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Income Tax Appellate Tribunal, ‘C’ BENCH, BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI INTURI RAMA RAO
O R D E R
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee directed against the order of the CIT(A), Hubli, dated 26/02/2015 for the assessment year 2006-07.
The assessee raised the following grounds:
1. The order of the A.O is bad in law and against the facts and circumstances of the case.
2. Whether the A.O and CIT(A) in law and under the facts and circumstances of the case right in holding the notice u/s 148 is valid, which was Page 2 of 6 of four years without recording a satisfaction regarding failure on the part of appellant for disclosure of full and true discloser of all material facts.
3. Under the facts and circumstances of the case and in law, the A.O and CIT(A) erred in disallowing the interest on opening balances and without taking into the time factor for the advances remaining out-standing.
Whether A.O in law and under the facts and circumstances of the case is right in holding Section 40a(ia) is applicable for the payment made during the year without TDS.
5. On the facts and circumstances of the case, the A.O erred in making addition of Rs.29,457/- for the advances made for the business purpose.
6. For these and other reasons which may be adduced at the time of hearing the appellant prays this Hon'ble Bench to delete the addition made by the A.O or annul order as the notice u/s 148 is bad in law.
7. Appellant Craves Leaves to add, to alter, to amend and to delete any of the ground at the time of hearing.
Brief facts of the case are that return of income for the assessment year 2006-07 was filed by the assessee-firm on 31/10/2006 disclosing income of Rs.17,97,912/-. The same was processed u/s 143(1) of the Income-tax Act, 1961 [‘the Act’ for short] on 23/2/2007. Apparently, there was no scrutiny assessment. Subsequently, a notice dated 14/02/2012 was issued u/s 148 to the assessee requiring the assessee to file return of income. The assessee filed a letter dated 15/03/2012
Page 3 of 6 requesting that the return filed u/s 139(1) may be treated as return in response to 148. Subsequently, the assessment was completed by the AO u/s 143(3) r.w.s. 147 vide order dated 31/01/2013 at a total income of Rs.24,71,802/-. While doing so, the AO had made following disallowances : i. Disallowance of interest and advances made to related persons Rs.3,31,977/-. ii. Capitalisation of interest for advances made for renovation of showroom of Rs.29,457/- iii. Disallowance u/s 40a(ia) Rs.2,31,568/- iv. Capitalisation of interest relating to Wind Mill Rs.80,888/-.
4. An appeal was preferred before the CIT(A) who, vide impugned order dismissed the appeal.
Being aggrieved, the assessee is in appeal before us.
Ground Nos.1, 6 and 7 are general in nature. Ground No.2 relates to validity of the re-assessment proceedings. It is contended that the re-assessment proceedings are invalid in law as the re-assessment proceedings are prompted by mere change of opinion. The contention advanced on behalf of the assessee cannot be accepted as there was no original assessment u/s 143(3) of the Act. Therefore, it cannot be said that the AO had formed an opinion at the time of processing return u/s 143(1) of the Act. We uphold the action of the AO in reopening the Page 4 of 6 assessment u/s 148 of the act. This ground of the assessee is rejected.
Ground No.3 challenges the disallowance of interest on opening balance. The issue in this ground is covered by the earlier order of the Tribunal in the assessee’s own case for the assessment year 2007-08 in dated 25/01/2012 wherein the Tribunal held as follows: “03. We have also heard the learned DR and considered the facts and materials on record. The Tribunal in its earlier order, cited supra, after referring to' the Hon'ble Karnataka High Court decision, in CIT v Srideva Enterprises (1991) 192 ITR 165, has observed as under: "However, the Assessing Officer will exclude the opening balance and for other advances, the Assessing Officer will recompute the disallowable interest considering the time factor for which an amount remained outstanding. The appellant will submit the details of such disallowance and the Assessing Officer will verify it. With the above findings, this ground of appeal relating to disallowance of interest is disposed off" Thus, following the above decision of 'this Tribunal, we restore the appeal for the assessment year 2007-08 also to the file of the Assessing Officer with similar direction. ” Respectfully following the decision, we restore this issue to the file of the AO for recalculating the amount of interest excluding the opening balance.
Ground No.4 relates to disallowance made u/s 40A(ia) of the Act. It is the contention of the assessee-company that no disallowance u/s 40a(ia) can be made as the amounts have been Page 5 of 6 paid during the previous year relevant to assessment year under consideration, no amounts are outstanding as at the end of the accounting year. According to him, the issue is covered by the Special Bench of Tribunal in the case of Merilyn Shipping and Transport Ltd. reported in 136 ITD 23, Hon’ble Allahabad High Court decision in the case of CIT vs. Vector Shipping Services Pvt. Ltd. (2013) 357 ITR 642). However, we find that this ground was not raised before the CIT(A) and no application was filed for admission of the additional ground of appeal. Moreover, the jurisdictional High Court in the case of Ryatar Sahakari Sakkare Karkhane Niyamit vs. ACIT (ITR (2016) (383 ITR 561) had not followed the ratio of the decision of the Special Bench of Tribunal in the case of Merilyn Shipping and Transport Ltd. and the decision of the Hon’ble Allahabad High Court in the case of Vector Shipping Services Pvt. Ltd. (supra). The Hon’ble High Court held as follows:
“In the result, the appeals filed by the Revenue are allowed by answering the following substantial question of law in its favour and it is held that in the facts and circumstances of this case, the Tribunal was not correct in interpreting the language of section 40(a)(ia) to mean that the consequence of disallowance is attracted only in respect of amounts which remain payable on the last day of the financial year. ”
Respectfully following the decision of the Hon’ble jurisdictional High Court in the above case, we hold that the assessee cannot escape the consequence of disallowance as there is a default in Page 6 of 6 non-compliance with TDS provisions. Hence, this ground of appeal is dismissed.
9. Ground No.5 relates to capitalisation of interest on advances made for business purpose. This ground does not emerge out of the order of the CIT(A), hence, dismissed as such.
In the result, the appeal of the assessee is partly allowed.