Gujarat H.C : Whether on the facts and in the circumstance of the case the claim of the assessee was governed by Expln. (b)(vii) of s. 40A(8) of the IT Act, 1961 and hence the disallowance of interest of Rs. 49,984 was not justified ?

High Court Of Gujarat

CIT vs. Jagdish Processors (P) Ltd.

Section 40A(8)

Asst. Year 1980-81

D.M. Dharmadhikari, C.J. & A.R. Dave, J.

IT Ref. No. 16 of 1985

29th August, 2000

Counsel Appeared

Akil Kureshi for Manish R. Bhatt, for the Petitioner : Manish Shah for J.P. Shah, for the Respondent

JUDGMENT

A.R. DAVE, J. :

At the instance of the Revenue, the following question has been referred to this Court for its opinion under the provisions of s. 256(1) of the IT Act, 1961 (hereinafter referred to as ‘the Act’) : “Whether on the facts and in the circumstance of the case the claim of the assessee was governed by Expln. (b)(vii) of s. 40A(8) of the IT Act, 1961 and hence the disallowance of interest of Rs. 49,984 was not justified ?”

2. The facts leading to the reference are as under : The assessee-company had paid a sum of Rs. 8,41,608 by way of interest during asst. yr. 1980-81. Out of the said amount, a sum of Rs. 5,06,373 was paid to banks and so far as remaining amount of Rs. 3,33,235 was concerned, as it was covered by the provisions of s. 40A(8) of the Act, 15 per cent of the said amount, being Rs. 49,984 was disallowed and added in the income of the assessee. The assessee had submitted that out of Rs. 3,33,235, a sum of Rs. 2,00,258 was paid to the agents of the assessee and, therefore, the assessee had claimed benefit under the provisions of s. 40A(8)(b)(vii) but the said benefit was not given by the AO as the said interest was given on the ‘Sharafi’ accounts maintained by the agents.

3. Being aggrieved by the order of the AO the assessee preferred an appeal before the CIT(A). The said appeal came to be dismissed and, therefore, the assessee approached the Tribunal, Ahmedabad Bench ‘A’, by way of an appeal. After hearing the assessee and a representative of the Revenue, the Tribunal allowed the appeal on the ground that the case was covered by M.E. (P) Ltd. vs. ITO (1981) 11 TTJ (Bom) 299. It has been submitted by Mr. Akil Kureshi, learned counsel for the Revenue that in the instant case, the amount of interest was not covered under the Expln. (b)(vii) to s. 40A(8) of the Act and, therefore, the AO had rightly disallowed 15 per cent of the amount of interest paid by the assessee to the agents and the CIT(A) had rightly dismissed the appeal. It has been submitted by Shri Kureshi that so as to have an advantage of the said Explanation, the assessee ought to have satisfied the authority that the amount of interest paid was covered by the said Explanation. As a matter of fact, the AO had found that the agents to whom interest was given had maintained their Sharafi accounts with the assessee and the said interest was given on the amount deposited with the assessee on the Sharafi accounts. He has relied upon the judgment delivered in the case of Agew Steel Manufacturers (P) Ltd. vs. CIT (1994) 122 CTR (Guj) 230 : (1994) 209 ITR 77 (Guj) : TC 18R.784 to substantiate his argument that when interest is paid on deposits by the assesseecompany, the interest paid is subject to disallowance of 15 per cent as provided under s. 40A(8) of the Act.

On the other hand, learned counsel Shri Manish Shah appearing for the assessee has submitted that the Tribunal did not consider certain arguments which were advanced by the assessee and the evidence which the assessee wanted to adduce before the Tribunal to show that the assesseecompany was entitled to the benefit under the Expln. (b)(vii) to s. 40A(8) of the Act. It has been submitted by Shri Shah that in view of the order passed in M.E. vs. ITO (supra), the Tribunal had decided the appeal in favour of the assessee, and, therefore, other arguments made on behalf of the assessee were not referred to and dealt with in the order of the Tribunal. In the circumstances, he has prayed for remand in view of law laid down in the case of CIT vs. Indian Molasses Co. (P) Ltd. (1970) 78 ITR 474 (SC) : TC 16R.579 so that further evidence can be adduced before the Tribunal by the assessee.

We have heard the learned counsel and perused the provisions of s. 40A(8) and Expln. (b)(vii) thereto. It is crystal clear that so as to have an advantage of Expln. (b)(vii) to s. 40A(8) of the Act, the assessee has to show that the amount of interest was paid on amount received by it : by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of the business of the assessee-company, or as advance against orders for the supply of goods or for rendering of any service.

As no evidence to the above effect was adduced before the authorities below, the AO and the CIT(A) had rightly decided that 15 per cent of the amount of interest ought to have been disallowed. The Tribunal has, therefore, committed an error in ignoring the fact that there was no evidence to show that the amount of interest was paid for the purpose covered under the Expln. (b)(vii) to s. 40A(8) of the Act.

So far as the submission made by Mr. Shah with regard to non-consideration of the evidence is concerned, we do not agree with the said submission for the reason that no evidence was adduced by the assessee either before the AO or before the CIT(A) to substantiate the case of the assesseecompany. Had the assessee been right in its submission, the assessee would have adduced evidence before the AO or before the CIT(A). The assessee did not lead any evidence and did not place on record any material to show that the interest paid by the assessee to its agents was covered by the Expln. (b)(vii) to s. 40A(8) of the Act. In the circumstances, the assessee cannot claim any benefit under the abovestated Explanation.

Learned counsel Mr. Shah has made a request that in view of the law laid down by the Supreme Court in the case of CIT vs. Indian Molasses Co. (P) Ltd. (supra), the case should be remanded to the Tribunal so that additional evidence can be adduced before the Tribunal. In our opinion, this is not a fit case to remand the matter to the Tribunal because neither evidence was ever adduced by the assessee before any of the authorities nor any averment was made to show that the case of the assessee was covered by the Expln. (b)(vii) to s. 40A(8) of the Act. On the contrary, there is a finding to the effect that interest was paid on Sharafi accounts maintained by the agents with the assessee-company.

For the reasons stated hereinabove, we answer the question referred to us in favour of the Revenue and against the assessee.

The reference stands disposed of accordingly with no order as to costs.

[Citation : 252 ITR 755]

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