Goraa Overseas, CHENNAI V. DCIT, Tambaram

CO 107/CHNY/2013

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1391 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 2 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 14-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-07-2013
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Keywords: Business income; Retrospective amendment; Question of law
• Section: 43B; 28; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 1220/MDS/2013 AND CO NO.107/MDS/2013 (IN ITA NO.1220/MDS/13) / ASSESSMENT YEAR : 2008-09 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-I, TAMBARAM. APPELLANT) V. M/S. GORAA OVERSEAS, NO.15, 6 TH CROSS CHAMBERS COLONY, CHROMEPET, CHENNAI 600 044. PAN AACFG5593J RESPONDENT/CROSS-OBJECTOR) / APPELLANT BY : SHRI A.B.KOLI, JCIT / RESPONDENT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVOC ATE ! / DATE OF HEARING : 14.10.2015 '# ! / DATE OF PRONOUNCEMENT: 06.11.2015 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE. THE APPEAL AND THE CROSS - - ITA 1220 & CO 107/13 2 OBJECTION ARE DIRECTED AGAINST THE ORDER OF THE COM MISSIONER OF INCOME-TAX(APPEALS) DATED 28.02.2013. 2. THE FIRST GROUND IN THE REVENUES APPEAL IS WITH REGARD TO DELETION OF DISALLOWANCE MADE U/S.40(A)(IA) OF THE I.T.ACT, 1961 ON THE REASON THAT THE EXPENDITURE IS COVERED U/S.2 8 AND NOT COVERED UNDER SECTIONS 30 TO 38. 3. THE CROSS-OBJECTION FILED BY THE ASSESSEE IS IN SUPPORTIVE OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPE ALS) . 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS MADE THE PAYMENTS TO M/S. VASANTHAM CARGO AGENCIES OF ` 14,90,640/- TOWARDS FREIGHT CHARGES, M/S. S.K.LEATHERS OF ` 12,72,881/- AND TO M/S. VIGNESH LEATHERS OF ` 61,980/-, TOTALLING ` 3,34,861/- TOWARDS MACHINERY CHARGES. THE AO DISALLOWED THE A BOVE EXPENDITURE CITING THE REASON THAT THE ASSESSEE FAI LED TO DEDUCT TDS. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 5. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT FREIGH T CHARGES AND MACHINERY CHARGES ARE DIRECT EXPENSES I NCURRED BY THE ASSESSEE IN ITS BUSINESS ACTIVITY AND THE SAID EXPENSES ARE ALLOWABLE U/S.28 AND NOT U/S. 30 TO 38. ACCORDINGL Y, THE - - ITA 1220 & CO 107/13 3 PROVISIONS OF SEC.40(A)(IA) ARE NOT APPLICABLE. WH ILE DEALING WITH THE ISSUE, HE RELIED ON VARIOUS JUDGMENTS INCLUDING THE DECISION OF THE TRIBUNAL IN THE CASE OF TEJA CONSTRUCTION V. ACIT 39 SOT 13 (HYD.) AND CHENNAI C BENCH IN THE CASE OF ACIT V. LAKSHMI JEWELLERY IN ITA NO.2005/MDS/2010 DATED 6.9.2011 A ND DIRECTED THE AO TO DELETE THE ADDITION. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE LD. AR, RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT V. M/S. SHRI BALAJI COMMUNICATIONS IN ITA 1744/MDS/2011 DATED 20.12.2012, WHEREIN IT WAS O BSERVED VIDE PARA 9 & 10 AS UNDER: 9. NOW COMING TO THE CROSS-OBJECTIONS OF THE ASSESSEE, ONE OF ITS CONTENTIONS IS THAT THE PAYMEN TS WERE IN THE NATURE OF DIRECT COST AND SECTION 40(A) (IA) COULD NOT BE APPLIED. LEARNED A.R., IN SUPPORT OF SUCH CROSS-OBJECTION, SUBMITTED THAT HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS V. ACIT (2010) 36 DTR 220, HAD HELD THAT RIGOURS OF SECTION 40(A)(IA) COULD BE APPLIED ONLY WITH REGARD TO CLAI M FOR DEDUCTION UNDER SECTIONS 30 TO 38 OF THE ACT. AN ADDITIONAL GROUND HAS ALSO BEEN TAKEN IN THE CROSS OBJECTION BY WHICH IT IS STATED THAT SECTION 40(A)( IA) WOULD APPLY ONLY ON AMOUNTS STANDING PAYABLE AT THE END OF RELEVANT PREVIOUS YEAR AND NOT ON THE AMOUNT S PAID DURING THE RELEVANT YEAR. LEARNED D.R. DID NO T RAISE ANY OBJECTION TO THE ADDITIONAL GROUND. SUCH ADDITIONAL GROUND IS ADMITTED BEING A PURE QUESTION OF LAW. - - ITA 1220 & CO 107/13 4 10. WE HAVE CONSIDERED BOTH THE AVERMENTS OF THE ASSESSEE. INSOFAR AS RELIANCE PLACED ON THE DECISION OF TEJA CONSTRUCTIONS (SUPRA) IS CONCERNED , THERE THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE REJECTED AND ESTIMATION OF INCOME WAS DONE ON PERCENTAGE BASIS. THE MAIN REASON WHY THE TRIBUNAL HELD INVOCATION OF SECTION 40(A)(IA) WAS NOT CALLED FOR, WAS THAT IT WOULD RESULT IN DOUBLE JEOPARDY. AS PE R THE TRIBUNAL, ONCE THE BOOKS WERE REJECTED, THERE WAS N O QUESTION OF FURTHER INVOCATION OF SECTION 40(A)(IA ) OF THE ACT. IT WAS, IN SUCH CIRCUMSTANCES, TRIBUNAL H ELD THAT EXPENDITURE COVERED UNDER SECTIONS 30 TO 38 OF THE ACT ALONE WERE SUBJECT TO SECTION 40 OF THE ACT . SUCH OBSERVATION OF THE TRIBUNAL CANNOT BE SEEN DIVORCED FROM THE FACTS OF THAT CASE. HERE, BOOKS OF THE ASSESSEE WERE NOT REJECTED. THEREFORE, IN OUR OPINION, THE SAID CASE WOULD NOT HELP THE ASSESSEE IN ANY MANNER. THOUGH SECTION 40 STARTS WITH NON- OBSTANTE CLAUSE NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38.., IN OUR OPINION, THIS WOULD NOT MEAN THAT SAID SECTION IS NOT APPLICABLE ON A DEDUCTION CLAIMED UNDER SECTION 28. WE CANNOT SAY COMPUTATION OF BUSINESS INCOME WILL NOT BE SUSCEPTI BLE TO THE RESTRICTION MENTIONED UNDER SECTION 40 OF TH E ACT, JUST BECAUSE CERTAIN ALLOWANCES CLAIMED WERE OUTSIDE SECTIONS 30 TO 38, ESPECIALLY WHEN BOOKS WE RE NOT REJECTED. HOWEVER, THE ADDITIONAL GROUND RAISE D BY THE ASSESSEE THAT THE RIGOURS OF SECTION 40(A)(IA) ARE ATTRACTED ONLY ON AMOUNTS STANDING PAYABLE AT THE E ND OF THE RELEVANT PREVIOUS YEAR, IS JUSTIFIED IN VIEW OF THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE C ASE OF MERILYN SHIPPING AND TRANSPORT V. ACIT (2012) 16 ITR (TRIB.) 1(SB). HOWEVER, WE MAKE IT CLEAR THAT THE CIT(APPEALS) HAS GIVEN RELIEF TO THE ASSESSEE THAT THE AMOUNTS ARE DIRECT EXPENSE S INCURRED BY THE ASSESSEE IN ITS BUSINESS ACTIVITY AND ARE AL LOWABLE U/S.28. - - ITA 1220 & CO 107/13 5 THERE IS NO BASIS FOR SUCH CONCLUSION AND IT IS NOT BASED ON THE EXAMINATION OF FINANCIAL STATEMENT OF THE ASSESSEE TO HOLD THAT THE CHARGES ARE DIRECT EXPENSES. WE VACATE THAT FI NDING. 