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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
Both the appeals of the assessee are directed against the respective orders of the Commissioner of Income Tax (Appeals)– 13, Chennai, dated 27.03.2015 and pertain to assessment year 2009-10 and 2010-11. We heard both the appeals together and disposing of the same by this common order.
Let’s first take assessment year 2009-10 in I.T.A.
No.1352/Mds/2015.
The first issue arises for consideration is with regard to disallowance of interest paid to the extent of `23,82,173/-.
Shri J. Chandrasekaran, the Ld. representative for the assessee, submitted that the assessee purchased a land and building at Lloyds Road, Royapettah, measuring 4161 sq.ft. with a built up area of 2774 sq.ft. on 24.09.2007 for a total consideration of `2,60,00,000/-. The total cost of land / building included stamp duty and registration charges of `2,81,48,318/-. The assessee purchased the property for business purpose and in fact, the same was used for business from the date of purchase. The assessee has also claimed depreciation. In fact, the assessee omitted to claim the depreciation in the return of income by oversight. However, the details of depreciation in respect of the block of asset, including the building, were furnished before the Assessing Officer during the course of assessment proceeding by a letter dated 08.12.2011. Since the property purchased was wholly used for the business of the assessee, the interest paid till 31.03.2009 was claimed as business expenditure. However, the Assessing Officer disallowed the claim of the assessee on the ground that the building itself was demolished during the financial year 2008-09 and a new building constructed was put to use only during the next financial year. Therefore, the Assessing Officer found that the interest payment of `23,82,173/- has to be capitalized. According to the Ld. representative, the building itself was used for business purpose during the financial year 2008-09 relevant to assessment year 2009- 10, therefore, in the absence of any material to establish that the assessee was not using the building for business purpose, disallowance of interest is not justified.
On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that admittedly the assessee purchased the land and building on 24.09.2007. Subsequently, the building was demolished and a new building was constructed. Referring to the order of the Assessing Officer, the Ld. representative submitted that the assessee has made necessary payments and charges for demolition of building and approval of new building to CMDA on 23.09.2008. In the absence of any material to show that the building was used for business purpose, according to the Ld. D.R., the interest paid on loan borrowed needs to be capitalized till the new building constructed was put to use. The Ld. D.R. further submitted that the existing building on the land was demolished during assessment year 2009-10 and the new building was constructed and used for the purpose of business in the subsequent year. In the absence of any material, according to the Ld. D.R., the CIT(Appeals) has rightly disallowed the claim of the assessee.
We have considered the rival submissions on either side and perused the relevant material available on record. The assessee purchased the land and building, after borrowing loan, for a total consideration of `2,60,00,000/-. The cost of land, including stamp duty and registration charges, comes to nearly `2,81,48,318/-. The assessee claims that the property was used by the assessee for its business purpose. However, the Revenue claims that the building was demolished and new building was constructed. From the order of the Assessing Officer it appears that the assessee is engaged in the business of engineering contracts. It is not in dispute that the assessee is entitled for claiming interest paid on borrowed funds as expenditure provided the capital asset bought was put to use. The assessee claims that the land and building being the capital asset was put to use for the purpose of its business. However, no material is available on record to suggest that the assessee has used the building for its business. The assessee being in the business of engineering contract, it has to necessarily obtain license /permission to use the building from the local Municipal Corporation. The assessee also needs to register itself with sales tax authorities for payment of sales tax. Apart from that, the assessee also needs to get clearance from other statutory authorities for carrying out its business in the premises, which was purchased by using the borrowed funds. In this case, no material is available on record to suggest that the building was used for business. In fact, the assessee demolished the building during the year under consideration. Therefore, the contention of the assessee that the building was used for its business in the year under consideration is farfetched one. When the building was demolished and new construction was started, at no stretch of imagination it can be said that the assessee used the building for its business.
In view of the above, this Tribunal finds no merit in the contention of the Ld. representative for the assessee. Accordingly, this Tribunal has no hesitation to confirm the order of the CIT(Appeals). Accordingly, the order of the CIT(Appeals) is confirmed.
The next ground of appeal is with regard to claim of depreciation on the building.
The assessee claims depreciation on the building purchased on 24.09.2007. The fact remains that the building purchased was never put to use for the business of the assessee and in fact, the building was demolished and new construction was started. When the building purchased on 24.09.2007 was demolished immediately after its purchase, this Tribunal is of the considered opinion that claiming depreciation on the very same asset is not justified.
