M/s. The Right Address Ltd. v. Income-tax Officer (TDS), Ward-59(4), Kolkata
[Citation -2016-LL-0916-54]

Citation 2016-LL-0916-54
Appellant Name M/s. The Right Address Ltd.
Respondent Name Income-tax Officer (TDS), Ward-59(4), Kolkata
Court ITAT-Kolkata
Relevant Act Income-tax
Date of Order 16/09/2016
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags co-operative housing society • business of real estate • real estate development • proportionate interest • co-operative society • deduct tax at source • payment of interest • allowable deduction • composite contract • date of conversion • deduction of tax • levy of interest • rate of interest • prescribed time • self-assessment • business profit • interest income • source of fund • stock-in-trade • deposit of tax
Bot Summary: If the tax had already been paid by the recipient on such income it may not be justified to recover the said amount of tax, but so far as the liability of interest is concerned, that cannot be considered to be non- existent on account of deposit of tax by the recipient at a subsequent or later stage. The relevant extract is reproduced below : Deduction of tax at source-Failure to deduct tax-Interest-Entire tax payable by payee paid by him as advance tax and tax on self assessment-Interest cannot be levied under section 201(1A)-Income-taxAct, 1961, ss. If one looks at the provisions of the Act which pertain to imposition of tax, it is very clear that as per the provisions of section 4 of the Income-tax Act, 1961, which is the charging section, the tax is to be paid on the income of the assessee and as per the provisions of the Act, the said tax can also be deducted at source. The said amount is to be deducted by way of tax by the person who has to make payment to the concerned person and as per the provisions of section 199 of the Act, whenever any person who deducts tax before making payment to another person pays the same to the Central Government, he pays the tax which is payable by the payee of the said amount. So far as the other two assessment years were concerned, the contractor had not paid sufficient advance tax and the Appellate Assistant Commissioner came to the conclusion that as advance tax was not paid by RB and as the Revenue had not received the amount of tax on the due date, the action of the Assessing Officer with regard to levy of interest for the said years was justified. On a reference: Held, that for the assessment years 1974-75 and 1975-76, it was not in dispute that RB, on whose behalf the tax was to be deducted and paid under section 194C of the Act, had paid more amount of tax by way of advance tax than what was payable and had also paid tax on self-assessment. Once the recipient of the income has included, the income paid by the payer and disclosed the same to the Department and paid tax thereon as per computation made by the recipient or no tax was paid by the recipient of income because as per the recipient, its entire income is exempt or on which no tax is payable, then the income is disclosed to the Department by the principal person who is liable to pay tax thereon and in such cases, unless it can be shown that the due tax could not be recovered by the Department from the principal person, who was liable to TDS until then the payer of the income cannot be treated as Assessee in Default.


ITA Nos.46&47/Kol/2014 M/d. Right Address Ltd. A.Y.20008-09 & 2009-10 1 IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA Before Shri Waseem Ahmed, Accountant Member and Shri K.Narasimha Chary, Judicial Member ITA Nos.46&47/Kol/2014 Assessment Years:2008-09 & 2009-10 M/s. Right Income tax Officer (TDS), Address Ltd., Sagar Ward-59(4), Kolkata V/s. Estate, 4 th Floor, Unit-1, 2, Clive Ghat Street, Kolkata- 700001. PAN:AAACT9353J Appellant .. Respondent ITA No.50/Kol/2014 Assessment Year:2005-06 DCIT, Circle-4, M/s. Right Address Aayakar Bhawan, 5 th Ltd., Sagar Estate, 4 t h V/s. Floor, P-7, Floor, Unit-1, 2, Clive Ghat Chowringhee Square, Street, Kolkata-700001. Kolkata-700 069 PAN:AAACT9353J Appellant .. Respondent By Assessee Shri Ravi Tulsiyan, FCA By Department Shri R.P.Nag, Addl.CIT(DR) Date of Hearing 07-09-2016 Date of Pronouncement 09-2016 ORDER PER Waseem Ahmed, Accountant Member:- ITA Nos.46&47/Kol/2014(Assessee s Appeal)A.Y.2008-09 & 2009-10: 1 These appeals by assessee are against order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 29.08.2013. Assessments were framed by I.T.O.(TDS), Ward-59(4), Kolkata u/s 201(1)/201(1A) of Income Tax Act, 1961 (hereinafter referred to as Act ) vide his order dated 16.03.2011 for assessment years 2008-09 & 2009-10. grounds raised by assessee in both appeals are as under:- 1. appellate order passed by CIT(A) is unwarranted, arbitrary, without proper reasons, invalid and bad in law, to extent to which it is prejudicial to interests of appellant assessee. 2. On facts and in circumstances of case, learned CIT(A) erred in holding that levy of interest u/s 201(lA) of income-tax Act, 1961, is mandatory and in that view in confirming levy of interest u/s 201(lA) of Act to extent of Rs.3,61,761/- (Rs.46,604/- for A.Y.2009-2010). 