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 Income Tax Addition Made Towards Unsubstantiated Share Capital Is Eligible For Section 80-IC Deduction: Delhi High Court

Assistant Commissioner of Income Tax, Circle 62 (1), New Delhi vs. Sh. Vinod Sharma A-2/165, 2nd Floor, Safdarjung Enclave, New Delhi -110029
May, 01st 2019

Subject: Facts of the case, in brief, are that the assessee is an individual and engaged in the business of civil construction under the name and style

Referred Sections:
Section 40 (a) (ia) of the IT Act,
Section 201 (1) of theIncome Tax Act from NBFCs
Section 40A(3) of the IT Act.
Section 6 DD (k).
Section 37 (1) of the Act,


Referred Cases / Judgments
CIT-1 Vs. Ansal Landmark Township Private Limited vide ITA No.160 and 161 /Del/2015 order dated 26.08.2015
CIT-1 Vs. Ansal Landmark Township Private Limited
RC Goyal Vs. CIT reported in 29 taxman.com 406, the Ld. CIT(A)

         IN THE INCOME TAX APPELLATE TRIBUNAL
                  DELHI BENCH `E', NEW DELHI

         BEFORE SH. R.K PANDA, ACCOUNTANT MEMBER
                            AND
             SH. KULDIP SINGH, JUDICIAL MEMBER

                             ITA No.3347/Del/2016
                          Assessment Year: 2011-12

     Assistant Commissioner of         Sh. Vinod Sharma
     Income Tax, Circle ­ 62 (1),   Vs A-2/165, 2nd Floor, Safdarjung
     New Delhi                         Enclave, New Delhi -110029
                                       PAN No.AUJPS32935K
     (APPELLANT)                       (RESPONDENT)

     Assessee by                       Sh. Rinku Singh, Sr. DR
     Department by                     None

     Date of hearing:                  14/03/2019
     Date of Pronouncement:            30/04/2019



                                ORDER

PER R.K. PANDA, AM:


1.     This appeal filed by the revenue is directed against the order
dated 31.03.2016 of the CIT(A)-20, New Delhi relating to A. Y. 2011-
12.
2.     Despite service of notice for a number of times nobody was
appearing on behalf of the assessee. Therefore, this appeal is being
decided on the basis of material available on record and after hearing
the Ld. DR.
                                                             ITA No.3347/Del/2016




3.      The ground No.1 by the revenue reads as under :-


             In the facts and circumstances the Ld. CIT(A) has
        erred in deleting the addition of Rs.12,49,300/- u/s 40 (a)
        (ia) on account of non deduction of TDS."


4.      Facts of the case, in brief, are that the assessee is an
individual and engaged in the business of civil construction under
the name and style of M/s. Laxmi Builders. He filed his return of
income on 27.09.2011 declaring total income of Rs.1,07,87,520/-.
The Assessing Officer during the course of assessment proceedings
asked the assessee to provide the details of TDS deducted on
interest payment against loan taken by the assessee during the
year.     From the various details furnished by the assessee he
observed that assessee has not deducted any TDS from the
payment of interest to the following parties :-
S.             Name                                 Amount
No.
1              Tata    Capital    Housing           1,41,600/-
               Finance Limited
2              Reliance Capital Limited             1,07,281/-
3              Bajaj Finsery Limited                2,06,199/-
4              Indiabulls         Housing           5,45,704/-
               Finance Limited
5              Fortis Finvest Limited               2,48,516/-
               Total                                12,49,300/-


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                                                            ITA No.3347/Del/2016


5.   The submission of the assessee is that no TDS is required to be
deducted was not accepted by the Assessing Officer. Invoking the
provision of section 40 (a) (ia) of the IT Act, the Assessing Officer made
addition of Rs.12,49,300/- to the total income of the assessee.







6.   Before CIT(A) it was submitted that the entire payment was paid
by means of advance EMI cheques and those cheques were duly paid
on presentation.    All those companies are income tax payee and it
would be impossible to presume that they might have tried to avoid
payment of income tax on their regular business income.               It was
further submitted that no amount was payable at the end of the year
and, therefore, provision of section 40 (a) (ia) are not applicable.
Relying on various decisions it was submitted that the addition made
by the Assessing Officer is not justified.


