This is an appeal filed by the assessee against the order of ld. CIT (Appeals)- I, Jaipur dated 08.03.2013 for the A.Y. 2008-09. The grounds raised by the assessee are as under :-

1. In the facts and circumstances of the case and in law, the ld. CIT (A) has erred in confirming the action of the ld. AO in disallowing a sum of Rs. 3,34,612/- of interest expenses under section 40(a)(ia) of the Income Tax Act, 1961. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowances of Rs. 3,34,612/-. ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO

2. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of the ld. AO in making addition of Rs. 57,000/- of unsecured loans from parties under section 68 of the Income Tax Act, 1961 :- S.No. Name of the Party Amount

1. Bhawana Kararia Rs. 19,000/-

2. Shri Ajay Mahawar Rs. 19,000/-

3. Shri Yogesh Sharma Rs. 19,000/- Total Rs. 57,000/- The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of Rs. 57,000/-.

2. The brief facts of the case are that the assessee is engaged in the business of manufacturing and trading of iron steel furniture for office, hospital furniture and agriculture items, mainly supplied to the Government Departments. The assessee has filed the return on 29.09.2008 declaring total income of Rs. 3,50,670/-. The case of the asseessee was scrutinized under section 143(3) and assessment completed on 24.12.2010 at Rs. 10,33,830/-.

2.1. During the year under consideration, the assessee has shown gross profit of Rs. 35,05,356/- on a total sales of Rs. 2,53,12,664/- giving a gross profit rate of 13.85% in comparison to immediately preceding year at 9.88% and for the A.Y. 2006-07 at 13.40%. In the immediately preceding assessment in scrutiny assessment, the AO adopted the GP rate at 15%. During the course of assessment proceedings, the AO asked the assessee to produce the books of account. However, books of accounts were not produced by the assessee. However, the assessee vide reply dated 19.10.2010 submitted that books of accounts were lost while bringing ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO the same from the Sales Tax Department. She, however, furnished the copy of audit report. On perusal of the Audit Report, the AO noted that the assessee has not maintained stock register and held that in absence of stock register, stock is not verifiable from the records of the assessee. The AO, therefore, rejected the books of accounts maintained by the assessee by invoking provisions of section 145(3) of the IT Act, and estimated the GP @ 15% of the total sales in the following manner :-

In view of the above, gross profit rate @ 15% is applied on total sales of Rs.2,53,12,664/- which comes to Rs. 37,96,900/- and the assessee has shown gross profit of Rs. 35,05,356/-, thus, difference of profit of Rs. 2,91,544/- is added to the total income of the assessee applying the gross profit rate of 15% on a total sales and the same is added to the total income of the assessee. Though the assessee has worked as an individual capacity and the main source of income of the assessee is only from this business, yet the personal use in telephone, conveyance, low household withdrawals etc. are not added separately. The above trading addition includes all the expenditure which is of personal nature nd the same are not disallowed separately.

Thereafter the AO has disallowed the interest expenditure on the secured loans taken in the assessment year and in the previous year to the extent of Rs. 3,34,612/-.

3. Being aggrieved, the assessee has filed the appeal against the order of AO before ld. CIT (A). The ld. CIT (A) confirmed the disallowance by invoking provisions of section 40(a)(ia) of the Act. The relevant para in the order of ld. CIT (A) is as under :- The second ground of appeal is against the addition of Rs. 3,34,612/- paid to creditors u/s 40(a)(ia). In the assessment order the AO stated that the assessee has taken some unsecured loans in this year only ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO and some unsecured loan in the previous year on which the assessee has been paying interest of Rs. 3,34,612/- regularly. While making the interest payment which exceeds Rs. 5,000/-, the TDS should be deducted on the amount and net amount will be paid. However, the assessee has not done so far i.e. the TDS has not been deducted by the assessee. Hence, the AO disallowed Rs. 3,34,612/- on which TDS was not deducted by the assessee and added the interest income to the total income of the assessee. During the course of appeal hearing the A/R for the appellant submitted that in this regard it is submitted that section 40(a)(ia) has been amended vide Finance Act, 2012 as under

Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provision 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.

As per section 201 of the It Act, 1961 the assessee shall not be deemed to be an assessee in default in respect of such tax, if the recipient has furnished his return u/s 139 and has taken into account such sum for computing income and has paid tax due on the said income. The amendment in curative in nature and is to be treated retrospective. Therefore seeing in this contenct, the disallowance u/s 40(a)(ia) may please be quashed. I have considered the facts of the case and the submission made. The A/R for the assessee failed to file any documentary evidence regarding the return filed and due taxes paid. In the absence of any satisfactory explanation the addition made by the AO is confirmed. The appellant fails on this ground.