3. Without any prejudice to above, in accordance to Proviso to Section 201(lA) of Act, calculation of interest u/s 201(lA) of Act, should have been limited upto date of filing of return of income for year under consideration. 4. appellant craves leave to amend, alter, modify, add to, abridge and/ or rescind any or all above grounds in future. Shri Ravi Tulsiyan, FCA, Ld. Advocate appeared on behalf of assessee and Shri R.P.Nag, Addl. CIT(DR) Ld. Departmental Representative appeared on behalf of Revenue. 2. Since issues involved in both assessment years are same, therefore we deem it fit to dispose both appeals by consolidated order for sake of convenience. Therefore we decided to treat ITA no. 46/Kol/2014 as lead case. ITA 46/Kol/2014 3. assessee had taken loan from M/s MKJ Enterprises Ltd. on which Interest @ 9% was payable to it. assessee for year ended on 31/03/2008, credited Interest to tune of Rs.2,56,94,4411- to account of M/s MKJ Enterprises Ltd. assessee had deducted TDS @ 1.133%, being Rs.2,91,118/- on amount of Interest paid since Certificate for Lower deduction of Tax U/S 197(1) of Act was submitted by said party. However, Certificate provided for lower deduction of Tax @ 1.133% only upto Interest paid to tune of Rs.2,10,27,030.00. Thus, on balance Interest of Rs.46,67,411/- TDS @ 22.66% was deductible. Thereby, there was short-deduction of TDS to tune ofRs.10,04,893/-. assessee in course of TDS assessment proceedings explained that recipient of interest, namely, MKJ Enterprises Ltd. had already included impugned interest in its Total Income and paid requisite tax on it. Thereby, there was no occasion for raising demand for collection of impugned amount from assessee or for treating appellant as 'assessee in default'. However AO disregarded submission of assessee and has charged interest U/S 201(1A) to tune of Rs.3,61,7611. 4. Aggrieved by above order passed U/S 201(1)/201(1A) by learned TDS officer treating assessee in default, assessee filed appeal before learned CIT(A). 4.1. learned CIT(A) upheld order of AO for charging interest liability U/S 201(1A) of Act amounting to Rs.3,61,761. 5. Aggrieved with order of learned CIT(A), assessee is in appeal before us. ld. AR before us submitted that interest chargeable U/S 201(1A) is compensatory in nature, i.e., Government is entitled to interest for period during which tax, which is money belonging to Government, was withheld by assessee. This logic/ratio is true if deductee -payee is liable to pay income tax. However, in present case deductee-payee i.e. MKJ Enterprises Ltd. had already included impugned interest in its Total Income and paid requisite tax on it. Further, as evident from Income Tax Return filed for assessment year under consideration M/s MKJ Enterprises Ltd has claimed refund of taxes. copy of ITR acknowledgment for year is enclosed. As such, there was no shortfall for payment of taxes by MKJ Enterprises Ltd and as such there was no loss to Revenue as tax was directly deposited by MKJ Enterprises Ltd to credit of Central Government and since MKJ Enterprises Ltd had claimed refund on taxes so paid, it was entitled to claim refund U/S 244A of Act. 6. On other hand ld. DR vehemently supported order of lower authorities. 7. We have heard contentions of rival parties and perused material available on record. From foregoing discussion we find that assessee has deducted TDS at lower rate and accordingly AO has charged interest on short deduction of TDS amount which was subsequently confirmed by ld. CIT(A). Now question before us arises so as to whether interest is chargeable under aforesaid facts & circumstances under section 201(1A) of Act. In this regard, we find that that in plethora of judgments, it has been held that in such situations where recipient has no taxes payable at all and has claimed refund of taxes, no interest is to be charged from defaulting deductor since Revenue is required to refund of income tax along with due Interest. This has been explained in following judgments: Hon'ble High Court dismissed appeal in admission stage in case of Commissioner of Income-tax v. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. [2006] 287 ITR 354 (Raj) "Deduction of tax at source-Failure to deduct-Levy of interest-Finding that recipient had claimed refund due to tax deducted at source-Interest could not be levied-Income-tax Act, 1961, s. 201(lA). "The following question is proposed for admission of appeal: "Whether, on facts and circumstances of case, Tribunal was justified in law in upholding order of Commissioner of Income-tax (Appeals) deleting interest of Rs. 1,60,105 levied under section 201 (lA) of Act?" facts are not in dispute that as and when amount is paid, tax has been deducted and that has been paid to Department. Tribunal has considered this aspect in Para 6 and 7 of its order. For ready reference, they read as under: "6. We have heard rival