TaxTMI 
TaxTMI 
2015 (6) TMI 1045
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....bservation of the Assessing Officer was that the assessee had debited an interest of Rs. 6,86,739/- in the profit & loss account. The bifurcation of the same was as under : " During the examination of books of account, in individual capacity of the assessee, it is seen that the assessee has debited interest of Rs. 6,86,739/- to the P&L account paid to (i) Shri Ramesh N. Bhattad Rs. 6,70,279/- and (ii) Rs. 16,500/- totalling to Rs. 6,86,779/- less interest in saving account of bank Rs. 40/- = Rs. 6,86,739/-" The Assessing Officer has raised two fold objections. The first objection of the Assessing Officer was as under : " The submission of the assessee has been perused carefully and is not acceptable. The assessee has not proved how the interest paid is incidental to the business along with the evidence. The capital borrowed on interest and its utilization in business have to be proved then only interest claim can be allowed u/s 36(1)(iii) of the IT. Act 1961. Mere, saying that the personal books as well as the Oil Mill books are interlinked financially does not serve the purpose for claiming deduction u/s 36(1)(m)of the IT. Act. Hence the interest debited at Rs. 6,86,739/-....
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....State Electricity Distribution Company Ltd. v. ACIT 2011-TIOL-722 ITAT Mumbai, it has been held that payment of tax due by payee would exonerate the assessee from being treated as "assessee in default" u/s 201 but would not obliterate the other statutory consequence for non-deduction of tax at source including this allowance u/s 40a(ia). It has been clearly held that the provision of section 40a(ia) are attracted when the assessee fails to deduct tax at source or pay such tax to the exchequer within the stipulated period. Considering the facts and the legal proposition discussed above the disallowance is sustained. This ground is dismissed." 5. From the side of the appellant, learned A.R. Mr. C.J. Thakar appeared. In respect of the applicability of the provisions of section 36(1)(iii) learned A.R. has vehemently contested that the personal books of account as well as the books of account of the proprietary concern are both for the purpose of business activity of the assessee, hence the financial transaction between the said two accounts were inter linked and connected with the business activity of the assessee He has also pleaded that the learned CIT(Appeals) has called for a re....
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....the purpose of the business. This is not the case of the Assessing Officer that there was a nexus that the borrowed were utilized for the personal purpose of the assessee. From the side of the assessee certain accounts were placed before the Assessing Officer to demonstrate that the said funds were borrowed for setting up the oil mill in the assessment year 2001-02. It has also not been disputed by the Revenue authorities that the amount of interest paid to R.N. Bhattad was not disclosed by him in his personal return. 7.1 Moreover section 37(1) which is a residuary general provision, may have application to any expenditure, including interest expenditure, which is not of the nature described in sections 30 to 36 of I.T. Act. To an extent, section 36(1)(iii) and section 37(1) so far as the allowance of interest is concerned, run parallel to each other. But these two sections do differ and it can be discerned that under section 36(1)(iii) the borrowed amount may be utilized even for procuring a capital asset related to the business. However, on the other hand, under section 37(1) the debt incurred must not be utilized for procuring a capital asset. Hence considering the totality o....
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....provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso." 7.4 In our humble opinion, this proviso is inserted by keeping in mind the law laid down by the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P.) Ltd. (supra). So according to this proviso, in a situation where an assessee had failed to deduct the tax in accordance with the provisions of Chapter XVII-B, however, is not deemed to be in default on account of applicability of the provisions of section 201(1), then for the purpose of the provisions of section 40(a)(ia), as well, shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of the return of income by the payee referred to in the said proviso. 8. To understand the intention of this legislature, we have also perused the provisions of section 201(1) of Chapter XVII of I.T. Act. As per t....