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Income Tax Appellate Tribunal, ‘C’BENCH,
Before: Shri J.Sudhakar Reddy & Shri S.S.Viswanethra Ravi
Shri S.S. Viswanethra Ravi, JM :-
This appeal by the assessee is against the order dt: 26-10- 2012 passed by the Commissioner of Income Tax (Appeals), VI, Kolkata for the assessment year 2005-06.
In this appeal the assessee has raised the following grounds of appeal:- 1. For that in the facts and circumstances of the case, the Ld. AO has erred in completing the assessment u/s. 144 of the Income Tax Act. The action of the Ld. A.O was wholly unjustified, uncalled for and bad in law. The Ld. CIT(A) was unjustified in confirming the action of the Ld. AO. 2. For that in the facts and circumstances of the case, the Ld. AO has erred in disallowing a sum of Rs.3,59,785/- holding the same as capital loss. The Ld. CIT(A) has erred in confirming the action of the Ld.AO. 3. For that in the facts and circumstances of the case, the Ld. AO has erred in adding a sum of Rs.8,29,538/- to the total income of the assessee holding that the evidence of the Tax Deducted at Source 1
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paid to the government was not furnished before him. The Ld. CIT(A) has erred in confirming the action of the Ld.AO. 4. For that in the facts and circumstances of the case, the Ld. AO has erred in disallowing entire administrative expense amounting to Rs.2,99,255/- while passing the assessment order. The Ld. CIT(A) has erred in confirming the action of the Ld.AO. 5. For that the appellant craves leave to add, alter, delete all or any grounds of appeal at the time of hearing.
Ground no.1 raised by the assessee questioning the impugned assessment made u/s. 144 of the Act and confirmed by the CIT-A.
At the time of hearing before us the ld.AR submits that he is not pressing this ground for any adjudication. Hence, the same is dismissed as not pressed.
Ground no.2 as raised by the assessee with regard to challenging the order of the CIT-A in disallowing a sum of Rs.3,59,785/- by holding the same as capital loss.
During the scrutiny proceeding the AO on perusal of Profit and Loss account as filed before him with the return found that the assessee has debited a sum of Rs.3,59,785/- under the head ‘Loss on sale of investment’. The AO found that the investments of assessee for the year under consideration was at Rs.4,70,000/- and in the earlier year was at Rs.9,20,000/-. Therefore, the AO was of the opinion that the loss arising out of sale of investment is a capital loss. The relevant finding of the AO is reproduced herein below:- 1. From the Profit and Loss account filed by the assessee with the return, it is found that the assessee debited the sum of Rs.359785.50 under the ‘Loss on sale of investment’. The assessee’s nature of business is Investment in Share & Finance. In the year under scrutiny, the assessee’s investment stood at Rs.4,70,000/- in shares whereas the earlier year’s figure was Rs.9,20,000/- for 2003-04. Hence, it is evident that assessee sold some of its investment and that loss on that investment is debited to the P/L account. The assessee was asked through notices u/s. 142(1) and 2
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subsequent notices to file details of the loss on sale of investment. Finally, the assessee was served with a show cause notice and directed to explain why the amount of Loss on sale of investment will not be added back to its total income. Till date of order the assessee could not file any explanation to show cause, nor did he could provide any supporting documents. The loss arising out of sale of investment is nothing but Capital Loss. As per section 74 of the I.T Act, such loss can only be set off with Capital Gain in the same year. Thus, the loss being a capital loss cannot be allowed to be debited to the Profit and Loss account of the assessee, and, accordingly, the amount of Rs.359785.50 is added back to the total income of the assessee. “
Before the CIT-A the assessee contended that the investment and sale was done in the course of business. But, according to CIT-A the assessee has not been able to produce any evidence that the shares were converted into stock in trade. In absence of any contrary evidence, the CIT-A confirmed the impugned addition as made by the AO by stating as under:- 13. I have carefully considered the observations of the Assessing Officer in the assessment order, and submissions of the appellant. The assessee was engaged in the business of purchase and sale of shares and financing as per the audited accounts filed along with the return of income. The appellant has submitted that the investment was part and parcel of the assessee's business. It is thus submitted that the shares held as investment had every connection to that of the assessee's trading business. I further stated that there is no express provision in law to determine whether share transactions constitute business or investment activity. In this instant case the acts of the assessee company in question clearly indicate that it was keeping shares with the very intention of trading only. 