submissions and perused materials available on record. We find that in this case learned Commissioner of Income-tax (Appeals) had held that tax at source was to be deducted on composite contract including on supply of material. Revenue's appeals are directed only against direction of learned Commissioner of Income-tax (Appeals) for deletion of interest charged under section 201 (lA) of Act for both years after due verification of facts that recipient had already deducted tax at source in full. provision of section 201 provides not only for collection of tax which had not been deducted but for levy and charge of interest also. If tax had already been paid by recipient on such income it may not be justified to recover said amount of tax, but so far as liability of interest is concerned, that cannot be considered to be non- existent on account of deposit of tax by recipient at subsequent or later stage. It was also held by Hon'ble Rajasthan High Court at page 101 in case of CIT v. Rathi Gum Industries [1995) 213 ITR 98 that interest is to compensate Revenue for loss, which it had suffered on account of late receipt of tax. provisions of interest are mandatory and automatic and interest has to be paid from date on which tax was deductible till date on which tax is actually paid. We may also refer to decision in CITv. Dhanalakshmy Weaving Works [2000} 245 ITR 13 (Ker). In this case, it was held that purpose of levy is to claim compensation on amount which ought to have been deducted and deposited and has not been done by assessee. learned authorised representative had relied upon decision of CIT v. Rishikesh Apartments Co-operative Housing Society Ltd. [2002} 253 ITR 310 (Guj). In this case, it was held that there was no question of levying any interest on assessee as amount which was payable to Revenue had been duly paid. 7. After perusal of facts of case and relevant law as on subject, we are of opinion that learned CIT(A) had rightly held that interest under s. 201(1A) of Act was to be deleted after due verification by AO from enclosures with supporting documents. In all cases, recipient of income had claimed refund, which had arisen due to TDS. Therefore, we find no infirmity in order of learned CIT(A) and same is hereby sustained. 3. When assessee has paid more tax than tax payable and refund is due, even TDS is counted, in such case, there is no justification for charging of interest under s. 201(1A). 4. appeal stands dismissed at admission stage. Similarly Hon ble High Court of Gujrat in case of CIT v. Rishikesh Apartments Co-operative Housing Society Ltd [2002] 253 ITR 310 (Guj) decided issue in favour of assessee. relevant extract is reproduced below : Deduction of tax at source-Failure to deduct tax-Interest-Entire tax payable by payee paid by him as advance tax and tax on self assessment-Interest cannot be levied under section 201(1A)-Income-taxAct, 1961, ss. 4, 190, 194C, 199, 201(lA). If one looks at provisions of Act which pertain to imposition of tax, it is very clear that as per provisions of section 4 of Income-tax Act, 1961, which is charging section, tax is to be paid on income of assessee and as per provisions of Act, said tax can also be deducted at source. According to provisions of section 190 of Act, in certain cases, as provided under Chapter XVII of Act, tax is to be paid by deduction at source. said amount is to be deducted by way of tax by person who has to make payment to concerned person (payee) and as per provisions of section 199 of Act, whenever any person who deducts tax before making payment to another person pays same to Central Government, he pays tax which is payable by payee of said amount. If person on whose behalf tax was to be deducted at source had paid such taxes and that too at time when it had become due, it would not be proper on part of Revenue to levy any interest under section 201 (lA). assessee was co-operative society which had entered into two contracts with RB for construction of its building. From amount which was to be paid by assessee-society to contractor, assessee did not deduct any amount of tax which it was required to deduct as per provisions of section 194C of Act. Though assessee-society did not deduct amount of tax as per provisions of section 194C, contractor had paid advance tax as well as tax on self-assessment with respect to amount received by it from assessee- society. As assessee-society had not deducted tax at source, in process of assessment of income of society for assessment years 1974-75 to 1977-78, Assessing Officer charged interest under provisions of section 201 (lA) of Act, on tax which was deductible by assessee-society from amount which was paid to contractor. It was case of assessee that though no tax was deducted from amount payable to contractor, contractor had already paid tax and, therefore, interest under provisions of section 201 (lA) could not have been levied by Revenue on assessee but said argument of assessee did not find favour with Assessing Officer. assessee filed