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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri Waseem Ahmed & Shri K.Narasimha Chary
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
ITA Nos.46&47/Kol/2014(Assessee’s Appeal)A.Y.2008-09&2009-10: 1
These appeals by the assessee are against the order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 29.08.2013. Assessments were framed by I.T.O.(TDS), Ward-59(4), Kolkata u/s 201(1)/201(1A) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 16.03.2011 for assessment years 2008-09 & 2009-10. The grounds raised by the assessee in both the appeals are as under:- “1. The appellate order passed by the CIT(A) is unwarranted, arbitrary, without proper reasons, invalid and bad in law, to the extent to which it is prejudicial to the interests of the appellant assessee. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that levy of interest u/s 201(lA) of the income-tax Act, 1961, is mandatory and in that view in confirming levy of interest u/s 201(lA) of the Act to the extent of Rs.3,61,761/- (Rs.46,604/- for A.Y.2009-2010). 3. Without any prejudice to the above, in accordance to the Proviso to Section 201(lA) of the Act, the calculation of interest u/s 201(lA) of the Act, should have been limited upto the date of filing of the return of income for the year under consideration. 4. The appellant craves leave to amend, alter, modify, add to, abridge and/ or rescind any or all the above grounds in future.”
Shri Ravi Tulsiyan, FCA, Ld. Advocate appeared on behalf of assessee and Shri R.P.Nag, Addl. CIT(DR) Ld. Departmental Representative appeared on behalf of Revenue. 2. Since the issues involved in both the assessment years are same, therefore we deem it fit to dispose both the appeals by a consolidated order for the sake of convenience. Therefore we decided to treat ITA no. 46/Kol/2014 as lead case.
ITA 46/Kol/2014 3. The assessee had taken loan from M/s MKJ Enterprises Ltd. on which Interest @ 9% was payable to it. The assessee for the year ended on 31/03/2008, credited Interest to the tune of Rs.2,56,94,4411- to the account of M/s MKJ Enterprises Ltd. The assessee had deducted TDS @ 1.133%, being Rs.2,91,118/- on the amount of Interest paid since a Certificate for Lower deduction of Tax U/S 197(1) of the Act was submitted by the said party. However, the Certificate provided for lower deduction of
Tax @ 1.133% only upto Interest paid to the tune of Rs.2,10,27,030.00. Thus, on the balance Interest of Rs.46,67,411/- TDS @ 22.66% was deductible. Thereby, there was a short-deduction of TDS to the tune ofRs.10,04,893/-. The assessee in the course of TDS assessment proceedings explained that the recipient of interest, namely, MKJ Enterprises Ltd. had already included the impugned interest in its Total Income and paid the requisite tax on it. Thereby, there was no occasion for raising demand for collection of the impugned amount from the assessee or for treating the appellant as 'assessee in default'. However the AO disregarded the submission of the assessee and has charged interest U/S 201(1A) to the tune of Rs.3,61,7611.
Aggrieved by the above order passed U/S 201(1)/201(1A) by the learned TDS officer treating the assessee in default, the assessee filed an appeal before the learned CIT(A).
4.1. The learned CIT(A) upheld the order of the AO for charging the interest liability U/S 201(1A) of the Act amounting to Rs.3,61,761.
Aggrieved with the order of the learned CIT(A), the assessee is in appeal before us. The ld. AR before us submitted that interest chargeable U/S 201(1A) is compensatory in nature, i.e., the Government is entitled to interest for the period during which the tax, which is the money belonging to the Government, was withheld by the assessee. This logic/ratio is true if the deductee -payee is liable to pay income tax. However, in the present case the deductee-payee i.e. MKJ Enterprises Ltd. had already included the impugned interest in its Total Income and paid the requisite tax on it. Further, as evident from the Income Tax Return filed for the assessment year under consideration M/s MKJ Enterprises Ltd has claimed refund of taxes. A copy of the ITR acknowledgment for the year is enclosed. As such, there was no shortfall for payment of taxes by MKJ Enterprises Ltd and as such there was no loss to the Revenue as the tax was directly deposited by MKJ Enterprises Ltd to the credit of the Central Government and since MKJ Enterprises Ltd had claimed refund on the taxes so paid, it was entitled to claim refund U/S 244A of the Act.