7. TO SUPPORT THE DELETION OF ADDITION BY THE CIT(APPEALS), THE LD. AR SUBMITTED THAT IN VIEW OF THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT V. ANSAL LAND MARK TOWNSHIP (P) LTD. IN ITA NOS. 160 & 161/2015 DATED 26.8.2015, SECOND PROVISO TO SEC.40(A)(IA) OF THE ACT IS DECLA RATORY AND CURATIVE IN NATURE AND HAS RETROSPECTIVE EFFECT FRO M 1 ST APRIL, 2005. ACCORDING TO THE ASSESSEES COUNSEL, AS LONG AS PAYEE FILED ITS RETURN OF INCOME DISCLOSING THE PAYMENT R ECEIVED BY AND IN WHICH THE INCOME EARNED BY IT IS EMBEDDED AND HA S ALSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREAT ED AS A PERSON IN DEFAULT. CONSIDERING THIS ARGUMENT ALSO, WE FIND THAT THERE IS NO MATERIAL BEFORE US TO SHOW THAT THE PAY EE HAS FILED ITS RETURN OF INCOME AND OFFERED THE SUM RECEIVED TO TA X. BEING SO, THIS ARGUMENT CANNOT BE UPHELD. FINALLY, THE LD. A R, SUBMITTED THAT THE PROVISIONS OF SEC.194C OF THE ACT CANNOT C OME INTO PLAY WHEN THE PAYMENTS HAVE BEEN MADE TO AGENTS OF A NON -RESIDENT COMPANY AND RELIED ON THE ORDER OF THE KOLKATA BENC H OF THE - - ITA 1220 & CO 107/13 6 TRIBUNAL IN THE CASE OF TAJ LEATHER WORKS V. ACIT ( 52 SOT 228). TO UPHOLD THIS ARGUMENT ALSO, THERE IS NO DETAILS O F NON-RESIDENT COMPANIES WHETHER THEY HAVE ANY PE BUSINESS CONNECT ION IN INDIA OR NOT. WITHOUT BRINGING ANY MATERIAL ON REC ORD, THE ARGUMENT OF THE ASSESSEES COUNSEL CANNOT BE UPHELD . THE SPECIAL BENCH OF THE TRIBUNAL, IN THE CASE OF MERIL YN SHIPPING AND TRANSPORTS V. ACIT (136 ITD 23) (VISAKHAPATNAM) , HELD THAT WHEN THE PAYMENTS ARE NOT OUTSTANDING AS PAYABLE AT THE END OF THE CLOSE OF THE YEAR RELEVANT TO THE ASSESSMENT YE AR, THE PROVISIONS OF SEC.40(A)(IA) CANNOT BE INVOKED. CON SIDERING THE JUDGMENT OF THE SPECIAL BENCH OF THE TRIBUNAL, IN T HE CASE OF MERILYN SHIPPING AND TRANSPORTS V. ACIT (SUPRA), WE ARE INCLINED TO REMIT THE ISSUE FOR FRESH CONSIDERATION. THIS G ROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8. NEXT GROUND IN THE APPEAL OF THE REVENUE IS WITH REGARD TO DELETION OF ADDITION MADE IN RESPECT OF EMPLOYEE S CONTRIBUTION TO PF AND ESI REMITTED WITHIN THE DUE DATE OF FILIN G THE RETURN OF INCOME. IN THIS CASE, THERE IS DELAY IN REMITTANCE OF EMPLOYEES CONTRIBUTION TOWARDS PF & ESI AND THE SAME WAS DISA LLOWED AS IT WAS NOT PAID WITHIN DUE DATE OF FILING THE RETUR N OF INCOME. - - ITA 1220 & CO 107/13 7 HOWEVER, THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE AS IT WAS REMITTED BEFORE FILING OF RETURN OF INCOM E. 9. THE LD. DR, RELIED ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT V. AIMIL LTD. (321 ITR 508). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT SIMILAR ISSUE WAS CONSIDER ED BY THE GUJARAT HIGH COURT IN THE CASE OF CIT V. GUJARAT ST ATE ROAD TRANSPORT CORPORATION (265 CTR 65), WHEREIN THEIR L ORD-SHIPS DISTINGUISHED THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD. (319 ITR 306) CITED BY THE LD. AR, BEFORE US AND OBSERVED AS UNDER: 7.07. NOW SO FAR AS THE RELIANCE PLACED UPON THE DECISION OF THE HONBLEE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA), BY THE LEARNED ITAT A S WELL AS LEARNED ADVOCATES APPEARING ON BEHALF OF TH E ASSESSEE IN SUPPORT OF THEIR SUBMISSION THAT IN VIE W OF AMENDMENT IN SECTION 43B PURSUANT TO FINANCE ACT , 2003, BY WHICH THE SECOND PROVISO TO SECTION 43B HA S BEEN DELETED AND THEREFORE EVEN WITH RESPECT TO EMPLOYEES CONTRIBUTION DESPITE SECTION 36(1)(VA), A ND EXPLANATION TO SECTION 36(1)(VA), IF THE EMPLOYEES CONTRIBUTION IS CREDITED AFTER THE DUE DATE MENTION ED IN THE PARTICULAR ACT BUT CREDITED ON OR BEFORE THE DU E DATE BY FILING RETURN UNDER SECTION 139 OF THE ACT, ASSESSEE SHALL BE ENTITLED TO THE DEDUCTION OF SUCH AMOUNT, IS CONCERNED, ON CONSIDERING THE CONTROVERS Y BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF ALO M - - ITA 1220 & CO 107/13 8 EXTRUSIONS LTD. (SUPRA), THE SAID DECISION WOULD NO T BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE SAID CASE BEFORE ALOM EXTRUSIONS LTD., THE CONTROVERSY W AS WHETHER THE AMENDMENT IN SECTION 43B OF THE ACT, VI DE FINANCE ACT, 2003 WOULD OPERATE RETROSPECTIVELY W.E .F. 1/4/1988 OR NOT. IT IS ALSO REQUIRED TO BE NOTED TH AT IN THE CASE BEFORE THE HON'BLE SUPREME COURT, THE CONTROVERSY WAS WITH RESPECT TO EMPLOYERS CONTRIBUTION AS PER SECTION 43(B)(B) OF THE ACT AND NOT WITH RESPECT TO EMPLOYEES CONTRIBUTION UNDER SECTI ON 36(1)(VA). BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA) THE HON'BLE SUPREME COURT HAD NO OCCASION TO CONSIDER DEDUCTION UNDER SECTION 36(1)(VA) OF THE ACT AND WITH RESPECT TO EMPLOYEES CONTRIBUTION. AS STATED ABOVE, THE ONLY CONTROVERSY BEFORE THE HON'BLE SUPREME COURT WAS WITH RESPECT TO AMENDMENT (DELETION) OF THE SECOND PROVISO TO SECTION 43(B) OF THE INCOME TAX ACT, 196 1 BY THE FINANCE ACT, 1963 OPERATES W.E.F. 1/4/2004 O R WHETHER IT OPERATES RETROSPECTIVELY W.E.F. 1/4/1988 . UNDER THE CIRCUMSTANCES, THE LEARNED TRIBUNAL HAS COMMITTED AN ERROR IN RELYING UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ALOM EXTRUSION S LTD. (SUPRA) WHILE PASSING THE IMPUGNED JUDGEMENT AND ORDER AND DELETING DISALLOWANCE OF THE RESPECTI VE SUMS BEING EMPLOYEES CONTRIBUTION TO PF ACCOUNT / ESI ACCOUNT, WHICH WERE MADE BY THE AO WHILE CONSIDERING THE PROVISO TO SECTION SECTION 36(1) (V A) OF THE INCOME TAX ACT. THEREAFTER, THE ISSUE WAS DECIDED AGAINST THE ASSES SEE BY THE THE CO-ORDINATE BENCH OF THE TRIBUNAL AT COCHIN IN THE CASE OF ACIT V. SFO TECHNOLOGIES P. LTD. IN ITA NO.454/COCH /2014 DATED 9.1.2015, WHEREIN IT WAS HELD IN PARA 8 AS FO LLOWS: 8.00. IN VIEW OF THE ABOVE AND FOR THE REASONS STA TED ABOVE, AND CONSIDERING SECTION 36(1)(VA) OF THE INC OME - - ITA 1220 & CO 107/13 9 TAX ACT, 1961 READ WITH SUB-CLAUSE (X) OF CLAUSE 24 OF SECTION 2, IT IS HELD THAT WITH RESPECT TO THE SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYEES TO WHICH PROVISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF SECT ION (2) APPLIES, THE ASSESSEE SHALL BE ENTITLED TO DEDUCTIO N IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 WITH RESPECT TO SUCH SUM CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE MENTIONED IN EXPLANATION TO SECTION 36(1)(VA). CONSEQUENTLY, IT IS HELD THAT THE LEARNED TRIBUNAL HAS ERRED IN DELETING RESPECTIVE DISALLOWANCES BEING EMPLOYEES CONTRIBUTION TO PF ACCOUNT / ESI ACCOUNT MADE BY THE AO AS, AS SUCH, SUCH SUMS WERE NOT CREDITED BY THE RESPECTIVE ASSESSEE TO THE EMPLOYEE S ACCOUNTS IN THE RELEVANT FUND OR FUNDS (IN THE PRES ENT CASE PROVIDENT FUND AND/OR ESI FUND ON OR BEFORE TH E DUE DATE AS PER THE EXPLANATION TO SECTION 36(1)(VA ) OF THE ACT I.E. DATE BY WHICH THE CONCERNED ASSESSEE W AS REQUIRED AS AN EMPLOYER TO CREDIT EMPLOYEES CONTRIBUTION TO THE EMPLOYEES ACCOUNT IN THE PROVI DENT FUND UNDER THE PROVIDENT FUND ACT AND/OR IN THE ESI FUND UNDER THE ESI ACT. CONSEQUENTLY, ALL THESE APPEALS ARE ALLOWED AND THE IMPUGNED JUDGEMENT AND ORDERS PASSED BY THE TRIBUNAL IN DELETING THE DISALLOWANCES MADE BY THE AO ARE HEREBY QUASHED AND SET ASIDE AND THE DISALLOWANCES OF THE RESPECTI VE SUMS WITH RESPECT TO THE PROVIDENT FUND / ESI FUND MADE BY THE AO IS HEREBY RESTORED. THE QUESTIONS RAISED IN PRESENT APPEAL ARE ANSWERED IN FAVOUR OF THE REVENUE. WITH THIS, ALL THESE APPEALS ARE ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL, WHEREIN, PRESENT AUTHOR IS ALSO THE AUTHOR OF THAT ORDER, WE ARE INCLINED TO DECIDE THE ISSUE AGAINST THE ASSESSEE. 11. SINCE WE HAVE DECIDED THE ISSUES RAISED BY THE REVENUE - - ITA 1220 & CO 107/13 10 REGARDING DISALLOWANCE U/S.40(A)(IA) AND EMPLOYEES CONTRIBUTION TO PF/ESI AND THE APPEAL OF THE REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES, THE CROSS-OBJECTION IS ALSO P ARTLY ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E CROSS OBJECTION OF THE ASSESSEE ARE ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 06 TH OF NOVEMBER, 2015 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 06 TH NOVEMBER, 2015. MPO* 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.