IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "D" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR
ITA No. 2547 & 2548/Del/2012
A.Yrs. 2005-06 & 2008-09
ACIT Circle-II, Vs. M/s Laksons Footwear P. Ltd.
Faridabad. Plot no. 131 Sector-24, Faridabad.
AND
ITA No. 2204/Del/2012
A.Yrs. 2008-09
M/s Laksons Footwear P. Ltd. Vs. ACIT Circle-II,
Plot no. 131 Sector-24, Faridabad. Faridabad.
PAN: AAACL 3114 B
( Appellant ) ( Respondent )
Department by : None
Assessee by : Shri M.K. Madan CA
ORDER
PER R.P. TOLANI, J.M::
This is a set of three appeals in the case of same assessee containing
two revenue's appeal for A.Y. 2005-06 and 2008-09 and assessee's appeal
for A.Y. 2008-09. All the three appeals are disposed of by this common
order for the sake of convenience.
2. When the Bench set for hearing at 10.30AM on 20-11-2013, to our
surprise, none of the DR was present in the courtroom. It may be worthwhile
to mention that about 33 appeals were fixed for hearing with the current
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pendency it takes about 4 to 5 months' period for fixation of any appeal for
hearing in normal course.
2.1. It may be pointed out that there was neither any DR present in the
courtroom nor any application for adjournment from the revenue's side. In
public interest and interest of justice, Bench continued with the adjournment
applications filed by the assessees and thereafter with the hearing of the
remaining appeals.
2.2. This set of appeals, which comprises of two revenue appeals and one
assessee's appeal, was called out. Ld. Counsel for the assessee contended
that the issues involved were covered by ITAT judgments in assessee's own
case and it has been adjourned several times, therefore, it may be heard. As
no DR was present, matter was passed over.
2.3. At about 10.50 AM Shri D.K. Mishra CIT(DR) entered the courtroom
in a huff and gave a vague reason for his absence that he was held up some
where. Since Shri D.K. Mishra made the appearance, this passed over matter
was called out. It may be mentioned that Shri D.K. Mishra CIT(DR) is the
Commissioner In-charge of the "D" Bench and it is his duty to ensure that
the court is properly assisted to discharge its function of hearing and decide
appeals. On the calling out of this matter for hearing, Shri D.K. Mishra
replied that he will not argue these appeals as they are not assigned to him
and other DR who is absent, also was held up in traffic jam.
2.4. It was clearly pointed out to him that there are two revenue's appeals
and it is its duty of the revenue to ensure that their own appeals are
represented. In these circumstances, the Bench will be left with no choice
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but to proceed with the matter ex parte qua revenue. Shri D.K. Mishra
contended that the Bench may take a view it likes.
2.5. These developments and circumstances leave an impression on the
Bench that Revenue is not taking the court proceedings with responsibility,
which is deserved by judicial proceedings and cause consternation in our
mind. As the issues are pleaded by assessee to be covered by ITAT order in
it's own case and on several earlier occasions the appeals have been
adjourned. The `D' Bench DR's attitude is of recalcitrance and non-
cooperation, in the public interest and interest of justice we are of the view
that further adjournment of a seemingly covered matter will cause hardship
to assessee and amount to obstruction to dispensation of justice. Under these
circumstances, we are left with no choice but to proceed with the hearing of
these appeals ex parte qua the department.
2.6. After this hearing was over, at about 11.30AM a bunch of hastily
written adjournment applications by the department was moved with
scribbling "DR is not available". We have adjourned all the other matters on
these revenue's applications. Though the cause of the adjournments sought
by revenue is non specific and does not invoke any judicial conscience.
Nevertheless to emphasize that the ITAT Benches consider "Revenue" with
due regards and esteem, these belatedly and hastily moved adjournment
applications were allowed except the heard appeals.
