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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri Reepal G. Tralshawala Department by: Smt. Pooja Swaroop सुनवाई क� तार�ख / Date of Hearing: 22.04.2016 घोषणा क� तार�ख /Date of Pronouncement:10.08.2016 आदेश / O R D E R PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 27.09.2010 passed by the Commissioner of Income Tax (Appeals) 14, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2005-06.
ITA No.2302/M/2011 A.Y. 2005-06
The assessee has raised the following grounds:-
“1. On facts and circumstances of the case, the C.I.T.(A) has erred in confirming the disallowance of Rs.56,00,000/- out of interest paid without appreciating the fact that, loan taken was utilized by the appellant. 2. On facts and circumstances of the case the C.I.T.(A) has erred in confirming disallowance of Rs.2,58,919/- out of commission paid.”
The brief facts of the case are that the assessee has filed the return of income declaring total loss to the tune of Rs.55,63,901/- on 28.10.2005. The return was processed u/s.143(1) Income Tax Act, 1961 (in short “the Act”). The case was selected for scrutiny, therefore the notice u/s.143(2) and 142(1) were issued and served upon the assessee. The assessee company is engaged in the business of hotel industry having hotel at Shirdi. After verification of details, it was found that the assessee claimed the interest to the tune of Rs.97,38,031/- vide which an amount of Rs.41,38,030/- was allowable hence, the balance interest to the tune of Rs.56,00,001/- was found unexplained, therefore, disallowed and added to the income of the assessee. The Assessing Officer disallowed the commission payment to the extent of 20%, therefore, the assessee filed an appeal before the CIT(A) who confirmed the order of the Assessing Officer, therefore the present appeal has been filed before us.
ITA No.2302/M/2011 A.Y. 2005-06 ISSUE NO.1:-
Under this issue the assessee has challenged the disallowance of interest to the tune of Rs.56,00,001/- within the interest paid without appreciating the fact that the loan taken was utilized by the appellant. The assessee initially claimed the interest to the tune of Rs.97,38,031/- and explained the interest to the tune of Rs.41,38,030/- therefore, the remaining interest to the tune of Rs.56,00,001/- was disallowed. The contention of the assessee was dealt by the CIT(A), therefore, discussing further we are inclined to reproduced the finding of the CIT(A) on record:-
“6. I have gone through the above submissions very carefully and facts of the case as well as the remand report dated 2.7.2009. The A.O. has made disallowance of Rs.56,00,000/- out of total claim of Rs.97,38,031/- as financial charges as the assessee failed to furnish the basic details such as party-wise, utilization of loan and non-compliance of TDS provisions of sec. 194A.
6.1 The facts related to the issue are that in the audited report filed along with return of income, the closing outstanding loan from Vasant Sahakar Bank was Rs.2,30,000/- as on 31.03.2004.
ITA No.2302/M/2011 A.Y. 2005-06
6.2 As per Vasant Dada Shethkari Bank Ltd., an amount of Rs.3,95,00,000/- was granted as a loan to M/s. Indian Polypharm vide sanction letter dated 17.05.2004 and the amount was disbursed on 12.06.2004. M/s. Indian Polypharm also maintain a current account No.1319 in the same bank and the loan amount was transferred to that account.
6.3 The Directors of the company Shri M.J.Bhujbal and Smt. M.Bhujbal also maintaining bank account bearing No.1326 & 1331. Both of them received loan from M/s.Polypharm as under:
Shri M.A.Bhujbal Rs.2,81,40,000 Smt. A.M.Bhujbal Rs. 81,00,000 Rs.3,62,40,000 Therefore, it appears that out of the loans amount of Rs.3,82,48,000/-, M/s. Indian Polypharm had given the loan of Rs.3,62,40,000/- to the directors of the assessee- company. Thus it is clear that the total amount of loan granted to M/s. Indian Polypharm was not utilized by the assessee-company as a whole, as claimed by the appellant.
From the details of interest attributable to M/s. Indian Polypharm, shows that a sum of Rs.5,00,000/-
ITA No.2302/M/2011 A.Y. 2005-06 representing interest was paid by M/s. Indian Polypharm and the balance amount of Rs.45,00,000/- was paid by the assessee-company through transferring loan account of M/s. Indian Polypharm. However it is found that a sum of Rs.5,00,000/- was transferred from the account of M/s.Bhagyalaxmi Hotels Pvt. Ltd. in account no. 1319 in the name of Indian Polypharm and the said sum was transferred to loan account towards the payment of interest on secured loan.