Now coming to assessment year 2010-11 in I.T.A.
No.1353/Mds/2015, the first issue arises for consideration is with regard to disallowance under Section 40(a)(ia) of the Act.
Shri J. Chandrasekaran, the Ld. representative for the assessee, submitted that the assessee made payment to sub- contractors in the course of engineering contract. The Assessing Officer found that the assessee has not made any TDS, therefore, the total payment of `39,44,719/- was disallowed. According to the Ld. representative, a payment of `3,03,285/- was made to M/s Ready Power Services for hiring generator. The hiring charges paid to M/s Ready Power Services for hiring generator could not be treated as payment for sub-contract. It is only hiring charges, therefore, the assessee is not expected to deduct tax.
The Ld. representative for the assessee further submitted that the assessee also made payment of `1,50,436/- for testing soil to M/s Chennai Civil-Tech Research Foundation Pvt. Ltd. The payment of fee for testing soil also cannot be considered as sub- contract payment. Referring to the payment made to M/s Amirtham Earth Movers, the Ld. representative submitted that the assessee hired one JCB from M/s Amirtham Earth Movers for the work of the assessee. No part of the work was assigned to M/s Amirtham Earth Movers, therefore, according to the Ld. representative, the payment made by the assessee cannot be construed as payment for sub- contract. Similarly, a payment was made to M/s Iyan Enterprises for centring work at the site. According to the Ld. representative, The centring work done by M/s Iyan Enterprises cannot be construed as sub-contract, it is only a payment of labour charges. Similarly, a payment of `1,22,460/- was made to M/s Nagadi Consultants Pvt. Ltd. for soil testing and another payment of `1,30,250/- was made to Shri M. Venkatappa for JCB hiring. Therefore, according to the Ld. representative, these payments cannot be construed as sub- contract, hence the assessee is not expected to deduct tax. Alternatively, the Ld. representative contended that the assessee has already paid amount and nothing remains to be payable, therefore, the assessee is not expected to deduct tax on the amount paid and remains to be payable. The Ld. representative placed his reliance on the judgment of Allahabad High Court in CIT v. Vector Shipping Services (P.) Ltd. (2013) 357 ITR 642.
13. On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that the assessment year under consideration is 2010-11. Section 194-I of the Act was amended with effect from 13.07.2006. When the assessee has paid charges/ rent for hiring equipment or machinery, the assessee has to necessarily deduct tax at 2% for use of any machinery or asset or any equipment. In this case, admittedly, the assessee had to hire machineries, namely, generator, JCB, etc. from M/s Ready Power Services, M/s Amirtham Earth Movers and Shri M. Venkatappa. Therefore, these payments have to be disallowed under Section 40(a)(ia) of the Act for non-deduction of tax under Section 194-I of the Act. In respect of payments made to soil testing and concrete mixer, these are all purely for technical services availed by the assessee. Therefore, the same is also liable for deduction. Hence, the assessee has to necessarily deduct tax. Referring to the payment made to M/s Iyan Enterprises, the Ld. D.R. submitted that that this payment was made for performing centring work at the site.
The centring work was, in fact, given to M/s Iyan Enterprises on sub-contract basis. This payment is made for sub-contract and liable for TDS under Section 194C of the Act. Hence it is not correct to say that the payment made by the assessee is not liable for TDS.
14. Referring to the judgment of Allahabad High Court in Vector Shipping Services (P.) Ltd. (supra), the Ld. Departmental Representative submitted that the Allahabad High Court has not discussed the consequence of failure of the assessee in deducting tax as required under Section 194C and 194-I of the Act. The Allahabad High Court simply referred the decision of Special Bench of this Tribunal in Merilyn Shipping and Transport v. ACIT (2012) 16 ITR (Trib.) 1 (SB) and allowed the claim of the assessee. However, Gujarat High Court in CIT v. Sikandarkhan N. Tunvar (2013) 357 ITR 312 and Calcutta High Court in CIT v. Crescent Export Syndicate (2013) 262 CTR 525 examined the issue elaborately and found that the decision of Special Bench of this Tribunal in Merilyn Shipping and Transport (supra) is no longer a good law. Therefore, the CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer.
