K.Kodiarasan, CHENNAI V. ACIT, CHENNAI

CO 106/CHNY/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8653 (ITAT-CHENNAI)
• Duration Of Justice: 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 03-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T BANUSEKAR
• Keywords: Non-deduction of tax
• Section: 143(3); 194C; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBE R ITA NO.1136/MDS/2013 & C.O.NO.106/MDS/2013 (IN ITA NO.1136/MDS/2013) (ASSESSMENT YEAR : 2006-07) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-XV, 121, NUNGAMBAKKAM HIGH ROAD, CHENNAI-600 034. VS. SHRI KODIARASAN, 13, RATHNA GRAHA APARTMENTS, RATHNA NAGAR, TEYNAMPET, CHENNAI-600 018. PAN:AAHPK8834B (APPELLANT) (RESPONDENT/CROSS OBJECTOR) APPELLANT BY : MR. SHAJI P.JACOB, ADDL. CIT RESPONDENT BY : MR. T.BANUSEKAR, C.A. DATE OF HEARING : 24 TH JULY, 2013 DATE OF PRONOUNCEMENT : 30 TH JULY, 2013 O R D E R PER CHALLA NAGENDRA PRASAD, JM: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XII, CHENNAI D ATED 28.02.2013 FOR THE ASSESSMENT YEAR 2006-07 RAISIN G THE FOLLOWING GROUNDS:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE EXPENSES OF HIRE CHARGES PAID ` 51,81,117/- AND GRANT RELIEF TO THE ASSESSEE ON WHICH TAX HAS NOT BEEN DEDUCTED AT SOURCE. ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 2 2. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FACT THAT AS PER SECTION 40(A)(IA) OF THE IT ACT, THE TAX HAS TO BE DEDUCTED BY THE ASSESSEE ON THE PAYMENTS MADE IRRESPECTIVE OF WHETHER PAID OR PAYABLE AND THAT NON-DEDUCTION OF TAX WARRANTS ACTION UNDER SECTION 40(A)(IA) OF THE ACT. IT IS SUBMITTED THAT THE ACT DOES NOT DISTINGUISH BETWEEN EXPENSES MADE UNDER SECTION 28 AND SECTION 30 TO 38 FOR THE PURPOSE OF TAX DEDUCTION AT SOURCE AND NON-DEDUCTION WARRANTS DISALLOWANCE OF EXPENSE UNDER SECTION 40(A)(IA) OF THE ACT. 2. THE ASSESSEE FILED CROSS OBJECTION CONTENDING TH AT HIRING CHARGES PAID BY THE ASSESSEE TO VARIOUS PART IES DO NOT ATTRACT THE PROVISIONS OF TDS AT ALL AND THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE. THE ASSESSEE ALSO RAISED ONE MORE GROUND CONTENDING THA T PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ONLY TO SUMS WHICH ARE PAYABLE AND NOT TO SUMS WHICH ARE PAID IN THE PREVIOUS YEAR. ADDITIONAL GROUNDS WERE ALSO FILED CONTENDING THAT HIRE CHARGES INCLUDE EXPENDITURE TOWARDS FUEL, REPAIRS & MAINTENANCE, DRIVER SALARY, BATTA ETC. INCURRED BY THE ASSESSEE AND IF AT ALL THE PROVISIONS OF TDS ARE AP PLICABLE, ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 3 TDS IS LIABLE TO BE DEDUCTED ON HIRE CHARGES PAID N ET OFF EXPENSES. 3. BRIEF FACTS ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF BUS & CAR HIRING SERVICE FILED RETURN D ECLARING INCOME OF ` 14,67,680/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 31.12.2008 DETERMINING THE INCOME AT ` 76,22,902/-. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER DISALLOWED HIRE CHARGES OF ` 51,19,851/- PAID TO VARIOUS PARTIES ON THE GROUND THAT THE ASSE SSEE HAS NOT DEDUCTED TDS ON SUCH PAYMENTS, THEREFORE, HE DISALLOWED THESE PAYMENTS INVOKING THE PROVISIONS O F SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THE HIRE CHARGES MADE TO VAR IOUS PARTIES INCLUDE EXPENSES DIRECTLY INCURRED BY THE A SSESSEE ON WHICH NO TDS IS REQUIRED TO BE MADE. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) HOLDING THAT THE HIRE CHARGES PAID BY THE ASSESSEE ARE DIRECT EXPEN SES ALLOWABLE UNDER SECTION 28 OF THE ACT AND NOT UNDER THE ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 4 PROVISIONS OF SECTION 30 TO 38 FOR WHICH THE DISALL OWANCE UNDER SECTION 40(A)(IA) ATTRACTS. ACCORDING TO THE COMMISSIONER OF INCOME TAX (APPEALS), THE EXPENSES ALLOWABLE UNDER SECTION 30 TO 38 ONLY ARE LIABLE FO R DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT BU T NOT THE EXPENSES ALLOWABLE UNDER SECTION 28 OF THE ACT. TH E COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT SINC E THE HIRE CHARGES INCURRED BY THE ASSESSEE ARE DIRECT EX PENSES ALLOWABLE UNDER SECTION 28 OF THE ACT, THE PROVISIO NS OF SECTION 40(A)(IA) HAVE NO APPLICATION. THE REVENUE IS IN APPEAL BEFORE US CONTENDING THAT THE INCOME TAX ACT DOES NOT DISTINGUISH BETWEEN EXPENSES MADE UNDER SECTION 28 AND SECTION 30 TO 38 FOR THE PURPOSE OF TAX DEDUCTE D AT SOURCE AND NON-DEDUCTION WARRANTS DISALLOWANCE OF EXPENSES UNDER SECTION 40(A)(IA) OF THE ACT. 4. THE DEPARTMENTAL REPRESENTATIVE SUBMITS THAT THI S ASPECT OF THE MATTER WAS DECIDED BY THE CHENNAI BEN CH OF THIS TRIBUNAL IN FAVOUR OF THE REVENUE IN THE CASE OF DCIT VS. MACRO MARVEL PROJECTS LTD.(140 ITD 472) AND ITO VS. ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 5 SARVODAYA MUTUAL BENEFIT TRUST [22 TTR (TRIB) 277] . THE DEPARTMENTAL REPRESENTATIVE SUBMITS THAT IN VIEW OF THE ABOVE DECISIONS OF CO-ORDINATE BENCHES OF THIS TRIB UNAL, THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) HAS TO BE REVERSED. 5. THE COUNSEL FOR THE ASSESSEE PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MADEVA UPENDRA SINAI VS. UOI & ORS. (98 ITR 209) SUBMITS THAT THE EXPENSES ARE ALLOWABLE UNDER SECTION 28(1) OF THE A CT AND WHEN THE EXPENSES ARE ALLOWABLE UNDER SECTION 28(1) OF THE INCOME TAX ACT, THE PROVISIONS OF SECTION 40(A)(IA) HAVE NO APPLICATION SO AS TO DISALLOW SUCH EXPENSES UNDER S ECTION 40(A)(IA) FOR NON-DEDUCTION OF TDS UNDER SECTION 1 94C OF THE ACT. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS VS. ACIT (129 TTJ 57) HAD HELD THAT T HE DIRECT EXPENSES INCURRED BY THE ASSESSEE ARE ALLOWABLE UND ER SECTION 28(1) OF THE ACT AND THEREFORE DO NOT COME WITHIN THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT . ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 6 6. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE CASE LAW RELIED ON BY BOTH THE PARTIES. THE ASSESSING OFFICER DISALLOWED THE HIRE CHARGES P AID BY THE ASSESSEE FOR NON-DEDUCTION OF TDS APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE CO MMISSIONER OF INCOME TAX (APPEALS) HELD THAT THESE HIRE CHARGE S INCURRED BY THE ASSESSEE ARE DIRECT EXPENSES AND TH EREFORE ALLOWABLE UNDER SECTION 28(1) OF THE ACT TO WHICH T HE PROVISIONS OF SECTION 40(A)(IA) HAVE NO APPLICATION . THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) APPLY ONLY TO THE EXPENSES WHICH ARE ALLOWABLE UNDER SECTION 30 TO 38 OF THE A CT. THIS LOGIC AND REASONING OF THE COMMISSIONER OF INCOME T AX (APPEALS) WAS NOT ACCEPTED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. MACRO MARVEL PROJE CTS LTD. (SUPRA) AND ITO VS. SARVODAYA MUTUAL BENEFIT TRUST (SUPRA). IN THE CASE OF MACRO MARVEL PROJECTS LTD. (SUPRA), THE TRIBUNAL AFTER CONSIDERING THE DECISION OF THE HYDE RABAD BENCH OF THIS TRIBUNAL IN THE CASE OF TEJA CONSTRUC TIONS (SUPRA) HELD AS UNDER:- ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 7 22. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT ASSESSEE EFFECTED THE PAYMENTS TO ONE M/S MACRO MARVEL INFRASTRUCTURE CORPORATION LTD. THOUGH IT IS STATED THAT THE AMOUNTS WERE CONTRACT PAYMENTS, THE NATURE OF EXPENDITURE INVOLVED IS NOT CLEAR FRO M THE ASSESSMENT ORDER, NOR FROM THE ORDER OF CIT(APPEALS). NO DOUBT, HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS (SUPRA) HAS MADE AN OBSERVATION AT PARA 13 OF ITS ORDER THAT PROVISIONS OF SECTION 40(A)(IA) WERE APPLICABL E ONLY TO ITEMS COVERED UNDER SECTIONS 30 TO 38 AND NOT FOR EXPENDITURE IN THE NATURE OF DIRECT COST COVERED BY SECTION 28 OF THE ACT. HOWEVER, IN THE SAID CASE, BOOKS OF ACCOUNTS OF THE ASSESSEE WERE REJECTED AND PROFITS WERE ESTIMATED. DISALLOWANCE UNDER SECTION 40(A)(IA) WAS MAINLY HELD TO BE NOT WARRANTED FOR THE REASON THAT ESTIMATION OF INCOME TOOK INTO ACCOUNT ALL IRREGULARITIES COMMITTED BY THE ASSESSEE, AND A FURTHER DISALLOWANCE UNDER SECTION 40(A)(IA) WOULD AMOUNT TO PUNISHING THE ASSESSEE TWICE FOR THE SAME OFFENCE. THUS, OBSERVATION OF HYDERABAD BENCH OF THIS TRIBUNAL WAS IN A CASE WHERE BOOKS OF ACCOUNTS WERE REJECTED AND ESTIMATION OF INCOME WAS MADE BASED ON BEST OF JUDGMENT. ON SUCH A FACTUAL SITUATION, IT WAS OBSERVED BY THE BENCH THAT SECTION 40(A)(IA) COVERED ONLY THOSE ITEMS FALLING WITHIN SECTIONS 30 TO 38 OF THE ACT. HERE, ON THE OTHER HAND, BOOKS WERE NOT REJECTED BY THE ASSESSING OFFICER AT ALL. HENCE, IN OUR OPINION, THE SAID DECISION WILL NOT HELP THE ASSESSEES CASE. 7. SIMILARLY, THE CO-ORDINATE BENCH OF THIS TRIBUNA L IN THE CASE OF ITO VS. SARVODAYA MUTUAL BENEFIT TRUST (SUP RA) DID ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 8 NOT ACCEPT THE REASONING OF THE COMMISSIONER OF INC OME TAX (APPEALS) THAT THE PROVISIONS OF SECTION 40(A)(IA) HAVE NO APPLICATION FOR THE DIRECT EXPENSES ALLOWABLE UNDER SECTION 28 HOLDING AS UNDER:- 19. NEXT IS THE QUESTION OF TDS AND APPLICATION OF SECTION 40(A)(IA) OF THE ACT. 20. FIRST OF ALL, WE HAVE TO STATE THAT WE DO NOT AGREE WITH THE LEGAL PROPOSITION MADE BY THE COMMISSIONER OF INCOME TAX (APPEALS) THAT INTEREST EXPENDITURE IS DIRECTLY COVERED BY SECTION 28 AND, THEREFORE, SECTION 40(A)(IA) WILL NOT APPLY FOR THE REASON THAT THE SAID SECTION APPLIES ONLY TO THOSE EXPENSES COVERED BY SECTIONS 30 TO 38. SECTION 28, PROVIDED UNDER CHAPTER IV, DEALS WITH THE NATURE OF INCOME THAT WILL BE TREATED AS PROFITS AND GAINS OF BUSINESS OR PROFESSION. SECTION 28 DOES NOT PROVIDE ANY MECHANISM TO COMPUTE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT IS AN EXPLANATORY SECTION WHICH DESCRIBES ON VARIOUS TYPES OF RECEIPTS OF INCOME WHICH ARE TO BE INCLUDED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. APART FROM THIS GENERAL DESCRIPTION, SECTION 28 DOES NOT PROVIDE FOR DEDUCTION OF ANY EXPENDITURE INCURRED BY AN ASSESSEE IN EARNING PROFITS AND GAINS OF BUSINESS OR PROFESSION. THIS POSITION IS MADE VERY CLEAR IN SECTION 29. SECTION 29 PROVIDES THAT THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. WHEN SECTION 29 SPECIFICALLY PROVIDES THAT THERE ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 9 ARE DIFFERENT SECTIONS PROVIDED AFTER SECTIONS 28 AND 29 FOR THE PURPOSE OF COMPUTING PROFITS AND GAINS OF BUSINESS OR PROFESSION, IT MEANS THAT DIFFERENT EXPENSES THAT MAY BE CLAIMED BY AN ASSESSEE SHALL BE CONSIDERED FOR DEDUCTIONS UNDER THOSE RESPECTIVE SECTIONS ARRANGED IN BETWEEN SECTIONS 30 TO 43D. SECTION 36 SPECIFICALLY PROVIDES FOR OTHER DEDUCTIONS ALLOWABLE TO AN ASSESSEE. SECTION 36(1)(III) PROVIDES FOR DEDUCTION OF INTEREST PAID BY AN ASSESSEE. SECTION 37 PROVIDES A RESIDUARY PROVISION FOR DEDUCTING OTHER EXPENDITURE INCURRED IN CARRYING ON OF THE BUSINESS, BUT NOT SPECIFIED ELSEWHERE. ALL THESE THINGS SHOW THAT LAW HAS PROVIDED A COMPREHENSIVE