4. Now the assessee is before us.

4.1. The ld. A/R for the assessee has argued vehemently and has submitted that the entire interest expenditure has wrongly been disallowed by the AO and confirmed by ld. CIT (A). For that purpose the assessee relied upon the order passed by this Tribunal in the matter of Girdhari Lal Bargoti in ITA No. 757/JP/2012 to the following effect :- ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO 10. At the outset, the ld AR for the assessee has submitted as under:-

1. The legislative intent for introducing section 40(a)(ia) is explained in CBDT Circular No.5/2005 dt. 15.07.2005 reported at 269 ITR 101 (statute). In the present case there is no dispute as to the fact that interest has actually been paid to above finance companies and as on 31.03.2009 no amount of interest was payable. The Special Bench of ITAT in case of Merilyn Shipping & Transport Vs. ACIT 16 ITR (Trib) 1 (PB 62-63) has held that section 40(a)(ia) cannot be invoked in respect of amounts actually paid within the previous years without deduction of tax at source. After this decision the Gujarat High Court in case of CIT Vs. Sikandar Khan N. Tunvar 357 ITR 312 and Calcutta High Court in case of CIT Vs. Crescent Export Syndicate 94 DTR 81 held that section 40(a)(ia) would cover not only to the amounts which are payable as on 31 st March of the particular year but also which are payable at any time during the year. However, the Allahabad High Court in case of CIT Vs. Vector Shipping Services (P) Ltd. 94 DTR 101/357 ITR 642 held that it is only the amount which is payable and not that which has been already paid by the end of the year that can be disallowed u/s 40(a)(ia). Against the said decision of Allahabad High Court, the department filed a Special Leave Petition (SLP) in the Supreme Court which was dismissed by the Supreme Court vide its order dt.02.07.2014. Thus, there are two views on this issue, one in favour of the assessee and other against the assessee. Considering these views, the various benches of Honble ITAT, after considering the various amendment made to section 40(a)(ia) from time to time to remove the undue hardship and considering the decision of Supreme Court in case of CIT Vs. Vegetable Products Ltd. 88 ITR 192 where it is held that when two views are possible on an issue, the view in favour of the assessee has to be preferred deleted the disallowance. He also relied on the following case laws: (i) DCIT Vs. Ananda Marakala (2014) 150 ITD 323 (Bang.) (Trib.) (ii) ITO Vs. M/s Theekathir Press (Chennai)(Trib.) ITA No. 2076(Mds)2012 dt. 18.09.2013 The issue of applicability of TDS on amount payable as on 31st march only is also covered by the decision of the Honble ITAT ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO Jaipur Bench in case of JVVNL V. DCIT 123 TTJ 888 wherein it was held that section 40(a)(ia) applies only when the amount is payable and not where the expenditure is paid. Therefore where the assessee has made actual payment, the provisions of section 40(a)(ia) is not applicable.

2. It may also be pointed out that second proviso to section 40(a)(ia) inserted by FA, 2012 w.e.f. 01.04.2013 has provided that where an assessee fails to deduct tax on the sum paid to the resident but such resident payee has furnished the return, taken into account such sum for computing income and has paid the tax due on the income declared by him then it will be deemed that assessee has deducted and paid the tax on such sum on the date of furnishing of return by the resident payee. All the finance companies to which assessee have paid interest are large companies and assessed to tax. Therefore, the presumption is that these companies have included the interest paid by the assessee to them in their income and paid tax thereon. The Delhi High Court in case of CIT Vs. Trans Bharat Aviation Pvt. Ltd. 320 ITR 671 has held that since deductee is a Government undertaking, the taxes may be presumed to have been paid lastly by the due date of filing of the return of income and, therefore, the liability of the assessee to pay interest on the amount which was to be deducted as TDS ends with the due date of filing of the return by the deductee. Therefore, considering the above amendment which is introduced to remove unintended hardship, the department may be directed to verify this fact and where finance companies has paid tax on such interest, no disallowance u/s 40(a)(ia) be made in the hands of the assessee. It is a settled law that second proviso to section 40(a)(ia) inserted w.e.f. 01.04.2013 has retrospective effect as held in Bangalore Bench in case of Sh. G. Shankar Vs. ACIT in ITA No.1832/Bang/2013 dt. 10.10.2014, Agra Bench in case of Rajeev Kumar Agarwal Vs. ACIT (2014) 34 ITR(Trib.)479, Delhi Bench in case of ITO Vs. Dr. Jaideep Kumar Sharma (2014) 34 ITR(Trib.)565, Bangalore Bench in case of DCIT Vs. Ananda Marakala (2014) 150 ITD 323 as the amendment was made to remove the undue hardship.