2.7. From the above proceedings it becomes crystal clear that the actions
of "D" Bench DRs has caused obstruction of justice and lack of due respect
to the judicial discipline and set norms of ITAT proceedings. We may also
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mention that on earlier date i.e. 18-11-2013 about 40 cases were fixed and
on 19-11-2013 29 cases were fixed and a huge number of cases were
compelled to be adjourned as the revenue moved applications with
scribbling "DR is not available". The Bench has been more than fair to the
department in allowing such adjournments. The `D' bench DRs failed even
to extend minimum courtesy of applying adjournment in advance and
inform the opposite parties who come prepared from various out stations.
2.8. On 2.30 PM Mr. Bhatia, Sr. DR `D' Bench, explained his absence as
being busy with the marriage ceremony of his nephew at Lucknow and he
got delayed which resulted in non-appearance. He was reminded that
marriage ceremonies are fixed well in advance and due intimation should be
given if the DRproceeds on a planned leave. The above facts are being
narrated in detail to make the department aware of the situation of some of
the DRS whose recalcitrant way of working is leading to un-anticipated
adjournments and obstruction of justice, which deserves to be improved.
3. To promote public interest and dispensation of justice, as a symbolic
gesture, the Bench deems it fit and in the interest of justice to impose a
token cost of Rs. 500/- on the absentee DR Mr. Bhatia which should be
deducted from his salary. This order should be duly forwarded by Registry
to CIT(DR)-I, Chief Commissioner In-charge of Delhi Bench, the learned
Chairman CBDT for record purposes.
4. Now we proceed to decide these appeals. We have heard ld. AR of the
assessee and perused the material available on record and we proceed to
decide the appeals as under:
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Assessment year 2005-06 ( Revenue's appeal):
5. Sole effective ground raised is as under:
"On the facts and in the circumstances of the case, the Ld.
CIT(A) has erred on facts and in law in deleting the addition
of Rs. 23,18,590/- made by the Assessing officer u/s 36(1)(iii)
of the Income Tax Act, 1961 on account of interest on
investment in shares in the light of following judgments:
(i) Jurisdictional Punjab & Haryana High Court in the
case of CIT Vs. Abhishek Industries (186 ITR 1);
(ii) Hon'ble Madras High Court in the case of K.
Somasundaram & Bros. Vs. CIT 238 ITR 939; and
(iii) CIT Vs. Smt. Leena Ramchandran 339 ITR 296 (Ker)."
6. Ld. Counsel for the assessee contends that the issue in question is
covered by ITAT's consolidated order dated 30-3-2012 in assessee's own
case in ITA nos. 3361 & 3362/Del/2010 for A.Y. 2003-04 & 2004-05, inter
alia, observing as under:
"8. ........ The assessee has business relationship with all
persons with whom trading is made. Business relationship can
be said to exist even with the persons from whom funds are
borrowed. Hence the principle of commercial exigency cannot
be blindly applied in the case of persons with whom the
assessee has some business relationship. The assessee ahs to
demonstrate the purpose for which he was making the
investment in the shares of associate concern; whether it is for
getting distributorship or earning dividend income or for
controlling interests. 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. It is
not a case of deposit of money with Lakhani India for the
purpose of securing business of distributorship. What was the
position in the very first year when business of distributorship
was assigned to assessee is not known. 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
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investment in shares within the meaning of Commercial
expediency. The learned CIT(A) /A.O. has not examined this
aspect of the case also. Since the issue has not been examined
either by the Assessing officer or the learned CIT(A), we feel it
proper to set aside the matter to the file of the Assessing officer
with the directions to examine the issue in the light of our
aforesaid observations and decide it afresh after affording the
assessee a reasonable opportunity of being heard."
6.1. Since the issue in question has been set aside, restored back to the file
of assessing officer, the matter may be accordingly set aside back to the file
of assessing officer with similar directions.
7. We have heard ld. AR of the assessee and gone through the relevant
material available on record. The issue has been set aside by the ITAT in
earlier years (supra) to decide the issue in the light of observations made by
in the ITAT order. Respectfully following the same, we set aside the issues
back to the file of assessing officer with similar directions. The appeal of the
revenue is allowed for statistical purposes only.
