DEBOTTOR TRUST ESTATE OF RAMMOHAN MULLICK,KOLKATA vs. ITO, WARD - 43(4), KOLKATA, KOLKATA

Both appeals are heard together and are being disposed of by way of common order for the sake of convenience. First we take up assessee’s appeal in ITA No.216/Kol/2013. 3. Grounds raised by the assessee in its appeal are as under:- “1. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary disallowance of the payment of commission of Rs.8,29,500/- made to the sister concern M/s Macleod Fuels Pvt. Ltd., without properly considering and appreciating the facts and the detailed explanation furnished by the appellant assessee firm. The actions of the AO & the Ld. CIT(A) wee wholly unwarranted, uncalled for and bad in law. 2. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary disallowance us/s 40(a)(ia) of the Act of the payment of carriage inward expense of Rs.6,99,508/- made to M/s Vikas Enterprises during the year itself by way of re-imbursement for transportation of goods on the alleged ground that the assessee firm had failed to deduct tax at source on the said sum u/s. 194C(1) of the Act. The decisions taken by both the Assessing Officer & the Ld. CIT(A) without properly considering and appreciating the facts and the explanation furnished by the assessee firm were wholly unwarranted, uncalled for and bad in law. 3. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary disallowance u/s. 40(a)(ia) of the Act of the payment of port expenses of Rs.45,50,580/- made to M/s Bhatia International Ltd., during the year itself by way of re- imbursement on the alleged ground that the assessee firm had failed to deduct tax at source on the said sum u/s. 194C(1) of the Act. The decisions taken by both the AO & the Ld. CIT(A) without properly considering and appreciating the facts and the explanation furnished by the assessee firm were wholly unwarranted, uncalled for and bad in law. 4. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary disallowance u/s. 40(a)(ia) of the Act of the payment of legal & professional charges of Rs.30,000/- (inclusive of the payment of out-of-pocket expense of Rs.14,000/- un a/c of conveyance etc.) made to the tax consultant Sri Subhas Mitra during

The first issue raised by the assessee in its appeal is that ld. CIT(A) erred in confirming the order of the AO by sustaining the disallowance of payment of commission of Rs. 8,29,500/- on account of payment to sister concern.

Facts in brief are that assessee-firm carried on business of manufacturing Low Ash Metallurgical (LAM for short) coke out of raw coal imported from Australia and also from indigenous sources. During the year under consideration, assessee has paid commission to M/s Macleod Fuels Pvt. Ltd. (for short MFPL) in which almost all the Directors are the partner in the assessee firm. The assessee claimed that MFPL assisted in the job of unloading and loading of imported coal and it also provides the advance information for the arrival of the ships from Australia. However, the AO observed that the assessee has already claimed separate expenses as “Port Expenses” amounting to Rs.47,08,371. There was neither any agreement to pay commission between the assessee and MFPL nor any evidence that the MFPL has rendered any services to the assessee. The MFPL does not hold any license to perform the above explained functions from the port. The

Aggrieved, assessee preferred an appeal to the ld. CIT(A) where the assessee pleaded that nomenclature of commission is not correct. It was paid for providing supervision of loading and unloading charges and not for the loading and unloading charges. There is a written agreement in which supervision has been paid @ 150/- after TDS deduction. No license is required to render the supervisory services. Only gate pass is issued by the Authority concern which needs to be submitted back. TDS has been paid @ 2% because it is a works contract. The AO has not made any effort to verify the transactions. However, CIT(A) has upheld the decision of AO by observing that assessee and its relatives are having majority of share holding in M/s Macleod Fuels Pvt. Ltd. The accounting entries for these transactions were passed on 31.03.2009 for the year. The expense claimed has been named as commission and so that TDS @10% will be applicable. The assessee is not able to provide sufficient evidence that the services have been rendered. Being aggrieved by the order of ld. CIT(A) assessee came in second appeal before us.

Before us Ld. AR submitted that the provisions of section 40A(2) of the Act has not been applied by the AO for making the aforesaid disallowances. The expenses claimed by the assessee are genuine and accordingly these should be allowed for deduction. On the other hand the ld. DR relied on the order of Authorities Below. 8. We have heard the rival parties and perused the materials available on record. At the outset we find that the nature of the services rendered by the MFPL has not been justified by the ld. AR. The AO never raised the issue that it was made to the sister concern therefore it is disallowed. The AR has not brought the specific services rendered by the MFPL. In the similar facts &

The charges were paid to Vikas Enterprises towards the carriage inward expenses for the transportation of coal without TDS. Therefore the AO disallowed the same and added to the total income of the assessee.