appeal to Appellate Assistant Commissioner. For two years, i.e., for assessment years 1974-75 and 1975-76, sufficient advance tax and tax on self-assessment was paid by RB and, therefore, Appellate Assistant Commissioner held that levy of interest under provisions of section 201 (lA) was not justified for those two years. So far as other two assessment years were concerned, contractor had not paid sufficient advance tax and, therefore, Appellate Assistant Commissioner came to conclusion that as advance tax was not paid by RB and as Revenue had not received amount of tax on due date, action of Assessing Officer with regard to levy of interest for said years was justified. Thus, appeal was partly allowed by Appellate Assistant Commissioner. order of Appellate Assistant Commissioner was upheld by Tribunal. On reference: Held, that for assessment years 1974-75 and 1975-76, it was not in dispute that RB, on whose behalf tax was to be deducted and paid under section 194C of Act, had paid more amount of tax by way of advance tax than what was payable and had also paid tax on self-assessment. There was no question of levying any interest on assessee as amount which was payable to Revenue had been duly paid. For other two years, tax was paid by RB little late. So far as late payment was concerned, Appellate Assistant Commissioner held that assessee had to pay interest under section 201 (lA) for said years and assessee had accepted said finding. " In case of Thomas Muthoot vs. DCIT (2012) 34 CCH 0170 (copy enclosed at Page 1-12 of Paper Book), Cochin Tribunal discussed case of assessee in detail. In this case, assessee failed to deduct TDS on payments made to deductee-assessee. It was submitted that deductee-assessee has declared losses in return of income filed for year and as such failure to deduct TDS will not make assessee as 'assessee in default'. However, interest U/S 201(1A) was charged by learned AO and same was sustained by learned CIT(A). Aggrieved, assessee went in appeal before Hon'ble ITAT. Hon bIe ITAT discussed facts of case in detail and held that, 21. Now we shall turn to facts of instant cases before us, wherein interest u/s 201(1A) was levied upon assessees. It may be noted that interest s 201 (lA) is levied if there is any failure on part of any assessee to deduct tax at source (TDS)/remit same at right point of time on income paid by him. TDS amount to be so deducted/remitted belongs to revenue/Government. Hence, interest u/s 201 (lA) is charged; since assessee is considered to be enjoying TDS amount, which belongs to Government, till time he deducts and remits same to account of Government. It is pertinent to note that Tax so deducted at source is given credit in account of deductee- assessee. If assessment of deductee assessee results in refund of TDS amount, Government shall refund amount along with interest U/S 244A of Act. reason for paying interest U/S 244A is that Government is considered to have enjoyed amount, which it is not entitled to. Thus interest is charged/paid as compensation for withholding/enjoying funds not belonging to assessee/revenue. 22. Let us consider about exigibility of interest U/S 201 (lA) of Act under peculiar conditions prevailing in instant cases, wherein recipient of interest viz., partnership firms have declared losses even after accounting for interest paid by assessees herein. Even if assessees herein deduct and remit TDS amount on interest paid to partnership firms, same is liable to be refunded to said partnership firms, as there is no tax liability in their respective hands. Under this situation, can it be said that Government is deprived of funds due to it or any loss is caused to Government. 23. We shall now examine said question with example. Let us assume that 'Mr. A' pays interest of Rs.1.00 lakh to 'Mr. B' on 31.3.2007. Mr. is liable to deduct tax at source on said payment u/s 194A of Act. Mr. B includes said interest receipt in his income statement, but his total income turns into loss. Hence Mr. B is not liable to pay income tax, as he has declared loss in his return of income. Let us analyse above said facts under two situations, viz., (a) if TDS was deducted by Mr. and (b) if TDS was not deducted. (A) if TDS was deducted:- (a) In this situation, if Mr. has deducted and remitted TDS within prescribed time, provisions of sec. 201 of Act shall not apply to him. However, if there is belated deduction/payment, Mr. would be charged with interest u/s 201 (lA) of Act, since he is considered to have withheld/enjoyed tax amount, which otherwise belongs to Government. (b) In hands of Mr. B, revenue is liable to refund TDS amount of Rs.10,000/- to him, as he is not liable to pay any tax, in view of loss return. Since Government has withheld/enjoyed funds belonging to Mr. B, which it is not entitled to, revenue is liable to pay interest u/s 244A of Act to Mr. B. (B) If TDS was not deducted:- If TDS was not deducted by Mr. on interest payment made to Mr. B, then Mr. B would not claim any refund from