2013 (12) TMI 595 - AT - Income Tax

Interest on investment - Held that - Following assessee s own case for A.Y. 2003-04 - Business relationship can be said to exist even with the persons from whom funds are borrowed - The principle of commercial exigency cannot be blindly applied in the case of persons with whom the assessee has some business relationship - The assessee had borrowed money for its own purpose but has been investing it in shares. Prima facie it appears to be diversion of funds for acquisition of share - If there was no condition in the very first year or in subsequent years, the amounts invested in various years in shares of Lakhani India Ltd. cannot be treated as assessee s compulsion to make investment in shares within the meaning of Commercial expediency - The issue has not been examined either by the Assessing officer or the learned CIT(A) - The issue was set aside for fresh adjudication. Expenses on exempt income - Held that - Following assessee s own case in A.Y. 2003-04 and 2004-05 - The group concern namely Lakhani Marketing Incorporation in A.Y 2000-2001 are exactly identical to the facts of the assessee in A.Y. 2006-07 - The applicability of the facts pertaining to commercial expediency as considered in the facts of group concern needs to be seen and brought on record - No such exercise has been done by the A.O. - The issue was set aside for fresh adjudication. Tax not deducted on interest - Held that - Following Merilyn Shipping & Transports vs. Addl. CIT 2012 (4) TMI 290 - ITAT VISAKHAPATNAM - what can be disallowed u/s 40(a)(ia) is only the outstanding balance as on 31st March of the year and cannot be invoked against payment made prior to 31st March of every year - The issue in question has become debatable in view of Special Bench judgment and contrary judgments of High Courts - The issue was set aside for fresh adjudication to verify whether the TDS has been deducted in the subsequent year and to decide the same in accordance with law keeping in view the latest legal position.

Issues Involved:
1. Absence of Departmental Representatives (DRs) and adjournment applications.
2. Deletion of addition under Section 36(1)(iii) of the Income Tax Act, 1961 for A.Y. 2005-06.
3. Deletion of addition under Section 14A of the Income Tax Act, 1961 for A.Y. 2008-09.
4. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 for A.Y. 2008-09.

Issue-wise Detailed Analysis:

1. Absence of Departmental Representatives (DRs) and Adjournment Applications:
The court noted the absence of any Departmental Representatives (DRs) during the hearing scheduled for 10:30 AM on 20-11-2013. Despite the absence, the bench continued with hearing adjournment applications filed by assessees and proceeded with other appeals. At 10:50 AM, Shri D.K. Mishra, CIT(DR), arrived and explained his delay due to being held up elsewhere. However, he refused to argue the appeals, stating they were not assigned to him. The court expressed concern over the lack of responsibility shown by the DRs, which obstructed the dispensation of justice. The bench decided to proceed with the hearing ex parte qua the department. Later, hastily written adjournment applications citing "DR is not available" were moved by the department, which the bench allowed except for the heard appeals. The court imposed a token cost of Rs. 500/- on the absentee DR Mr. Bhatia, to be deducted from his salary, emphasizing the need for improvement in the DRs' conduct.

2. Deletion of Addition under Section 36(1)(iii) of the Income Tax Act, 1961 for A.Y. 2005-06:
The revenue's appeal contested the deletion of an addition of Rs. 23,18,590/- made under Section 36(1)(iii) on account of interest on investment in shares. The assessee's counsel argued that the issue was covered by ITAT's consolidated order dated 30-3-2012 in the assessee's own case for A.Y. 2003-04 and 2004-05. The ITAT had previously set aside the matter to the file of the Assessing Officer (AO) for examination. Respecting the same, the court set aside the issue back to the AO with similar directions, allowing the revenue's appeal for statistical purposes only.

3. Deletion of Addition under Section 14A of the Income Tax Act, 1961 for A.Y. 2008-09:
The revenue's appeal challenged the deletion of Rs. 15,81,991/- out of a total addition of Rs. 18,84,991/- made under Section 14A on account of various expenses incurred on exempted incomes. The assessee's counsel referenced ITAT's consolidated order dated 22-3-2012 for A.Y. 2006-07 and 2007-08, which had set aside the issue to the AO for examination in light of judgments from the Apex Court and jurisdictional High Court. The court decided to restore the issue back to the AO for both the revenue's and assessee's appeals, directing the AO to decide in accordance with law after affording the assessee a reasonable opportunity of being heard.

4. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 for A.Y. 2008-09:
The assessee's appeal contested the disallowance of Rs. 49,87,440/- under Section 40(a)(ia) for non-deduction of TDS on interest paid to a bank through the account of Nitin Miglani. The assessee argued that the loan and interest were paid to the bank, not to Nitin Miglani, and referenced the Supreme Court judgment in Hindustan Coca Cola Beverage Pvt. Ltd. vs. CIT. However, the CIT(A) upheld the disallowance, citing ITAT and jurisdictional ITAT decisions. The assessee's counsel also referenced the ITAT Visakhapatnam Special Bench judgment in Merilyn Shipping & Transports vs. Addl. CIT, which had been reversed by some High Courts but supported by the Allahabad High Court. Given the debatable nature of the issue, the court set aside the matter back to the AO to verify TDS deduction in the subsequent year and decide in accordance with the latest legal position.

Conclusion:
All three appeals were allowed for statistical purposes only, with directions for further examination by the AO in accordance with the law. The order was pronounced in open court on 28-11-2013.

← Previous Next →