14. The appellant has submitted that the investment and sale was done in course of assessee's business of investment/dealing in shares and it should be treated as business income. The Assessing Officer has clearly found that the investments were shown at an amount of RS.9,20,OOOI- in Financial Year 2003-04 i.e. Assessment Year 04-05. The appellant has not been able to produce any document or evidence showing that it has converted the shares into stock in trade. The valuation in the course of stock in trade and investment is entirely difference in the books of accounts. The stock in trade is valued as market rate or cost price whichever is lower, while the investments are valued at cost price only. The appellant is a well advised person with full legal assistance and duly audited account. There is absolute distinction between investments and stock in trade. The appellant has been given large number of opportunities during the appellate proceedings in which as mentioned above, nobody has attended most of the time. Shri P. Kapoor, Chartered Accountant, partner of M/s. Kapoor Mehrotra & Associates has attended on 25.08.2011 & 22.11.2011. The notice u/s 250 issued vide letter no. CIT(A)-VI/Kol/Notice/12-13/597 dated 18.09.2011 was duly sent and served on 24th September 2012 on M/s. Kapoor Mehrotra & Associates being the Authorised Representative holding power of attorney duly signed and authorised to receive service of notices. The notices have been duly served and duly received by the authorised person on behalf of the appellant during assessment stage and appellate proceedings. The appellant has been given enough 3
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opportunities during the assessment proceedings as well as appellate proceedings; the appellant has not produced any evidence, books of accounts, bills and vouchers showing the genuineness of its business and its accounts maintained by it on this issue. Therefore, in the absence of any contradictory evidence to the findings of the Assessing Officer, it is held that the loss of Rs.3,59,785/- is a capital loss. The addition of Rs.3,59,785.50 is upheld. This ground of appeal is dismissed.”
Heard both the parties and perused the material available on record. It is noticed that the investments of assessee for the financial year 2004-05 was at Rs.9,20,000/- whereas the AO found the investment of assessee for the assessment year under consideration was at Rs.4,70,000/-. The CIT-A has rightly pointed out that the assessee did not produce any document/evidence to show that the shares being investments were converted into stock in trade. As such, he confirmed the impugned addition of Rs.3,59,785.50 as made by the AO. Thus, we find that the AO and CIT-A both were justified in disallowing and confirming the same respectively. Therefore, this ground of assessee is dismissed.
Ground no.3 as raised by the assessee with regard to challenging the order of the CIT-A in confirming the addition of Rs.8,25,938/- on account of non production of TDS.
The AO found that the assessee paid interest on loan of Rs.8,25,938/- by debiting the same to its P & L account. Non production of any TDS certificate on interest paid, the AO disallowed the said amount of Rs.8,25,938/- by invoking the provisions of section 40(a)(ia) of the Act.
The CIT-A confirmed the said addition as made by the AO for non production of any evidence regarding the TDS 4
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certificate. Relevant findings of the CIT-A on this issue are reproduced herein below:- “17. I have carefully considered the observations of the Assessing Officer in the assessment order, and submissions of the appellant. The Assessing Officer has found during the assessment proceedings that the appellant has not deposited the taxes amounting to Rs.1,15,422/- on the basis of information under schedule ‘J‘ of current liabilities and provisions. The appellant has been given enough opportunities during the assessment proceedings as well as appellate proceedings; the appellant has not produced any evidence, books of accounts, bills and vouchers showing the genuineness of its business and its accounts maintained by it on this issue. In the absence of any documents regarding the deposit of TDS, the addition of Rs.8,25,938/- is upheld. This ground of appeal is dismissed.
Before us the ld.AR submits that clause (ia) was inserted to Section 40(a)(ia) of the Act by the Finance Act 2004, which got ascent by President on 10-04-2009 and came into effect from 1-4-2005. He argued that the amendment came into force w.e.f 1-4-05, which will be made applicable from the AY 2006- 07. Therefore, the addition made u/s. 40(a)(ia) of the Act for the AY 2005-06 i.e under consideration is not applicable. In support of his contention the ld.AR of the assessee has relied on the order of the Hon’ble Calcutta High Court in the case of PIU Ghosh Vs. DCIT reported in (2016) 386 ITR 0322(Cal) and argued the facts of the case therein are similar to that of the present case in hand and the order of Hon’ble High Court is applicable.
The ld.DR relied on the orders of the authorities below.