We have considered the rival submissions on either side and perused the relevant material available on record. Though the payments were claimed as made to sub-contractors, in fact, the payments were made to hiring generator, JCB and soil testing and concrete mixer testing. An amount of `3,36,402/- was also paid to centring work at the site. This Tribunal is of the considered opinion that hiring of generator, JCB and paying hire charges are liable for TDS under Section 194-I of the Act. Therefore, failure of the assessee to deduct tax would disentitle the assessee to claim the same as expenditure in view of Section 40(a)(ia) of the Act. Soil testing and concrete mixer testing are nothing but technical services. Therefore, the assessee is liable to deduct tax at the time of payment or giving credit. Hence, the assessee cannot claim the same as expenditure unless the TDS was made. The payment made for centring work is nothing but sub-contract. Therefore, the assessee is liable to deduct tax under Section 194C of the Act. In view of the above, this Tribunal is of the considered opinion that the assessee is liable to deduct tax in respect of all the payments made.
Therefore, the Assessing Officer has rightly disallowed the claim under Section 40(a)(ia) of the Act.
Now coming to alternative claim of the assessee that the amounts were already paid, this Tribunal is of the considered opinion that under the scheme of Income-tax Act, tax has to be deducted either at the time of payment or at the time of crediting the same in the books of account. In the case before us, the assessee has admittedly paid the amounts, therefore, the assessee is expected to deduct tax at the time of payment. The contention of the assessee that the tax has to be deducted only on the amount remains to be payable and the amount already paid cannot be a subject matter of disallowance under Section 40(a)(ia) of the Act is contrary to the scheme of Income-tax Act. In case the assessee gives credit in the books of account and the amount was not actually paid, then the assessee has to naturally deduct tax and claim the amount as expenditure in mercantile system of accounting.
We have carefully gone through the judgment of Allahabad High Court in Vector Shipping Services (P.) Ltd. (supra). The Allahabad High Court has not discussed elaborately about the provisions of Section 40(a)(ia) of the Act and simply referred the decision of Special Bench of this Tribunal in Merilyn Shipping and Transport (supra) and confirmed the order of this Tribunal.
However, the Calcutta High Court in Crescent Export Syndicate (supra) and the Gujarat High Court in Sikandarkhan N. Tunvar (supra) examined the issue elaborately. In fact, the Cochin Bench of this Tribunal in Shri Thomas George Muthoot v. ACIT in I.T.A.
No. 63 & 64/Coch/2014 dated 28.08.2014, observed as follows:-
“11. The next contention of the assessee is that the has already paid the amount, provisions of section 40(a)(ia) is applicable only in respect of amount which remains to be payable on the last day of the financial year. The Ld. representative placed his reliance on the decision of Special Bench of this Tribunal in Merilyn Shipping and Transport v. Addl.CIT (2012) 70 DTR 81 and also the judgment of the Allahabad High Court in CIT vs M/s Vector Shipping Services (P) Ltd. of 2013 judgment dated 09-07-2013 and submitted that the SLP filed by the revenue in the Apex Court against the judgment of the Allahabad High Court in M/s Vector Shipping Services (P) Ltd. (supra) is dismissed by the Apex Court. It is well settled principles of law that the law laid down by the Apex Court is binding on all courts and authorities including this Tribunal under Article 141 of the Constitution of India. It is also equally settled principle that a dismissal of SLP without any discussion is not the law declared by the Apex Court. The Apex Court thought it fit that it was not a fit case to be admitted for consideration. Therefore, while dismissing the SLP, the Apex Court did not declare any law. Hence, we cannot say that the Apex Court has declared the law declaring that section 40(a)(ia) is applicable only in respect of the amounts remains to be payable at the last day of the financial year.