3. It may also be pointed out that an amendment has been made by FA, 2014 w.e.f. 01.04.2015 in section 40(a)(ia) whereby it is provided that 30% of any sum payable to a resident shall be disallowed if tax is not deducted at source under Ch. XVIIB as ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO against the 100% presently made. The purpose of this amendment was explained in the memorandum as under:-

the disallowance of whole of the amount of expenditure results into undue hardship and therefore In order to reduce the hardship, it is proposed that in case of non-deduction or non-payment of TDS on payments made to residents as specified in section 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed.

The Finance Minister while introducing the amendment in para 207 of the Budget Speech has stated as under:-

207. Currently, where an assessee fails to deduct and pay tax on specified payments to residents, 100 percent of such payments are not allowed as deduction while computing his income. This has caused undue hardship to taxpayers, particularly where the rate of tax is only 1 to 10%. Hence, I propose to provide that instead of 100 percent, only 30% of such payments will be disallowed.

From the above it can be noted that the amendment made by FA (No.2) Act, 2014 w.e.f. 01.04.2015 is to remove unintended and undue hardship and therefore this amendment should be give retrospective effect as per the various decisions stated above. It is also submitted that the Supreme Court in case of CIT Vs. Vatika Township Pvt. Ltd. 109 DTR 33 has held that legislations which modify accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. However, if legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. Therefore even in a case it is held that the disallowance u/s 40(a)(ia) is warranted, same should be restricted to only 30% of the amount of interest paid. In view of above, the order of the CIT(A) be upheld by dismissing the ground of the department. ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO

11. We have heard the rival contentions of both the parties and perused the material available on the record. On issue of amount already paid during the year or amount shown payable as on 31 st March of every year, the various courts have different views i.e. in favour of the assessee and against the assessee. The Honble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. (supra) has held that when there are to views on an issue, the view in favour of the assessee has to be preferred. Therefore, we confirm the order of the Ld. CIT(A). Further the recipient are NBFC, therefore, not possible to not be assessed to tax, these payments were related for A.Y. 2009-10 and return for A.Y. 2009- 10 already might have been filed by these NBFC by including these interests receipts as their income. Therefore, we do not find any reason to interfere in the order of the Ld. CIT(A). In the alternative, it was submitted by the ld. A/R for the assessee that since the books of accounts are rejected, no further addition can be made relying on the said books of account in view of law laid down by the Honble Punjab & Haryana High Court in the matter of Dulla Ram, Labour Contractor, Kotkapura (2014) 42 taxmann.com 349 ( Punjab & Haryana ). The ld. A/R has also referred the judgment of the Jaipur Tribunal passed in the matter of Cosmopolitan Trading Corporation in ITA No. 298/JP/2013 and also the judgment in the matter of M/s. K.Y. Continental Interiors Pvt. Ltd. Vs. ITO in ITA No. 595/JP/2013.

4.2. On the other hand, the ld. D/R has relied upon the order passed by the authorities below and supported the disallowance made by the AO.

4.3. We have heard the rival parties and perused the material available on record. Factually it is not discernable from the record that the interest payment has actually been made during the year to the extent of Rs. 3,34,612/-. The Bench has enquired from the ld. A/R whether the said amount has already been paid in the year, to ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO which the ld. A/R has shown his inability to assist the court. In the absence of any concrete answer, the Bench has left with no other option but to hold that the said amount has not been paid during the year. Moreover, this Tribunal in the case of Shri Rajendra Yadav has held as under :-

6. We have heard rival contentions and perused the material available on record. It is an admitted fact that the appellant carried on the business of trading of marble tiles and slab. It is also an admitted fact that the marble blocks are purchased by the assessee and the same marble blocks are sent to M/s. Garvit Stonex, M/s. Chanda Marbles & M/s. Nidhi Granites for the purpose of sawing and edge cutting with a view to convert the marble blocks into marble tiles. In the assessment year under consideration, the assessee has paid a sum of Rs 1,54,711/- to M/s. M/s. Garvit Stonex, Rs. 3,92,711/- to M/s. Chanda Marbles & Rs. 2,28,700/- to M/s. Nidhi Granites totaling Rs. 7,76,122/- for edge cutting and sawing charges on various dates. From the details given, the AO and the ld. CIT (A) has worked out the average cutting and sawing charges of more than Rs. 2155/- per day paid to the said M/s. Garvit Stonex, M/s. Chanda Marbles & M/s. Nidhi Granites. In our view, the said firms/companies are doing the edge cutting and sawing on regular basis and are also having business relationship with the assessee. The regular bills were being raised by the said concerned persons on the assessee and the assessee had been making the payment to the said persons. We do not agree with the contention of the assessee that there is no written contract or oral contract with the said persons/firms which make the payment amenable for deduction of TDS under section 194C of the IT Act. We do not find force in the submissions, as per our understanding, under the contract at every promise and every set of promises are formed. The consideration for each other is an agreement and an agreement enforceable by law is a contract. In the present case, the contract stands concluded when the assessee asked M/s. Garvit Stonex and others to do the edge cutting and sawing of granite blocks and convert them into marble tiles for it for a consideration. The moment the said contractors/persons doing the sawing and edge cutting of the marble blocks, the said persons are entitled for the amount required to be paid as per the bills raise by them. In fact, in the present case after doing the edge cutting and sawing, the charges were even paid by the assessee, in our understanding, a contract has come into existence between the assessee and M/s. Garvit Stonex and others. In our view, the assessee is responsible for paying the amount to such persons i.e. contractor for carrying out the specific work. Therefore, the assessee ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO is liable to deduct the tax on such payments. Since the assessee has failed to deduct the tax on the amount paid by it to such persons/contractor, the assessee is duty bound to deduct the tax, and non deduction of tax by the assessee, attracts the provisions of section 40(a)(ia).