On the other hand the ld. DR vehemently supported the order of the lower authorities.
We have heard the contentions of rival parties and perused the material available on record. From the foregoing discussion we find that the assessee has deducted TDS at a lower rate and accordingly the AO has charged the interest on the short deduction of TDS amount which was subsequently confirmed by the ld. CIT(A). Now the question before us arises so as to whether the interest is chargeable under the aforesaid facts & circumstances under section 201(1A) of the Act. In this regard, we find that that in a plethora of judgments, it has been held that in such situations where the recipient has no taxes payable at all and has claimed refund of taxes, no interest is to be charged from the defaulting deductor since the Revenue is required to refund of income tax along with due Interest. This has been explained in the following judgments:
The Hon'ble High Court dismissed the appeal in the admission stage in the case of Commissioner of Income-tax v. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. [2006] 287 ITR 354 (Raj) "Deduction of tax at source-Failure to deduct-Levy of interest-Finding that recipient had claimed refund due to tax deducted at source-Interest could not be levied-Income-tax Act, 1961, s. 201(lA).” "The following question is proposed for admission of the appeal: "Whether, on the facts and circumstances of the case, the Tribunal was justified in law in upholding the order of the Commissioner of Income-tax (Appeals) deleting the interest of Rs. 1,60,105 levied under section 201 (lA) of the Act?" The facts are not in dispute that as and when the amount is paid, the tax has been deducted and that has been paid to the Department. The Tribunal has considered this aspect in Para 6 and 7 of its order. For ready reference, they read as under:
"6. We have heard the rival submissions and perused the materials available on record. We find that in this case the learned Commissioner of Income-tax (Appeals) had held that tax at source was to be deducted on the composite contract including on supply of material. The Revenue's appeals are directed only against the direction of the learned Commissioner of Income-tax (Appeals) for deletion of interest charged under section 201 (lA) of the Act for both the years after due verification of the facts that the recipient had already deducted tax at source in full. The provision of section 201 provides not only for collection of tax which had not been deducted but for levy and charge of interest also. If the tax had already been paid by the recipient on such income it may not be justified to recover the said amount of tax, but so
far as the liability of interest is concerned, that cannot be considered to be non- existent on account of deposit of tax by the recipient at a subsequent or later stage. It was also held by the Hon'ble Rajasthan High Court at page 101 in the case of CIT v. Rathi Gum Industries [1995) 213 ITR 98 that the interest is to compensate the Revenue for the loss, which it had suffered on account of late receipt of the tax. The provisions of interest are mandatory and automatic and interest has to be paid from the date on which the tax was deductible till the date on which the tax is actually paid. We may also refer to the decision in CITv. Dhanalakshmy Weaving Works [2000} 245 ITR 13 (Ker). In this case, it was held that the purpose of the levy is to claim compensation on the amount which ought to have been deducted and deposited and has not been done by the assessee. The learned authorised representative had relied upon the decision of CIT v. Rishikesh Apartments Co-operative Housing Society Ltd. [2002} 253 ITR 310 (Guj). In this case, it was held that there was no question of levying any interest on the assessee as the amount which was payable to the Revenue had been duly paid.
After perusal of the facts of the case and relevant law as on the subject, we are of the opinion that learned CIT(A) had rightly held that interest under s. 201(1A) of the Act was to be deleted after due verification by the AO from the enclosures with supporting documents. In all the cases, the recipient of the income had claimed refund, which had arisen due to TDS. Therefore, we find no infirmity in the order of the learned CIT(A) and the same is hereby sustained. 3. When the assessee has paid more tax than the tax payable and refund is due, even TDS is counted, in such case, there is no justification for charging of interest under s. 201(1A). 4. The appeal stands dismissed at the admission stage.”
Similarly the Hon’ble High Court of Gujrat in the case of CIT v. Rishikesh Apartments Co-operative Housing Society Ltd [2002] 253 ITR 310 (Guj) decided the issue in favour of assessee. The relevant extract is reproduced below : “Deduction of tax at source-Failure to deduct tax-Interest-Entire tax payable by payee paid by him as advance tax and tax on self assessment-Interest cannot be levied under section 201(1A)-Income-taxAct, 1961, ss. 4, 190, 194C, 199, 201(lA). If one looks at the provisions of the Act which pertain to imposition of tax, it is very clear that as per the provisions of section 4 of the Income-tax Act, 1961, which is the charging section, the tax is to be paid on the income of the assessee and as per the provisions of the Act, the said tax can also be deducted at source. According to the provisions of section 190 of the Act, in certain cases, as provided under Chapter XVII of the Act, the tax is to be paid by deduction at source. The said amount is to be deducted by way of tax by the person who has to make payment to the concerned person (payee) and as per the provisions of section 199 of the Act, whenever any person who deducts tax before making payment to another person pays the same to the Central Government, he pays the tax which is payable by the payee of the said amount. If the person on whose behalf tax was to be deducted at source had paid such taxes and that too at the time when it had become due, it would not be proper on the part of the Revenue to levy any interest under section 201 (lA). The assessee was a co-operative society which had entered into two contracts with RB for construction of its building. From the amount which was to be paid by the assessee-society to the contractor, the assessee did not deduct any amount of tax which it was required to deduct as per the provisions of section 194C of the Act. Though the assessee-society did not deduct the amount of tax as per the provisions of section 194C, the contractor had paid advance tax
as well as tax on self-assessment with respect to the amount received by it from the assessee- society. As the assessee-society had not deducted the tax at source, in the process of assessment of the income of the society for the assessment years 1974-75 to 1977-78, the Assessing Officer charged interest under the provisions of section 201 (lA) of the Act, on the tax which was deductible by the assessee-society from the amount which was paid to the contractor. It was the case of the assessee that though no tax was deducted from the amount payable to the contractor, the contractor had already paid tax and, therefore, interest under the provisions of section 201 (lA) could not have been levied by the Revenue on the assessee but the said argument of the assessee did not find favour with the Assessing Officer. The assessee filed an appeal to the Appellate Assistant Commissioner. For two years, i.e., for the assessment years 1974-75 and 1975-76, sufficient advance tax and tax on self-assessment was paid by RB and, therefore, the Appellate Assistant Commissioner held that the levy of interest under the provisions of section 201 (lA) was not justified for those two years. So far as the other two assessment years were concerned, the contractor had not paid sufficient advance tax and, therefore, the Appellate Assistant Commissioner came to the conclusion that as advance tax was not paid by RB and as the Revenue had not received the amount of tax on the due date, the action of the Assessing Officer with regard to levy of interest for the said years was justified. Thus, the appeal was partly allowed by the Appellate Assistant Commissioner. The order of the Appellate Assistant Commissioner was upheld by the Tribunal. On a reference: Held, that for the assessment years 1974-75 and 1975-76, it was not in dispute that RB, on whose behalf the tax was to be deducted and paid under section 194C of the Act, had paid more amount of tax by way of advance tax than what was payable and had also paid tax on self-assessment. There was no question of levying any interest on the assessee as the amount which was payable to the Revenue had been duly paid. For the other two years, tax was paid by RB a little late. So far as the late payment was concerned, the Appellate Assistant Commissioner held that the assessee had to pay interest under section 201 (lA) for the said years and the assessee had accepted the said finding. "
In the case of Thomas Muthoot vs. DCIT (2012) 34 CCH 0170 (copy enclosed at Page 1-12 of the Paper Book), the Cochin Tribunal discussed the case of the assessee in detail. In this case, the assessee failed to deduct the TDS on payments made to the deductee-assessee. It was submitted that the deductee-assessee has declared losses in the return of income filed for the year and as such failure to deduct TDS will not make the assessee as 'assessee in default'. However, interest U/S 201(1A) was charged by the learned AO and the same was sustained by the learned CIT(A). Aggrieved, the assessee went in appeal before the Hon'ble ITAT. The Hon bIe ITAT discussed the facts of the case in detail and held that, 21. Now we shall turn to the facts of the instant cases before us, wherein interest u/s 201(1A) was levied upon the assessees. It may be noted that interest s 201 (lA) is levied if there is any failure on the part of any assessee to deduct tax at source (TDS)/remit the same at the right point of time on the income paid by him. The TDS amount to be so deducted/remitted belongs to the revenue/Government. Hence, interest u/s 201 (lA) is charged; since the assessee is considered to be enjoying the TDS amount, which belongs to the Government, till the time he deducts and remits the same to the account of the Government. It is pertinent to note that the Tax so deducted at source is given credit in the account of deductee- assessee. If the assessment of the deductee assessee results in refund of TDS amount, the Government shall