revenue. In that case, question of payment of interest u/s 244A by revenue to Mr. B does not arise. Since Mr. B has declared loss in his return of income, he is also not liable to pay any tax. In this situation, can it be said that Mr. has withheld/enjoyed tax amount belonging to Government? answer would be yes, only if Mr. B is liable to pay tax. In this example, Mr. B is not liable to pay any tax and hence question of 'withholding any tax money' belonging to revenue does not arise. Accordingly, it cannot be said that Mr. has withheld/enjoyed tax amount belonging to Government. Even if he is compelled to deduct TDS, ultimately, same is liable to refunded to Mr. B. Hence, under this kind of situation, it cannot be said that Government is deprived of its fund or any loss was caused to Government. 24. facts analysed in Situation B is applicable to facts prevailing in instant cases. On basis of analysis made in situation B, we are of view that assessees herein are not liable to pay interest U/S 201 (lA) of Act, if recipient of interest, viz., partnership firms, are not liable to pay tax on impugned interest income. However, in paper book filed before us, only copies of returns of income filed by partnership firms have been furnished It is not known whether said returns of income were accepted as it is by revenue or not, since copies of assessment orders for relevant years, if any, were not filed before us. Hence, we are unable to examine, whether said partnership firms were liable to pay tax on impugned interest income or not, in absence of assessment orders. Hence these facts require verification at end of DCIT (FDS). If they are not liable to pay tax on impugned interest income, then as per discussions made in foregoing paragraphs, these assessees are not liable to pay interest U/S 201 (lA) of Act. 25. It may be noted that prevailing rate oJ interest chargeable/ payable U/S 201 (lA)/244A are different, i.e., rate of interest payable u/s 244A is lesser than interest chargeable u/s 201 (lA) of Act. Due to this disparity, question may arise as to correctness of view taken by us in preceding paragraphs. In our view, rate of interest is prescribed by Government on basis of various factors. main principle considered by us is that pronounced by Hon'ble Courts, viz., that, interest is compensatory in nature for depriving funds belonging to revenue/assessee. Hence disparity in rate of interest shall not have any effect on said principle. 26. In view of foregoing discussions, we set aside orders passed by Ld CIT(A) on issue of levy of interest u/s 201 (lA) in all cases before us and restore same to file of DCIT (FDS) with direction to verify whether or not recipients of interest income, viz., partnership firms were liable to pay tax on that income and then take appropriate decision about chargeability of interest u/s 201 (lA) of Act in hands of assessees herein in accordance with principles discussed by us in preceding paragraphs. 27. In result, all appeals of assessee are treated as allowed for statistical purposes. facts of case in Situation B above are squarely applicable to facts of appellant. In present case, MKJ Enterprises Ltd was not liable to pay any tax and hence question of 'withholding any tax money' belonging to revenue does not arise. Accordingly, it cannot be said that appellant has withheld/enjoyed tax amount belonging to Government to warrant levy of interest U/S 201(1A) of Act Further, in recent decision of ITAT, Panaji in case of RBL Bank Ltd vs ITO (TDS) (ITA 329 to 331/PNJ/2015) (copy enclosed at Page 13-20 of Paper Book) dated 24-11-2015, it was held that : "We find that it is not in dispute that recipient of interest income i. e. Visvesvaraya Technological University has filed its return of income and has included interest paid by assessee as its income in said return of income. As per sec. 4 of Income Tax Act, it is recipient of interest who is liable to pay tax. machinery of TDS provisions made in statute is to facilitate collection of that tax which is principally payable by recipient of income. TDS is not separate or independent tax. Once recipient of income has included, income paid by payer and disclosed same to Department and paid tax thereon as per computation made by recipient or no tax was paid by recipient of income because as per recipient, its entire income is exempt or on which no tax is payable, then income is disclosed to Department by principal person who is liable to pay tax thereon and in such cases, unless it can be shown that due tax could not be recovered by Department from principal person, who was liable to TDS until then payer of income cannot be treated as "Assessee in Default". Applying ratio of above case decisions to facts of appellant s case, it is clear that since M/s. MKJ Enterprises Ltd has included income from appellant in Return of Income filed for subject assessment years paid taxes on same and had claimed refund of taxes there is no loss to Revenue even if TDS was not deducted by appellant. As such, interest