Heard rival submissions and perused the material available on record. We find that the question was framed by the Hon’ble High Court of Calcutta in the case of supra that whether the Tribunal has erred in law in applying the provision of Section 5
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40(a)(ia) of the Act to the AY 2005-06, when the provisions were substituted by the Finance Act, 2004 w.e.f April 1, 2005 ? Relevant portion of which is reproduced herein below:-
The question for consideration is whether, a sum of Rs. 4,30,386/- paid by the assessee to a contractor, during the previous year ended on 31st March, 2005 is deductible? The learned Tribunal has answered the question in the negative. It is against this order of the learned Tribunal, the assessee has come up in appeal.
Mr.Bharadwaj, learned advocate appearing for the assessee/appellant submitted that sub- section 2 of section 1 of the Amendment Act provides that the law shall be deemed to have come into force on 1st April, 2004 except as otherwise provided. Clause (ia) was added to Section 40 by Section 11 of the aforesaid Finance Act of 2004. Section 11 provides that the law shall be deemed to come into effect on 1st April, 2005. He contended that the authorities below were wrong in not allowing deduction for the sum of Rs. 4,30,386/-, paid by the assessee to a contractor, due to omission on the part of the assessee to deduct tax. The omission to deduct tax became subject to the penal consequence under section 40 only with effect from 1st April, 2005. Therefore, any omission prior to 1st April, 2005 could not have visited the assessee with any penal consequences. He relied on a judgement in the case of CIT v. Hindustan Electro Graphites Ltd , reported in (2000) 243 ITR 48 (SC). What had happened in that case was that the return for the assessment year 1989-90 was filed by the assessee in December, 1989. The Finance Bill, 1990 got presidential assent on 31st May, 1990 and was made applicable retrospectively with effect from 1st April, 1967. By the amendment cash assistance was made taxable. Since the assessee who had received cash assistance from the Government and had not offered the amount for taxation, the assessing officer treated the amount of cash assistance as an additional income under section 143(1)(A) and levied the amount of tax at a higher rate and also charged consequential interest. The Tribunal reversed that order. The High Court upheld that order. In an appeal, the Supreme Court held as follows:
"If additional tax could be levied in such circumstances, it will be punishing the assessee for no fault of his. That cannot ever be the legislative intent. It shocks the very conscience if in the circumstances section 143(1A) could be invoked to levy the additional tax. The following observations by the Constitution Bench of this court in Pannalal Binjraj v. Union of India [1957] 31 ITR 565 are apt. (page 597): "A humane and considerate administration of the relevant provisions of the Income- tax Act would go a long way in allaying the apprehensions of the assessees and if that is done in the true spirit, no assessee will be in a position to charge the Revenue with administering the provisions of the Act with an evil eye and unequal hand'."
Mr.Agarwal, learned advocate appearing for the revenue submitted that the judgement cited by Mr.Bharadwaj has no manner of application, nor does the judgement, he contended, help the assessee. It has been laid down in the aforesaid judgement that the law applicable is the law on the date of filing of the return. He submitted that on the date of filing of the return, the law had already come into force. Therefore, as regards applicability of the law there can be no doubt. He also drew our attention to section 4 of the Income Tax Act which provides as follows:
(1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and [subject to the provisions (including provisions for the levy of additional income-tax) 6
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of, this Act ] in respect of the total income of the previous year [ *** ] of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.
(2) In respect of income chargeable under sub-section (1), income- tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act."
Mr.Agarwal's criticism is not without force but he has not been able to point out as to how could the assessee have come to know that the omission to deduct tax from any payment made to a contractor shall become not deductible under section 40 before the Finance Act 2004 got presidential assent on 10th September, 2004. This question he has not answered because he has no answer to offer.
Admittedly, the Finance Act, 2004 got presidential assent on 10th September, 2004.
The assessee could not have foreseen prior to 10th September, 2004 that any amount paid to a contractor without deducting tax at source was likely to become not deductible under Section 40. It is difficult to assume that the legislature was not aware or did not foresee the aforesaid predicament. The legislature therefore provided that the act shall become operative on 1st April, 2005. Any other interpretation shall amount to "punishing the assessee for no fault of his" following the judgment in the case of Hindusthan Elector Graphites Ltd. [supra].