12. We have also carefully gone through the judgment of the Allahabad High Court in CIT vs M/s Vector Shipping Services (P) Ltd (supra), copy of which is filed by the assessee. The Allahabad High Court, after reproducing the relevant paragraph from the order of CIT(A) and referring to the decision of the Special Bench of this Tribunal in Merilyin Shipping & Transports (supra) found that the Tribunal has not committed an error. It is obvious that there is no discussion about the correctness or otherwise of the decision rendered by the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra). However, we find that the Gujarat High Court in the case of CIT vs Sikandarkhan N Tunvar of 2012, 709 & 710 of 2012, 333 of 2013, 832 of 2012, 857 of 2012, 894 of 2012, 928 of 2012, 12 of 2013, 51 of 2013, 58 of 2013 and 218 of 2013 judgment dated 02-05-2013 considered the decision of the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra) and specifically disagreed with the principles laid down by the Special of this Tribunal in Merilyn Shipping & Transports (supra). The Calcutta High Court also in the case of Crescent Exports Syndicate & Another in ITAT 20 of 2013 and GA 190 of 2013 judgment dated 03-04-2013 considered elaborately the judgment of the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra) and found that the decision rendered by the Special Bench of this Tribunal is not the correct law. It is well settled principles of law that when different High Courts expressed different opinions on a point of law, then, normally, the benefit of doubt under the taxation law would go to the assessee. It is also equally settled principles of law that the judgment which discusses the point in issue elaborately and gives an elaborate reasoning has to be preferred when compared to the judgment which has no reasoning and discussion. Admittedly, the Calcutta High Court and Gujarat High Court have discussed the issue elaborately and the specific reasoning has also been recorded as to why the Special Bench is not correct. Therefore, this Tribunal is of the considered opinion that the judgments of the Calcutta High Court Crescent Exports Syndicate & Another (supra) and Gujarat High Court in Sikandarkhan N Tunvar (supra) have to be preferred when compared to the Allahabad High Court in M/s Vector Shipping Services (P) Ltd (supra).
For the purpose of convenience we reproducing below the observations made by the Calcutta High Court in Crescent Exports Syndicate & Another (supra) and Gujarat High Court in Sikandarkhan N Tunvar (supra):
Calcutta High Court in Crescent Exports Syndicate & Another (supra)
“Before dealing with the submissions of the learned Counsel appearing for the assessees in both the appeals we have to examine the correctness of the majority views in the case of Merilyn Shipping. We already have quoted extensively both the majority and the minority views expressed in the aforesaid case. The main thrust of the majority view is based on the fact “that the Legislature has replaced the expression “amounts credited or paid” with the expression ‘payable’ in the final enactment. Comparison between the pre-amendment and post amendment law is permissible for the purpose of ascertaining the mischief sought to be remedied or the object sought to be achieved by an amendment. This is precisely what was done by the Apex Court in the case of CIT Vs. Kelvinator reported in 2010(2) SCC 723. But the same comparison between the draft and the enacted law is not permissible. Nor can the draft or the bill be used for the purpose of regulating the meaning and purport of the enacted law. It is the finally enacted law which is the will of the legislature. The Learned Tribunal fell into an error in not realizing this aspect of the matter. The Learned Tribunal held “that where language is clear the intention of the legislature is to be gathered from the language used”. Having held so, it was not open to seek to interpret the section on the basis of any comparison between the draft and the section actually enacted nor was it open to speculate as to the effect of the so-called representations made by the professional bodies. The Learned Tribunal held that “Section 40(a)(ia) of the Act creates a legal fiction by virtue of which even the genuine and admissible expenses claimed by an assessee under the head “income from business and profession”: if the assessee does not deduct TDS on such expenses are disallowed”. Having held so was it open to the Tribunal to seek to justify that “this fiction cannot be extended any further and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid”? Does this not amount to deliberately reading something in the law which is not there? We, as such, have no doubt in our mind that the Learned Tribunal realized the meaning and purport of Section 40(a)(ia) correctly when it held that in case of omission to deduct tax even the genuine and admissible expenses are to be disallowed. But they sought to remove the rigour of the law by holding that the disallowance shall be restricted to the money which is yet to be paid. What the Tribunal by majority did was to supply the casus omissus which was not permissible and could only have been done by the Supreme Court in an appropriate case. Reference in this regard may be made to the judgment in the case of Bhuwalka Steel Industries vs. Bombay Iron & Steel Labour Board reported in 2010(2) SCC 273. ‘Unprotected worker’ was