U/S 201(1A) cannot be levied on appellant. However, learned CIT(A) has not allowed claim of appellant with regard to consequential interest liability in view of decision of CIT vs Chennai Metropolitan Water Supply and Sewarage Board (Mad) 202 Taxman 454. In this regard, we find that it has been held in plethora of judgments that in case where two views are possible on same issue and there being no judgment on said issue from jurisdictional Hon'ble High Court or Hon'ble Apex Court, view which is favourable to assessee has to be adopted. In other words, Hon'ble non jurisdictional High Court's judgment in favour of assessee, is to be preferred over Hon'ble non jurisdictional High Court's judgment not favourable to assessee. In this connection we rely in following judgments. >Petron Engg. Construction (P) Ltd. & Anr. vs. CBDT & Ors. [(1989) 175 ITR 523 (SC)) "The principle that when two interpretations are possible to be made, interpretation which is favourable to assessee should be adopted, is well-settled and there is no doubt about that." >CIT vs. Vegetable Products Ltd. (1973) 88ITR 192 (SC) "On other hand, if two reasonable constructions of taxing provision are possible, that construction which favours assessee must be adopted. This is well-accepted rule of construction recognised by this Court in several of its decisions. " >CIT vs. Kulu Valley Transport Co. P. Ltd (1970) 77ITR 518 (SC): Interpretation of statutes-Taxing statute-Two views possible-If two views are possible, view which is favourable to assessee must be accepted while construing provisions of taxing statute. Held "Even if two views are possible view which is favourable to assessee must be accepted while construing provisions of taxing statute. " >CIT vs. Madho Prasad Jatia (1976) 105 ITR 179 (SC) Interpretation of statutes-Ambiguous provisions-Admitting two interpretations-View which is favourable to subject should be adopted. "It is well-settled that there is no equity about tax. provisions of taxing statute are clear and unambiguous, full effect must be given to them irrespective of any consideration of equity. Where, however, provisions are couched in language which is not free from ambiguity and admits of two interpretations view which is favourable to subject should be adopted. fact that such interpretation is also in consonance with ordinary notions of equity and fairness would further fortify Court in adopting such course. >Vodafone Essar Gujarat Limited vs ACIT (I.T.A. No.386/Ahd/11) (copy enclosed at page 21-36 of Paper Book) 18. choice of which of Hon'ble High Court to follow must, therefore, be made on some objective criterion. We have to, with our highest respect of all Hon'ble High Courts, adopt objective criterion for deciding as to which of Hon 'ble High Court should be followed by us. We find guidance from judgment of Hon'ble Supreme Court in matter of CIT vs. Vegetable ITA. No.: 386 /Ahd/11 Assessment year: 2008-09 Products Ltd. [(1972) 88 ITR 192 (SC)]. Hon'ble Supreme Court has laid down principle that "if two reasonable constructions of taxing provisions are possible, that construction which favours assessee must be adopted" Although this principle so laid down was in context of penalty, and Their Lordships specifically stated so in so many words, it has been consistently followed for interpretation about statutory provisions as well. In another Supreme Court judgment, Petron Engg. Construction (P) Ltd. & Anr. vs. CBDT & Ors. [(1989) 175 ITR 523 (SC)) above principle of law has been reiterated by observing as follows: " Counsel submits that when two interpretations are possible to be made, interpretation which is favourable to assessee should be adopted. In support of that contention, learned counsel has placed reliance upon few decisions of this Court in CIT vs. Madho Prasad Jatia (1976) 105 ITR 179 (SC); CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and CIT vs. Kulu Valley Transport Co. P. Ltd. (1970) 77 ITR 518 (SC) : above principle of law is well-established and there is no doubt about that.. ..... " Further held that, "There can be no dispute on proposition that irrespective of whether or not judgments of Hon'ble non jurisdictional High Courts are binding on us, these judgments deserve utmost respect which implies that, at minimum, these judgments are to be considered reasonable interpretations of related legal and factual situation. Viewed thus, when there is reasonable interpretation of legal and factual situation, which is favourable to assessee, such interpretation is to be adopted by us. In other words, Hon 'ble non jurisdictional High Court's judgment in favour of assessee, in light of this legal principle laid down by Hon 'ble Supreme Court, is to be preferred over Hon 'ble non jurisdictional High Court not favourable to assessee. In our humble understanding, it is only on this basis, without sitting in value judgment on views expressed by higher tier of judicial hierarchy, that conflicting views of Hon'ble non jurisdictional High Courts can be