SYSTEM FOR DECIDING WHAT ARE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND HOW PROFITS AND GAINS OF BUSINESS OR PROFESSION WILL BE COMPUTED. WHEN SUCH AN EXHAUSTIVE PROVISION IS MADE IN THE ACT, IT IS NOT POSSIBLE TO HOLD THAT SECTION 28 ITSELF PROVIDES FOR EXPENDITURE AND, THEREFORE, THE ASSESSEE CAN CLAIM THE EXPENDITURE OF INTEREST PAYMENT AS AN EXPENDITURE DEDUCTIBLE AT SOURCE ITSELF UNDER SECTION 28. WE DISAGREE WITH THE LEGAL PROPOSITION LAID OUT BY THE COMMISSIONER OF INCOME-TAX(APPEALS) AND HIS LEGAL CONCLUSION ON THAT POINT IS SET ASIDE. 8. IN VIEW OF THE ABOVE DECISIONS OF THE CO-ORDINAT E BENCHES OF THE TRIBUNAL, WE REVERSE THE IMPUGNED OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS AS PECT. ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 10 THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF MADEVA UPENDRA SINAI (SUPRA) RELIED ON BY THE COUNS EL FOR THE ASSESSEE HAS NO APPLICATION IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IF WE READ THE PROVISION S OF CHAPTER XVII-B READ WITH SECTION 40(A)(IA) OF THE ACT. RELIANCE PLACED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS DECISION OF THE HONBLE SUPREME C OURT IS THEREFORE MISPLACED. 9. WE FIND FROM THE IMPUGNED ORDER THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT DEALT WITH THE ASPECT OF WHETHER THE PROVISIONS OF SECTION 194 C APPLY TO THE HIRE CHARGES PAID BY THE ASSESSEE SO AS TO INVO KE THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ONE OF THE GROUNDS RAISED BY THE ASSESSEE IN THE CROSS OBJECTION IS TH AT THE PROVISIONS OF SECTION 194C HAVE NO APPLICATION TO T HE HIRE CHARGES PAID BY THE ASSESSEE. AS THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT DEALT WITH THIS ASPECT , WE REMIT THIS ISSUE BACK TO THE FILE OF THE COMMISSIONER OF INCOME TAX (APPEALS) TO DECIDE THIS ASPECT OF THE MATTER AFRES H AFTER AFFORDING SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 11 10. AS FAR AS THE CONTENTION OF THE ASSESSEE THAT T HE PROVISIONS OF SECTION 40(A)(IA) HAVE NO APPLICATION ON THE AMOUNTS WHICH WERE ALREADY PAID DURING THE PREVIOUS YEAR IS CONCERNED, WE ARE NOT INCLINED TO ACCEPT THIS SUBMI SSIONS AND WE REJECT THIS GROUND FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIKANDARKHAN N.TUNVAR & ORS. [87 DTR (GUJ) 137], WH EREIN THEIR LORDSHIPS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) COVER NOT ONLY THE AMOUNTS WHICH ARE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH WERE PAID DURING THE END OF THE YEAR, DISAPPROVING THE DECISION OF THE S PECIAL BENCH OF THE TRIBUNAL (VISAKHAPATNAM) IN THE CASE O F MERILYN SHIPPING & TRANSPORTS VS. ADDL. CIT [70 DTR 81 (SB) ]. 11. IN SO FAR AS THE ADDITIONAL GROUNDS IN THE CROS S OBJECTION ARE CONCERNED, AS WE ARE REMITTING TO THE COMMISSIO NER OF INCOME TAX (APPEALS) TO DECIDE THE ISSUE OF WHETHER THE PROVISIONS OF SECTION 194C ARE APPLICABLE TO THE PA YMENTS MADE BY ASSESSEE SO AS TO INVOKE THE PROVISIONS OF SECTION 40(A)(IA) OR NOT, WE ARE NOT ADJUDICATING THE ADDIT IONAL ITA NO.1136/MDS/2013 & C.O.106/MDS/2013 12 GROUNDS. THE ASSESSEE MAY RAISE THE ADDITIONAL GROU NDS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 12. IN THE RESULT, THE APPEAL OF THE REVENUE AND CR OSS OBJECTION OF THE ASSESSEE ARE PARTLY ALLOWED FOR ST ATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, THE 30 TH DAY OF JULY, 2013 AT CHENNAI. SD/- SD/- ( N.S.SAINI ) (C HALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 30 TH JULY, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.