finally defined in Section 2(11) of the Mathadi Act as follows:- ‘’unprotected worker’ means a manual worker who is engaged or to be engaged in any scheduled employment.” The contention raised with reference to what was there in the bill was rejected by the Supreme Court by holding as follows: “It must, at this juncture, be noted that in spite of Section 2(11), which included the words “but for the provisions of this Act is not adequately protected by legislation for welfare and benefits of the labour force in the State”, these precise words were removed by the legislature and the definition was made limited as it has been finally legislated upon. It is to be noted that when the Bill came to be passed and received the assent of the Vice-President on 05-06-1969 and was first published in the Maharashtra Government Gazette Extraordinary, Part IV on 13-06-1969, the aforementioned words were omitted. Therefore, t his would be a clear pointer to the legislative intent that the legislature being conscious of the fact and being armed with all the Committee reports and also being armed with the factual data, deliberately avoided those words. What the appellants are asking was to read in that definition, these precise words, which were consciously and deliberately omitted from the definition. That would amount to supplying the casus omissus and we do not think that it is possible, particularly, in this case. The law of supplying the casus omissus by the courts is extremely clear and settled that though this Court may supply the casus omissus, it would be in the rarest of the rate case and thus supplying of this casus omissus would be extremely necessary due to the inadvertent omission on the part of the legislature. But, that is certainly not the case here. We shall now endeavour to show that no other interpretation is possible. The key words used in Section 40(a)(ia), according to us, are “on which tax is deductible at source under Chapter XVII-B”. If the question is “which expenses are sought to be disallowed?” The answer is bound to be “those expenses on which tax is deductible at source under Chapter XVII-B. Once this is realized nothing turns on the basis of the fact that the legislature used the word ‘payable’ and not ‘paid or credited’. Unless any amount is payable, it can neither be paid nor credited. If n amount has neither been paid nor credited, there can be no occasion for claiming any deduction. The language used in the draft was unclear and susceptible to giving more than one meaning. By looking at the draft it could be said that the legislature wanted to treat the payments made or credited in favour of a contractor of subcontractor differently than the payments on account of interest, commission or brokerage, fees for professional services or fees for technical services because the words “mounts credited or paid” were used only in relation to a contractor of sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under XVII-B payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services or to a contractor of sub-contractor shall not be deducted in com putting the income of an assessee in case he has not deducted, or after deduction has not paid within the specified time. The language used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous. A few words are now necessary to deal with the submission of Mr. Bagchi and Ms. Roychowdhuri. There can be no denial that the provision in question is harsh. But that is no ground to read the same in a manner which was not intended by the legislature. This is our answer to the submission of Mr. Bagchi. The submission of Mr. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to have already become operative prior to the appointed date cannot also be acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error. For the reasons discussed above, we are of the opinion that the majority views expressed in the case of Merilyn Shipping & Transports are not acceptable. The submissions advanced by learned advocates have already been dealt with and rejected.”
Gujarat High Court in Sikandarkhan N Tunvar(supra)
“23. Despite this narrow interpretation of section 40(a)(ia), the question still survives if the Tribunal in case of M/s Merilyn Shipping & Transpors vs. ACIT (supra) was accurate in its opinion. In this context, we would like to examine two aspects. Firstly, what would be the correct interpretation of the said provision. Secondly, whether our such understanding of the language used by the legislature should waver on the premise that as propounded by the Tribunal, this was a case of conscious omission on the part of the Parliament. Both these aspects we would address one after another. If one looks closely to the provision, in question, adverse consequences of not being able to claim deduction on certain payments irrespective of the provisions contained in Sections 30 to 38 of the Act would flow if the following requirements are satisfied:- (a) There is interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to resident or amounts payable to a contractor or sub-contractor being resident for carrying out any work. (b) These amounts are such on which tax is deductible at source under XVIII-B. (c) Such tax has not been deducted or after deduction has not been paid on or before due date specified in sub- Section (1) of Section 39. For the purpose of current discussion reference to the proviso is not necessary.
What this Sub-Section, therefore, requires is that there should be an amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision nowhere requires that the amount which is payable must remain so payable throughout during the year. To reiterate the provision has certain strict and stringent requirements
before the unpleasant consequences envisaged therein can be applied. We are prepared to and we are duty bound to interpret such requirements strictly. Such requirements, however, cannot be enlarged by any addition or subtraction of words not used by the legislature. The term used is interest, commission, brokerage etc. is payable to a resident or amounts payable to a contractor or sub-contractor for carrying out any work. The language used is not that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading words which the legislature has not used. No such interpretation would even otherwise be justified because in our opinion, the legislature could not have intended to bring about any such distinction nor the language used in the section brings about any such meaning. If the interpretation s advanced by the assessees is accepted, it would lead to a situation where the assessee though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. We simply do not see any logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by the Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight tht we would not readily accept that the legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of he Supreme Court in the case of Commissioner of Income-Tax, Gujarat vs. Ashokbhai Chimanbhai (supra), would no6t alter this situation. The said decision, of course, recognizes the concept of ascertaining the profit and loss from the business or profession with reference to a certain period i.e. the accounting year. In this context, last date of such accounting period would assume considerable significance. However, this decision nowhere indicates that the events which take place during the accounting period should be ignored and the ascertainment of fulfilling a certain condition provided under the statute must be judged with reference to last date of the accounting period. Particularly, in the context of requirements f Section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payability only as on 31st March of the year under consideration. Merely because, accounts are closed on that date and the computation of profit and loss is to be judged with reference to such date, does not mean that whether an amount is payable or not must be ascertained on the strength of the position emerging on 31t March.
This brings us to the second aspect of this discussion, namely, whether this is a case of conscious omission and therefore, the legislature must be seen to have deliberately brought about a certain situation which does not require any further interpretation. This is the fundamental argument of the Tribunal in the case of M/s Merilyn Shipping & Transports vs. ACIT (supra) to adopt a particular view.
While interpreting a statutory provision the Courts have often applied Hyden’s rule or the mischief rule and ascertained what was the position before the amendment, what the amendment sought to remedy and what was the effect of the changes. 27 to 36………………..
In our opinion, the Tribunal committed an error in applying the principle of conscious omission in the present case. Firstly, as already observed, we have serious doubt whether such principle can be applied by comparing the draft presented in Parliament and ultimate legislation which may be passed. Secondly, the statutory provisions is amply clear.
In the result, w are of the opinion that Section 40(a)(ia) would cover not only to the amounts which are payable as on 20 83-85&7-72/Coch/2014 31st March of a particular year but also which are payable at any time during the year. Of course, as long as the other requirement of the said provision exist. In that context, in our opinion the decision of the Special Bench of the Tribunal in the case of M/s Merilyn Shipping & Transports vs ACIT (supra), does not lay down correct law.”
By following the judgments of the Calcutta High Court in Crescent Export Syndicate (supra) and the Gujarat High Court in Sikandarkhan N Tunvar (supra), this Tribunal is of the considered opinion that the decision of the Special Bench of this Tribunal in the case of M/s Merilyn Shipping & Transports (supra) and the judgment of the Allahabad High Court in Vector Shipping Services (P) Ltd (supra) are not applicable to the facts of the case under consideration whereas the judgments of the Calcutta High Court in Crescent Export Syndicate (supra) and the Gujarat High Court in Sikandarkhan N Tunvar (supra) are squarely applicable to the facts of the case. Respectfully following the judgments of the Calcutta High Court in Crescent Export Syndicate (supra) and the Gujarat High Court in Sikandarkhan N Tunvar (supra), we do not see any infirmity in the orders of the lower authorities. Accordingly, the orders of the lower authorities are confirmed.”
This decision of Cochin Bench of this Tribunal was confirmed by the Kerala High Court by judgment dated 3rd July, 2015 in Shri
George Muthoot v. CIT in ITA.No.278 of 2014 as follows:-
“17. Another contention that was pressed into service was that the appellants had already paid the amount and therefore, the provisions of Section 40(a)(ia), applicable only in respect of the amount which remains to be payable on the last day of the financial year, is not attracted. Therefore, according to the appellants, disallowance cannot be sustained. This contention was sought to be substantiated by relying on the judgment of the Allahabad High Court in Commissioner of Income Tax v. Vector Shipping Services (P) [(2013) 357 ITR 642 (All)]. Primarily, this contention should be answered with reference to the language used in the statutory provision. Section 40(a)(ia) makes it clear that the consequence of disallowance is attracted when an individual, who is liable to deduct tax on any interest payable to a resident on which tax is deductible at source, commits default. The language of the Section does not warrant an interpretation that it is attracted only if the interest remains payable on the last day of the financial year. If this contention is to be accepted, this Court will have to alter the language of Section 40(a)(ia) and such an interpretation is not permissible. This view that we have taken is supported by judgments of the Calcutta High Court in Crescent Exports Syndicate and another [ITAT 20 of 2013] and the Gujarat High Court in the case of Commissioner of Income Tax v. Sikandadarkhan N. Tunvar [ITA Nos.905 of 2012 & connected cases], which have been relied on by the Tribunal.”
