol/2016 Shri Kamal Kishore Toshniwal Assessment Year: 2012-13 undertaking repairs and service on behalf of the companies for whom products were sold. It is seen that the assessee had deducted TDS when services were on behalf but has not deducted any TDS when the payments was made by way of any reimbursement to the services. We are of the view that the payment was by nature of reimbursement for repair costs met by the customers. Therefore, there is no requirement to make the TDS, when the payments were made on cost-to-cost basis. Therefore, based on the factual position explained above, we confirm the order passed by the ld. CIT(A). 5.5 In the result, the appeal filed by the Revenue (in Ground no.3), is dismissed. Order pronounced in the open court on this 29/11/2017. Sd/- Sd/- (A. T. VARKEY) (DR. A.L.SAINI) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER कोलकाता/Kolkata; िदनांक Dated 29/11/2017 [RS, SPS] आदेशकी�ितिलिपअ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Assessee –Shri Kamal Kishore Toshniwal 1. ��थ�/ The Revenue-I.T.O, Ward – 35(3), Kolkata 2. आयकरआयु�(अपील) / The CIT(A), 3. आयकरआयु�/ CIT 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, कोलकाता/ DR, ITAT, Kolkata 5. गाड�फाईल / Guard file. 6. स�ािपत�ित