Before us Ld. AR for the assessee requested the Bench to restore the matter to the AO for verification whether the payee has included the receipt in

We have heard the rival parties and perused the materials available on record. At the outset we find that there is amendment of proviso to Sec. 40(a)(ia) of the Act r.w.s 1st proviso to Sec. 201, wherein, if any payee has paid the taxes by offering / disclosing the said receipt in its return of income, then the payer (the assessee herein) should not be treated as assessee in default. Accordingly no disallowance u/s. 40(a)(ia) of the Act could operate in that scenario. The said proviso though inserted by the Finance Act 2012 w.e.f 1-4-2013 has been held to be retrospective in operation by recent decision of the Hon'ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P) Ltd. (2015) 61 taxmann.com 45 (Del) wherein the question raised before the court and the decision rendered thereon is reproduced herein below for the sake of clarity:- “Question: Whether the second proviso to Section 40(a)(ia) (inserted by the Finance Act, 2012), which states that TDS shall be deemed to be deducted and paid by a deductor if resident recipient has disclosed the amount in his return of income and paid tax thereon, is retrospective in nature or not?” Held: Section 40(a)(ia) was introduced by the Finance (No.2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensate any loss to the revenue in cases where deductor hasn’t deducted TDS an amount paid to deductee and, in turn, deductee also hasn’t offered to tax income embedded in such amount The penalty for tax withholding lapse per se is separately provided under section 271C and, therefore, section 40(a)(i) isn’t attracted to the same. Hence, an assessee could not be penalized under section 40(a)(ia) when there was no loss to revenue. The Agra Tribunal in the case of Rajiv Kumar Agarwal-vs-ACIT [2014] 45 taxmann.com 555 (Agra – Trib) had held that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(8) was inserted by the Finance No.(2) Act, 2004, even though the Finance Act, 2012 had not specifically stated that proviso is retrospective in nature.

Next issue raised by assessee is as regards that Ld. CIT(A) erred in disallowing the payment of port expenses made by AO by disallowing a sum of RS. 45,50,580.00 paid to M/s Bhatia International Ltd on account of non deduction of TDS.

AO has disallowed the Port expenses paid to M/s Bhatia International due to non deduction of TDS. The assessee claimed that the payment made under the head “Port Expenses” including unloading of the material, stevedoring etc. are actually the part of purchase. However the AO disregarded the claim of the assessee by holding that these expenses are in addition to the purchase amount and represents loading and unloading including other services. Accordingly the AO disallowed the same for the violation of section 194C r.w.s. 40(a)(ia) of the Act and added to the total income of the assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee has submitted that it is only the reimbursement of the expenses

The ld. AR before us submitted that these are the reimbursement of the expenses. So these expenses are out of the purview of TDS provisions. The ld. AR also alternatively submitted that the matter can be restored to the AO for verification whether the receipts has been included in the books of the company. On the other hand the ld. DR vehemently supported the order of the lower authorities. 17. We have heard the rival parties and perused the materials available on record. We are finding that the assessee at the time of assessment submitted that the expenses are actually the part of the purchases. But before the ld. CIT(A) he changed the plea that these are reimbursement of the expenses. Now before us the ld. AR alternatively submitted that the matter can be restored to the AO for verification whether the receipts have been included in the books of the company. We find that the AO has disallowed the same for

Coming to next issue is that Ld. CIT(A) erred in disallowing the professional charges paid to Subash Mitra amounting to Rs. 30,000/- out of which Rs. 10,000/- were out of pocket expenses on account of non deduction of TDS.

At the outset, we find that Ld.CIT(A) upheld the action of AO by observing that the contention of assessee regarding the reimbursement does not hold good. Hence there is violation of sec 194J. The ld. AR also requested us to restore the matter to the AO for fresh verification in terms of the in terms of the order of the Hon'ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P) Ltd. (2015) 61 taxmann.com 45 (Del) (Supra). Respectfully following the aforesaid decision of the Hon'ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd., (supra) we deem it fit and appropriate in the interest of natural justice and fair play to set aside this issue to the file of AO to decide the issue afresh in the light of the aforesaid judgment. Accordingly, we direct the AO to verify whether the payees have included the subject-mentioned receipts in their respective returns and paid taxes thereon or not. If that is so, then disallowance u/s. 40(a)(ia) of the Act shall not be

Coming to next issue raised by assessee in Ground No.5 is that Ld. CIT(A) erred in disallowing a sum of Rs.20,56,654 under sec 36(1)(iii).

Assessee has taken interest bearing loans and used the said amount to lend as interest free loan to its close relatives and sister concern. The assessee has not derived any commercial benefits out of the borrowed funds. If the assessee would have deployed its fund in its business the minimum income must have earned @12% is Rs 20,56,654/-. So the AO has disallowed the interest expenses claimed by the assessee amounting to Rs. 20,56,654/- on proportionate basis.