refund the amount along with interest U/S 244A of the Act. The reason for paying interest U/S 244A is that the Government is considered to have enjoyed the amount, which it is not entitled to. Thus the interest is charged/paid as compensation for withholding/enjoying funds not belonging to the assessee/revenue. 22. Let us consider about exigibility of interest U/S 201 (lA) of the Act under the peculiar conditions prevailing in the instant cases, wherein the recipient of interest viz., the partnership firms have declared losses even after accounting for the interest paid by the assessees herein. Even if the assessees herein deduct and remit the TDS amount on the interest paid to the partnership firms, the same is liable to be refunded to the said partnership firms, as there is no tax liability in their respective hands. Under this situation, can it be said that the Government is deprived of the funds due to it or any loss is caused to the Government. 23. We shall now examine the said question with an example. Let us assume that 'Mr. A' pays an interest of Rs.1.00 lakh to 'Mr. B' on 31.3.2007. Mr. A is liable to deduct tax at source on the said payment u/s 194A of the Act. Mr. B includes the said interest receipt in his income statement, but his total income turns into loss. Hence Mr. B is not liable to pay income tax, as he has declared loss in his return of income. Let us analyse the above said facts under two situations, viz., (a) if TDS was deducted by Mr. A and (b) if TDS was not deducted. (A) if TDS was deducted:- (a) In this situation, if Mr. A has deducted and remitted the TDS within the prescribed time, the provisions of sec. 201 of the Act shall not apply to him. However, if there is belated deduction/payment, Mr. A would be charged with interest u/s 201 (lA) of the Act, since he is considered to have withheld/enjoyed the tax amount, which otherwise belongs to the Government. (b) In the hands of Mr. B, the revenue is liable to refund the TDS amount of Rs.10,000/- to him, as he is not liable to pay any tax, in view of the loss return. Since the Government has withheld/enjoyed the funds belonging to Mr. B, which it is not entitled to, the revenue is liable to pay interest u/s 244A of the Act to Mr. B. (B) If TDS was not deducted:- If TDS was not deducted by Mr. A on the interest payment made to Mr. B, then Mr. B would not claim any refund from the revenue. In that case, the question of payment of interest u/s 244A by the revenue to Mr. B does not arise. Since Mr. B has declared loss in his return of income, he is also not liable to pay any tax. In this situation, can it be said that Mr. A has withheld/enjoyed the tax amount belonging to the Government? The answer would be yes, only if Mr. B is liable to pay tax. In this example, Mr. B is not liable to pay any tax and hence question of 'withholding any tax money' belonging to revenue does not arise. Accordingly, it cannot be said that Mr. A has withheld/enjoyed the tax amount belonging to the Government. Even if he is compelled to deduct TDS, ultimately, the same is liable to refunded to Mr. B. Hence, under this kind of situation, it cannot be said that the Government is deprived of its fund or any loss was caused to the Government. 24. The facts analysed in Situation B is applicable to the facts prevailing in the instant cases. On the basis of analysis made in situation B, we are of the view that the assessees herein are not liable to pay interest U/S 201 (lA) of the Act, if the recipient of interest, viz., the partnership firms, are not liable to pay tax on the impugned interest income. However, in the paper book filed before us, only copies of the returns of income filed by the partnership firms have been furnished It is not known whether the said returns of income were accepted as it is by the revenue or not, since copies of the assessment orders for relevant years, if any, were not filed before us. Hence, we are unable to examine, whether the said partnership firms were liable to pay tax on the impugned interest income or not, in the absence of the assessment orders. Hence these facts require verification at the end of the DCIT (FDS). If they are not
liable to pay tax on the impugned interest income, then as per the discussions made in the foregoing paragraphs, these assessees are not liable to pay interest U/S 201 (lA) of the Act. 25. It may be noted that the prevailing rate oJ interest chargeable/ payable U/S 201 (lA)/244A are different, i.e., the rate of interest payable u/s 244A is lesser than the interest chargeable u/s 201 (lA) of the Act. Due to this disparity, a question may arise as to the correctness of the view taken by us in the preceding paragraphs. In our view, the rate of interest is prescribed by the Government on the basis of various factors. The main principle considered by us is that pronounced by the Hon'ble Courts, viz., that, interest is compensatory in nature for depriving funds belonging to the revenue/assessee. Hence the disparity in the rate of interest shall not have any effect on the said principle. 26. In view of the foregoing discussions, we set aside the orders passed by Ld CIT(A) on the issue of levy of interest u/s 201 (lA) in all cases before us and restore the same to the file of the DCIT (FDS) with the direction to verify whether or not the recipients of the interest income, viz., the partnership firms were liable to pay tax on that income and then take appropriate decision about the chargeability of interest u/s 201 (lA) of the Act in the hands of the assessees herein in accordance with the principles discussed by us in the preceding paragraphs. 27. In the result, all the appeals of the assessee are treated as allowed for statistical purposes.”
The facts of the case in Situation B above are squarely applicable to the facts of the appellant. In the present case, MKJ Enterprises Ltd was not liable to pay any tax and hence question of 'withholding any tax money' belonging to revenue does not arise. Accordingly, it cannot be said that the appellant has withheld/enjoyed the tax amount belonging to the Government to warrant the levy of interest U/S 201(1A) of the Act
Further, in a recent decision of the ITAT, Panaji in the case of RBL Bank Ltd vs ITO (TDS) (ITA 329 to 331/PNJ/2015) (copy enclosed at Page 13-20 of the Paper Book) dated 24-11-2015, it was held that : "We find that it is not in dispute that the recipient of interest income i. e. Visvesvaraya Technological University has filed its return of income and has included the interest paid by the assessee as its income in the said return of income. As per sec. 4 of the Income Tax Act, it is the recipient of interest who is liable to pay tax. The machinery of TDS provisions made in statute is to facilitate the collection of that tax which is the principally payable by the recipient of the income. The TDS is not a separate or independent tax. Once the recipient of the income has included, the income paid by the payer and disclosed the same to the Department and paid tax thereon as per computation made by the recipient or no tax was paid by the recipient of income because as per the recipient, its entire income is exempt or on which no tax is payable, then the income is disclosed to the Department by the principal person who is liable to pay tax thereon and in such cases, unless it can be shown that the due tax could not be recovered by the Department from the principal person, who was liable to TDS until then the payer of the income cannot be treated as "Assessee in Default".
Applying the ratio of the above case decisions to the facts of the appellant’s case, it is clear that since M/s. MKJ Enterprises Ltd has included the income from the appellant
in the Return of Income filed for the subject assessment years paid taxes on the same and had claimed refund of taxes there is no loss to the Revenue even if the TDS was not deducted by the appellant. As such, interest U/S 201(1A) cannot be levied on the appellant.
However, the learned CIT(A) has not allowed the claim of the appellant with regard to the consequential interest liability in view of the decision of CIT vs Chennai Metropolitan Water Supply and Sewarage Board (Mad) 202 Taxman 454. In this regard, we find that it has been held in a plethora of judgments that in case where two views are possible on the same issue and there being no judgment on the said issue from the jurisdictional Hon'ble High Court or Hon'ble Apex Court, the view which is favourable to the assessee has to be adopted. In other words, Hon'ble non jurisdictional High Court's judgment in favour of the assessee, is to be preferred over the Hon'ble non jurisdictional High Court's judgment not favourable to the assessee. In this connection we rely in the following judgments.
>Petron Engg. Construction (P) Ltd. & Anr. vs. CBDT & Ors. [(1989) 175 ITR 523 (SC)) "The principle that when two interpretations are possible to be made, the interpretation which is favourable to the assessee should be adopted, is well-settled and there is no doubt about that." >CIT vs. Vegetable Products Ltd. (1973) 88ITR 192 (SC) "On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this Court in several of its decisions. " >CIT vs. Kulu Valley Transport Co. P. Ltd (1970) 77ITR 518 (SC): Interpretation of statutes-Taxing statute-Two views possible-If two views are possible, the view which is favourable to the assessee must be accepted while construing the provisions of a taxing statute. Held "Even if two views are possible the view which is favourable to the assessee must be accepted while construing the provisions of a taxing statute. " >CIT vs. Madho Prasad Jatia (1976) 105 ITR 179 (SC)
Interpretation of statutes-Ambiguous provisions-Admitting two interpretations-View which is favourable to subject should be adopted. "It is well-settled that there is no equity about tax. The provisions of a taxing statute are clear and unambiguous, full effect must be given to them irrespective of any consideration of equity. Where, however, the provisions are couched in language which is not free from ambiguity and admits of two interpretations a view which is favourable to the subject should be adopted. The fact that such an interpretation is also in consonance with ordinary notions of equity and fairness would further fortify the Court in adopting such a course.”