On the top of that, Section 4 relied upon by Mr.Agarwal merely provides for an enactment as regards rate of tax to be charged in any particular assessment year which has no application to the case before us. Section 11 of the Finance Act by which Clause (ia) was added to Section 40 of the Income Tax Ac does not provide that the same was to become effective from the assessment year 2005-06. It merely says it shall become effective on 1st April, 2005 which for reasons already discussed should mean to refer to the financial year. There is, as such, no scope for any ambiguity nor is there any scope for confusion. Even in a case where there is any ambiguity, law in that regard was noticed by the Supreme court in the case of CIT (Central)-I vs. Vatika Township Pvt.Ltd., reported in (2014) 367 ITR 466 (SC), as follows:
"Tax laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction, and any ambiguity must be resolved against imposition of the tax. In Billings v. U.S . (232 U.S. 261, S.Ct. 421 (1914), the Supreme Court clearly acknowledged this basic and longstanding rule of statutory construction:
"Tax Statutes ... should be strictly construed, and, if any ambiguity be found to exist, it must be resolved in favor of the citizen. Eidman v. Martinez, 184 U.S. 578, 583; United States v. Wigglesworth, 2 Story, 369, 374; Mutual Benefit Life Ins. Co. v. Herod, 198 F. 199, 201, aff'd 201 F. 918; Parkview Bldg. Assn. v. Herod, 203 F. 876, 880; Mutual Trust Co. v. Miller, 177 N.Y. 51, 57." Again, in United States v. Merriam (263 U.S. 179, 44 S. Ct.69 (1923), the Supreme Court clearly stated at pp. 187-88:
"On behalf of the Government it is urged that taxation is a practical matter and concerns itself with the substance of the thing upon which the tax is imposed rather than with legal forms or expressions. But in statutes levying taxes the literal meaning of the words employed is most important, for such statutes are not to be extended by implication beyond the clear import of the language used. If the words are doubtful, the doubt must be resolved against the Government and in favor of the taxpayer. Gould v. Gould, 245 U.S. 151, 153."
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We are of the opinion that the learned Tribunal erred in applying provision of section 40(a)(ia) in disallowing payment of a sum of Rs.4,30,386/- to a contractor without deducting TDS during the financial year 2004-05, corresponding to assessment year 2005-06. In that view of the matter, the question formulated is answered in the affirmative and in favour of the assessee. The appeal is, thus, allowed.”
Respectfully following the above, we hold that clause (ia), which was inserted to section 40(a)(ia) of the Finance Act 2004 is not applicable to issue in hand. Accordingly, the addition made by AO and confirmed by CIT-A is deleted and ground no.3 raised by the assessee is allowed.
Ground no.4 is challenging the order of CIT-A confirming the disallowance of Rs.2,99,255/- made on account of administrative expenses.
During scrutiny proceedings the AO found that for non production of books of account and any evidence showing the genuineness of claim for administrative expenses of Rs.2,99,255/- added the amount of Rs.2,99,255/- to the total income of the assessee.
Before the CIT-A the assessee contended that all the expenses were incurred for conducting the business and submitted that the AO could not prove contrary to the material that the said expenses claimed by the assessee are bogus. The expenses were incurred for the purpose of business. However, the CIT-A confirmed the impugned addition as made by the AO.
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The ld.AR submits that any reasonable allowance may be granted and argued that all such expenditure was incurred for the purpose of conducting the business of assessee.
On the other hand, the ld. DR relied on the orders of the authorities below.
Heard both the parties and perused the material available on record. It is noticed that the assessee claimed said expenditure towards administrative expenses, depreciation and preliminary expenses. It is noticed that the assessee is a company and engaged in business of shares and finance and it derives its income from business and other sources. It is also noticed that the for non production of the books of account the AO disallowed the said amount. We find that the assessee debited the same to its profit & loss account. Taking into consideration the nature of business of assessee, we are of the view that the disallowance should be at Rs.1,00,00/-. Thus, the assessee gets relief of Rs.1,99,255/-. This ground of assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed. ORDER PRONOUNCED IN OPEN COURT ON 26 /04/2017
Sd/- Sd/- J.Sudhakar Reddy S.S. Viswanethra Ravi Accountant Member Judicial Member Dated 26 -04-2017 *PP/SPS: Copy of the order forwarded to:
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The Appellant/Assessee:M/s. V.N.G Mercantile Private Limited 35, C.R Avenue, 4th Floor, Kolkata-700 013. 2 The Respondent/Department: The ITO W 5(4)/CIT(A)-VI, Kolkata P-7 Chowringhee Square, Aaykar Bhawan, Kolkata-700069. 3 The CIT(A) The CIT 4. DR, Kolkata Bench 5.
Guard file. By Order, Asstt. Registrar
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