AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2012 (8) TMI 1021
X X X X Extracts X X X X
X X X X Extracts X X X X
....n made before the authorities below the provisions of TDS are not applicable on the payment of ₹ 16,73,022/- and ₹ 18,34,474/- and hence the Ld. CIT(A) has erred in confirming the Assessing Officer's observation in invoking the provisions of section 40(a)(ia) of the Act. 3. Because the Ld. CIT(A) while confirming the addition of ₹ 16,73,022/- and ₹ 18,34,474/- has erred in ignoring the legal position that section 40(a)(ia) of the Act is applicable only in the case where the amount is payable on the last day of previous year. All the payments as reimbursement of expenses has been made time to time during the year and no amount is payable on the last day of previous year. The addition on this ground is totally unwarranted and deserves to be deleted. 4. Because considering the facts of the case and the legal position the addition, as objected in the grounds of appeal mentioned above, made is wrong, bad in law and deserves to be deleted. 5. Because the Ld. CIT(A) has erred in not giving any specific finding on ground no.6 taken before him." 3. The assessees has raised the following grounds in ITA No.29/Agr/2012 in the case of M/s. Pee Cee Soap & Chemicals (P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t paid and hence no disallowance out of interest paid u/s 14A of the Act can be sustained." 4. At the time of hearing before us, the ld. Representatives of the parties submitted that the grounds raised in both these appeals are based on identical set of facts, therefore, for the sake of convenience, both the appeals are decided by this common order. 5. As the grounds are based on identical set of facts, we, therefore, consider the facts of the case of M/s. Pee Cee Soap & Chemicals (P) Ltd. in ITA No.29/Agr/2012 which are as under :- 6. The brief facts relating to ground nos.1 to 5, which raise common issue, are that during the course of assessment proceedings the A.O. noticed that the assessee made payment of commission of ₹ 6,89,999/- & ₹ 9,33,727/- totaling to ₹ 16,23,726/- to its consignee agents M/s. Deepali Marketing, Ahmedabad and M/s. Darshan Agencies, Ahmedabad respectively. However, the assessee did not deduct tax at source from the payment so made to the above consignee agents. On being asked as to why the amount of ₹ 16,23,726/- may not be disallowed under section 40(a)(ia) of the Income Tax Act, 1961 ('the Act' hereinafter), the assessee repli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e agents. As a matter of fact, commission was paid @ 4% whereas, the payment made at ₹ 11/- per carton was towards redistribution and selling expenses for which the said agencies have maintained proper details in their accounts. The consignee agents in their statements nowhere stated that receipt of ₹ 11/- per carton represents the commission. It was also submitted that expenses are incurred by the consignee agents from the sale amount collected by them and there always remained outstanding balances. It was also submitted that the A.O. has recorded incorrect finding of fact that no credit entry to the effect of reimbursement of expenses is available in their accounts. The copies of accounts of consignee agents filed before the A.O. were further submitted before the CIT(A) wherein the amounts as mentioned in the Assessment Order are duly credited to the accounts of the consignee agents. Lastly, it was contended that since the reimbursement of expenses incurred by consignee agents has been less than the actual expenses, there is no element of income in the hands of consignee agent and, therefore, the assessee is not required to deduct tax at source. Reliance was placed on....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....A.T., Agra Bench in the said case pointed out by the ld. Authorised Representative from the said order at paragraph nos.5, 6 & 7 which are reproduced as under :- "5. We have heard the ld. Representatives of the parties and records perused. The effective ground raised in the appeal relate to disallowance under section 40(a)(ia) of the Act, therefore, all supporting grounds of appeal are decided together. The Ld. Authorised Representative submitted that the issue is covered by the decision of I.T.A.T., Special Bench Visakhapatnam wherein it has been held that section 40a(ia) of the Act is applicable in respect of amount remained payable. There is no disallowance under section 40a(ia) of the Act with respect to payment which were actually paid during the Financial Year. In respect of ground no.2, the Ld. Authorised Representative has emphasized that there was no amount payable at the end of previous year. In ground no.3, the Ld. Authorised Representative submitted that the assessee raised the issue before the CIT(A) which has not been adjudicated. The ground no.5 taken before the CIT(A) which reads as under :- "5. Because without prejudice to the grounds as mentioned above section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....every payment is less than ₹ 20,000/-. Having examined the record, the AO did not accept the submission of the assessee stating that the assessee has made payment exceeding ₹ 20,000/- at a time and the payments have been shown in fractions in order to mislead the revenue authorities. Instances of such payments have been given at page 7 & 8 of the assessment order. He, therefore, observed that the assessee has not been able to show as to why the payments were made in installments by splitting the same on a single day particularly when the assessee had sufficient cash balance available with him on the relevant dates of payments. Considering all these facts and relying upon various decisions of Hon'ble M.P. High Court, Allahabad High Court and I.T.A.T., Agra Bench in the following cases, concluded that the assessee has split the payments made in cash exceeding to ₹ 20,000/- to circumvent the provisions of section 40A(3) of the Act and therefore, disallowed ₹ 79,124/- by invoking the provisions of section 40A(3) :- i) Shri Radhika Prakashan (Raipur) Pvt. Ltd. vs. CIT, 257 ITR 675 (MP) ii) Engineers & Agents, 5 ITD 606 (Allahabad) iii) ITA No.465/Agr/2004 orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the extent of ₹ 10,00,000/- by rejecting the assessee's contention that no interest bearing funds have been invested to earn exempt income. However, the CIT(A) in principle agreed with the judgment of Bombay High Court in the case of Godrej and Boyce Manufacturing Co. vs. DCIT, 328 ITR 71 (Bombay) that rule 8D has to be applied prospectively and is applicable w.e.f. A.Y. 2008-09 but it does not mean that no disallowance is called for. 18. At the outset, the ld. Authorised Representative submitted that the issue is squarely covered by the order of I.T.A.T, Agra Bench in the case of M/s. Pee Cee Soaps & Chemicals (P) Ltd. i.e. the assessee's own case in ITA No.236/Agr/2011 for A.Y. 2006-07, order dated 20.04.2012. The relevant finding of I.T.A.T. in the said order is reproduced from paragraph nos.6, 7 & 8 as under of which copy is placed at page nos. 62 to 69 of the assessee's Paper Book :- "6. We have heard the ld. Representatives of the parties and records perused. The Assessing Officer made out the case that section 14A of the Act read with rule 8D of which the effect is retrospective and applicable to Assessment Year 2006-07, the year under consideration. The Assessing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as own funds, for non-business purpose. In all such cases where mixed funds are used for business and other than business purposes in such circumstances the I.T.A.T., Mumbai Bench in the case of ACIT vs. H.P. Shah & Co. ITA No.3694/M/2006 order dated 15.01.2009 held that there is no presumptions that money used for other purposes came out of borrowed funds. It can be said that interest free funds given on investment if are out of own funds, i.e. own capital and reserves is sufficient to cover such interest free investment. In that circumstances, it is presumed that the investment in interest free funds were out of own capital and reserves and under such circumstances, the Revenue cannot disallow interest claim of the assessee under section 36(1)(iii) of the Act. The Allahabad High Court in the case of CIT vs. Prem Heavy Engineering Works Pvt. Ltd., 285 ITR 554 (Alld.) wherein it has been held that if the assessee had adequate interest free funds by way of proprietary capital or by way of interest free deposits from customers, there is inference that borrowed funds are not diverted for non-business purposes. The Apex Court in the case of Munjal Sales Corporation vs. CIT(A) 298 ITR 2....