>Vodafone Essar Gujarat Limited vs ACIT (I.T.A. No.386/Ahd/11) (copy enclosed at page 21-36 of the Paper Book)
The choice of which of Hon'ble High Court to follow must, therefore, be made on some objective criterion. We have to, with our highest respect of all the Hon'ble High Courts, adopt an objective criterion for deciding as to which of the Hon 'ble High Court should be followed by us. We find guidance from the judgment of Hon'ble Supreme Court in the matter of CIT vs. Vegetable ITA. No.: 386 /Ahd/11 Assessment year: 2008-09 Products Ltd. [(1972) 88 ITR 192 (SC)]. Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted" Although this principle so laid down was in the context of penalty, and Their Lordships specifically stated so in so many words, it has been consistently followed for the interpretation about the statutory provisions as well. In another Supreme Court judgment, Petron Engg. Construction (P) Ltd. & Anr. vs. CBDT & Ors. [(1989) 175 ITR 523 (SC)) the above principle of law has been reiterated by observing as follows: " Counsel submits that when two interpretations are possible to be made, the interpretation which is favourable to the assessee should be adopted. In support of that contention, learned counsel has placed reliance upon a few decisions of this Court in CIT vs. Madho Prasad Jatia (1976) 105 ITR 179 (SC); CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and CIT vs. Kulu Valley Transport Co. P. Ltd. (1970) 77 ITR 518 (SC) : The above principle of law is well-established and there is no doubt about that.. ..... " Further held that, "There can be no dispute on the proposition that irrespective of whether or not the judgments of Hon'ble non jurisdictional High Courts are binding on us, these judgments deserve utmost respect which implies that, at the minimum, these judgments are to be considered reasonable interpretations of the related legal and factual situation. Viewed thus, when there is a reasonable interpretation of a legal and factual situation, which is favourable to the assessee, such an interpretation is to be adopted by us. In other words, Hon 'ble non jurisdictional High Court's judgment in favour of the assessee, in the light of this legal principle laid down by Hon 'ble Supreme Court, is to be preferred over the Hon 'ble non jurisdictional High Court not favourable to the assessee. In our humble understanding, it is only on this basis, without sitting in value judgment on the views expressed by a higher tier of judicial hierarchy, that the conflicting views of Hon'ble non jurisdictional High Courts can be resolved by us in a transparent, objective and predictable manner. "
>Shri Mahila Sewa Sahakari vs ACIT (OSD) I.T.A. No. 62/Ahd/2014(copy enclosed at page 37-55 of the Paper Book) "5.3 The Hon'ble Coordinate Bench has noted that there is a divergent view between the Hon'ble Delhi High Court in the case of M/s. Vasisth Chay Vyapar Ltd. reported at 330 ITR
440, Delhi and the Hon'ble Madras High Court in the case of CIT vs. Sakthi Finance Ltd. reported at (2013) 31 taxmann.com 305 (Mad.), in respect of application of the judgement of the Hon'ble Apex Court rendered in the case of Southern Technology Ltd. (supra) on income recognition norms prescribed by R.B.I. The Hon 'ble Coordinate Bench in view of the fact that there were divergent views of Hon 'ble Delhi High Court and Hon 'ble Madras High Court, applied the ratio of the Hon 'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. reported at (1973) 88ITR 192 (SC). In the present case also, there is no judgement by the Hon'ble Jurisdictional High Court, therefore for the same reasoning, we decide this issue in favour of the assessee and the AO is hereby directed to delete the addition. Thus, ground of assessee's appeal is allowed." >CIT (TDS) vs. Reliance Engineering Associates (P.) Ltd. (2012) 80 CCH 0113 Guj HC (copy enclosed at Page 56-59 of the paper book) "It is settled law that where two interpretations are possible, the one which is favourable to the assessee should be adopted Appeal dismissed"
In view of above we find that it is settled law where two interpretations are possible, the one which is favourable to assessee should be adopted. Applying the ratio of the above case decisions to the facts of the case, it can be safely said that when two views are possible on the same subject, the view favoring the assessee should be adopted. Accordingly the disallowance made by the AO and sustained by the learned CIT(A) U/S 201(1A) of the Act of Rs.3,61,761/- in AY 2008-09 is not sustainable in law. Accordingly we reverse the order of authorities below. Hence this ground of appeal of the assessee is allowed.