6.1. Recently in the matter of P.M.S. Diesels 2015 ] 59 taxmann.com 100 (Punjab & Haryana), Honble Punjab & Haryana High Court had elaborately discussed the judgment passed by the Honble Calcutta High Court and Honble Gujarat High Court, Honble Allahabad High Court and other judgments as available and thereafter has come to the conclusion that the provisions of section 40(a)(ia) are mandatory in nature and non compliance/non deduction of tax attracts disallowance of the entire amount. Having said so, we will be failing in our duty if we do not discuss the amendment brought in by the Finance (No. 2) Act 2014 with effect from 1.4.2015 by virtue of which proviso to section 40(a)(ia) has been inserted, which provides that if any such sum taxed has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of previous year, and further, section 40(a)(ia) has been substituted wherein the 30% of any sum payable to a resident has been substituted. In the present case, the authorities below has added the entire sum of Rs. 7,51,322/- by disallowing the whole of the amount. Though the substitution in section 40 has been made effective with effective from 1.4.2015, in our view the benefit of the amendment should be given to the assessee either by directing the AO to confirm from the contractors, namely, M/s. Garvit Stonex, M/s. Chanda Marbles and M/s. Nidhi Granites as to whether the said parties have deposited the tax or not and further or restrict the addition to 30% of Rs. 7,51,322/-. In our view, it will be tied of justice if the disallowance is only restricted to 30% of Rs. 7,51,322/-. Accordingly, the appeal of the assessee is partly allowed in the above said manner.

Further more, the argument of the assessee that in view of the rejection of books of account, no further deduction can be disallowed by the AO. Though the proposition of law is correct but when we look into the assessment order, we find that the income has been estimated on the basis of gross sale of the assessee and ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO disallowance has been separately done by the AO under section 40(a)(ia). Therefore, the judgments referred by the ld. A/R are not applicable.

4.4. In view of the above discussion and after applying the ratio laid down in the case of Rajendra Yadav in ITA No. 895/JP/2012 decided on 29.01.2016, it will be in the interest of justice if the disallowance is only restricted to 30% of Rs. 3,34,612/- which comes to Rs. 1,00,384/-. Accordingly the issue is partly allowed in favour of the assessee.

5. Second ground of the assessee is with respect to cash credit to the extent of Rs. 57,000/-.

5.1. We have already held that addition under section 68 was made as the assessee has failed to furnish the identity, creditworthiness and genuineness of the transaction of the person. However, on perusal of the record, we find that the assessee was not able to produce any cogent evidence to prove the creditworthiness, genuineness and identity of the person. Therefore, in view of section 68 the assessee is not entitled to any benefit. The AO has made the separate addition of Rs. 57,000/- under section 68 as mentioned in para 5.4 and 5.5 of the assessment order. The argument of the ld. A/R that in view of estimation of income, no separate addition can be made, in our view, is not applicable and do not come to the rescue of the assessee as the income of the assessee was estimated only on the basis of total sales of the assessee. Had it been otherwise, then no separate head- wise addition or disallowance can be made. Since the income has been estimated ITA No. 597/JP/2013 Smt. Sonu Khandelwal vs. ITO on the basis of sales of the assessee, therefore, this ground of the assessee is bound to fail. Accordingly, we decide this ground against assessee.

5.2. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 13/05/2016. Sd/- Sd/- Vh-vkj-ehuk yfyr dqekj (T.R. Meena) (Laliet Kumar) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 13/05/2016 Das/ vknsk dh izfrfyfi vxzsfkr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- Smt. Sonu Khandelwal, Jaipur.

2. izR;FkhZ@ The Respondent- The ITO Ward 2(3), Jaipur.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDrvihy@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 597/JP/2013) vknskkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar