SRI ANIL KUMAR JAIN,KOLKATA vs. DCIT, CC-XX, KOLKATA, KOLKATA

There is a delay of about 252 days in filing this appeal by the assessee. It has been stated in an affidavit filed in support of the petition filed for condonation of delay that the delay in filing the appeal was due to the fact that the assessee had to go to his native place at Ajmer in Rajasthan to take care of his aged ailing father. The order of CIT(A) was served on the assessee on 10.10.2014. In the normal circumstances the appeal to the tribunal ought to have been filed by the assessee on or before 09.12.2014. The appeal has however been filed by the assessee only on 18.08.2015 resulting in delay of 252 days in filing the appeal.

I have given a careful consideration to the reasons stated for condonation of delay in filing the appeal and the medical certificates filed by the assessee. It is seen from the record that assessee’s father Shri Shantilal Jain was aged 81 years as on May, 2014 and had undergone replacement of left knee in a hospital at Ahmedabad. It appears that thereafter the assessee had to take care of his father at Ajmer, Rajasthan and therefore could not keep track of the affairs at Kolkata. Considering the reasons given ITA No.1111/Kol/2015-Sri Anil Kumar Jain-A.Y.2009-10 1

Ground No.1 raised by the assessee is with regard to the disallowance of Rs.10,400/- which was rents payable by the assessee for the period prior to the previous year relevant to A.Y.2009-10. It was the plea of the assessee that the assessee was a tenant of the premises at 23A, Kalakar Street, Kolkata. The building was in a dilapidated condition and needed repairs. To pressurise the landlord to carry out the repairs the tenants in the aforesaid premises stopped paying rents. The rent in question was paid only after the building and bathrooms were renovated. The assessee thus claims the liability of the assessee to pay the rent crystallised only during the previous year and therefore though the rent pertains to period prior to the previous year the same had to be considered as a liability which is accrued to the assessee during the previous year and allowed as a deduction. AO as well as CIT(A) had not allowed the claim of the assessee for deduction for the reason that the assessee was following mercantile system of accounting and therefore rent had to be claimed as deduction only for the relevant previous year. CIT(A) also was of the view that there was no dispute with regard to the payment of rent and that the dispute was only with regard to the amenities in the rented premises and therefore the rent cannot be claimed as deduction which do not pertain to the previous year.

I have heard the rival submissions. I am of the view that even in the mercantile system of accounting if there is a dispute with regard to liability, the liability of the assessee when it crystallises can be claimed as deduction, i.e., in the year when the dispute is settled. I however find that there is no evidence on record to show as to when the dispute was settled between the assessee and the landlord. I, therefore, set aside the order of CIT(A) and remand the issue to the AO for fresh consideration with a liberty to the Assessee to produce evidence to show that liability crystallised only

Ground No.2 raised by the assessee is with regard to the addition of a sum of Rs.1,27,207/- made by AO on account of non deduction of tax at source on payments made by the assessee to M/s. Mridula Art House by invoking the provision of section 40(a)(ia) of the Income Tax Act, 1961 (Act). The claim of the assessee was that M/s. Mridula Art House had supplied advertising and publishing material to the assessee and it was not a case of payments for carrying out a work under a contract requiring the assessee to deduct tax at source u/s 194C of the Act. The AO as well as CIT(A) found from the bills produced by the assessee in support of the aforesaid expenses that the payments were made towards labour charges and therefore it was the payments for carrying out the work under a contract and therefore provisions of section 194C of the Act were attracted. Since the tax was not deducted at source the disallowance was made by invoking the provisions of section 40(a)(ia) of the Act.

I have perused the relevant bills of M/s. Mridula Art House which are placed at pages 27 to 46 of the assessee’s paper book. The description in all the bills is that the payment in question was only towards labour charges. At page 24 of the assessee’s paper book M/s. Mridula Art House has given a certificate that they had supplied advertisement materials consisting of cloth and other accessories including labour charges and that reference in the bills given by them has been made only to “labour charges” instead of “cost of advertisement material including labour charges”. Based on this evidence learned counsel for the assessee submitted that the addition in question ought to have been deleted. It was also submitted that M/s. Mridula Art House’s income for the relevant assessment year was below the limits for which there was no tax liability and therefore provision of section 40(a)(ia) of the Act are not applicable.

I have considered the submissions of the assessee. Even assuming that it was a case of payment for supply of cloth and advertisement materials including labour charges, the assessee ought to have deducted tax at source on the payments made and since there was a failure on the part of the assessee to do so, the addition made by the AO and confirmed by the CIT(A) was fully justified. Ground No.2 is accordingly dismissed.

Ground No.3 raised by the assessee was not pressed and the same is dismissed as not pressed.

Ground No.4 raised by the assessee is with regard to the payment made by the assessed a sum of Rs.1,17,150/- to M/s. Jain gazette on which tax at source was not deducted. It was the payment made for publication of advertisement. Since the tax was not deducted at source, AO disallowed the claim of the assessee for deduction of the aforesaid sum by invoking the provisions of section 40(a)(ia) of the Act. The plea of the assessee throughout has been that it was under the bona fide belief that provision of section 194C of the Act was not attracted to the aforesaid payment and hence tax was not deducted at source. I am of the view that in the light of the specific statutory provisions such a plea of bona fide belief of non application of the provisions of section 194C of the Act cannot be a ground not to make addition u/s 40(a)(ia) of the Act. Accordingly ground no.4 raised by the assessee is dismissed.