ITA no. 47/Kol/2014 9. At the outset we find that the issue involved in this appeal is the same as of ITA 46/Kol/2014 which we have decided in favour of assessee. Following the same we also reverse the order of authorities below. Hence this ground of appeal of the assessee is allowed.
ITA No.50/Kol/2014(Revenue’s Appeal)A.Y.2005-06: 10. This appeal by the revenue is against the order of Commissioner of Income Tax (Appeals)-IV, Kolkata dated 11.09.2013. Assessments were framed by A.C.I.T., Circle-4, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2007 for assessment year 2005-06 The grounds raised by the revenue in this appeal are as under:-
“I. On the fact and circumstances of the case, the I.d. CIT(A) has erred in ignoring the fact that as the assessee has shown Capital Gain when investments are sold cannot claim interest on loan attributable to such investments as business income. 2) That the increase of investments from 9.5 Cr. last year to 19.1 Cr. this year as evidenced from Schedule 14 to the P/L Account & Balance Sheet, was due to conversion of shares of Rs. 8.5 Cr. written off from stock to investment as on 01.04.2004 and, therefore, interest claimed on purchase /stock of such investments should be disallowed. 3) That the appellant craves for leave to add, delete or modify any grounds of appeal before or at the time of hearing.”
The only issue raised by the revenue is that the ld. CIT(A) erred in deleting the addition made by the AO for Rs.96,00,000/- on account of interest on loan attributable to the investments in securities for Rs.19.1 crores.
The facts in brief as culled out from the order of the lower authorities and the documents are that the assessee in the present case is a limited company and engaged in the business of real estate development, trading in goods & merchandise and securities. The assessee for the year under consideration has filed its return of income on dated 30th October, 2005 declaring business loss of Rs.1,32,69,170/-. Thereafter the case was processed u/s 143(1) of the Act and taken up for scrutiny. Accordingly notices u/s 143(2) and 143(1) were issued upon the assessee. The assessment was framed u/s 143(3) of the Act at an income of Rs.-36,69,170/- by disallowing the interest expenses for Rs.96,00,000/-.
The assessee for the year under consideration has shown the following figures in its balance sheet as on 31.3.2005 :- Source of Fund Application of fund Shareholder fund 11 crore Fixed asset Negligible Loan funds 17 crore Investment 19 crore Deferred Tax Asset 2 crore Current Assets (Net) 7 crore
The AO during the assessment proceedings observed that the assessee has shown the investment as on 31.03.2004 for Rs.9.6 crores and during the year it has increased by Rs. 9.5 crores. Accordingly the balance shown as investment at the end of the financial year 31.3.2005 was shown at Rs. 19.1 crore. The major reason for increased in the value of investment is due to the conversion of its securities held as stock in trade into investments for Rs.8.5 crores as on 01.04.2004. Besides the above the AO also observed that the capital of the assessee is of Rs.11 crore and borrowed funds of Rs.17 crore as on 31.03.2005. Accordingly the AO opined the borrowed fund has been invested in the investment on which the assessee has incurred the interest expenses. As the income from investments is taxable under the head “capital gain” and therefore the interest expenses on the loan is not allowable deduction under the head “business and profession”. Finally the AO disallowed the interest expenses pertaining to the investments of Rs.8.5 crores which was worked out at Rs.96,00,000/- and added to the total income of the assessee.