resolved by us in transparent, objective and predictable manner. " >Shri Mahila Sewa Sahakari vs ACIT (OSD) I.T.A. No. 62/Ahd/2014(copy enclosed at page 37-55 of Paper Book) "5.3 Hon'ble Coordinate Bench has noted that there is divergent view between Hon'ble Delhi High Court in case of M/s. Vasisth Chay Vyapar Ltd. reported at 330 ITR 440, Delhi and Hon'ble Madras High Court in case of CIT vs. Sakthi Finance Ltd. reported at (2013) 31 taxmann.com 305 (Mad.), in respect of application of judgement of Hon'ble Apex Court rendered in case of Southern Technology Ltd. (supra) on income recognition norms prescribed by R.B.I. Hon 'ble Coordinate Bench in view of fact that there were divergent views of Hon 'ble Delhi High Court and Hon 'ble Madras High Court, applied ratio of Hon 'ble Supreme Court in case of CIT vs. Vegetable Products Ltd. reported at (1973) 88ITR 192 (SC). In present case also, there is no judgement by Hon'ble Jurisdictional High Court, therefore for same reasoning, we decide this issue in favour of assessee and AO is hereby directed to delete addition. Thus, ground of assessee's appeal is allowed." >CIT (TDS) vs. Reliance Engineering Associates (P.) Ltd. (2012) 80 CCH 0113 Guj HC (copy enclosed at Page 56-59 of paper book) "It is settled law that where two interpretations are possible, one which is favourable to assessee should be adopted Appeal dismissed" 8. In view of above we find that it is settled law where two interpretations are possible, one which is favourable to assessee should be adopted. Applying ratio of above case decisions to facts of case, it can be safely said that when two views are possible on same subject, view favoring assessee should be adopted. Accordingly disallowance made by AO and sustained by learned CIT(A) U/S 201(1A) of Act of Rs.3,61,761/- in AY 2008-09 is not sustainable in law. Accordingly we reverse order of authorities below. Hence this ground of appeal of assessee is allowed. ITA no. 47/Kol/2014 9. At outset we find that issue involved in this appeal is same as of ITA 46/Kol/2014 which we have decided in favour of assessee. Following same we also reverse order of authorities below. Hence this ground of appeal of assessee is allowed. ITA No.50/Kol/2014(Revenue s Appeal)A.Y.2005-06: 10. This appeal by revenue is against order of Commissioner of Income Tax (Appeals)-IV, Kolkata dated 11.09.2013. Assessments were framed by A.C.I.T., Circle-4, Kolkata u/s 143(3) of Income Tax Act, 1961 (hereinafter referred to as Act ) vide his order dated 31.12.2007 for assessment year 2005-06 grounds raised by revenue in this appeal are as under:- I. On fact and circumstances of case, I.d. CIT(A) has erred in ignoring fact that as assessee has shown Capital Gain when investments are sold cannot claim interest on loan attributable to such investments as business income. 2) That increase of investments from 9.5 Cr. last year to 19.1 Cr. this year as evidenced from Schedule 14 to P/L Account & Balance Sheet, was due to conversion of shares of Rs. 8.5 Cr. written off from stock to investment as on 01.04.2004 and, therefore, interest claimed on purchase /stock of such investments should be disallowed. 3) That appellant craves for leave to add, delete or modify any grounds of appeal before or at time of hearing. only issue raised by revenue is that ld. CIT(A) erred in deleting addition made by AO for Rs.96,00,000/- on account of interest on loan attributable to investments in securities for Rs.19.1 crores. 11. facts in brief as culled out from order of lower authorities and documents are that assessee in present case is limited company and engaged in business of real estate development, trading in goods & merchandise and securities. assessee for year under consideration has filed its return of income on dated 30th October, 2005 declaring business loss of Rs.1,32,69,170/-. Thereafter case was processed u/s 143(1) of Act and taken up for scrutiny. Accordingly notices u/s 143(2) and 143(1) were issued upon assessee. assessment was framed u/s 143(3) of Act at income of Rs.-36,69,170/- by disallowing interest expenses for Rs.96,00,000/-. assessee for year under consideration has shown following figures in its balance sheet as on 31.3.2005 :- Source of Fund Application of fund Shareholder fund 11 crore Fixed asset Negligible Loan funds 17 crore Investment 19 crore Deferred Tax Asset 2 crore Current Assets (Net) 7 crore AO during assessment proceedings observed that assessee has shown investment as on 31.03.2004 for Rs.9.6 crores and during year it has increased by Rs. 9.5 crores. Accordingly balance shown as investment at end of financial year 31.3.2005 was shown at Rs. 19.1 crore. major reason for increased in value of investment is due to conversion of its securities held as stock in trade into investments for Rs.8.5 crores as on 01.04.2004. Besides above AO also observed that capital of assessee is of Rs.11 crore and borrowed funds of Rs.17 crore as on 31.03.2005. Accordingly AO opined borrowed fund has been invested in investment on which assessee has incurred interest expenses. As income from investments is taxable under head capital gain and therefore interest expenses on loan is not allowable deduction under head business and profession . Finally AO disallowed interest expenses pertaining to investments of Rs.8.5 crores which was worked out at Rs.96,00,000/- and added to total income of assessee. 