A.Y. 2008-09 Cross appeals:
8. Sole effective ground raised by the Revenue is as under:
"On the facts and in the circumstances of the case, the Ld.
CIT(A) has erred on facts and in law in deleting the addition
of Rs. 15,81,991/- out of total addition of Rs. 18,84,991/-
made by the Assessing officer on account of various expenses
even though these expenses were incurred on exempted
incomes, therefore not allowable in view of section 14A of the
Income Tax Act, 1961 and in the light of following judgments:
(i) Jurisdictional Punjab & Haryana High Court in the
case of CIT Vs. Abhishek Industries (186 ITR 1);
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(ii) Hon'ble Madras High Court in the case of K.
Somasundaram & Bros. Vs. CIT 238 ITR 939;
(iii) Hon'ble Calcutta High Court in the case of Dhanuka
and Sons vs. CIT (Cal) 339 ITR 319;and
(iv) CIT v. Smt. Leena Ramachandran 339 ITR 296 (Ker.)"
Assessee's appeal:
9. Following grounds are raised:
1. (a) That the order passed by Ld. CIT(A) is bad in law
and on facts.
(b) That the Ld. CIT(A) has erred in confirming
disallowance of interest of Rs. 49,87,440/- u/s 40(a)(ia)
of the Income Tax Act, 1961.
2. That the Ld. CIT(A) has wrongly confirmed the
disallowance of administrative expenses of Rs. 3,03,000/- u/s
14A of the Income Tax Act read with clause (iii) of Rule 8D (2)
of the Income Tax Rules."
10. The sole effective ground of revenue's appeal and ground no. 2 of
assessee's appeal are common. Here also ld. Counsel for the assessee
contends that similar issue arose in A.Y. 2006-07 and 2007-08 and ITAT
vide consolidated order dated 22-3-2012 in ITA nos. 2117 and
2118/Del/2011, referred to the following judgments:
- Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT & another 328 ITR 81
(Bom.);
- Maxopp Vs. CIT ( Hon'ble Delhi High Court ITA no. 667/2009 dated
18-11-2009);
- CIT Vs. Winsome Textile Industries Ltd. 319 ITR 204 (P&H)
Jurisdictional High court in assessee's case.
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11. The ITAT referring to the Jurisdictional High Court judgment (supra)
and various other judgments and considering the arguments and on perusal
of the record set aside the issue, restored back to the file of assessing officer
by following observations:
"8.3. In the light of the aforementioned peculiar facts and
circumstances, we are of the view that it is appropriate to
restore the issue back to the file of the A.O. as it is seen that on
facts no material has been brought on record by the CIT(A) to
conclude that facts qua the group concern namely Lakhani
Marketing Incorporation in 2000-2001 A.Y are exactly
identical to the facts of the assessee in A.Y. 2006-07. It is seen
that no such exercise has been done by the A.O. Accordingly,
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. The A.O. shall in the light of the
judgments of the Apex Court and jurisdictional High Court
shall examine and discuss each and every time funds were
advanced by the assessee to Lakhani India Ltd. in context of
`nexus' and `commercial expediency' as has been laid down by
the Apex Court in the case of S.A. Builders 288 ITR 1 (SC) and
Munjal Sales Corporation 298 ITR 298 (SC). Thus not only the
facts qua the Lakhani Marketing Incorporation stated to be
identical to assessee's case in the context of `commercial
expediency' need to be taken into consideration but also the
finding in assessee's own case in 2003-04 and 2004-05 A.Ys is
also relevant as the issue in the earlier years in the case of
assessee has been restored to the A.O. vide order dt. 16-4-2009
in ITA 2233 and 4545/Del/2007. Accordingly after marshalling
the facts, the case law can be applied.
8.4. Accordingly for the detailed reasons given hereinabove
the issue is restored to the file of the A.O. for both the years
with the direction to decide the same in accordance with law by
way of speaking order. Needless to say that t he assessee shall
be afforded a reasonable opportunity of being heard."
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12. It is pleaded that both the grounds in case of assessee and revenue's
appeal should be set aside on the issue of disallowance u/s 14A.
13. Apropos ground no. 1 of assessee's appeal, brief facts are that
disallowance u/s 40(a)(ia) was made on the ground that assessee had not
deducted TDS on interest amounting to Rs. 49,87,440/- paid to the bank
through the account of Nitin Miglani. Since TDS was not deducted by the
assessee while making the payment to Nitin Miglani the assessing officer
purposed to disallow the interest for want of compliance to sec. 40(a)(ia).
The assessee pleaded as under:
"De-facto the loan was taken from the bank and interest was
also paid to the bank and in such a situation there is no need of
deduction of tax u/s 194A of the Income Tax Act, 1961. It is not
a case of the revenue that money was borrowed from the saving
bank of Mr. Nitin Miglani Nor is the case that money/ interest
was paid to Nitin Miglani. There are no two independent
transactions that is company with Mr. Nitin Miglani and Mr.
Nitin Miglani with the bank. This is rather one transaction in
which Mr. Nitin Miglani was a conduit to circumvent the
problem faced due to cessation of Board and to prevent the
closure of business. From the conduit loan directly come to
appellant, interest was paid to the bank by the group company/
it's MD. It is respectfully submitted that the provision of section
40(a)(ia) are introduced to protect the evasion of taxes. There
is no such case. The bank is a nationalized bank and ahs paid
the taxes on the interest earned in its assessment. It is held by
the Hon'ble Supreme Court that in case the tax is paid by the
payee no disallowance can be made u/s 40(a)(ia). Assessee
relies upon the judgment of the Hon'ble Supreme Court in the
case of Hindustan Coca Cola Beverage Pvt. Ltd. vs. CIT (293
ITR 226).
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14. CIT(A) however, upheld the disallowance by relying on ITAT
Mumbai Bench in the case of Mahesh Enterprises vs. ITO 42 SOT 125;
ITAT Bangalore Bench in the case of Gaonkar Mines vs. Addl. CIT ( 9
Taxmann.com33) and upheld the action of assessing officer by further
following observations:
"The ITAT, Delhi Bench `H' Delhi in the case of DCIT Vs.
Umang Dairies Ltd. [ 36 SOT 383], after examining the objects
stated for bringing such provisions on statute and memorandum
explaining the provisions relating to direct taxes, has held that
the expenditure claimed by the assessee could be allowed only
if the assessee had paid TDS thereon. The decision of Hon'ble
Supreme Court in the case of Hindustan Coca Cola Beverage
Pvt. Ltd. vs. CIT 9293 ITR 226), relied upon by the appellant, is
in the context of provisions of section 201(1) and not in the
context of section 40(a)(ia) of the Act, which are separate and
distinct provisions meant for ensuring compliance to the
provisions of Chapter XVII of the Act. Keeping in view the
provisions of law and the decision of Jurisdictional ITAT in
Umang Dairies Ltd. (supra), the A.O was fully justified in
disallowing the interest of Rs. 49,87,440/- under section
40(a)(ia) of the Act since no TDS at all was made. Hence, the
addition made by the A.O is upheld and this ground of appeal is
dismissed."
Aggrieved, assessee is before us.
15. Ld. Counsel for the assessee relied on ITAT Visakhapatnam Special
Bench judgment in the case of Merilyn Shipping & Transports vs. Addl. CIT
(2012) 136 ITD 23 (Visakhapatnam) (SB), holding that 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.
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16. Ld. Counsel though pleaded that the Special Bench judgment has been
reversed by the Hon'ble Calcutta and Madras High Courts. Hon'ble
Allahabad High Court has taken a view in favour of Merilyn Shipping &
Transports.
17. Since the issue in question has become debatable in view of Special
Bench judgment and contrary judgments of High Courts, in the interest of
substantial justice we set aside this issue back to the file of assessing officer
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.
18. In the result, all the three appeals stand allowed for statistical purposes
only.
Order pronounced in open court on 28-11-2013.
Sd/- Sd/-
( T.S. KAPOOR ) ( R.P. TOLANI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 28-11-2013.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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