In view of the above, this Tribunal is of the considered opinion that the judgment of Allahabad High Court in Vector Shipping Services (P) Ltd. (supra) may not be applicable to the facts of the case. By respectfully following the judgments of Calcutta High Court in Crescent Export Syndicate (supra), Gujarat High Court in Sikandarkhan N. Tunvar (supra) and Kerala High Court in Shri George Muthoot (supra), the orders of the lower authorities are confirmed.
The next ground of appeal is with regard to the addition of `17,95,370/- towards sundry creditors.
19. Shri J. Chandrasekaran, the Ld. representative for the assessee, submitted that the Assessing Officer found that the sundry creditors shown by the assessee which was not settled as on 31.03.2010 was `17,95,370/-. The Assessing Officer issued notice under Section 133(6) of the Act to four of the sundry creditors, namely, Maragadhavel, P.K. Mohammed & Co., Satyam Steel Roof Structures P. Ltd. and M.S. Subramaniyam & Co. All the four parties confirmed that no outstanding from the assessee as on 31.03.2010. When this was brought to the notice of the assessee, the assessee explained that a sum of `17,95,370/- was payable to above sundry creditors and the same was, in fact, written off during the years 2011-12 and 2012-13. Therefore, according to the Ld. representative, the same was offered as income for the assessment years 2011-12 and 2012-13. The Assessing Officer, however, rejected the contention of the assessee only on the basis of the above parties’ confirmation that no amount was outstanding from the assessee. According to the Ld. representative, the books of the assessee reflect the correct state of affairs as on 31.03.2010. The assessee is following percentage completion method, therefore, the cessation of liability is naturally shifted to future years and correct profit estimation for a particular year cannot be done without shifting the profit. Therefore, according to the Ld. representative, the above amount has to be naturally added to the income for the assessment years 2011-12 and 2012-13 and not for the assessment year 2010- 11.
On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that the Assessing Officer, during the course of assessment proceeding, found that a sum of `17,95,370/- was shown as liability. In fact, the assessee has shown the liability in the name of following sundry creditors:-
` (a) Ooviya Interiors 1,51,748 ` (b) National AShphalt Products & 3,35,737 Construction Co. ` (c) Exim Engineering Co. 1,46,155 ` (d) Seven Hills Enterprises 93,089 ` (e) Sree Andhal & Co. 1,84,302 ` (f) Jay Dheep Techno Ent P. Ltd. 1,40,737 ` (g) Maragadhavel 1,27,610 ` (h) P.K. Mohammed & Co 2,56,744 ` (i) Sathyam Steel Roof Structures P. 93,614 Ltd. ` (j) M.S. Subramaniam & Co. 2,65,634 17,95,370 In order to verify the claim of the assessee, the Assessing Officer issued summons under Section 131 of the Act to six persons. All of them confirmed that no outstanding was due to the assessee-firm.
In fact, National AShphalt Products & Construction Co. clarified that the amount outstanding was written off in the books as bad debt as on 31.03.2009 itself. The four parties, namely, Maragadhavel, P.K.
Mohammed & Co., Satyam Steel Roof Structures P. Ltd. and M.S.
Subramaniyam & Co. confirmed that no amount was outstanding as on 31.03.2010. The assessee claims that the amount was written off during the assessment years 2011-12 and 2012-13. This claim of the assessee is not substantiated by any material. In fact, the Assessing Officer, after issuing summons under Section 131 of the Act, examined the respective parties and also called for material under Section 133(6) of the Act. Therefore, the so-called liability as on 31.03.2010 was found to be false and accordingly, the Assessing Officer made addition of `17,95,370/-.
We have considered the rival submissions on either side and perused the relevant material available on record. Since the liability is not outstanding as on 31.03.2010, the same has to be added as income only for the assessment year 2010-11 and not for the assessment years 2011-12 and 2012-13. Merely because the assessee has offered the same as income for the assessment years 2011-12 and 2012-13 that cannot be a reason to shift the income which is otherwise assessable for taxation for the assessment year 2010-11. In view of the above, this Tribunal do not find any reason to interfere with the order of the CIT(Appeals) and accordingly, the same is confirmed.
In the result, both the appeals of the assessee are dismissed.
Order pronounced on 7th April, 2016 at Chennai.