12. Aggrieved, assessee preferred appeal before ld. CIT(A). assessee before ld. CIT(A) submitted that shares held as stock in trade for Rs.8.5 crores were converted on dated 31.03.2005 and AO has wrongly taken date of conversion as on dated 01.04.2004. assessee till 31st March, 2005 has shown stock in trade of shares for Rs.8.5 crores. Therefore interest paid on loan is business expenses and very much allowable for deduction. ld. CIT(A) accordingly deleted addition made by AO by observing as under :- 3.2 I have examined assessment order as well as argument given by A.R. of appellant. I have also examined ledger account of both Stock-in-trade as well as Investment. appellant has also brought to my knowledge letter addressed to A.O. dt.18.12.2007 in which it has been stated at Para-5 that shares of M/s. Santosh Industries Ltd. were not sold during year but shown in Investment as on 31 03.2005. ledger account also established that conversion of shares of M/s. Santosh Industries Ltd. worth Rs.8.50Crores was with effect from 31.03.2005 and not 1.4.2004 as wrongly presumed by A.O. I am also in agreement with argument of A.R. of appellant that disallowance u/s.14A can be made only when there is tax free income. Reference in this context is being made to decision of Hon'ble Bombay High Court in case of CIT vs M/s. Delite Enterprises ITA No. 110 of 2009. In view of above arguments and following decision of Bombay High Court, I am of view that addition made u/s.14A for Rs.96,00,000/- should be deleted. 13. Aggrieved by order of ld. CIT(A) revenue is in appeal before us. ld. DR before us submitted that it is very much clear from balance sheet of assessee as on 31.03.2005 that interest bearing loan has been utilized in investment which were generating income under head capital gain . Therefore proportionate interest amount pertaining to investment should be disallowed while working out business profit of assessee. ld. DR further submitted that shares held as stock in trade were converted into investment on dated 01.04.2004. Therefore interest is not allowable under business head. ld. DR also requested to restore matter to AO for fresh adjudication to ascertain whether shares held as stock in trade were converted as investment dated 01.04.2004. ld. DR vehemently supported order of AO. 14. On other hand, ld. AR for assessee before us filed paper book which is running from pages 1 to 33 and submitted that shares held as stock in trade were converted as investment in shares as on 31.03.2005. ld. AR in support of his claim has submitted Board resolution passed 28th February, 2005 resolving that 2,12,500 equity shares of Santosh Industries Ltd. will be converted from inventories into investments w.e.f. 31.03.2005 which is placed at page 27 of paper book. ld. AR also drew our attention to pagers 25 to 26 of paper book where ledger copy of investment was placed. ld. AR vehemently supported order of ld. CIT(A). 15. We have heard rival contentions of both parties and perused materials available on record. From foregoing discussions we find that AO has presumed that shares held as stock in trade were converted into investments on dated 01.04.2004 and accordingly interest expenses pertaining to investment were disallowed. However, ld. CIT(A) has granted relief to assessee by holding that shares were converted as investment on dated 31.03.2005. Now question before us arise so as to whether shares were converted on 01.04.2004 or 31.03.2005. On query from Bench ld. DR has not shown any evidence that shares were converted on dated 01.04.2004. ld. DR failed to bring anything on record. On other hand, ld. AR has given sufficient proof as stated above in support of his claim that shares were converted as investment on dated 31.03.2005. At time of hearing ld. DR failed to bring anything contrary to findings of ld. CIT(A). In view of above we do not find any reason to interfere in order of ld. CIT(A). Hence this ground of appeal of revenue is dismissed. 16. In result, Revenue s appeal stands dismissed and assessee s appeals are allowed. Order pronounced in open court on 16 /09/2016 Sd/- Sd/- (K.Narasimha Chary) (Waseem Ahmed) Judicial Member Accountant Member RG.PS - 16/09/2016 Kolkata Copy of Order Forwarded to:- 1. Appellant-DCIT, Circle-4, Aayakar Bhawan, 5th Floor, P-7, Chowringhee Square, Kolkata 700 069 2. Respondent-M/s Right Address Limited, Sagar Estate, 4th floor, Unit-1, 2, Clive Ghat Street, Kolkata-700001. 3. Concerned CIT 4. CIT (A) 5. & DR, ITAT, Kolkata 6. Guard file. By order M/s. Right Address Ltd. v. Income-tax Officer (TDS), Ward-59(4), Kolkata
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