7.   Based on the arguments advanced by the assesesee, the Ld.
CIT(A) deleted the addition by relying on the decision of Hon'ble High
court in the case of CIT-1 Vs. Ansal         Landmark Township Private
Limited vide ITA No.160 and 161 /Del/2015 order dated 26.08.2015
on the ground that the assessee in the instant case has filed
certificate under proviso to sub-section (1) of section 201 (1) of the
Income Tax Act from NBFCs to whom interest were paid.


8.    Aggrieved with such order of the CIT(A), the revenue is in appeal
before the Tribunal.


9.   After hearing the Ld. DR and on perusal of the orders of the
authorities below we do not find any infirmity in the order of the CIT
(A) on this issue. The assessee has filed certificates from Bajaj
                                    3
                                                          ITA No.3347/Del/2016


Finserve Limited, Reliance Capital Limited, TATA Capital Housing
Finance Limited, India Bulls Housing Finance Limited and Fortis
Finvest Limited substantiating that these companies have filed their
income tax returns disclosing such interest income in the taxable
income. Therefore, the Ld. CIT(A) in our opinion is fully justified in
deleting the addition by relying on the decision of Hon'ble Delhi High
Court in the case of CIT-1 Vs. Ansal      Landmark Township Private
Limited where in it is held that the insertion of second proviso to
section 40 (a) (ia) of the IT Act is declaratory and curative in nature
and it has retrospective effect from 1st April, 2005 and where the
payees have declared such income in their respective return of income
itself deemed that the assessee has deducted and paid tax on such
sum on the date of furnishing of income.        Therefore, the ground
raised by the revenue on this issue is dismissed.


10.   The ground of appeal No.2 by revenue reads as under :-


           "In the facts and circumstances the Ld. CIT(A) has
      erred in deleting the addition on account of cash payment
      u/s 40 A (3) of Rs.48,35,476/-."


11.   Facts, of the case, in brief are that the Assessing Officer during
the course of assessment proceedings observed from the various
details furnished by the assessee that the assessee has made cash
payments to various parties in violation of provisions of section 40A(3)
of the IT Act. Rejecting the various explanation given by the assessee
the Assessing Officer made addition of Rs.48,35,476/-.




                                   4
                                                         ITA No.3347/Del/2016


12.   Before CIT(A) it was submitted that the assessee is engaged in
the business of civil construction work mainly for Government
agencies and the project sites are situated in remote places. While
executing the contractual obligations, the assessee had to hire
labourers and purchase materials at the local level as and when
required.   The work at local level is mainly done through such
contractors who incurred the expenditure at the local level.           The
provision of rule 6 DD (k) and 6DD (j) was brought to the notice of the
CIT(A).


13.   Based on the arguments advanced by the assessee and relying
on the decisions of Hon'ble Delhi High Court in the case of RC Goyal
Vs. CIT reported in 29 taxman.com 406, the Ld. CIT(A) deleted the
addition holding that the case of the assessee falls under the ambit of
Rule 6 DD(K).


14.   Aggrieved with such order of the CIT(A), the revenue is in appeal
before the Tribunal.


15.   We have considered the arguments advanced by Ld. DR and
perused the orders of the authorities below. We find the Assessing
Officer invoking the provision of section 40 A (3) made addition of
Rs.48,35,376/- on the ground that the assessee has violated the
provisions by making cash payments in excess of Rs.20,000/- at a
time otherwise than by crossed account payee cheques or crossed
bank drafts. We find the Ld. CIT(A) relying on the provision of Rule 6
DD (k) deleted the addition holding that the payments have been
made in cash are mostly done at the local level because of business
exigencies through such contractors who act as his agent within the
                                   5
                                                                ITA No.3347/Del/2016


meaning of rule 6 DD (k). We find the facts are not coming out clearly
from the order of the CIT (A) as to who are the agents or sub
contractors of the assessee at the sites, whether the payment has
been made by the such contractor after deduction of tax and or
through banking channel etc. We, therefore, deem it proper to restore
the issue to the file of the Assessing Officer with a direction to give
one more opportunity to the assessee to substantiate that the case of
the assessee falls within the provision of section 6 DD (k). Needless to
say the Assessing Officer shall decide the issue as per fact and law
after giving due opportunity of being heard to the assessee. We hold
and direct accordingly. The ground No.2 by the revenue is allowed for
statistical purpose.


16.   The ground of appeal No.3 by revenue reads as under :-
      "In the facts and circumstances the Ld. CIT(A) has erred
in deleting the addition on account of interest on service tax of
Rs.9,26,182/-."


17.   The facts of the case, in brief, are that the Assessing Officer
made addition of Rs.9,26,182/- on the ground that assessee has paid
the above amount as interest on service tax for delayed payment.
According to the Assessing Officer when the assessee has collected
the amount from different customers and intentionally kept the
money with it resulting into delay in deposit of the service tax,
therefore, the assessee has violated the provision of relevant Act.
Invoking the explanation to section 37 (1) of the Act, the Assessing
Officer made addition of Rs.9,26,182/- treating the same as penalty
for infringement of law.







                                       6
                                                              ITA No.3347/Del/2016


18.   The Ld. CIT(A) deleted the addition on the ground that such
payment of interest on account of delayed deposit of service tax is
compensatory in nature.       We find no infirmity in the order of the
CIT(A). The Ld. CIT(A) while deleting the such disallowance has
followed various decisions where it has been held that such payment
of interest on account of delayed payment of service tax is
compensatory in nature. The Ld. DR could not point out any contrary
decision so as to take a different view.       We, therefore, uphold the
order of the CIT(A) on this issue and the ground raised by the revenue
is dismissed.


19.   The Ground of appeal No.4 by revenue reads as under :-
           "In the facts and circumstances the Ld. CIT(A) has erred
      in deleting the addition in reducing the travelling expenses of
      Rs.1,53,317/0 to 31,326/-."


20.   After hearing the Ld. DR and on perusal of the orders of the
authorities below, we find the Assessing Officer made addition of
Rs.1,53,317/- on estimate basis being 1/4th of such expenses treating
the same as personal in nature. We find in appeal Ld. CIT (A)
restricted such disallowance to Rs.61,326/- by observing as under :-


           "I have considered the submission of the appellant
      and the assessment order. For any business, traveling
      and business promotion is a legitimate business expenses.
      However, the primary onus of proving that such expenses
      are incurred wholly and exclusively for business purposes
      lies on the assessee. Therefore, taking a reasonable view
      on the basis of appellant submissions and facts on

                                      7
                                                              ITA No.3347/Del/2016


       records, it is reasonable to restrict the disallowance to 10%
       of the expenses claimed to cover expenses of personal and
       non-business purposes."


21.    We do not find any infirmity in the order of the CIT(A) on this
issue. No doubt the assessee has not furnished the requisite details
before the Assessing Officer for which verification that such expenses
are wholly and exclusively incurred for the purpose of business was
not possible. However, disallowance made by the Assessing Officer
appears to be on the higher side under the facts and circumstances of
the case. We find the CIT(A) has taken a pragmatic view on this issue
which calls for no interference from our side. We, therefore, uphold
the same and the ground raised by the revenue on this issue is
dismissed.
22.    The ground of appeal No.5 being general in nature is dismissed.
23     In the result, the appeal filed by the revenue is partly allowed for
statistical purpose.
       Order pronounced in the open court on 30.04.2019.




        Sd/-                                     Sd/-
 (KULDIP SINGH)                               (R.K PANDA)
JUDICIAL MEMBER                            ACCOUNTANT MEMBER
*Neha*
Date:- 30.04.2019
Copy forwarded to:
1.     Appellant
2.     Respondent
3.     CIT
4.     CIT(Appeals)
5.     DR: ITAT
                                                 ASSISTANT REGISTRAR
                                                   ITAT NEW DELHI



                                      8
                                                                            ITA No.3347/Del/2016




Date of dictation                                              10.04.2019
Date on which the typed draft is placed before the dictating
Member
Date on which the approved draft comes to the Sr.PS/PS
Date on which the fair order is placed before the Dictating
Member for Pronouncement
Date on which the fair order comes back to the Sr. PS/ PS

Date on which the final order is uploaded on the website of    30.04.2019
ITAT
Date on which the file goes to the Bench Clerk
Date on which file goes to the Head Clerk.
The date on which file goes to the Assistant Registrar for
signature on the order
Date of dispatch of the Order




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