Aggrieved, the assessee preferred an appeal before the ld. CIT(A). The assessee before the ld. CIT(A) submitted that the shares held as stock in trade for Rs.8.5 crores were converted on dated 31.03.2005 and the AO has wrongly taken the date of conversion as on dated 01.04.2004. The assessee till 31st March, 2005 has shown stock in trade of the shares for Rs.8.5 crores. Therefore the interest paid on the loan is a business expenses and very much allowable for deduction. The ld. CIT(A) accordingly deleted the addition made by the AO by observing as under :- “3.2 I have examined the assessment order as well as the argument given by the A.R. of the appellant. I have also examined the ledger account of both Stock-in-trade as well as Investment. The appellant has also brought to my knowledge a letter addressed to the A.O. dt.18.12.2007 in which it has been stated at Para-5 that the shares of M/s. Santosh Industries Ltd. were not sold during the year but shown in Investment as on 31 03.2005. The ledger account also established that the conversion of shares of M/s. Santosh Industries Ltd. worth Rs.8.50Crores was with effect from 31.03.2005 and not 1.4.2004 as wrongly presumed by the A.O. I am also in agreement with the argument of the A.R. of the appellant that disallowance u/s.14A can be made only when there is a tax free income. Reference in this context is being made to the decision of the Hon'ble Bombay High Court in the case of CIT vs M/s. Delite Enterprises ITA No. 110 of 2009. In view of the above arguments and following the decision of Bombay High Court, I am of the view that addition made u/s.14A for Rs.96,00,000/- should be deleted.”
Aggrieved by the order of the ld. CIT(A) the revenue is in appeal before us. The ld. DR before us submitted that it is very much clear from the balance sheet of the assessee as on 31.03.2005 that interest bearing loan has been utilized in the investment which were generating the income under the head “capital gain”. Therefore the proportionate interest amount pertaining to the investment should be disallowed while working out the business profit of the assessee. The ld. DR further submitted that the shares held as stock in trade were converted into investment on dated 01.04.2004. Therefore the interest is not allowable under the business head. The ld. DR also requested to restore the matter to the AO for fresh adjudication to ascertain whether the shares held as stock in trade were converted as investment dated 01.04.2004. The ld. DR vehemently supported the order of the AO.
On the other hand, the ld. AR for the assessee before us filed a paper book which is running from pages 1 to 33 and submitted that the shares held as stock in trade were converted as investment in shares as on 31.03.2005. The ld. AR in support of his claim has submitted the Board resolution passed 28th February, 2005 resolving that 2,12,500 equity shares of Santosh Industries Ltd. will be converted from inventories into investments w.e.f. 31.03.2005 which is placed at page 27 of the paper book. The ld. AR also drew our attention to pagers 25 to 26 of the paper book where the ledger copy of the investment was placed. The ld. AR vehemently supported the order of the ld. CIT(A).
We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussions we find that the AO has presumed that the shares held as stock in trade were converted into investments on dated 01.04.2004 and accordingly interest expenses pertaining to the investment were disallowed. However, the ld. CIT(A) has granted relief to the assessee by holding that the shares were converted as investment on dated 31.03.2005. Now the question before us arise so as to whether the shares were converted on 01.04.2004 or 31.03.2005. On query from the Bench the ld. DR has not shown any evidence that the shares were converted on dated 01.04.2004. The ld. DR failed to bring anything on
record. On the other hand, the ld. AR has given sufficient proof as stated above in support of his claim that the shares were converted as investment on dated 31.03.2005. At the time of hearing the ld. DR failed to bring anything contrary to the findings of the ld. CIT(A). In view of the above we do not find any reason to interfere in the order of the ld. CIT(A). Hence this ground of appeal of the revenue is dismissed. 16. In the result, Revenue’s appeal stands dismissed and assessee’s appeals are allowed. Order pronounced in open court on 16 /09/2016 Sd/- Sd/- (K.Narasimha Chary) (Waseem Ahmed) Judicial Member Accountant Member *RG.PS �दनांकः- 16 /09/2016 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-DCIT, Circle-4, Aayakar Bhawan, 5th Floor, P-7, Chowringhee Square, Kolkata700 069 2. ��यथ�/Respondent-M/s The Right Address Limited, Sagar Estate, 4th floor, Unit-1, 2, Clive Ghat Street, Kolkata-700001. 3. संबं"धत आयकर आयु%त / Concerned CIT 4. आयकर आयु%त- अपील / CIT (A) 5. &वभागीय �)त)न"ध, आयकर अपील�य अ"धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड+ फाइल / Guard file.
By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ"धकरण, कोलकाता