Ground No.5 raised by the assessee is with regard to the addition made u/s 14A of the Act read with Rule 8D(2)(ii) of the Act. It is a plea of the assessee that the assessee had sufficient own funds out of which the investments were made in shares which yielded exempt dividend income. In this regard the assessee has pointed out before me that it had its own capital of Rs.24,99,787/- and the investment in shares was of a paltry sum of Rs.3,55,940/-. I find from the orders of the lower authorities that this aspect of availability of own funds has not been considered. I therefore deem it fit and proper to set aside the impugned addition and remand the same to the AO for

Ground No.6 raised by the assessee is with regard to disallowance of Rs.96,545/- made by AO u/s 40A(2)(b) of the Act on commission paid to M/s. Anil Kumar Abhishek Kumar (HUF) & Abhishek Kumar Jain. It is not in dispute that both the aforesaid parties to whom commission was paid were related parties and the provision of section 40A(2)(b) of the Act are applicable to the payments made to the aforesaid party. AO disallowed 40% of the commission payments made to the aforesaid parties by observing that payment to that extent was not required considering the needs of the business of the assessee.

I have perused the order of AO and find that the AO has not gone into the question as to the fair market value of the services for which payments of commission was made by the assessee. The condition precedent for making disallowance u/s40A(2)(b) of the Act is that the payment made by the assessee has to be compared with the fair market value of the services for which the payment is made and to the extent payment to a related party is an excess of the fair market value, the AO has power to make disallowance of expenses to that extent. AO has not indulged in such exercise and has made the impugned addition arbitrarily without any basis. I, therefore delete the addition made by AO and sustained by CIT(A) and allow ground no.6 raised by the assessee.

Ground No.7 raised by the asessee is with regard to disallowance of interest expenditure of Rs.50,000/-on the ground that borrowed funds on which interest was paid and claimed as deduction in computing the income from business had been given to the sister concern without charging any interest. Therefore interest expenses cannot be allowed as deduction u/s 36(1)(iii) of the Act to the extent of Rs.50,000/-, as the interest paid is not for funds borrowed for the purpose of business of the Assessee.

I have heard the rival submissions of the learned counsel for the assessee and the learned DR on this issue. I am of the view that the plea of the assessee that it had its own fund from which interest free advances were given to the sister concern had not been examined either by AO or CIT(A). I, therefore set aside the order of CIT(A) on this issue and remand the issue to the AO for fresh consideration with a liberty to the assessee to establish his case that he had sufficient own capital out of which interest free loans were given to the sister concern.

Ground no.8 raised by the assessee is with regard to disallowance of a sum of Rs.72,000/- which was the commission paid by the assessee to Shri Nikhil Jain. The assessee had paid a sum of Rs.1,92,690/- to Shri Nikhil Jain towards commission and brokerage. In his return of income Shri Nikhil Jain disclosed a sum of Rs.72,000/- towards salary and Rs.1,20,690/- as commission. AO therefore disallowed a sum of Rs.72,000/- for the reason that Shri Nikhil Jain was not an employee of the assessee. It is the plea of the Assessee that the disclosure by Shri Nikhil Jain in his return of income was erroneous and the entire payment was towards commission and brokerage. On this issue I find that neither AO nor CIT(A)has called upon Shri Nikhil Jain to confirm as to whether the entire sum of Rs.1,92,690/- was commission as claimed by the assessee. I, therefore set aside the order of CIT(A) on this issue and remand the issue to the AO for fresh consideration with a liberty to the assessee to file confirmation from Shri Nikhil Jain on the question whether the entire sum of Rs.1,92,690/- was commission or part of it was salary;.

Ground No.9 raised by the assessee is with regard to the addition made to the total inomce of Rs.3,00,000/- as value of rent free accommodation. The assessee was a director of M/s. Munmum Properties Pvt. Ltd. As a director of M/s. Munmum Properties Pvt. Ltd the assessee was occupying a flat belonging to the said company free of cost. Majority of the shares of the company were held by the assessee’s wife Smt. Santosh Jain. Shri A.Jain, son of the assessee and Ms.Munmum Jain daughter of the assessee. The property was located at Harish Mukherjee Road, Kolkata-25. AO

Before CIT(A) the assessee submitted that under Rule 3(1) of the IT Act 1962 the value of the perquisite has to be estimated based on the salary received by the assessee and since the assessee was not in receipt of the salary from the company no perquisite can be assessed in the hands of the assessee. CIT(A) however rejected this contention and held that the income in question can be assessed under the head income from other sources. Therefore the fact that the assessee had not received salary from the company cannot be the basis not to add a sum of Rs.3,000,000/- to the total income of the assessee.

Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the Tribunal.

I have considered the submissions of the learned counsel for the assessee, who reiterated the stand of the assessee as put forth before CIT(A). I am of the view that the conclusion of the CIT(A) on this issue does not call for any interference. Admittedly the assessee had the benefit of use of accommodation of the property owned by the company without paying any rent. To that extent the assessee was definitely benefitted. The quantification of such benefit as estimated by the Inspector of Income Tax has not been disputed by the assessee. In such circumstances I am of the view that the conclusion drawn by CIT(A) does not call for any interference. Gorund No.9 raised by the assessee is dismissed.

In the result the appeal of the assessee is partly allowed.