From the above facts, it is very clear that since the loan was received from Shri M. A. Bhujbal and Smt. A.N.Bhujbal, interest, if any was required to be paid to them only and not to the bank. The payments made by the appellant to the Bank is purely repayment of loan / interest for and on behalf of the above loan creditors. Even the bank has also credited the accounts of the persons only on receipt of payment from the appellant.
Therefore, I fully agree with the A.O. that assessee was liable to deduct tax at source u/s.194A on payment of interest of Rs.51,00,000 to bank through loan account no.5 in the name of Indian Polypharm. Therefore, as per provisions of interest in view of non-deduction of tax at source and deposit thereof within the prescribed time
ITA No.2302/M/2011 A.Y. 2005-06 limit. Thus, the appellant is not entitled for deduction of financial charges of Rs.56,00,000/-. Accordingly, the action of the A.O. is confirmed and this ground of appeal is treated as dismissed.”
5. It is admitted that the assessee paid interest to the tune of Rs.51,00,000/- to bank through loan account no.5 in the name of M/s. Indian Polypharm. As per the provisions of section 40(a)(ia) of the Act, the appellant was not eligible for the deduction of payment of interest in view of non-deduction of tax at source and deposit thereof within the prescribed limit. Therefore it was held that the appellant is not entitled for the deduction to the tune of Rs.51,00,000/-. The learned representative of the assessee has argued that M/s. Indian Polypharm utilized the term loan of floated by the directors in the appellant company for the sole benefit of the appellant for such loan and interest payable are the liability of the company. Therefore, the interest paid is liable to be allowable in view of the provision u/s.36(1)(iii) of the Act. In support of these contentions the learned representative of the assessee has placed reliance on the order passed by the Income Tax Appellate Tribunal, Mumbai bench in in case of Onward Services Ltd. Vs. ACIT Central Circle 37 dated 09.05.2012. The learned representative of the assessee has placed reliance on the para 9 of the said judgement which is reproduced below:-
ITA No.2302/M/2011 A.Y. 2005-06
“9. There are other aspects also to be considered. It is an actual reimbursement of the interest by the parent company from the assessee in respect of the utilization of the banking funds in respect of borrowing facilities enjoyed by the M/s. OTL, the parent company then it cannot be said to be the income of the parent company. In the assessment order, as per the explanation filed by the assessee, the ‘OTL’ has reduced the amount of interest received from the assessee company from it’s interest account and only the net amount of the interest is taken to the profit and loss account. Moreover, as per the provisions of sec.194A, otherwise also there is no liability on the assessee to deduct the tax at source if the interest is paid to any banking company to which Bank Regulations Act, 1949 applies. In present case assessee has paid interest to bank only but through it’s parent company.”
In view of the peculiar facts and circumstances of the present case and the observations made by the Income Tax Appellate Tribunal, Mumbai bench in in case of Onward eServices Ltd. Vs. ACIT Central Circle 37 dated 09.05.2012, we are of the view that the issue is required to be re-examined at the end of the Assessing Officer in view of the above mentioned law,
ITA No.2302/M/2011 A.Y. 2005-06 therefore, we set aside the order of the CIT(A) on this issue in question and remand this issue to the Assessing Officer to decide the matter afresh in the light of the above mentioned law by giving an opportunity to heard to the assessee. Accordingly, this issue is decide in favour of the assessee against the revenue.
ISSUE NO.2:-
Issue no.2 is in connection with the confirmation of the disallowance of Rs.2,58,919/- out of the commission paid. The assessee is engaged in the business of hotel industry and paid certain commissions to the taxi drivers and rikshaw pullers for brining their clients. In support of the claim, the assessee furnished names of taxi drivers and rikshaw pullers and claimed the commission paid to them. It is not in dispute that the hoteliers are required to pay commission to the person who brings business to the assessee. Taxi drivers and rikshaw pullers are introduced to bring more business to the assessee. The entire commission was paid in the form of cash. The payers are not identifiable, therefore the Assessing Officer disallowed the commission to the extent to 20%. On seeing the business of the assessee and commission paid to the taxi drivers and Rikshaw pullers, we are of the view that the disallowance to the extent of 20% of the total commission is on the higher side, therefore restrict the disallowance to the extent of 10% of the commission paid.
ITA No.2302/M/2011 A.Y. 2005-06 Accordingly this issue is decided in favour of the assessee against the revenue.
In the result, the appeal filed by the assessee is hereby allowed.
Order pronounced in the open court on 10th August, 2016.