Aggrieved, assessee preferred an appeal to ld. CIT(A) who has partly allowed the relief to the assessee by observing as under:- “5.1 In such respect, I find that the appellant had borrowed substantial amount of loan and had paid interest but the appellant had advanced interest free loan and no interest was charged, hence, the AO in its order after taking all the details all the advances received during the year has disallowed the proportionate interest @ 12%. In such respect, the appellant has at the outset, contended that out of the said related concerns, M/s Civia Investments Ltd., and Swati Miing P. Ltd. which were not at all in any manner appellant’s sister concerns or its partners or its relatives. In such respect, the appellant has filed the shareholding of such concerns along with Form 23B as filed with the ROC. Further, the appellant in the course of hearing also filed detailed working of the interest worked out and the AO has pointed out that on basis of such working that interest in such respect works out only to Rs.2,36,663/- and hence the disallowance cannot be beyond the said sum of Rs.2,36,663/-. Apart from the same it has contended the nexus of interest-bearing funds has not been established by the AO that the interest free fund so given and hence the disallowance in such respect was not justified following number of judgments including that of Hon’ble Supreme Court. The appellant further contended that the appellant had sufficient interest free advances from customer which were exceeded in such respect was not correct. Having considered the submission and the AO’s contention, I find that, sum has given interest free to M/s Civia

Before us ld. AR filed the breakup of interest amount which is placed on page 49 of the paper book. The ld. AR submitted that the disallowance interest can be considered only on the amount of interest paid to the bank for an amount of Rs. 9,19,547/- only. On the other hand, ld. DR vehemently supported the order of the lower authorities. 24. We have heard the rival parties and perused the materials available on record. From the facts of the case we find that the total interest claimed by the assessee stands as under:- Interest paid Group summary 1-April, 2008 to 31-Mar-2009 Particulars Closing Balance Debit Credit Interest on car loan 26,003.00 Interest on sale tax 33,545.00

First issue raised by Revenue in ground no. 1 & 2 is that Ld. CIT(A) erred in admitting the additional evidence at the time of appellate proceedings in contravention of Rule 46A of the IT Rules u/s 36(1)(iii)

Next issue raised by Revenue is that Ld. CIT(A) erred in deleting the addition made by AO for Rs.56,15,283/- on account of under valuation of closing stock.

The assessee in its balance sheet as on 31.03.2009 has closing stock of raw materials and finished goods at Rs.6,15,39,717/-. The AO during assessment proceedings observed that the closing stock reported to the bank was of Rs.6,71,55,000/-. Therefore, there was a mismatch in the quantity and the value of closing stock furnished to the bank for Rs.56,15,283/- which was added by AO to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- “8. Ground No. 7 In such respect, it was observed that as per copy of stock statement as on 31.3.2009 filed with the bank, quantity of the coke, coal tallied with the quantity shown in Tax Audit Report. The difference in such respect is only in the valuation of the raw material

Before us both the parties relied on the order of authorities below as favourable to them. At the outset, we find that the AO has not brought any defect in the books of account of assessee with regard to the maintenance of stock. As there was no flaw in the books of the assessee we are not inclined to interfere in the order of Ld. CIT(A). In the aforesaid facts and circumstances, we rely on the judgment of Hon’ble Gujarat High Court in the case of JCIT vs. Riddhi Steel And Tubes (P) Ltd. (2014) 22 taxmann. 148 (Guj), wherein the head-note reproduced below:- Income from undisclosed sources u/s 69B—Amount of stock not fully disclosed in books—Addition—Assessee engaged in business of manufacturing filed return and case was selected for scrutiny—AO noticed that closing stock in books was less than stock shown in bank for securing cash credit—Assessee submitted that stock statement of bank was on estimated and inflated figures for securing higher credit facility—However, AO made addition u/s 69B of difference in value of stock and initiated penalty proceedings u/s 271(1)(c)—CIT(A) partially allowed appeal of assessee—Tribunal deleted addition made by AO— Held, there was no physical verification of stock by banking authorities as on 31st March—Although reliance was placed by AO and CIT (A) on godown visit by Bank Manager after closing of year, however, no physical verification and counting of stock took place—Bank Manager's report indicates that many tonnes of Coil was already included in stock and because of which stock position of March has shown increase in quantity—It was found that stock register was maintained by assessee giving complete quantity details—Assessee was subjected to statutory audit and also tax audit wherein no errors were found at any stage in report submitted by auditors—Assessee followed

In the result, assessee’s appeal is partly allowed for statistical purpose and that or Revenue is dismissed. Order pronounced in the open court 26/08/2016 Sd/- Sd/- (�या�यक सद�य) (लेखा सद�य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp �दनांकः- 26/08/2016 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Assessee-M/s Uluberia Coke Oven Plant, C/o Salarpuria jajodia & Co., 7, Chittaranjan Avenue, Kolkata-700 072 2. राज�व/Revenue-JCIT Rnge-56, 3, Govt. Place (West), Kolkata-72 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता ।